EXHIBIT B

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1 IN THE UNITED STATES DISTRICT COURT

2 FOR THE NORTHERN DISTRICT OF CALIFORNIA

3 ---------------------

4

5 FEDERAL TRADE COMMISSION, )

6 Plaintiff, )

7 vs. ) Case No.

8 QUALCOMM, INCORPORATED, ) 5:17-cv-0220-LHK-NMC

9 Defendant. )

10 --------------------------)

11

12 Saturday, August 4, 2018

13

14 825 Eighth Avenue

15 New York, New York

16

17 The above-entitled matter came on for the deposition of

18 EDWARD SNYDER, pursuant to notice, at 9:10 a.m.

19

20

21

22

23

24

25

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1 trying to get at here, that it's really the second step

2 that, in my view. Plaintiff's hypothesis should be

3 evaluated on, in addition to stating that there are

4 these particular anticompetitive harms, do they also

5 correspond to harm to competition and do they lead to

6 harm to competition. And that -- again, that's a

7 relevant issue given the timeframe here. This is this

8 -- this is a context where one can evaluate and take

9 that second step.

10 Q. And what's the basis for your position that the

11 harm to competition issue is relevant for this

12 assignment?

13 A. Separate from whether any individual claimed

14 case of harm to a competitor is anticompetitive or not,

15 my understanding as an economist is that one needs to

16 evaluate whether those harms actually end up harming

17 competition, accumulate to a point where there's an

18 impairment of overall competition. So that's my

19 understanding.

20 Q. Was there any other basis for your

21 understanding?

22 A. Well, that understanding comes from, you know,

23 having worked at the antitrust division and been

24 involved in antitrust policy for a long time. You

25 know, there -- there are many observations to make here

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1 in the course of competition, there are going to be

2 winners and losers. There's going to -- there's going

3 to be firms that secure contracts and there are going

4 to be firms that don't secure contracts. One needs to,

5 in my view as an economist, go beyond that observation

6 or those kind of observations to get at whether those

7 -- that winning and losing, securing contracts or not

8 securing contracts actually leads to an effect on

9 overall competition.

10 Q. Going back to that Section B of your statement

11 in footnote 26. How do you measure whether industry

12 performance was impaired?

13 A. Well, that was one of the five major work

14 streams that I did and that's reflected in the section

15 on long-run industry performance. So I evaluated

16 things that would be indicators of impaired

17 competition. Those include price effects, output

18 effects, innovation effects and investment effects, all

19 with a focus on the long-run performance.

20 Q. And are these measurable metrics by which you

21 analyze impairment to industry performance?

22 A. Well, one can identify metrics for industry

23 performance, those are -- can be measured with varying

24 degrees of accuracy, so that's empirical. I think your

25 question, however, went to how does one know whether

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1 what you see is impaired or not, and that's -- I

2 appreciate a more difficult question. What my analysis

3 does, clearly, is establish that there's no obvious or

4 clear basis for saying that industry performance in

5 this industry was impaired.

6 It's extraordinary. So then the -- then the

7 question is, well could it have been yet better. And I

8 appreciate that that is an argument that one could make

9 but what to me is relevant is that contrasts with a --

10 with the insight from an analysis of long-run

11 performance where there are indicators that the

12 industry is not performing well on any of those

13 dimensions that I identified earlier. That would be a

14 different, different basis or different set of insights

15 from the long-run industry analysis. In some cases,

16 long run put differently. In some cases long-run

17 industry performance could -- you could evaluate it and

18 say, see here's a problem, there's something that

19 bothers -- should bother us in terms of investment or

20 innovation or price drenching or output. I don't see

21 any of that here. It still leaves --and this goes back

22 to your question -- that there's a possibility that

23 could have been yet more superior.

24 Q. So for example, in paragraph 23 of your report,

25 you state that if your analyses indicate strong

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1 performance then the industry factors' hypothesis is

2 supported; is that correct?

3 A. Yes.

4 Q. So what do you mean by strong performance?

5 A. Well, I'm just referring to my exhibits that

6 correspond to a section in my report, section five that

7 deal with output, globally handset chip-ments, the

8 number of CDM modem chip suppliers by year, indicators

9 of performance in terms of peak download data rates,

10 numbers of suppliers supporting various types of

11 technologies CDMA, WCDMA, LTE and then it continues in

12 section six, down link, up link speeds, average mobile

13 connection speeds, total traffic. These -- these

14 indicators show that industry output has increased

15 quality of products, has increased in terms of what

16 they can do in terms of transmission speeds. And then

17 the last slide in section six deals with average price

18 for modem chips by standard and prices are falling.

19 Q. So is it fair to say that you're measuring

20 industry performance by these metrics that you just

21 mentioned, the number of CMA suppliers, the peak down

22 link data rates, the number of suppliers for the

23 various standards? Basically all the metrics that are

24 represented in the exhibits to section five?

25 A. Five and six.

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1 Q. Five and six.

2 A. And there may be some other things that I would

3 cite to in my report. For example, the investments by

4 individual firms and you can total those up over time.

5 But correct, is the short answer. The ones that you

6 just mentioned are central to that analysis.

7 Q. And so is your position that if performance in

8 these categories is strong, then there was no harm?

9 A. These categories, as I said earlier, the more

10 individual firm are indeed analyses I don't want to

11 leave completely behind. But going to your question,

12 the way I think about this work stream is twofold:

13 Plaintiff's hypothesis is that there are -- that the

14 conduct causes anticompetitive harms. What the

15 long-run performance does is allow an economist to say,

16 do those add up to bad performance overall. And what I

17 view -- my conclusion is, the answer is nothing

18 obvious. There's no obvious impairment of overall

19 competition. So that's -- that's how I think about it.

20 It's also in some sense a check on the

21 Plaintiff's hypothesis. Would you expect to see this

22 performance given the Plaintiff's claims. I just

23 realized maybe these are two -- these two things are

24 the same. But that's how I think about it.

25 Q. So if -- if you conclude that there's no

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1 obvious impairment of competition, does that lead you

2 to conclude that there was no competitive harm?

3 A. Well, I think that's a fair -- that's a fair

4 question. But not only is there not an obvious

5 impairment to competition, I think anybody would look

6 at this and say it's excellent performance and there

7 are other indicators, obviously, the success of Apple,

8 the amount of time we spend on our devices, et cetera,

9 the more connected that we are. But it's not just

10 nothing obvious that's negative, it's anyone looking at

11 this industry would say this has been extraordinary and

12 there's no indication that there's been any slow down

13 in the movement to next generation technology, slow

14 down in releases within generation, there's no

15 indication of -- or claim as far as I'm aware of from

16 Professor Shapiro that 5G is being slowed down. So it

17 goes beyond, I think, just no obvious impairment. It

18 goes to very strong performance. I think what I'm

19 trying to acknowledge though is, is this absolutely the

20 only way to rule out the Plaintiff's hypothesis, no. I

21 think it's a legitimate point that if one acknowledges

22 that performance has been excellent, it still leaves

23 the potential for, well maybe it could have been yet

24 better. I -- I think that's a fair point and Professor

25 Shapiro, I think, makes that point. That's fine. But

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1 that's, again, forgive the -- forgive the long

2 answer -- that's different from saying I see something

3 that looks askew. So I think -- I think there's a lot

4 of value in doing this but it's still, as I said,

5 leaves some room to say it could have been yet better.

6 Q. And if your analysis of the industry show that

7 performance could have been even better what -- would

8 that change your conclusions?

9 A. If there was an objective way to say here's how

10 it could have been better, 5G could have been earlier,

11 there could be even more value to ultimate consumers.

12 I'd want to look at that. I don't have anything that

13 has been offered, to my knowledge, that would indicate

14 the nature of those "it could have been better claims,"

15 so I'd want to give myself the opportunity to evaluate

16 those things.

17 Q. And if you found objective indicators that the

18 industry could have, in fact, been better, would you

19 conclude differently with respect to competitive harm?

20 MR. RYAN: Objection to form.

21 A. The way I would approach that would be to say

22 okay now there's some additional claims that in some

23 way industry performance could have been better. I'd

24 want to evaluate those claims. I'd also want to

25 connect them to the types of anticompetitive harms that

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1 the Federal Trade Commission identified and that

2 Professor Shapiro identified and see if there's some

3 logical relationship between the two. I acknowledge

4 that proving that increment or disapproving that

5 increment is difficult but I'd want to -- I'd want to

6 be careful to evaluate that claim before I reached any

7 conclusion.

8 Q. So does that mean there could be a circumstance

9 where there was an objective indicator that the

10 industry performance could have been better and yet you

11 would still conclude that there was no competitive

12 harm?

13 A. Well, I'd want to check it out. I think the --

14 yes, if there's something that can be pointed to that

15 says here's where industry performance fell short, I

16 think it would be in support of the Plaintiff's

17 hypothesis. I agree with that.

18 And that -- sorry for the -- I tend to give

19 long answers, feel free to cut me off. But I think

20 that could be either in terms of well here's a

21 reduction, an output or here's a price increase that

22 indicates that increment. Or it could have been prices

23 came down but they could have come down faster. So I

24 would allow for both.

25 Now obviously, in this context, it's got to be

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1 more of the second but I think your -- to be fair to

2 the testing, one has to acknowledge that this is a

3 check and for it to have any explanatory power it has

4 to be the case that there are some things that one can

5 find that leads you to say this does support the

6 Plaintiff's hypothesis.

7 Q. In section -- excuse me, in paragraph 20 of

8 your report, you introduce the industry factor's

9 hypothesis and you state that according to the industry

10 factors' hypothesis, relevant industry factors explain

11 the structure of the industry at any point in time, the

12 relative success and failure of modem chip suppliers,

13 industry changes and observed entry and exit

14 decisions." Do you see that?

15 A. Yes.

16 Q. And when you refer to relevant industry

17 factors, what specifically are you referring to?

18 A. These are factors that come out of industrial

19 organization principals. What I refer to when I get

20 into the industry section as neoclassical factors,

21 economies of scale or economies of scope, there's some

22 things that are, I think, more modern industrial

23 factors in this context that should be considered. The

24 potential that suppliers who secure certain contracts,

25 get certification or reputational benefits from those

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1 contracts, what was referred to, I believe, by

2 Professor Shapiro and others as a halo effect, that's a

3 relevant industry factor. Learning is a relevant

4 industry factor. So when a firm has a contract and

5 they produce, they learn as they go. Obviously, an

6 important industry factor concerns the transaction

7 costs associated with developing relevant information,

8 transferring relevant information and the -- and also

9 the transaction costs of making specific investments.

10 And those investments are made by both suppliers and

11 other industry participants, including OEMs. So I

12 didn't give a complete list but it's -- these are

13 industry factors that come out of industrial

14 organization principals. I became more knowledge -- as

15 I became more knowledgeable about the industry, I was

16 able to get additional insights. For example,

17 concerning investment, which is a standard industry

18 factor and I can explain that if you want as well.

19 Q. When you say as you became more knowledgeable

20 of the industry, are you referring to over the course

21 of your time working on this case?

22 A. Correct.

23 Q. Are the industry factors that you just

24 articulated encapsulated in the three factors that you

25 discuss in your report, the foresight, investment

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1 efficiency and execution?

2 A. That's a good question. I wanted to do

3 something that could be distilled and tested. These

4 factors, however, don't explain the industry overall,

5 so, for example, scale is an influence on industry

6 structure. For example, the increase concentration at

7 the OEM level in premium mobile devices, that's another

8 factor that influences the structure of the industry.

9 Q. Uh-huh.

10 A. So I don't want to leave those kind of things

11 behind when understanding the industry. That said,

12 when it comes time to test particular claims of the

13 anticompetitive harm concerning, for example, exit or

14 inability of a firm to win a particular contract, the

15 more distilled factors, foresight investment and

16 execution, are things that I can use to better

17 distinguish between the two hypotheses.

18 Q. So if you're looking it at the overall effect

19 on the modem chip industry, how do you know what weight

20 to assign to that the firm level factors, the three

21 factors; foresight, investment and execution, versus

22 other factors?

23 A. Well, that's a good question. I think that if

24 I could put it in terms of the following to answer the

25 question: There are some industry factors that are

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1 going to explain major trend.

2 We've got some noise in the background, I

3 apologize. I'm trying to figure out what it is.

4 So, for example, I mentioned transaction costs

5 associated with specific investments and knowledge and

6 other kinds of specific investments. As those grow,

7 you're going to tend to move in any industry, and this

8 is well-known from IO principals, you're going to tend

9 to move away from arms length kind of sales towards

10 contracting -- towards contracting in the context of

11 longer term relationships, doesn't mean they can't be

12 and but this is the -- the relational contracting view

13 to vertical integration and vertical integration has

14 some differences as well in terms of, well is it going

15 to be internal supply only, no sales outside no

16 purchases from others. In this industry there are

17 industry dynamics that are leading firms and other

18 industry participants to organize more towards

19 long-term contracting and vertical integration with

20 especially in the context of high-end devices, both

21 high-end modem chips an high-end handsets. So that

22 would be something that would inform the overall

23 pattern of what is the evolving industry structure, how

24 is it different between high end and low end? I'll

25 pause there but I'm trying to give you an indication of

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1 extent that the industry factors do explain the

2 outcomes then basic social science principals tells one

3 that the alternative hypothesis is not the source of

4 the explanation. Doesn't cause the outcomes.

5 Q. Does the statement that we just read in

6 paragraph 23 assume that the at-issue conduct doesn't

7 effect the firm level factors?

8 A. Oh, I think I understand your question. Are

9 there some -- is there endogeneity of the firm factors?

10 No, I identified the industry factors that I believed

11 would be not influenced by the conduct, and I can go

12 into more detail about that, but the importance of

13 investment, the importance of where to make those

14 investments, what specific investments to make in terms

15 of products and customer relationships, there are many

16 strategic forks in the road. Those would -- all of

17 that would be present with or without the conduct. I'm

18 giving an example.

19 Q. Uh-huh.

20 A. I am not giving the whole waterfront but I

21 think you're asking, am I then saying that the conduct

22 is going to influence the influential character of the

23 investment. The short answer to that is no.

24 Q. And what's the basis for your assumption?

25 A. It's not an assumption. My application of

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1 license other chip set suppliers?

2 A. My recollection is that Professor Shapiro, when

3 he evaluate MediaTech, he focused on that. So it's

4 very similar answer to what I gave before, that he

5 stated that that negatively effected MediaTech. I can

6 check it if I were to find his report. I might be able

7 to also look for reference to it in my report, if you

8 would like.

9 Q. I guess what I'm asking is more towards your

10 methodology in approaching your assignment. Did you

11 perform a test where you isolated just that portion of

12 the conduct at-issue, the refusal to license and looked

13 at the effects caused, if any, by that?

14 A. No, I didn't do that because I didn't need to

15 for my analysis. I took the anticompetitive harms that

16 Professor Shapiro claimed were the result of the

17 conduct as a whole. In some cases he was, I think,

18 more specific in identifying which component of the

19 conduct was more relevant to that particular outcome,

20 but I -- my assignment was to then evaluate those cited

21 outcomes and I developed a weight as indicated to test

22 the validity of the claim that those were explained by

23 Plaintiff's conduct claims. Of course, I also

24 evaluated a broader body of evidence, but with respect

25 to your question, I followed Professor Shapiro. And it

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1 wasn't necessary for my assignment to break it down.

2 To the extent that he did, you could probably draw some

3 more specific inferences, but that wasn't my assignment

4 and I'm not offering an opinion along the lines of

5 toggling particular conduct.

6 Q. And why don't you think it was necessary to do

7 that for your assignment?

8 A. Professor Shapiro and Plaintiff make claims

9 that the body of conduct, the set of three or four, I

10 can't remember how it was characterized in the

11 complaint, but three components led to anticompetitive

12 harms. It's important to not just associate

13 anticompetitive harms as alleged to the conduct. My

14 assignment, and I think it's critically important, is

15 to then pursue whether there are alternative

16 explanations for that conduct. Excuse me, not for that

17 conduct, I meant to say those outcomes. That's the

18 focus of what I did.

19 Q. And when you were looking at the effects, if

20 any, of Qualcomm's conduct as a whole, you were looking

21 at the historical actual performance of the various

22 modem suppliers; is that correct?

23 A. Could -- I might have misheard, I just want to

24 make sure I answer your question. Could you repeat the

25 question, please?

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1 establishes that the industry factors are explaining

2 outcomes. Basic social science principals then, to me,

3 should be applied and say there's not anything to be

4 explained that's leftover could be caused by. So that

5 conceptual exercise, to me, doesn't make sense.

6 At the more granular level, I look at the

7 implications of the two hypotheses and evaluate the

8 facts and that's another relevant test, long-run test.

9 But I think what you're asking is something else, which

10 is did I go through some exercise of turning the

11 conduct off, and conceptually Professor Shapiro did

12 that, but he didn't do what I did which was to then

13 evaluate the fact that the industry factors would still

14 be relevant. So I did it as best as I could, given the

15 -- what Professor Shapiro had done, which was simply

16 associate conduct and outcome.

17 Q. So you say that conceptually Professor Shapiro

18 turned the conduct off. I'm just trying to understand

19 whether you did that, did you turn the conduct off?

20 MR. RYAN: Objection.

21 A. So Professor Shapiro turned the conduct off

22 conceptually but not in a way that is appropriate given

23 the need to preserve the industry factors. So I did

24 what he did plus the second step which is, in my

25 opinion, required for a proper counterfactual.

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1 Q. When you say you did what Professor Shapiro

2 did, are you saying that you looked at a scenario where

3 you turned off Qualcomm's conduct?

4 A. Yes, by focusing on the explanatory power of

5 the industry factors without the -- with or without the

6 conduct.

7 Q. But in your report, do you have a section that

8 illustrates what the outcome would have been in the

9 absence of Qualcomm's conduct?

10 A. My opinion is that all of the cited

11 anticompetitive harms were not anticompetitive harms

12 and they would be the same with or without the conduct.

13 That's my overall conclusion. I don't have any -- I

14 cannot identify any outcome cited by Professor Shapiro

15 that was caused by the conduct.

16 Q. I think I understand what you're saying. I

17 understand your conclusion that the outcomes would have

18 been the same with or without the conduct, right, is

19 that your conclusion?

20 A. That is. And I think your questions go to a

21 potential scenario that could have -- that I could have

22 encountered. I could have encountered a situation

23 where, ah, I see an outcome, industry factors don't

24 explain it. Therefore, I need to evaluate the

25 Plaintiff's hypothesis as the next logical step and

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1 then do the turning on and off that you just described.

2 So conceptually, I agree with you, if I had found

3 something like that that was not explained by the

4 industry factors' hypothesis, then at that conceptual

5 level I'd go and say well let's evaluate the

6 Plaintiff's hypothesis and do that toggling of the

7 conduct. I didn't get to that step because in applying

8 the first step, I explained all of these outcomes that

9 were cited as anticompetitive harm.

10 MS. IKEDA: Do you want to take a break? Why

11 don't we take a five-minute.

12 MR. RYAN: Yes.

13 THE WITNESS: Great. Thank you.

14 THE VIDEOGRAPHER: The time is 11:27 a.m. and

15 we're going off the record.

16 (A recess was taken.)

17 THE VIDEOGRAPHER: This begins media unit

18 number three. The time is 11:46 a.m. and we are back

19 on record.

20 Q. In our earlier discussion you -- you referenced

21 your findings on the explanatory power of industry

22 factors. Did you do any empirical analysis to confirm

23 your findings on that?

24 A. I have maybe a broader view of empirical

25 analysis. Sometimes people mean statistical regression

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1 but I think of empirical as just relating to facts, so

2 in my mind the answer is yes. You asked questions

3 about are these observable outcomes, yes, they're

4 facts. They're actual industry outcomes and I assess

5 them in section seven one by one in the context of my

6 critique of Professor Shapiro.

7 Q. Did you analyze data from the various chip

8 suppliers to confirm your analyses?

9 A. I did. So for example, I think I provided the

10 most comprehensive data on investments and various ways

11 -- I shouldn't say in various ways. Measured in

12 various ways. I also conducted an empirical inquiry

13 into the number of chip suppliers and their

14 relationships to OEMs. And again, I analyzed that in

15 different ways. I'm putting aside the long-run

16 performance which you already asked me about, the time

17 series on various indicators of performance.

18 Q. Did you conduct any statistical analyses?

19 A. Only time series. If you mean by statistical

20 test, no. In fact, I shouldn't even put in the

21 qualification. I'm presenting the information and I'm

22 checking it against a very basic hypothesis, do I see

23 impairment, for example, in the long-term context. In

24 terms of the testing, a lot of the tests involve

25 particular events, which don't lend themselves to

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1 statistical testing like an exit decision by Broadcom.

2 Q. We talked earlier about your view that -- and

3 correct me if I'm wrong -- that Qualcomm's conduct

4 didn't effect the firm level factors. This goes back

5 to the endogeneity of the firm level factors. If that

6 were wrong, if -- in, in fact, Qualcomm's conduct did

7 effect the firm level factors, would that change your

8 analysis?

9 MR. RYAN: Objection.

10 A. I'm not aware of any claim by plaintiffs that

11 relate to that, that Qualcomm's conduct made investment

12 more or less important. Increased the importance of

13 foresight, et cetera. So it's hard for me to evaluate

14 that. I don't think Professor Shapiro made that claim.

15 I don't recall anything in the complaint along those

16 lines.

17 Put differently, it was -- given industry

18 characteristics, given the industry in which this

19 conduct took place, the conduct caused particular

20 outcomes. And I've identified what those are and so I

21 didn't have anything to go on in that front. I would

22 be happy to analyze a claim that the conduct effected

23 industry characteristics but there are so many to say

24 -- this may go beyond what you wanted me to answer --

25 this industry analysis, to me, in compelling fashion,

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1 identifies factors that are going to be highly

2 influential. This is one of the most challenging

3 investment environments I've ever seen, given the shift

4 from generation to generation, the convergence towards

5 a particular generation, the divergences. The

6 potential directions that individual firms can go in

7 terms of getting to the next generation, the different

8 families that Professor Shapiro relates to the new

9 releases, the customization. I don't see anyway on its

10 face that the conduct is going to change the degree of

11 difficulty on the investment front. It's already

12 extremely challenging.

13 Similarly, with foresight, similarly with

14 execution, there are a lot of examples of both good and

15 bad execution in the industry given that range of

16 difference in execution ability, it's hard to see any

17 argument at all actually, there's, I think, more about

18 it that execution is going to go away. Could it have

19 some effect? I guess I haven't thought about it given

20 the lack of claim by Plaintiff or Professor Shapiro.

21 Q. So separately from the question of whether

22 Qualcomm's conduct did effect these firm level factors,

23 I am asking, if it were the case that just take as a

24 give that Qualcomm's conduct did effect modem chip

25 suppliers, foresight, their investment decisions and

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1 their execution, how, if at all, would that change your

2 analysis?

3 MR. RYAN: Objection.

4 A. I don't have an opinion about that given I

5 haven't seen any evidence that would indicate the

6 nature of that relationship. I don't want to repeat

7 the last question, but I'll refer back to it. And I

8 haven't seen any claim by the Federal Trade Commission

9 or Professor Shapiro about that relationship or

10 potential relationship. So I haven't thought about it

11 given I haven't seen it raised by plaintiff or

12 Professor Shapiro and given my assessment of the

13 industry I don't see how it would work how it would be

14 influenced. I don't want to completely rule it out

15 because I haven't encountered an argument along those

16 lines.

17 Q. You may have already answered this but to what

18 extent, if any, do you believe that Qualcomm's conduct

19 effected modem chip suppliers' low margins or exits?

20 A. In each of the cases cited by Professor Shapiro

21 there's a non conduct explanation that is compelling.

22 And that's my conclusion.

23 Q. So are you saying Qualcomm's conduct had no

24 effect on the rivals' outcomes?

25 A. In the cases that Professor Shapiro cited where

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1 he specifically cited low margins, I don't see any

2 effect of the conduct. On what he claims are low

3 margins. His analyses in the case of MediaTech, I

4 won't go through that again, there are obviously

5 examples of firms that have a lot of investment

6 resources, you know, turning them -- turning to them

7 where there's no apparent lack of investment resources.

8 You take Intel. Huge investment resources, a

9 willingness to, for better or for worse, to try a lot

10 of different things. Texas Instruments, big investment

11 capability but not particularly interested in the

12 software part. So I don't see any, based on my

13 analysis, and in particular in the examples cited by

14 Professor Shapiro.

15 Q. So there's no case in which you found that

16 Qualcomm's conduct had some effect but not enough to

17 make a difference? Your conclusion is that there was

18 no effect from Qualcomm's conduct?

19 A. Every outcome that I looked at was explained by

20 the industry factors, which would be present with or

21 without the at-issue conduct. So that ends my

22 analysis. As I said earlier, if I had found outcomes

23 that were not explained by the industry factors, I

24 would have gone to that next step.

25 Q. So I understand your conclusion that the

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1 industry factors explain the outcomes. I just want to

2 make sure that I understand your conclusion on the

3 impact of Qualcomm's conduct. Is it -- if you were to

4 quantify it, is it zero percent attributable to

5 Qualcomm's conduct?

6 A. In terms of reliable economic analysis, it's

7 zero. There's no basis. I didn't see it in Professor

8 Shapiro's reply report where he went beyond my

9 analysis, but that's really, I'd say for him to answer,

10 or Plaintiff to make that argument. I'm not a lawyer

11 but I've presented my conclusion. It got me to this

12 point where I see the industry factors as explaining

13 the outcomes. If -- if Plaintiff or Professor Shapiro

14 wants to say, no, there's something left to be

15 explained, then I understand that. I understand the

16 line of questioning but I'm trying to be clear on what

17 I did and why I didn't encounter or how I did not

18 encounter the kind of evidence that you're saying would

19 have prompted me to then take that next step.

20 Q. And when you say the outcomes are explained by

21 the industry factors, does that -- are you just saying

22 that the outcomes are consistent with industry factors?

23 A. No, it's stronger than that. I think when you

24 identify execution problems by various firms, such as

25 ST-Ericsson or Broadcom, it's more than consistent

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1 with. You cannot succeed in this business if you have

2 execution problems. The other example I would say

3 would be Intel, that they they -- they chose to invest

4 in things such as WiMAX that did not account for --

5 well, I won't offer a judgment. I'll just point out

6 instead that the success of those specific investments,

7 required investments by others, such as carriers. That

8 didn't work-out. So that's one of the issues with

9 Intel. But going back to your question, is it just

10 saying it's consistent with. No, it has real

11 explanatory power. Because they focused on that,

12 because they approached their chip integration in a

13 particular way, that had consequences. It could have

14 turned out well but it didn't and you can trace it back

15 directly to the choices that they made, which is

16 another way of capturing the influence of foresight and

17 investment.

18 Q. Under what circumstances would you find that

19 Qualcomm's conduct did, in fact, cause rivals' low

20 margins exits?

21 A. Yes. So if there was a candidate supplier out

22 there who had done a good job in terms of investment,

23 and one could build that out a little bit more in terms

24 of, well, they engaged customers. They were good at

25 getting feedback. They were focused on investment --

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1 excuse me, they focused investments in areas where

2 there was high likelihood of success, and to the extent

3 that they didn't they cut their losses quickly.

4 Essentially, made good decisions. They exercised good

5 foresight, made good investments and developed the

6 capability to bring these to market. They don't have

7 to be first. They don't have to be on the leading edge

8 or the, sometimes it's called the bleeding edge. But

9 if they had a strategy and they executed it, that may

10 have, as I indicated, different implications for what

11 margins they would get, depending on the strategy. But

12 if they had -- if you found some firm that had done

13 these kinds of things and then say they exited despite

14 good foresight investment and execution, that would be

15 a candidate for saying looks like it's not industry

16 factors and then, exactly per your earlier questions,

17 then I would turn to what's the power of the

18 Plaintiff's hypothesis in explaining this outcome. But

19 that's the kind of scenario where the industry factors'

20 hypothesis would fail.

21 Q. Would they have to be good in all three

22 categories or two of the three?

23 A. So the short answer is, yes. You have to be

24 good in each because I think of this as starting with

25 investment. That's how concept -- I mean, that's

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1 literally how I started the development of this

2 hypothesis, it's an investment intensive industry. I

3 don't want to repeat myself about what makes this

4 investment intensive industry so distinctive in terms

5 of the character of the investment, the dimensions of

6 investment, customization, particular performance

7 features, overlapping generations, competing families,

8 this is a -- this is a complex investment environment,

9 industry environment, hence the foresight. So, yeah,

10 definitely need investment. You definitely need

11 foresight but the analysis of the industry also points

12 to if a major OEM or even a medium tier OEM is going

13 to, pardon me, entertain you as a supplier, you also

14 have to be good at execution. It can't be just, well I

15 have enough of this to sell for some period of time but

16 I can't cover all of your needs. I don't mean all of

17 your needs in terms of self-sourcing, but given, you

18 know, that they are documented costs of having lots of

19 different suppliers for the same socket. In that

20 environment, all three are important. And you cannot

21 say, well I don't want -- I don't need investment. I

22 don't -- I don't have to have foresight. I don't have

23 to have execution. I do think you're right in saying

24 or asking the question, is it one out of three or two

25 out of three or three out of three. The -- the record

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1 the complexity, I thought, was striking. So we now

2 have foresight and investment in place, in terms of the

3 development of the hypothesis. And then the third was

4 execution and there's a lot of discussion about first

5 to market, there's also discussion around first mover

6 advantages. Just to be clear, I'm not talking just

7 about that when I focus on execution. It certainly

8 implicates those things but going to market, either

9 first or nearly first or even with a follower approach,

10 still requires execution and a couple of the important

11 components of execution are being able to deliver

12 sufficient quantities of a chip and another is quality.

13 So that ended up being important because, as I better

14 became aware of the -- the determinants of industry

15 success and individual firm success, it became clear

16 that execution was important from the point of view of

17 the OEM making the decision. And exactly what

18 execution means, it depends, in part, it should be

19 answered by what does the OEM require. So Samsung, for

20 example, they have different requirements for different

21 -- for given their broad range of products. Apple's

22 product offerings are much more limited and much more

23 -- not much more -- clearly all high end products,

24 premium products. So the OEM point of view has to be

25 taken into account in understanding execution. A firm

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1 may be able to execute for some products and not for

2 other products. A firm may be able to execute for some

3 OEMs and not other OEMs.

4 Q. So if I heard you correctly, did you come up

5 with this three-factor hypothesis specifically for this

6 case, as you were looking at the industry?

7 A. Well, the industry analysis informed the

8 broader view of the industry that you had several

9 questions about it this morning in terms of what's

10 going to determine the, in the end, number of seats

11 that a particular OEM has available, or slots to be

12 more precise, and there are implications of the fact

13 that the investment efforts required are getting

14 greater in dollar value and they are there are also

15 implications that these investments have specific

16 components, meaning they're for specific products that

17 can be customized, et cetera. So I don't want to leave

18 behind the other things that come out of the IO

19 analysis and my industry analysis, but I think I -- my

20 answers earlier in the day were intended to explain

21 that I took away from that analysis an understanding of

22 what to expect. So would I be surprised that there's

23 greater concentration at the high end, no. Would I be

24 surprised that over time we're seeing movement away

25 from what I described as more of the arms length to the

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1 more vertical integration continuum, no. But going to

2 your question, then when I went to test Professor

3 Shapiro's claims that various outcomes were

4 anticompetitive, I had the more firm level foresight

5 investment and execution as things that I would apply

6 to a particular cited outcome in terms of alleged

7 anticompetitive harm.

8 Q. Have you applied these three firm level factors

9 to analyze outcomes in other cases?

10 A. Certainly investment. And I've been involved

11 in multiple high tech industries and, of course,

12 others, other experts have as well and I'm sure that

13 other experts have focused on the importance of

14 investment. I've also understood the importance of

15 foresight in other contexts and identified that in

16 terms of choice of particular firm strategy. When

17 firms, for example, in this -- in this age of mobility,

18 some firms understood that that was a big trend and

19 wanted to invest in that. Others didn't have the same

20 judgment about mobility and didn't make investments

21 that reflected that judgment. So I've seen this --

22 this role of judgment and strategy play a role in other

23 industries, including industries I've -- where I've

24 been engaged as a consultant.

25 I will say, however, going back to what I

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1 testified just a few minutes ago, here I think the

2 issue of judgment strategy, foresight, whatever you

3 want to call it, is particularly important. So whereas

4 I've applied and paid attention to a framework that

5 would include judgment and strategy, in this case, I

6 single it out because it's so clear from the industry

7 analysis that has to be accounted for. If Intel wants

8 to make a bet on WiMAX, that needs to be understood

9 that that's different from making a bet on CDMA and so

10 on and so forth. Carrier aggregation, et cetera.

11 Understanding and making investments informed by what

12 they understand to be the industry trends and where

13 they can be successful.

14 Q. So is the modem chip industry unique in that

15 respect in how you applied these three factors?

16 A. Well, certainly not investment, that's not

17 unique. I think Professor Shapiro talks about -- I

18 shouldn't say I think, let me start that sentence

19 again.

20 Professor Shapiro cites investment in his

21 report. I don't think it has the level of insight

22 about how complex the investments are. He does,

23 however, recognize that there -- some of the

24 investments are specific in nature, so I think that's

25 clearly not specific to this industry. With respect to

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1 foresight, as said, I've seen that play a role in other

2 industries and, in my view, what's different here is

3 not its relevance at a threshold level, but how

4 important it is in this environment with overlapping

5 generations of products, competing families,

6 divergence, uncertainty, increasing levels of

7 investment being required. So to sum up investment,

8 that's not unique. Foresight, no, but I think it's

9 much more pronounced here as a relevant factor.

10 Q. And how about execution?

11 A. That's another way of -- of really emphasizing

12 that execution is important taking into account factors

13 that come up all the time, quality and reliability. So

14 those aren't novel. I'm bundling that into the word

15 execution but lots of industries, quality is an issue,

16 Professor Shapiro himself has written famous paper, one

17 of my favorite papers, actually, on reputation and

18 quality. So I -- I would say that that's a -- a single

19 word that covers factors that are relevant in a lot of

20 industries. As I said, reliability, quality and

21 there's probably an ongoing dimension as well that

22 should be indicated which is being able to execute the

23 new releases and their specific upgrades within a

24 supplier OEM relationship. So none of it's new, no.

25 None of it's unique.

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1 Q. And are you aware of academic literature that

2 supports the idea that these three factors determine a

3 firm's success or failure in the modem chip industry?

4 A. In the academic literature, I don't think the

5 academic literature has gotten to this. Certainly a

6 lot of the citations to other commentary would reflect

7 the importance of these factors. I'm not aware of any

8 academic literature that is focused on the modem chip

9 industry. It's a poor reflection on academic

10 economists but...

11 Q. Are you aware of any work conducted by your

12 peers where they've taken the same approach of applying

13 these three factors to assess firm outcomes in the

14 modem chip industry?

15 A. When you say my peers, you mean the other

16 experts here?

17 Q. No, sorry. Other economists in your field.

18 A. So you're asking about have other economists

19 applied these three factors to any industry or this

20 industry?

21 Q. In the modem industry.

22 A. I'm not aware one way or another.

23 Q. And foresight, is that an economic term of art?

24 A. Well, as I said, I think it encompasses firm

25 strategy so that's obviously a term of art. But I

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1 think in the context of a dynamic industry, strategy

2 has to take into account uncertainty and how an

3 industry will change. So I think of it as derivative

4 from strategy but just emphasizing strategy in the

5 context of a dynamic environment.

6 Q. And how does foresight differ from strategy?

7 A. Well, I'm old enough to remember talking to so

8 many different executives, many of whom have been

9 successful or not successful in the -- in high tech

10 industries and other industries, but it used to be that

11 sometimes you would hear senior executives talk about

12 runway. And runway is the idea that well, I can find a

13 strategy and if it's successful then I will have some

14 runway ahead and it'll be smooth and continuous and I

15 can proceed on that path. This is the opposite of

16 runway and I think, again, a lot of high tech

17 industries feature uncertainty. This one features an

18 extraordinarily high degree of uncertainty. So going

19 back to your question, I would say the following:

20 Strategy is important, when it comes to high tech

21 industries, strategy is likely to implicate making

22 adjustments. And especially in this industry, given

23 the uncertain nature of investments and the competing

24 paths convergence, divergence it has to be recognized

25 that strategy has -- is framed in the context of a

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1 dynamic environment.

2 Q. So I think I understand now what strategy

3 refers to. You referred earlier to foresight as a

4 derivative of strategy. I'm just trying to understand

5 the distinction between the two terms.

6 A. Yes. So I'm trying to frame strategy in this

7 -- in a way that's general in the sense of strategy but

8 also suited to this industry which is high tech,

9 innovation's important and dynamic and most important

10 that, for me, is why -- in terms of why I use the term

11 foresight, there are a lot of strategic decisions again

12 and again, many different forks in the road as to how

13 firms execute -- I shouldn't use that term here --

14 fashion their investment decisions and allocate

15 resources to R&D.

16 Q. So what strategic decisions are not

17 attributable to foresight?

18 A. Well, strategy would indi -- could indicate

19 sort of a domain for investments but not resolve

20 exactly what to do. So you look at a company like

21 MediaTech, their strategy was never to be at the

22 leading edge but instead to focus on lower end and over

23 time move up the hierarchy. So that takes strategy.

24 Infineon had a strategy. Texas Instruments had a

25 strategy. They have particular attributes. As I

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1 mentioned earlier, Texas Instruments is not -- they

2 don't view their strategic focus as being on software.

3 So that is -- that tells you a lot about their

4 strategic focus, what they're likely to do in terms of

5 products that they want to develop, but then there's

6 still investment decisions that require particular

7 judgments about where to invest give that overall

8 strategy and overall focus.

9 Q. And that's where foresight comes into play?

10 A. Yes. It's -- it, you know, it's related to

11 investment. It captures, of course, the need to

12 generally focus but also continually adjust and make

13 decisions about where to invest.

14 Q. Is there a widely accepted definition of

15 foresight in your field?

16 A. As I said, I'm -- I'm identifying that as a way

17 to emphasize the importance of strategic decisions.

18 And people don't like that, they could substitute some

19 alternative, but nobody who's really studied this

20 industry would fail to understand the importance of

21 foresight and you take examples that are clear. Intel

22 saying I'm going to disrupt the industry with WiMAX.

23 That's their judgment based on some foresight.

24 Q. So your report talks a lot about foresight, I

25 just wanted to make sure when we use the term we're --

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1 we have the same understanding. I just want -- so my

2 question is directed toward that. Can you point to

3 academic literature that defines the term "foresight?"

4 A. I gave you my best answer about this obviously

5 follows from strategy. It's tailored to this context

6 based on the industry analysis that I did. If -- I

7 don't know what else to say. You could -- obviously,

8 there's a vast literature on strategy and that

9 literature often times deals with decisions about

10 product development, where to invest, what customer

11 relationships to focus on, particular product

12 attributes. So this ties into a vast literature on

13 strategic decision making by business.

14 Q. So there's literature on strategy but not

15 necessarily for the specific prong dealing with

16 foresight; is that correct?

17 A. No. It's just -- this is -- people can argue

18 about whether I picked the best word but I think it,

19 based on the industry analysis, it's an apt way to

20 emphasize the dynamic aspects of strategy in this

21 context and the importance of making decisions about

22 investments that take into account where the industry

23 is going and where the firm is likely to be successful

24 with its strategy. It's not more complicated than

25 that.

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1 Q. Are there widely accepted metrics for assessing

2 foresight?

3 A. Well, yes. I mean, you know, we have courses,

4 I think Professor Shapiro has taught courses on

5 strategy, and voluminous amount of cases on company

6 strategies. There's the Strategic Management Journal.

7 There's Harvard Business Review, Sloan Management

8 Review. There are all kinds of sources of information

9 and evaluation and investment of firm strategies in

10 different contexts. So lots of different academic and

11 more business oriented literature deals with strategy.

12 Q. How do you assess foresight?

13 A. It's essentially how you assess the outcomes of

14 strategic decisions in a dynamic environment. I

15 mentioned the analogy to placing bets, and I said that

16 provides some information and insight, but it's more

17 complicated than that.

18 Q. So is it --

19 A. Do you --

20 Q. -- sorry.

21 A. Do you engage with OEMs the way MediaTech did

22 with their reference designs? That's an aspect of

23 strategy. That's something that you can see that they

24 did. You can see by contrast Intel's WiMAX strategy.

25 These are -- these are observable things and you can

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1 determine whether they were successful or not based on,

2 in part, whether they, in the case of MediaTech, led

3 them to be more successful over time, to be a fast

4 learner and gain experience, or in the case of Intel

5 and WiMAX where they had to drop it.

6 Q. So does assessing foresight entail looking at

7 what a firm's plan was and then comparing that to what

8 actually happened later?

9 A. Yes. And -- and there is an -- an expectation

10 that not everything a firm will do is right but it's

11 important for an analysis of strategy to understand the

12 likelihood of success, the need for plan A and plan B

13 and timeliness in evaluating whether a particular

14 strategic initiatives are continued or not.

15 Q. In paragraph 143 of your report you introduce

16 the factors that effect supply of modem chips, it's

17 basically introducing the three factors that we've been

18 talking about; foresight, investment and execution.

19 With respect to foresight, "You say these

20 factors are described in more detail below, but in

21 short, they reflect one. The foresight or good fortune

22 to have invested in technologies and standards that are

23 demanded by network carriers and OEMs." Do you see

24 that?

25 A. I do.

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1 deposition of Ms. Evans, which is on C2 about seven --

2 yes, it's the seventh entry. Vice president of

3 communications and devices at Intel.

4 Q. Well, I understand that you relied on all of

5 these materials, right, in the appendix?

6 A. Well I'm explaining Intel and if you compare,

7 for example, Project Mountain and what they're saying

8 substantively, you recognize that there's a strategic

9 shift. That's my point. So the third one from the

10 bottom Ms. Ketty, general manager of Next Generation

11 Standards at Intel, they're laying out -- again, I

12 don't want to shorthand it too much -- but they're

13 laying out a different set of strategic objectives.

14 They're not talking about WiMAX, they are talking about

15 becoming much more mainstream and positioning

16 themselves effectively in terms of CDMA and LTE.

17 Q. Did you analyze strategic investments that were

18 not made in your analysis of the foresight?

19 A. I did. So a good example again is -- is

20 Infineon. Another is STE-Ericsson. Another is

21 Freescale. My recollection is that Professor Shapiro

22 only analyzed one of those, but that's another

23 important set of insights about exactly your point,

24 investments not made.

25 Q. And how do you know that you were able to

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1 consider every single strategic decision for each firm?

2 MR. RYAN: Objection.

3 A. I couldn't analyze everything. I focused on

4 the ones that had the most influence on whether they

5 were able to sell particular products to particular

6 customers. And those things are observable.

7 Q. I want to talk about an example, just to make

8 sure I understand your analysis of foresight. So

9 you're aware of instances where Qualcomm invested money

10 in certain custom projects for Apple and later it

11 turned out that Apple cancelled those projects and

12 modem chips that under development weren't

13 commercialized. Are you aware of those instances?

14 A. I'm not sure that I can recall a specific

15 instance that matches that description. I am aware of

16 Qualcomm making investments in some points in their

17 firm history where they didn't work out, but if there's

18 something in particular you want me to focus on.

19 Q. Okay. Just for an illustrative example. So

20 let's say we have this instance where Qualcomm invests

21 in a project for Apple and Apple ultimately decides not

22 to go with that project, cancels the project. Would

23 that be an example of bad foresight on the part of

24 Qualcomm or is it good foresight but bad luck or

25 something else?

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1 marketplace and they ended that investment and

2 continued with their other investments.

3 Q. So is the UMB example an example of a bad

4 investment on Qualcomm's part?

5 A. No. I wouldn't say that. It had a low

6 efficiency realized but at any point in time you have

7 to recognize that a firm might try to do two things,

8 and given the convergence and divergence, kind of that

9 -- actually let me restate.

10 Given the forces that lead to convergence and

11 divergence in this kind of setting, making just one

12 investment need not be the case. That isn't

13 necessarily the prudent approach. So what's -- to me

14 what's important is that their other investments did

15 work and they didn't continue with this investment, if

16 you will, they cut their losses. So this fits into an

17 overall pattern of efficient investment, in my opinion,

18 just like with MediaTech, if you analyze their -- the

19 full set of things that they did, they made mostly good

20 choices.

21 Q. Was it a significant factor to you that

22 Qualcomm didn't just invest in UMB, it was also

23 investing in other technologies? Is that what makes it

24 not a bad investment?

25 A. Yes, I think that's fair. And I'm not

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1 advocating that all firms should invest in all things,

2 but this -- this particular UMB technology, and I could

3 go to my report to get more information, is something

4 that they were hoping for but they also realized wasn't

5 necessarily going to be the path that others were going

6 to be on. So I think in that context it made sense to

7 do not just the UMB, and as your question indicates,

8 that was -- that made sense.

9 Q. How is this different from, for example,

10 Broadcom investing in both WiMAX and LTE, which I think

11 you characterized as a poor investment; is that right?

12 A. I don't think we -- that your questions have

13 dealt well Broadcom before but...

14 Q. Sorry, I'm referring to your report, in your

15 report -- right?

16 A. Oh, okay.

17 Q. You talk about the Broadcom investment in

18 WiMAX. Paragraph 508, a good reference point.

19 A. So you're at paragraph 508? The main section

20 on Broadcom starts with paragraph 401 on page 265, so I

21 was going there but...

22 MR. RYAN: Paragraph 508 refers back to that

23 when it talks about Section 5C8, that's referring back

24 to there.

25 A. Yes. And this is -- this is part of my

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1 rebuttal to Professor Shapiro. And I may have lost the

2 core of your question.

3 Q. So I'm just trying to understand the

4 distinction between Qualcomm's investment in UMB, which

5 you say is not an example of a bad investment, and

6 Broadcom's investment in WiMAX, which I believe you do

7 say is a bad investment, correct?

8 A. Let me just be clear. Of course, Qualcomm

9 would like to have that money back, but there is a

10 difference between ex-post and at the time. So I am

11 making a case that at the time Qualcomm's decision

12 making was prudent and importantly they were timely in

13 deciding the effort. In the case of Broadcom, it fits

14 into a much bigger pattern of lack of foresight

15 investment and efficiency, that's in the section

16 starting on page 265 and 401. So if I could put this

17 into a broader perspective it might be helpful, but I

18 don't to prolong the answer. As I said, Broadcom made

19 a lot of mistakes in terms of slowness to 3G. WiMAX I

20 think you could say well, it's -- it wasn't a big deal

21 but I think in context it was a big deal for Broadcom.

22 If I could just add one more thing: If

23 Broadcom had said we're going to try WiMAX but we're

24 also going to prudently invest in LTE, that would be a

25 different scenario but they didn't do that.

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1 Q. Isn't that what you say they did with Beceem

2 when they acquired Beceem?

3 A. But internally with their own investment

4 resources.

5 MS. IKEDA: B-E-C-E-E-M.

6 Q. I don't understand that distinction when you

7 say internally they didn't?

8 A. Well, Broadcom, as I recall, was not well

9 diversified in terms of their customer base. They --

10 they had Nokia and Samsung. When they made the

11 investment in WiMAX -- this could be checked further by

12 the record, my recollection is that they did not focus

13 enough attention on 4G and LTE. They did make the

14 acquisition but I think the section starting on page

15 265 finishes up with an extensive analysis of -- or not

16 finishes up but it includes an extensive analysis of

17 all of these issues.

18 Q. So just so I understand the Broadcom, your

19 analysis of the Broadcom WiMAX investment decision,

20 your understanding is that Broadcom acquired Beceem in

21 October of 2010, correct?

22 A. I'm trying to find the reference to that

23 acquisition.

24 MR. RYAN: You might want to look at paragraph

25 405 which talks about this.

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1 A. Yes. So it's the sentence, the second full

2 sentence on page 270. So the Beceem acquisition didn't

3 get them to that capability. They purchased when they

4 assess Mobil in 2013.

5 Q. And in paragraph 508 the last sentence you say,

6 "This failure was potentially related to Broadcom's

7 decision not to re-task Beceem to focus on LTE until

8 2011, having allowed it to split its expertise between

9 WiMAX and LTE prior to that," correct?

10 A. Yes. And in the next paragraph I refer to the

11 testimony by Apple executives that Broadcom had

12 failures in terms of the understanding of -- of

13 increased data through put, carrier aggregation and the

14 conclusion that Apple reached, according to the record,

15 and now I'm on top of 336, was that even when they got

16 to LTE -- Broadcom's, quote, Broadcom's LTE modem chips

17 were inferior to other options.

18 Q. Sure. But I am trying to understand the

19 distinction between Broadcom splitting its resources

20 between WiMAX and LTE and Qualcomm splitting its

21 resources between UMB and other technologies.

22 A. Sure. It's simply a case of if you're doing a

23 lot of things well like Qualcomm, you can -- you can

24 make an investment that doesn't work out, you cut your

25 losses. As I said, I don't think it was bad judgment

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1 on their part, and I'm not an expert on UMB, but I

2 believe that they had a reason for that. But in the

3 case of Broadcom they're making mistake after mistake

4 after mistake, which I document in that section on

5 Broadcom. And if you make a lot of mistakes, the kind

6 of mistake of investing in WiMAX is more consequential

7 for the overall performance of the firm. So the lesson

8 is, and I think it's a good question, how do you

9 analyze this -- these kinds of mistakes. The answer is

10 by having done the systematic analyses of who these

11 firms were and the series of decisions that they made,

12 I'm better able to assess any one decision.

13 Q. So it's not necessarily that these two specific

14 investment decisions are that different, it's -- it's

15 the surrounding circumstances that you're looking at to

16 make your assessment of investment efficiency?

17 MR. RYAN: Objection to form.

18 A. The overall assessment of whether a firm is

19 exhibiting good foresight in terms of the strategic

20 decisions, investment and execution, doesn't depend on

21 any one decision. And a firm can make a mistake or, ex

22 post, wish it had a particular chunk of money back.

23 But the application of those industry factors, over the

24 course of a firm's history, allows you to identify

25 whether it's one mistake or a series of one too many.

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1 Broadcom, I don't want to pin their lack of success

2 only on this, but I do agree that you have to put this

3 in context, and Broadcom made mistake after mistake

4 after mistake.

5 MS. IKEDA: Let's take a five-minute break.

6 THE VIDEOGRAPHER: The time is 4:30 p.m. and we

7 are going off the record.

8 (A recess was taken.)

9 THE VIDEOGRAPHER: This begins media unit

10 number five. The time is 4:57 p.m. and we are back on

11 record.

12 Q. Dr. Snyder, we talked a little built about

13 execution as one of the factors that you analyzed. How

14 do you assess execution?

15 A. Well, in any one context do you assess it based

16 on the ability of a supplier to develop and supply on a

17 timely basis in volumes at -- and high quality are the

18 elements of execution. Pardon me. And then I also

19 evaluate execution across firms and over time to

20 understand the importance of execution.

21 Q. So is it fair to say that execution is a

22 function of timeliness and quality over time?

23 A. It's at the -- I'm focusing on having made the

24 investment and being able to design the product. Then

25 the issue is, can you -- the firm, can the firm ramp up

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1 production on a timely basis to meet OEM needs taking

2 into -- taking into account quality.

3 Q. Are there quantifiable metrics that you use to

4 assess execution?

5 A. Yes. In terms of observable successes and

6 failures. Quantifiable in terms of a -- a dial, no.

7 Q. Couldn't you, for example, look at time to

8 market or, you know, the timeliness of supply?

9 A. Those are things that are going to effect this

10 overall execution. I have the -- the chart that

11 summarize the cross-sectional factors.

12 Q. Hm-mm.

13 A. And I also have the individual analyses where I

14 identified execution issues and some firms have limited

15 identifiable execution problems others have repeated.

16 Q. Is there an accepted methodology for assessing

17 execution?

18 MR. RYAN: Objection to form.

19 A. I'm not sure what the term methodology adds.

20 You can observe whether a firm is able to execute based

21 on whatever particular set of expectations have been

22 made and the set of expectations that they have taken

23 on. It's identifiable. I will be able to supply these

24 chips with this quality and in this volume. So it's

25 identifiable. It doesn't take a methodology to figure

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1 out if somebody met that.

2 Q. So would you say that all economists in your

3 field would apply the -- the same factors in assessing

4 execution?

5 A. That's a -- that's a good question. I think

6 that anyone studying this industry would recognize that

7 it's an important success factor. Whether they would

8 evaluate it using that name, I don't know. But, you

9 know, the whole analysis of supply chains has been, you

10 know, that there's numerous assessment of how firms

11 organize their supply chains and whether they do it

12 well and how they do it and in what circumstances there

13 are successes or failures. There are also changes over

14 time. Walmart's a good example. But there's been a

15 huge amount of analysis of supply chains, so everyone

16 recognizes that it's an important topic and it's an

17 important element of success. Exactly how you analyze

18 it is going to depend on the industry circumstances,

19 but it -- here I've done it over time and across firms.

20 And I focused on situations where it's a yes, they've

21 have had problems or no, they haven't.

22 Q. And if you were to task 100 economists to

23 assess execution in the modem chip industry, would they

24 look at the same observable factors that you did to

25 determine execution?

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1 MR. RYAN: Objection to form.

2 A. I don't know if you had 100 economists whether

3 they would analyze execution in the same way or not.

4 What I would hope 100 economists would do would be to

5 recognize that execution's important and identify the

6 instances where firms succeeded and when they did not,

7 because that's objective. And hopefully an economist

8 would recognize when associating outcomes to conduct or

9 alternative factors, that an economist would realize

10 that execution is one of those alternative factors that

11 influence success. So I think in sum, they should look

12 at, they should realize it's important, it has

13 explanatory power. The precise way that it's measured

14 or assessed, that, I would agree, could vary across

15 economists who take on that task. I think I may -- I'm

16 the only one who's done it in this case, so it's a

17 little, you know, I don't have a reference to point to

18 because I've done it and as far as I can tell, no one

19 else has.

20 Q. And when you speak about identifying successes

21 and failures, how do you determine whether an event is

22 a successor or a failure?

23 A. You go objectively to the record and see if a

24 firm has executed, and then you can also check on

25 implications as reflected in objective data on future

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1 sales and individual supplier OEM relationships. So a

2 firm that has had problems with execution is going to

3 lose business according to the industry factors

4 hypothesis, and that's what's observed in these

5 analyses of individual firm performance.

6 Q. I guess, how do you assess whether a firm is

7 successful or not in terms of execution by looking at

8 whether they have problems in execution? I don't quite

9 follow.

10 A. Well, you know, the -- you know, not to belabor

11 the point, I mean, this really goes back to Professor

12 Shapiro. He did not consider any alternative

13 explanations. He's just toggling the conduct. That's

14 clearly incorrect. You have to realize that industry

15 factors are relevant and assess whether they are

16 alternative means of explaining the observed outcomes

17 that he has cited. So I've taken on that burden, and

18 I've done the more complete assessment of the total

19 evidence than, of course, he has and I've documented

20 time series and cross section and I can give you

21 particular examples and counter examples that validate

22 the relevance of these factors. There's nothing really

23 more to say about my approach to testing. I've done

24 it, he hasn't. I've done it in a coherent way, drawing

25 on industry -- industrial organization factors and

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1 drawing on the industry analysis. I understand the

2 questions, you're -- you're -- I understand the drift

3 of the questions, but what I'm trying to say is, I've

4 done this work, I've really applied the IO principals

5 in a systematic way. One can pick and say well, do I

6 really measure these things correctly. You have to

7 realize, this is in the context of Professor Shapiro

8 not doing his job. So I know you've been asking these

9 questions a lot and I just wanted to explain. I think

10 this is important to frame it in terms of the counter

11 factual analysis has to take these factors into

12 account. Professor Shapiro didn't take them into

13 account. I understand that someone might say well, I

14 don't understand why investment is important here. We

15 can't measure return on investment precisely. That

16 doesn't undo the need to take investment into account.

17 Nor the role of strategy and foresight and execution.

18 So, I -- I understand the overall picture. I don't

19 have a whole lot more to say about this topic. I

20 understand the desire for a precise methodologies that

21 others might want to seek, but when you really

22 understand this industry as I do, it's clear to me that

23 these are important factors and they have explanatory

24 power. The events are discreet. The events are based

25 on -- or put in the context of individual firm

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1 performance over time, and they're put in the context

2 of cross-sectional analysis.

3 Q. And with respect to Qualcomm, my understanding

4 is that you conclude that Qualcomm had good execution,

5 correct?

6 A. Yes. For the most part. The standard here

7 isn't perfection.

8 Q. Uh-huh.

9 A. Your question earlier about the UMB I thought

10 was appropriate and, as I said, ex post probably wish

11 they -- they probably hadn't done that or not probably

12 for sure. But how firms have been able to organize

13 their investments and foresee where those investments

14 should be made, as well as execute on the supply of

15 chips, those differ a great deal across the firms. I

16 think that's undeniable. And Qualcomm has done very

17 well on those. Other firms have done very well in

18 those. And then there are differences within time

19 period as to how well firms have done. So it's not a

20 yes or no forever. The fact that Qualcomm has done a

21 good job up till now doesn't guarantee success. The

22 fact that Intel had its problems doesn't mean that

23 they're out of it, especially given their resources.

24 And now a seat at the Apple table.

25 Q. Is a shipment delay of one day something you

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1 would consider to be an execution failure?

2 A. Well, if there are people in Hong Kong waiting

3 for the Apple iPhone, one day is important. It depends

4 on the context. Certainly one day is not as big a deal

5 as some of the other examples that I've documented

6 where one of the chips suppliers says, well it's --

7 it's going to happen in four months and two months from

8 now rather than being closer, you're actually further

9 away. So, there are certainly degrees of -- of

10 problems on the execution front.

11 Q. And so how do you -- where do you draw that

12 line as to what is problematic?

13 A. Well, you need to take it into account first of

14 all. That's undeniable. I mean, if -- again, if you

15 know the industry you have to take it into account.

16 And then I think you focus on the record and understand

17 the fact that in some context as your question

18 indicates, there are going to be execution errors that

19 are more forgivable versus others that are not as

20 forgivable. And that's why this is important to look

21 at in terms of the overall time series and

22 cross-sectional to understand the importance. No one's

23 perfect. It's a very challenging environment, but

24 certainly when you have multiple serious execution

25 problems, that's going to have consequences, that's

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1 testable, that's observable in the record.

2 Q. And how -- how would you determine whether an

3 execution error is forgivable or not forgivable?

4 A. You evaluate the context of it, its severity

5 and its consequences.

6 Q. And would you agree that Qualcomm has had

7 execution errors?

8 A. I would have to go back and review. They have

9 had few compared to other firms such as Freescale,

10 Nokia, Infineon, Broadcom, et cetera, so it's clear

11 that in terms of major differences, Qualcomm has been

12 much stronger. I would say the same is true for

13 MediaTech despite the problem that you asked me about

14 earlier. They've had -- they had an identifiable

15 problem, but no one would mistake Qualcomm and

16 MediaTech on the execution front versus the other ones

17 I cited.

18 Q. And do you recall the few examples of execution

19 errors that Qualcomm has had?

20 A. Oh, you want to focus on Qualcomm? Nothing

21 particular comes to mind, but I can check my report on

22 that. Overall they've been strong on execution.

23 Q. In assessing Qualcomm's overall execution, did

24 you consider evidence that Qualcomm made errors in its

25 demands forecasts?

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1 MR. RYAN: Objection to form.

2 A. I -- I was actually trying to answer your

3 previous question --

4 Q. Oh, sorry.

5 A. -- but -- but you want to move onto errors in

6 forecasts? I'm sure there are errors in forecasts.

7 Q. And did you consider that?

8 A. There are always errors in forecasts in an

9 industry.

10 Q. Okay. And you considered that in your

11 forecasts of Qualcomm's execution?

12 A. I would not put that in the category of

13 execution error, no. So I didn't evaluate that in

14 terms of execution error.

15 Q. Why wouldn't you include that as an execution

16 error?

17 A. The expectations about volume are things that

18 industry participants develop, but whether you execute

19 or not and the degree of the failure depends on what

20 the OEM is expecting you to do at any point in time.

21 Q. And if the error in the demand forecast

22 resulted in a supply shortage to an OEM, would you

23 count that as an execution error?

24 A. Well, now it's at least getting to the what I

25 would focus on as a potential execution error. But if

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1 C E R T I F I C A T I O N O F R E P O R T E R

2 DOCKET/FILE NUMBER: 5:17-cv-0220-LHK-NMC

3 CASE TITLE: FTC vs. QUALCOMM, INCORPORATED

4 DEPOSITION DATE: August 4, 2018

5

6 I HEREBY CERTIFY that the transcript contained

7 herein is a full and accurate transcript of the notes

8 taken by me at the hearing on the above cause before

9 the FEDERAL TRADE COMMISSION to the best of my

10 knowledge and belief.

11

12 DATED: 8/4/18

13

14

15 s/Stefanie Krut

16 STEFANIE KRUT

17

18

19

20

21

22

23

24

25

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