EXHIBIT 2

Case 5:17-cv-00220-LHK Document 1042-1 Filed 12/21/18 Page 1 of 49
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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FTC v. Qualcomm, Inc. 8/4/2018

(301) 870-8025 - www.ftrinc.net - (800) 921-5555

For The Record, Inc.

1 matter?

2 A. Yes.

3 Q. And is there anything that you'd like to change

4 or correct in your report?

5 A. No.

6 Q. What areas do you consider yourself to be an

7 expert in?

8 A. I'm an economist. Within economics my

9 specialty is industrial organization, and I can say

10 more about that if you'd like, what I consider to be my

11 expertise within industrial organizations. I also am

12 an expert on applying various empirical techniques to

13 questions involving industrial organization.

14 Q. And when you say "empirical techniques," what

15 do you mean by that?

16 A. Organizing data. That also extends to various

17 non regression techniques, as well as regression

18 techniques, tests of statistical significance.

19 Q. And you're not a lawyer; is that right?

20 A. Correct.

21 Q. So you're not an expert in patents, I take it?

22 A. I am not.

23 Q. Do you consider yourself to be an expert in

24 cellular technology?

25 A. No. I have good familiarity with the

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For The Record, Inc.

1 technology and the products but it's much more from the

2 point of view taking the industrial organization

3 principals that I use in various cases, and when I

4 apply them, I, as indicated, do work to understand the

5 context. So I've become familiar with the technology

6 and the products but that's not, in my view, expertise

7 in the products themselves.

8 Q. Do you consider yourself to be an expert in the

9 modem chip industry, specifically?

10 A. Very similar answer, no. I've become familiar

11 because of my assignment here and applying industrial

12 organization principals that I've applied to lots of

13 different industries, but even after I've become

14 familiar with those products and those industries, that

15 application of IO principles does not lead me to

16 consider myself to be an expert.

17 Q. In this case, you were asked to evaluate

18 professor Carl Shapiro's opinions regarding the

19 competitive effects of Qualcomm's alleged exclusionary

20 conduct; is that right?

21 A. Yes. I think I stated it in paragraph seven of

22 my report. My assignment, which focused on his claims

23 that the at-conduct would cause various anticompetitive

24 harms. So I focused on that.

25 Q. And in paragraph seven of your report you

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For The Record, Inc.

1 state, "To be clear, I do not address Plaintiff's

2 specific allegations of the at-issue conduct." Is that

3 correct?

4 A. Correct.

5 Q. What did you mean by that?

6 A. I'm clarifying the following: My assignment is

7 to understand the Plaintiff's claims and related

8 Professor Shapiro's claims that the at-issue conduct

9 deterred entry or caused exit, suppressed innovation

10 and various other anticompetitive harms. I do not

11 valuate the underlying conduct but rather focus on

12 those anticompetitive harms, and Professor Shapiro's

13 explanation and identification of them as

14 anticompetitive harms.

15 Another way to put this -- forgive me for the

16 pause -- is it's as if I'm taking the at-issue conduct

17 and focusing on the predictions that Professor Shapiro

18 makes about them and the proofs that he's -- that he's

19 offering.

20 Q. And you're not offering an opinion on market

21 definition issues in this case; is that right?

22 A. Correct.

23 Q. And you're not offering an opinion on whether

24 Qualcomm has monopoly power?

25 A. That's correct, I'm not.

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For The Record, Inc.

1 that that conduct reduced the ability of non Qualcomm

2 rivals to get that business, so that would be a deeper

3 dive.

4 Q. Is your understanding of the Plaintiff's

5 hypothesis based on anything beyond the complaint or

6 Shapiro's report?

7 A. It's informed by my understanding, generally,

8 about the nature of these claims, that, for example,

9 the claim that in effect Qualcomm was engaging in

10 exclusive dealing practices, but there's nothing --

11 there's no other immediate basis to which I turned when

12 I identified the Plaintiff's hypothesis.

13 Q. In footnote 26 of your report, that's on page

14 nine, you state that "Plaintiff's hypothesis requires

15 that the failure or exit of certain modem chip

16 suppliers would not have occurred absent Qualcomm's

17 alleged exclusionary conduct." Do you see that?

18 A. Yes.

19 Q. Is it your position that the Plaintiff's

20 hypothesis requires a showing of but-for causation?

21 MR. RYAN: Objection to form.

22 A. The short answer to that is yes. I think

23 that's my understanding as an economist that the

24 hypothesis should be evaluated in terms of, one, the

25 at-issue conduct is in place versus the at-issue

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For The Record, Inc.

1 conduct is not in place but other relevant industry

2 factors remain. So I think your question went to

3 understanding that if you take away the conduct and go

4 to a but-for world that you would get different

5 outcomes and those different outcomes would, according

6 to the Plaintiff's hypothesis, reflect causation.

7 Q. And is this but-for standard, which you just

8 articulated, the standard by which you analyzed whether

9 there was a causal link between Qualcomm's conduct and

10 its rival successes or failures?

11 MR. RYAN: Objection to form.

12 A. Yes. I -- as you know. And everyone familiar

13 with these kind of claims can appreciate, is that the

14 but-for world is an important step in the analysis of

15 causation. And in my opinion, it's important to do two

16 things when you focus on the but-for world. One is to

17 identify and take out the conduct and its immediate

18 effects. Second, leave in other industry factors that

19 would not be influenced by the conduct. For example,

20 investment. The investment imperative, that would be

21 in the but-for world that, of course, doesn't get taken

22 out.

23 Q. In that same footnote 26 you also state that

24 "Plaintiff's hypothesis requires that the failures of

25 modem chip suppliers have impaired the performance of

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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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FTC v. Qualcomm, Inc. 8/4/2018

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For The Record, Inc.

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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For The Record, Inc.

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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For The Record, Inc.

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 how general industry practice -- factors rather, will

2 effect something that I see. Then conditional on that,

3 as you indicated, the more specific firm level factors

4 can be evaluated to say okay, for a very high-end OEM

5 for certain products, they may only have two seats at

6 the table for their suppliers. That may be different

7 for lower ends products, they might have four seats at

8 the table. But then the specific firm factors help

9 evaluate which firms are going to succeed or not,

10 according to the industry factors' hypothesis.

11 Q. Is there a certain algorithm that you apply, is

12 there a formula for how much weight to give to the

13 macro level factors versus the firm specific factors?

14 A. Well, I can give an example that might inform

15 and help answer the question. By studying the

16 industry, and evaluating the testimony and

17 understanding the relevance of IO principals related to

18 specific investment and so forth one learns that a

19 supplier like Qualcomm engages with Apple in a very

20 comprehensive way. There's, you know, ample testimony

21 in the record that indicates that to compete for

22 Apple's business, there's going to be multiple

23 requirements for suppliers in terms of timeliness,

24 capabilities, engagement. And the timeliness has to do

25 with when Apple is going to launch products as well as

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FTC v. Qualcomm, Inc. 8/4/2018

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For The Record, Inc.

1 when they're going to decide on suppliers. That it --

2 that tells you, tells me about the number of seats at

3 the table that are potentially available. Professor

4 Shapiro then says there's conduct that explains

5 multiple firms exits and the payoff to this kind of

6 analysis, is that by taking into account the broader

7 factors you understand what the potential is for the

8 conduct and how to evaluate it compared to this counter

9 factual.

10 Q. So when you looked at the firm specific factors

11 for any particular firm, and you also looked at the

12 macro industry level factors at play, did you apply a

13 formula for weighting the various factors?

14 A. Not a formula. I think I took insights from

15 both. I mean, for example, you take Professor

16 Shapiro's claim that Apple -- Apple and Qualcomm's

17 contract led to the exit of ST-Ericsson, Broadcom and

18 harmed Intel. The broader industry factors tells me

19 all three of those things can't be true. You can't

20 have conduct saying you're going to -- that's going to

21 lead to three firms being harmed when only there would

22 have been at most one seat at the table. So the -- the

23 more -- the broad industry factors, as they relate to

24 Apple's decision making for premium products, that's

25 going to tell me something about the validity of that

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1 claim. Going to the industry -- going, excuse me, from

2 the broad industry factors to then evaluating well, why

3 -- why did Broadcom exit. Why did ST-Ericsson exit.

4 Beyond the broader industry factors, there are

5 opportunities to apply the industry factors test and

6 focus on did they have foresight when they were making

7 their big investments. And condition on getting to the

8 point where they would have been capable of producing

9 next generation products could they execute on that,

10 because the industry tells us that -- industry analysis

11 tells us that being first to market requires, in

12 addition to having the product, be able to supply it in

13 volume. So I view it as two levels that are both

14 relevant to assessing the particular claim that, for

15 example, Broadcom was forced out because of the

16 contract, while in summary I'm skeptical of that

17 because you can't have that alongside ST-Ericsson was

18 forced out an Intel would have gotten that seat. At

19 most there was only one seat, so those can't all be

20 true. And then evaluating in particular why was

21 Broadcom or ST-Ericsson not successful. I go to the

22 foresight investment execution.

23 Q. So is the approach -- in your approach then to

24 look at the industry factors first and then look at the

25 firm level factors?

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1 A. I just focused on what Professor Shapiro did

2 keeping both in mind.

3 Q. So if you had a situation where a particular

4 firm would have made decision A, based on your analysis

5 of the firm level factors, but there were other

6 industry level factors at play, which would have caused

7 the firm to make decision B, which decision would you

8 conclude that that firm would make?

9 A. I'm not sure I can answer that. I gave that

10 example because I thought it was informative about how

11 I applied both the general insight and the firm level

12 insights to a particular claim that Professor Shapiro

13 made and it's both. You asked me about sequence it's

14 not sequential. So I guess I need another example from

15 what I've actually done.

16 Q. Is there no uniform weighting system, I guess

17 is what I'm asking, that you apply between the firm

18 level factors and the industry level factors?

19 MR. RYAN: Objection to form.

20 A. That's a good question. The short answer is

21 no, there is not a uniform weighting. So you take --

22 again, if I could use an example, would that be

23 helpful?

24 Q. Uh-huh.

25 

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1 They had the halo effect.

2 They had the learning benefits. What led them not to

3 continue to be successful? For them I would not turn

4 to industry factors because they were in the incumbent

5 position with Apple. In that -- for that analysis, I

6 would go to what was it about Infineon, their

7 investment, their -- their strategy and I would not

8 need to go to, or see value in going to, the broader

9 industry factors. I hope that's instructive.

10 Q. When you talk about the broader industry

11 factors, would you consider Qualcomm's conduct to be a

12 relevant industry factor?

13 A. The way I have constructed this test is no.

14 Q. Why not?

15 A. Because I want to distinguish between the

16 claims of anticompetitive harm versus what are the

17 insights from industrial organization with respect to

18 industry conditions broadly and these specific factors.

19 Those don't go away in the but-for world, so getting at

20 how do I test, taking into account the conduct is it's

21 basically a two-step approach. One is to take away the

22 at-issue conduct, recognize that the industry factors

23 would still be influential.

24 Q. Would you consider Qualcomm to be an industry

25 participant?

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1 the outset, I viewed that as very much in parallel with

2 what the Federal Trade Commission is claiming with

3 respect to anticompetitive harms. So I don't look at

4 the interactions broadly, I look at the, if you will,

5 the candidate anticompetitive harms.

6 MS. IKEDA: Why don't we take a five minute

7 break.

8 MR. RYAN: Sure.

9 THE VIDEOGRAPHER: The time is 10:11 a.m. and

10 we're going off the record.

11 (A recess was taken.)

12 THE VIDEOGRAPHER: This begins media unit

13 number two. The time is 10:22 a.m. and we are back on

14 record.

15 Q. In paragraph 19 of your report you refer to the

16 industry factors hypothesis and the Plaintiff's

17 hypothesis as alternative hypotheses. Are you saying

18 that these are mutually exclusive hypotheses?

19 A. No. What I'm saying here is that I'm going to

20 approach my work by analyzing these two alternative

21 hypotheses and it could be that by applying the, for

22 example, the industry factors hypothesis, I find it has

23 some explanatory power but there are other things I

24 can't explain, in which case it would lead to what you

25 refer to in your question, which is not mutually

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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 industrial organization principals identified that

2 investment, that's really why where I first -- first

3 major insight I -- I developed and there are many

4 treatises in industrial organization that, and

5 particular academic works, that identify investment as

6 being important in the industries, with or without

7 particular conduct. So my industry analysis

8 illustrates the importance of that general industrial

9 organization principal but I think it also added in the

10 insight around foresight. Some industries it's just

11 you put up the money and it's pretty clear what -- how

12 much money you need to put up and you're going to get a

13 certain outcome. In this industry, that's not the case

14 at all. So that -- that indicated that judgment or

15 foresight in making those investments was also

16 important.

17 But going back to your question, this came out

18 of the application of industrial organization

19 principals, informed by academic literature and then

20 guided by a deeper industry analysis, which gave me the

21 additional insight around foresight.

22 Q. Is there academic literature that espouses the

23 view that a firm's conduct doesn't effect these three

24 factors of foresight investment and execution?

25 MR. RYAN: Objection to form.

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1 A. Well, certainly the Plaintiff's hypothesis is

2 that the conduct did effect the amounts of investment

3 that individual firms made and were willing to make and

4 related that it effected the exit and entry decisions.

5 But what the main insight from industrial organization

6 and from various applications of industrial

7 organization principals, is that these factors are

8 relevant with or without particular conduct in

9 industries like this industry.

10 Q. And is that found in the academic literature on

11 industrial organization?

12 A. Yes.

13 Q. Can you cite to me an example?

14 A. Well, the -- I think I -- there's a lot to

15 cite. I mean, the -- I cited the textbook that's so

16 famous by Scherer. He did a lot of work on investments

17 and industries. Again, going to, I think the line of

18 your question, what's the role of conduct. His work

19 and that well cited text simply emphasizes that in

20 certain industries they are investment intensive and

21 it's a central component of firm strategy and how --

22 how the industry will evolve and how it will be

23 structured at any time point in time. There are -- my

24 predecessor at Yale, Sharon Auster, she's written

25 papers on the importance of investment. My own paper

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1 with Scott Maston, United Shoe, even though that's a

2 long ago example, United Shoe was, believe it or not,

3 as I recall from the paper, the second largest investor

4 in R&D in the -- in the last -- in the first half of

5 the last century. There are papers by Dick -- excuse

6 me, Richard Schmalensee on investment intensive

7 industries.

8 So those things come out of the industrial

9 organization literature independent of conduct and

10 that's the guidance that I followed in establishing and

11 identifying the industry factors hypothesis which the

12 cornerstone of that is investment.

13 Q. So I understand there's a body of academic

14 literature that discusses the importance of investments

15 and that certain industries are investment intensive.

16 What I'm trying to understand is whether the academic

17 literature affirmatively says that conduct does not

18 effect the investment decisions made by firms.

19 MR. RYAN: Objection to form.

20 A. No. I think that's correct. That there is --

21 there is literature that would allow for that but

22 that's why I have the two hypotheses.

23 Q. I'm sorry. There is literature that would

24 allow for what?

25 A. That conduct could effect investment.

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1 Q. Oh. What literature would that be?

2 A. Professor Shapiro cites various literature.

3 The most, I think, on point examples are the papers

4 that deal with the potential anticompetitive effects of

5 contracts on rivals not making investments, not

6 entering, not reaching scale.

7 Q. And did you consider that academic literature

8 in your analysis of whether the conduct effected firms'

9 investment decisions?

10 A. I did so in -- in the following way: I

11 entertained the Plaintiff's hypothesis, which is

12 exactly along those lines. And of course I also kept

13 that in mind, as I indicated when I was evaluating

14 particular examples, like the MediaTech example. I

15 also -- I believe I provided the most comprehensive

16 information on investments by individual firms and,

17 therefore, in the aggregate. I also tested that by

18 evaluating the long-run performance of the industry.

19 So I setup these two hypotheses carefully, but in terms

20 of testing, I do allow for that insofar as I evaluate

21 the explanatory power of the Plaintiff's hypothesis. I

22 understand that's exactly what plaintiffs claim.

23 Excuse me, I shouldn't say plaintiffs. The Federal

24 Trade Commission claims.

25 Q. And you said it's in literature that supports

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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 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 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 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 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 Q. Are foresight and good fortune synonymous?

2 A. No. That's why I said "or."

3 Q. So what's the difference?

4 A. Well, this is -- it's important to understand

5 that a firm may do something that ends of working out

6 or not working out. It's not always a perfect look

7 back to say that was based on their judgment or whether

8 they were either lucky or unlucky. That said, when you

9 look at a firm's decision making over time, you can

10 evaluate the consistency of their decisions and

11 timeliness and when you look across firms you can also

12 do the same. But what I'm allowing for here is, of

13 course, in a dynamic environment, one doesn't know and

14 one cannot always claim that a bad outcome is due to

15 bad luck or a good outcome is due to good luck. So

16 that in the real world evaluation of this element of

17 strategy, foresight, needs to be put into a context

18 where it's not certain and so inferences can be made

19 but you have to keep in mind, just like an error term

20 in a regression, that there may be something else that

21 explains a particular outcome. That said, by taking

22 time series, by looking at more -- looking across OEMs,

23 I looked at 14, Professor Shapiro identified 6, as I

24 recall for anticompetitive harm allegations, I can get

25 insights as to the roll of foresight, especially when

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1 in terms of what evidence to look at was where

2 Professor Shapiro made specific claims with respect to

3 anticompetitive outcomes. Those two are different. My

4 recollection is that putting Qualcomm aside my analysis

5 deals with eight -- not exclusively -- but it includes

6 eight individual suppliers that were in the top five at

7 one point in their history. Professor Shapiro's

8 analysis deals with four of them but not the other

9 four. So broad -- broader set of evidence, including

10 more decisions and more outcomes.

11 Q. So just taking any one of these for instance,

12 like Intel as an example, when you're assigning them a

13 grade for foresight, did you look at every single

14 strategic decision they made during the life of the

15 firm or did you select certain occasions?

16 A. Well, I'm sorry. No one can look at every

17 decision that they made. I'm focusing on the decisions

18 that concern investment in technology and that -- that

19 implicates their decisions with respect to particular

20 product standards and competing families of standards,

21 et cetera. I'm not sure if I'm answering your

22 question. I can go into more detail about Intel if you

23 want.

24 Q. I know about the example with WiMAX that you

25 discuss but were there other specific investment

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1

2

3

4 

5

6 

7

8

9

10

11

12

13 .

14

15

16

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 Q. I guess I'm just trying to understand if there

2 were any -- if there is an objective way to know that

3 you captured every relevant strategic decision in your

4 foresight analysis.

5 A. Well, my -- my assignment is to evaluate

6 Professor Shapiro's claims, so I don't feel like I've

7 missed anything. I've got beyond his analysis. Are

8 there some things -- I think this is a legitimate

9 question -- are there some things where it is not

10 possible to get enough insight into a particular set of

11 decisions? Or maybe not enough or not as much as I

12 would like? Yes. I can give you an example. Samsung.

13 Not analyzed by Professor Shapiro despite the fact that

14 they're in the top five. Not analyzed by Professor

15 Shapiro, despite the fact that they are one of the top

16 two in premium handsets in the world. He does not

17 analyze them as a mobile chip supplier but I do. But

18 can I see everything that they did? No. But I can

19 identify that they reached CDMA capability, for

20 example, and I can see that they've invested in the

21 capability to supply chips for much of their product

22 offerings. I didn't have to, however, go beyond that

23 for my analysis because I reached the judgment that

24 they had focused on things that were important and they

25 had succeeded.

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1 that is by, as I recall, Bain who was brought in and

2 evaluated their investment efforts. That analysis

3 included cross-firm analyses that indicated different

4 levels of efficiency associated with investments by

5 different firms.

6 Q. Is there an accepted definition of the term

7 investment efficiency?

8 A. There are but for purposes here, the big

9 differences of the types that I was talking about are

10 what I focused on.

11 Q. And what's that?

12 

13

14

15

16

17 Q. I think we --

18 A. -- more specific would require information that

19 my understanding would be only available with more

20 discovery and even then it may be the firms don't track

21 particular investments and then provide a return on

22 investment figure. But they're -- in theory there are

23 more precise ways to measure efficiency.

24 Q. So you're saying there are several ways to

25 measure investment efficiency?

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1 other ways to evaluate efficiency that may or may not

2 require a particular dollar percent returns. Again,

3 you look over time and you find the pattern and you can

4 assess efficiency of the investment. I think the Bain

5 analyses, and my recollection is that there are

6 multiple ones, use particular metrics that confirm that

7 efficiency is important. I don't remember sitting here

8 right now exactly what those were. I might have them

9 in my report if you want me to take a look.

10 Q. You're saying you don't remember the actual

11 formula they used to calculate efficiency?

12 A. I can't provide that off the top of my head. I

13 recall the Bain analyses that I believe were sound and

14 provided insight that would be valuable. I don't know

15 if I -- I think I have it in my report, some reference

16 to it if you would like me to take a look.

17 Q. I think I have a document that we can use later

18 to get to the Bain analysis. Before we do that, did

19 you apply whatever the measure was that Bain used to

20 measure efficiency in your analyses?

21 A. No, I viewed that as confirming that efficiency

22 of investment differed and was important. I also put

23 it in the context of my 14 evaluations of chip

24 suppliers, I also put it in the context of my time

25 series documentation of investment levels. And as I

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1 indicated, those investment levels differ and they

2 don't correlate anywhere near to a factor of one with

3 measures of industry success.

4 Q. So you didn't take the Bain analysis and

5 reapply it to 14 modem supplier investments?

6 A. No, I did not. Correct. I did what I just

7 said.

8 Q. Is there a more commonly used measure of

9 efficiency in the field of economics?

10 MR. RYAN: Objection to form.

11 A. For industry settings where you have the right

12 information and the types of projects are more

13 discreet, financial accounting would generate percent

14 return on investment or return on capital as variable

15 measures of investment efficiency. Whether those are

16 risk adjusted, et cetera, you get into finer points.

17 That kind of information is not available here and that

18 -- to what extent that information exists, I would say

19 probably varies across the firms, but given my

20 understanding of the industry context, it's unlikely

21 that any firm is able to track its investments, measure

22 that investment effort in such a clear discreet way,

23 which itself is a step in coming up with a percentage

24 return on investment.

25 Q. So when you refer to return on investment, is

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1 I can give you more reasons why you wouldn't expect it

2 in this context.

3 Q. Are are there other ones that you can think of

4 now?

5 A. Sure. I mean one would be, okay, I realize

6 this value of information that I think I've gained from

7 this particular engagement but the realized value of

8 that information, in fact, depends on whether I've been

9 able to transfer to another project. Well, that's a

10 hard be measurement also. How -- how good was my team

11 in transferring that information. How valuable was the

12 transfer as an increment to what they already knew, the

13 next team or it's the same team in the next setting.

14 This is not an easy even conceptual problem. So that's

15 why I say you're not going to get precise measures of

16 return on investment in this kind of setting, hence,

17 going to the analyses that I did.

18 Q. And what was the formula that you used to

19 calculate investment efficiency for each firm?

20 MR. RYAN: Objection.

21 A. There wasn't a single formula because the, in

22 some cases, the investments were in the category of not

23 successful, not pursued, abandoned. I don't want to

24 repeat myself about what I did do in terms of tracking

25 investments and valuating that relationship to firm

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1 success. I can go into more detail on that if you'd

2 like.

3 Q. So are you saying that in this case investment

4 efficiency is not a quantifiable metric?

5 MR. RYAN: Objection to form.

6 A. No, I'm not. I'm saying you can get reliable

7 indicators of differences, important differences among

8 firms on that dimension.

9 Q. And can you assign a value to the efficiency of

10 each firm?

11 A. In terms of an arbitrary, like, ranking in lieu

12 of return on investment, no. But you can clearly

13 identify major differences where you say MediaTech is

14 more efficient than Intel and that's borne out by clear

15 evidence on their spend during certain periods of time

16 and what business they got.

17 Q. And so for each firm did you take into account

18 the same factors in your investment efficiency

19 analysis?

20 A. I used the same approach as part of the overall

21 hypothesis testing. The same information isn't

22 available in each case. Different types of

23 information. For example, starting a project

24 abandoning it, the timeliness of that, the spend, and

25 then the indications of how the investment led to

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1 and if they're not there, that means I didn't have the

2 data. And I indicated in the notes -- I did some

3 various prorations, if that's the right term,

4 prorations of the numbers to develop these time series.

5 Q. We talked earlier about the Bain presentation

6 that was in -- referenced in paragraph 165.

7 A. Yes.

8 Q. You don't recall what the specific methodology

9 was used in that presentation?

10 MR. RYAN: Objection.

11 A. You're saying it's in paragraph 165?

12 Q. Yes. Footnote 327.

13 A. Okay. And I apologize. I'm just finding this

14 and locating this. What is your question about this,

15 did I recall the specific methodology without looking?

16 Q. Right. I thought you said this earlier but I'm

17 just confirming, today right now, you don't recall the

18 specific methodology that was used, correct?

19 A. No, and I didn't -- just to be clear, I think

20 you asked me did I take that methodology and apply it.

21 I did not. I would be happy to look at the document

22 again.

23 Q. Did you assess the methodology or did you just

24 accept the findings for purposes of your report?

25 MR. RYAN: Objection.

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1 could come from multiple customers. And I just wanted

2 to include that in my answer. And that's, you know,

3 Professor Shapiro and I agree on that.

4 Q. Turning to paragraph 167, you identify the

5 speed with which a modem chip supplier can make its

6 innovations available to OEMs as a factor that effects

7 efficiency of R&D spending; is that right?

8 A. Yes.

9 Q. And how, if at all, is that different from the

10 concept of execution that you discuss elsewhere in your

11 report?

12 A. Execution involves that timeliness and speed,

13 but I think you're capturing also the timeliness of the

14 investment, and then condition on that, the capability

15 of bringing that product to market. So I'm not sure if

16 I -- I should listen better to your question.

17 Q. Well, when you talk about speed with which a

18 modem chip supplier makes its innovations available, is

19 there some overlap in this factor with what you're

20 considering under the execution factor?

21 A. Yes. Yes. And also with the investment factor

22 because when -- when the firm makes the investment,

23 also will effect the timing that the supplier can make

24 its innovations -- I'm now quoting -- can, quote, make

25 its innovations available to OEMs. So timeliness of

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1 investment and speed of execution are things that will

2 effect that ability to make innovations available.

3 Q. So if a chip supplier didn't have access to

4 buyers of its chips, would that supplier by definition

5 have inefficient R&D investment?

6 MR. RYAN: Objection.

7 A. No, because the efficiency of the R&D depends

8 on how they do going forward. And your previous

9 question elicited two dimensions of ways you can get

10 more efficient investment having more sales to a given

11 customer and having more sales by selling to greater

12 numbers of OEMs. There's no starting point where you

13 say not having a customer means low efficiency. It

14 depends on how they do going forward. Conversely,

15 having a customer, as indicated by Freescale,

16 ST-Ericsson, Infineon, doesn't guarantee efficiency of

17 investment by itself.

18 Q. I guess what I'm saying is if speed to market

19 is a factor that you consider in investment --

20 investment efficiency, then if a chip supplier never

21 brings its chips to market, does that by definition

22 mean it is inefficient?

23 A. But you're saying they make the investment,

24 right?

25 Q. Uh-huh.

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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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