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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 1 of 9
·1· · · · · · · ·UNITED STATES DISTRICT COURT

· · · · · · · ·NORTHERN DISTRICT OF CALIFORNIA

·2· · · · · · · · · · ·SAN JOSE DIVISION

·3· · FEDERAL TRADE COMMISSION,

·4· · · · · · · ·Plaintiff,

·5· · · · · · · · · ·vs.· · · · ·No. 5:17-cv- 00220-LHK-NMC

·6· · QUALCOMM INCORPORATED, a

· · · Delaware Corporation,

·7

· · · · · · · · ·Defendant.

·8· · __________________________/

·9

10

11

12· · ·***HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY***

13

14

15

16· · · · · · · · ·VIDEOTAPED DEPOSITION OF

17· · · · · · · · · · · ·CARL SHAPIRO

18· · · · · · ·_________________________________

19· · · · · · · · ·THURSDAY, AUGUST 16, 2018

20

21

22

23· · REPORTED BY:· HOLLY THUMAN, CSR No. 6834, RMR, CRR

24· · · · · · · · · · · · · · · · · · · · ·(NY-186403)

25

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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 2 of 9
·1· · · · ·Q.· Did you conduct any quantitative analysis

·2· · comparing how the relevant markets evolved with how

·3· · these markets would have evolved in the absence of

·4· · the challenged conduct?

·5· · · · · · ·MR. JAMES:· Object to form.

·6· · · · · · ·THE WITNESS:· So just to be clear, you

·7· · mean the two relevant markets that I've defined for

·8· · the chips, for modem chips?

·9· · BY MR. EVEN:

10· · · · ·Q.· Yes.

11· · · · ·A.· So if by quantitative analysis you mean

12· · how market shares would have been different or

13· · specifically how prices would have been

14· · different -- for example, those two things come to

15· · mind -- I have not quantified the "but for" world

16· · in that specific sense.

17· · · · ·Q.· Have you conducted any analysis to

18· · ascertain whether any firm that has exited the

19· · modem chip business would not have exited but for

20· · Qualcomm's conduct?

21· · · · ·A.· No, I cannot say definitively which of

22· · these firms would not have exited if not for

23· · Qualcomm's conduct.· We have some evidence about

24· · how certain elements of conduct made it more

25· · difficult for these firms to compete, and we have

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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 3 of 9
·1· · issued -- we know about the timing of some of these

·2· · things.· But a definitive causal link there is not

·3· · something I have offered an opinion about.

·4· · · · ·Q.· Have you endeavored to try and ascertain

·5· · such a definitive causal link?

·6· · · · ·A.· No.· It's not really been the focus of my

·7· · analysis.· That would seem to me more suitable for

·8· · maybe a damages type of claim than what my analysis

·9· · speaks to.

10· · · · ·Q.· Have you conducted any analysis to

11· · identify firms that never entered the modem chipset

12· · business but would have entered that business but

13· · for Qualcomm's conduct?

14· · · · ·A.· Well, I do identify Intel as being delayed

15· · in its effective entry into the market for premium

16· · LTE modem chips as a result of the agreements

17· · between Qualcomm and Apple.

18· · · · ·Q.· And by that you mean that Intel, under

19· · your theory, could have won some of the iPads in

20· · 2014 and '15, I think?· Is that right?

21· · · · ·A.· That's correct, with then giving them a

22· · stronger position to compete subsequently for

23· · iPhones as well.· That would have happened earlier.

24· · So that's an example of delayed entry.· Of course,

25· · they have subsequently entered.

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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 4 of 9
·1· · · · ·Q.· And that would give them stronger position

·2· · to compete subsequently for the 2016 iPhone?

·3· · · · ·A.· If Intel had won the business at Apple for

·4· · the earlier iPads, yes, it's my view that that

·5· · would have put them in a stronger position to then

·6· · subsequently compete for the -- for the iPhone

·7· · business earlier.

·8· · · · ·Q.· Earlier than 2016?

·9· · · · ·A.· Yes.· In 2015, in particular.· Of course,

10· · they were able to win some of the business in 2016

11· · in actuality.

12· · · · ·Q.· Other than Intel, have you conducted any

13· · analysis to try and find whether other firms would

14· · have entered but didn't?

15· · · · ·A.· I -- I don't believe I've identified any

16· · specific firms in that category that I can

17· · attribute the lack of entry to Qualcomm's

18· · challenged conduct.

19· · · · ·Q.· Have you conducted any analysis to

20· · identify firms that would have been more successful

21· · in the sale of modem chips but for Qualcomm's

22· · conduct?

23· · · · ·A.· We talked about Intel, so we've got that.

24· · · · ·Q.· Other than Intel?

25· · · · ·A.· Well, I would say generally that the other

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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 5 of 9
·1· · firms selling modem chips in competition with

·2· · Qualcomm have been disadvantaged by the fact that

·3· · OEMs must pay a supra-FRAND royalty on handsets

·4· · that incorporate their chips.· And they have been

·5· · disadvantaged by not being able to have an

·6· · exhaustive license from Qualcomm for Qualcomm's

·7· · relevant standard-essential patents, and that would

·8· · apply to all of these firms who are in the market

·9· · as well as potential entrants.· But we're talking

10· · about firms in the market right now.

11· · · · ·Q.· So I understand that that is your claim,

12· · that that would be directionally the effects.

13· · · · · · ·Have you done anything to assess how much

14· · more successful would any chip maker have been but

15· · for Qualcomm's conduct?

16· · · · ·A.· Well, when you say how much more, you, I

17· · believe, are asking for a quantification or asking

18· · about quantification.

19· · · · ·Q.· I am.

20· · · · ·A.· Okay.· So I would say this is, as far as I

21· · can see, the same question earlier where I answered

22· · that I have not -- I have not come up with a

23· · measure of the "but for" market share, say, higher

24· · share of specific arrivals or higher margins, for

25· · that matter, both of which directionally would

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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 6 of 9
·1· · arise under the theory that I've put forward and

·2· · developed.

·3· · · · ·Q.· Did you model in any way what would happen

·4· · to prices of cellular devices in the "but for"

·5· · world?

·6· · · · ·A.· Yes.

·7· · · · ·Q.· Where is that in your report?

·8· · · · ·A.· Well, the report discusses the

·9· · pass-through of higher -- of supra-FRAND royalties

10· · would be passed through to some degree to -- in the

11· · form of higher handset prices.· So that's a --

12· · that's -- that's in the report.· That's explained

13· · there, I believe.· We can find it if you want.

14· · · · ·Q.· Have you done any formal modeling of what

15· · that effect would look like on the prices of

16· · devices?

17· · · · ·A.· Well, are you asking if I have quantified

18· · that?· Is that what you mean by formal modeling?

19· · · · ·Q.· Let's start with that.· Have you

20· · quantified that?

21· · · · ·A.· So no, I have not quantified the

22· · pass-through rates that would apply to the

23· · supra-FRAND royalties in terms of the subsequent

24· · higher handset prices.

25· · · · ·Q.· And you've not quantified the effect --

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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 7 of 9
·1· · strike that.

·2· · · · · · ·You've not quantified any other aspect of

·3· · the prices of devices with respect to any effects

·4· · of the theory, long-term or short-term.· Right?

·5· · · · · · ·MR. JAMES:· Object to form.

·6· · · · · · ·THE WITNESS:· So I've not quantified the

·7· · effects of Qualcomm's conduct on handset prices.

·8· · BY MR. EVEN:

·9· · · · ·Q.· Did you model what would have happened to

10· · output of baseband processors in the but-for world,

11· · quantitative?

12· · · · ·A.· Well, I do address that at several points

13· · in my report, output questions.· That, of course,

14· · is the flip side of the price once we bring in the

15· · elasticity of demand.

16· · · · ·Q.· Have you done anything to quantify that?

17· · · · ·A.· So yes, I do have a portion in the

18· · rebuttal report where I explain why the output

19· · effects would be very -- tend to be very small,

20· · because the demand is so inelastic for the modem

21· · chips since they're essential input into a handset

22· · and they have a -- you know, only this smallish

23· · share of the total price of a handset.

24· · · · ·Q.· Other than that, have you done anything to

25· · try and see what that small -- small effect would

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Case 5:17-cv-00220-LHK Document 876 Filed 09/25/18 Page 8 of 9
·1· · say that the supra-FRAND royalties reduce the

·2· · variable profits of rival suppliers of modem chips.

·3· · Is that right?

·4· · · · ·A.· That's correct.

·5· · · · ·Q.· And you say that this reduction in margin

·6· · in turn generates all the follow-on, longer-term

·7· · effects an economist would expect: Less entry, less

·8· · investment by rival chip suppliers.· Right?

·9· · · · ·A.· Correct.

10· · · · ·Q.· And again, you've not done anything to try

11· · and assess the magnitude of any decline Qualcomm

12· · caused in competitors' variable profits.· Right?

13· · · · ·A.· I have not put a number on that.

14· · · · ·Q.· And you've not put a number on any decline

15· · in R&D investment by any competitors.· Right?

16· · · · ·A.· That's correct.

17· · · · ·Q.· If there is testimony in the record that

18· · competitors were investing furiously, would that

19· · change your opinion?

20· · · · ·A.· Well, I'm not sure what you mean by

21· · "furiously."· It sounds like -- it sounds frantic.

22· · But I think, in fact, a number of other firms here

23· · have made very substantial investments, and my

24· · opinion accounts for that.

25· · · · ·Q.· How is the fact that other firms have made

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