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UNITED STATES COURT REPORTERS

2027

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

FEDERAL TRADE COMMISSION,

PLAINTIFF,

VS.

QUALCOMM INCORPORATED, A

DELAWARE CORPORATION,

DEFENDANT.

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C-17-00220 LHK

SAN JOSE, CALIFORNIA

JANUARY 28, 2019

VOLUME 10

PAGES 2027-2094

TRANSCRIPT OF PROCEEDINGS

BEFORE THE HONORABLE LUCY H. KOH

UNITED STATES DISTRICT JUDGE

A P P E A R A N C E S:

FOR THE PLAINTIFF: FEDERAL TRADE COMMISSION

BY: JENNIFER MILICI

DANIEL J. MATHESON

WESLEY G. CARSON

RAJESH JAMES

NATHANIEL M. HOPKIN

PHILIP J. KEHL

MIKA IKEDA

600 PENNSYLVANIA AVENUE, NW

WASHINGTON, D.C. 20580

APPEARANCES CONTINUED ON NEXT PAGE

OFFICIAL COURT REPORTERS: LEE-ANNE SHORTRIDGE, CSR, CRR

CERTIFICATE NUMBER 9595

IRENE RODRIGUEZ, CSR, CRR, RMR

CERTIFICATE NUMBER 8074

PROCEEDINGS RECORDED BY MECHANICAL STENOGRAPHY

TRANSCRIPT PRODUCED WITH COMPUTER

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UNITED STATES COURT REPORTERS

2028

APPEARANCES (CONTINUED)

FOR THE DEFENDANT: KEKER, VAN NEST & PETERS

BY: ROBERT A. VAN NEST

JUSTINA K. SESSIONS

EUGENE M. PAIGE

CHRISTINA BLAIS

MATAN SHACHAM

CODY HARRIS

KRISTIN HUCEK

633 BATTERY STREET

SAN FRANCISCO, CALIFORNIA 94111

CRAVATH, SWAINE & MOORE

BY: GARY A. BORNSTEIN

MICHAEL BRENT BYARS

YONATAN EVEN

JORDAN D. PETERSON

MING-TOY TAYLOR

DEREK SUTTON

ANDREW HUYNH

ANTONY RYAN

825 EIGHTH AVENUE

NEW YORK, NEW YORK 10019

NORTON ROSE FULBRIGHT

BY: MARC COLLIER

TALBOT HANSUM

98 SAN JACINTO BOULEVARD, SUITE 1100

AUSTIN, TEXAS 78701

BY: ERIC B. HALL

DANIEL LEVENTHAL

1301 MCKINNEY, SUITE 5100

HOUSTON, TEXAS 77010

ALSO PRESENT: MARK SNYDER

JEFF DAHM

KEN KOTARSKI

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UNITED STATES COURT REPORTERS

2029

INDEX OF WITNESSES

PLAINTIFF'S REBUTTAL

CARL SHAPIRO

DIRECT EXAM BY MR. JAMES P. 2031

CROSS-EXAM BY MR. VAN NEST P. 2062

REDIRECT EXAM BY MR. JAMES P. 2083

RECROSS-EXAM BY MR. VAN NEST P. 2087

INJUNG LEE

VIDEOTAPED DEPOSITION P. 2090

YOOSEOK KIM

VIDEOTAPED DEPOSITION P. 2090

SEUNGHO AHN

VIDEOTAPED DEPOSITION P. 2090

JOHN GRUBBS

VIDEOTAPED DEPOSITION P. 2091

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2030

SAN JOSE, CALIFORNIA JANUARY 28, 2019

P R O C E E D I N G S

(COURT CONVENED AT 9:02 A.M.)

THE COURT: GOOD MORNING AND WELCOME.

MR. VAN NEST: GOOD MORNING, YOUR HONOR.

MS. MILICI: GOOD MORNING.

THE COURT: PLEASE TAKE A SEAT.

AND CALL YOUR FIRST WITNESS.

MR. JAMES: RAJ JAMES FOR THE FTC.

THE FTC CALLS AS ITS NEXT WITNESS PROFESSOR CARL SHAPIRO.

MAY WE APPROACH WITH THE BINDERS?

THE COURT: YES, PLEASE. PAR.

THE CLERK: HE'S STILL UNDER OATH; CORRECT?

THE COURT: YES, YOU'RE STILL UNDER OATH, SIR.

MR. CARSON: MAY I APPROACH?

THE COURT: YES. AND I FAILED TO ASK,

MR. SUNG HOE AHN, WHO WAS A WITNESS AT THE END OF THE DAY LAST

FRIDAY BY VIDEO, IS HE SUBJECT TO RECALL OR NOT SUBJECT TO

RECALL?

MR. BYARS: NOT SUBJECT BY QUALCOMM, YOUR HONOR.

THE COURT: HE IS?

MR. BYARS: HE'S NOT.

THE COURT: I'M SORRY. I MISHEARD YOU. WHAT ABOUT

FOR THE PLAINTIFF.

MS. IKEDA: WE INTEND TO CALL HIM AS A REBUTTAL

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SHAPIRO DIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2031

WITNESS.

THE COURT: OKAY. ARE YOU READY?

(PLAINTIFF'S WITNESS, CARL SHAPIRO, WAS PREVIOUSLY SWORN.)

DIRECT EXAMINATION

BY MR. JAMES:

Q. WELCOME BACK, PROFESSOR SHAPIRO.

A. GOOD MORNING, MR. JAMES.

Q. HAVE YOU HEARD THE TESTIMONY PROVIDED HERE BY QUALCOMM'S

ECONOMIC EXPERTS, DR. CHIPTY, PROFESSOR SNYDER, AND

PROFESSOR NEVO?

A. YES, I HAVE.

Q. AND HAS THAT TESTIMONY CAUSED YOU TO SUBSTANTIALLY CHANGE

ANY OF THE OPINIONS YOU OFFERED TO THIS COURT WHEN YOU

TESTIFIED HERE TWO WEEKS AGO?

A. NO, BUT I APPRECIATE THE OPPORTUNITY TO RESPOND.

Q. LET'S START WITH THE TESTIMONY GIVEN BY QUALCOMM'S

ECONOMIC EXPERTS REGARDING THE OVERALL CHARACTERISTICS AND

PERFORMANCE OF THE MODEM CHIP INDUSTRY.

WHAT'S YOUR REACTION TO THAT TESTIMONY?

A. I THINK WE ALL AGREE THE INDUSTRY IS DYNAMIC. IT'S LIKE

MANY OTHER HIGH TECH INDUSTRIES, PRODUCTS IMPROVE SIGNIFICANTLY

OVER TIME, THERE ARE SUBSTANTIAL ECONOMIES OF SCALE, AND IT'S

IMPORTANT FOR FIRMS TO MAKE SIGNIFICANT R&D INVESTMENTS IN

ORDER TO REMAIN COMPETITIVE.

Q. AND YOUR CONCLUSIONS REGARDING THE COMPETITIVE EFFECTS OF

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UNITED STATES COURT REPORTERS

2032

QUALCOMM'S CHALLENGED PRACTICES DIVERT QUITE SHARPLY FROM THOSE

OF PROFESSOR SNYDER. WHY DO YOU REACH SUCH DIFFERENT

CONCLUSIONS?

A. BECAUSE WE USE VERY DIFFERENT METHODOLOGIES.

Q. HOW WOULD YOU DESCRIBE YOUR METHODOLOGY FOR EVALUATING THE

COMPETITIVE EFFECTS OF QUALCOMM'S CHALLENGED PRACTICES?

A. SO MY METHODOLOGY HAS TWO STEPS. FIRST, I ASSESS THE

EVIDENCE REGARDING WHETHER QUALCOMM USED ITS CHIP LEVERAGE TO

OBTAIN SUPRA-FRAND ROYALTIES, OR WHAT I'M CALLING A ROYALTY

SURCHARGE.

AND THEN SECOND, I TRACED THROUGH THE EFFECTS OF THAT

ROYALTY SURCHARGE ON THE MARKET GENERALLY, ON COMPETITION, AND

ON CONSUMERS.

SO THE KEY TO THE METHODOLOGY, IT'S VERY FOCUSSED ON THE

PRACTICES AT HAND AND TRACING THROUGH THEIR EFFECTS.

Q. HOW DO YOU RESPOND TO CHARGES FROM ALL THREE OF QUALCOMM'S

ECONOMIC EXPERTS THAT YOUR APPROACH IS PURELY THEORETICAL?

A. I DISAGREE. I DON'T THINK THAT'S TRUE OR FAIR.

THE FIRST STAGE OF THE ANALYSIS IS VERY MUCH FOCUSSED ON

THE EVIDENCE REGARDING QUALCOMM'S USE OF ITS CHIP LEVERAGE TO

OBTAIN ROYALTY SURCHARGES.

I THINK THE -- WITH REGARDS TO NEVO IN PARTICULAR, REALLY

HE DOES NOT WANT TO ENGAGE WITH THAT EVIDENCE.

AND THE SECOND STAGE OF THE ANALYSIS IS VERY MUCH ROOTED

IN THE REALITY OF HOW THE BUSINESS WORKS, HOW OEM'S NEGOTIATE

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UNITED STATES COURT REPORTERS

2033

ROYALTY ARRANGEMENTS AND CHIP SUPPLY AGREEMENTS WITH QUALCOMM,

THE TIMING OF THOSE ARRANGEMENTS, AND THEN HOW COMPETITION

OCCURS AT THE CHIP AND OEM LEVEL.

Q. PROFESSOR SNYDER TESTIFIED THAT YOUR, QUOTE, "METHODOLOGY

IS FUNDAMENTALLY FLAWED," UNQUOTE.

HOW DO YOU RESPOND TO THAT?

A. WELL, HE'S ENTITLED TO HIS OPINION.

BUT THE METHODOLOGY I'VE DESCRIBED, YOUR HONOR, WHICH I

WOULD CHARACTERIZE AS FOCUSSING ON THE CHALLENGED CONDUCT AND

LOOKING CAREFULLY AT HOW THE INDUSTRY WORKS AND THEN APPLYING

ECONOMIC ANALYSIS TO, IN THAT FOCUSSED WAY, TRY TO ASSESS THE

EFFECTS OF THE CONDUCT.

THIS IS THE STANDARD METHODOLOGY THAT'S USED BY ANTITRUST

ECONOMISTS IN CONDUCT CASES. IT'S VERY SIMILAR IN MERGER CASES

AS WELL.

AND I HAVE TO SAY, I'VE BEEN CHIEF ECONOMIST AT THE D.O.J.

TWICE. I'M INVOLVED IN A GOOD NUMBER OF ANTITRUST CASES, SOME

FOR THE GOVERNMENT, SOME FOR PRIVATE PARTIES. AND I'VE BEEN

TRAINING ANTITRUST ECONOMISTS AND IO ECONOMISTS FOR MANY YEARS

AND THIS IS THE METHODOLOGY THAT'S WIDELY ADOPTED.

SO I JUST DON'T THINK HIS STATEMENT THERE IS ACCURATE OR

FAIR.

Q. YOU'VE DESCRIBED YOUR METHODOLOGY. HOW WOULD YOU DESCRIBE

PROFESSOR SNYDER'S METHODOLOGY?

A. WELL, HE LOOKED CLOSELY AT A GOOD NUMBER OF QUALCOMM'S

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SHAPIRO DIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2034

COMPETITORS OVER A PERIOD OF TIME, AND HE THEN EVALUATED HOW

THEY DID BASED ON HIS THREE FACTORS, WHICH WERE FORESIGHT,

INVESTMENT, AND EXECUTION.

AND THEN HE -- HE -- IN HIS VIEW, HE WAS ABLE TO EXPLAIN

THE SUCCESS OR FAILURE OF THE DIFFERENT RIVALS BASED ON THOSE

THREE FACTORS WITHOUT REFERENCE TO QUALCOMM'S CONDUCT, THE

CHALLENGED CONDUCT.

AND SINCE HE, IN HIS VIEW, CAN SATISFACTORILY EXPLAIN WHAT

HAPPENED, THEN HE CONCLUDED THAT QUALCOMM'S CONDUCT DID NOT

AFFECT THE MARKET OUTCOMES.

Q. HOW DO YOU EVALUATE PROFESSOR SNYDER'S METHODOLOGY?

A. WELL, LET ME DO THIS BY WAY OF AN ANALOGY.

I THINK THE PROBLEM IS IT'S --

MR. VAN NEST: OBJECTION, YOUR HONOR. THIS IS

OUTSIDE THE SCOPE OF THE REBUTTAL REPORT. HIS DISCUSSION OF

PROFESSOR SNYDER IS AT 326, 327, 328.

THE COURT: OKAY. GIVE ME ONE SECOND, PLEASE.

YOU SAID 327, 328 --

MR. VAN NEST: 320 --

THE COURT: ARE THOSE PARAGRAPHS OR PAGES?

MR. VAN NEST: THEY'RE PARAGRAPHS, YOUR HONOR. THE

PAGES IN THE REBUTTAL REPORT ARE 112 AND 113.

THE COURT: OKAY. WHAT'S YOUR RESPONSE?

MR. JAMES: MY RESPONSE IS THAT THE ISSUES RELATING

TO THE DYNAMISM OF THE INDUSTRY AND THE HAZARDS OF ATTEMPTING

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SHAPIRO DIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2035

TO ASCERTAIN AFTER THE FACT HOW SPECIFIC COMPETITORS WOULD HAVE

FARED ABSENT QUALCOMM'S CHALLENGED PRACTICES HAVE BEEN

ADDRESSED BY PROFESSOR SHAPIRO, INCLUDING IN PARAGRAPHS 38 TO

48 OF HIS REBUTTAL, PARAGRAPHS 254 TO 258, AND 294.

THE COURT: WHAT WERE THE OTHER NUMBERS OTHER THAN 38

THROUGH 40, WHICH SEEM TO ADDRESS DR. CHIPTY AND

PROFESSOR NEVO?

MR. JAMES: I THINK THESE ARE CRITICISMS THAT ARE

COMMON TO ALL THREE OF QUALCOMM'S EXPERTS. THE ADDITIONAL

PARAGRAPHS ARE 254 TO 258, AND 294. 294 TALKS ABOUT THE

DIFFICULTIES OF ASCERTAINING THE EFFECTS ON PARTICULAR

COMPETITORS.

MR. VAN NEST: NONE OF THESE ADDRESS DR. SNYDER.

THE COURT: IT LOOKS LIKE THE ONLY ONES THAT ADDRESS

DR. SNYDER ARE 326 THROUGH 328.

MR. VAN NEST: THAT'S RIGHT.

MR. JAMES: I THINK THAT'S ILLUSTRATIVE OF THE

DIFFICULTIES OF THE APPROACH WITH REGARD TO THE REFUSAL TO

LICENSE RIVALS ASPECT OF THE CONDUCT.

I WOULD ALSO SAY THAT MORE GENERALLY, THE LAST -- TWO

WEEKS AGO, PROFESSOR SHAPIRO DESCRIBED HIS METHODOLOGY.

LAST WEEK PROFESSOR SNYDER ATTACKED IT AND PRESENTED AN

ALTERNATIVE HERE.

PROFESSOR SHAPIRO IS SIMPLY USING AN ANALOGY TO ILLUSTRATE

THE DIFFERENCES BETWEEN THE TWO APPROACHES.

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SHAPIRO DIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2036

THE COURT: I'LL OVERRULE THE OBJECTION.

GO AHEAD, PLEASE.

THE WITNESS: THANK YOU, YOUR HONOR.

MY CONCERN IS THAT HIS METHODOLOGY IS REALLY NOT RELIABLE

BECAUSE IT'S JUST VERY EASY, WILL REALLY TEND TO EXONERATE

DEFENDANTS IN THESE TYPES OF CASES PRETTY MUCH REGARDLESS -- IN

WAY TOO MANY CASES. I'LL PUT IT THAT WAY.

SO MY ANALOGY IS WE'VE GOT A DYNAMIC MARKET. THINK OF THE

MARKET AS A FLOWING RIVER AND THE FIRMS AS KAYAKS WHO ARE

TRYING TO NAVIGATE AND RACE DOWN THE RIVER.

AND IT'S TRUE, YOU CAN LOOK AT EACH KAYAK AND SEE WHAT DO

THEY DO IN TERMS OF FORESIGHT? DID THEY PLAN AHEAD ABOUT THE

KAYAKING? WHAT WAS THE INVESTMENT? DO THEY HAVE A GOOD

QUALITY KAYAK? AND DID THEY DO THEIR TRAINING AND HOW DID THEY

EXECUTE.

BUT NOW SUPPOSE I TOLD YOU IN THIS RACE, ONE OF THE TEAMS

WAS ACCUSED OF HIDING ROCKS IN THE OTHER TEAM'S BOATS. IT

REALLY WOULDN'T MAKE A LOT OF SENSE TO LOOK AT THE BOATS GO

DOWN THE RIVER AND SEE, OH, I CAN EXPLAIN THIS BOAT DIDN'T TURN

RIGHT HERE, AND THIS BOAT WASN'T QUITE AS GOOD AS THE OTHER,

AND THIS BOAT, THEY DIDN'T KNOW THIS LOG WAS COMING.

NO. THE MORE DIRECT APPROACH WOULD BE TO SAY, WAIT A

MINUTE. THE ROCKS -- WHICH ARE ANALOGOUS TO THE ROYALTY

SURCHARGE -- WE KNOW ROCKS WEIGH DOWN CANOES AND MAKE THEM

SLOWER -- KAYAKS, MAKE THEM SLOWER AND MORE LIKELY TO CAPSIZE.

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UNITED STATES COURT REPORTERS

2037

AND I'VE EXPLAINED HOW THE ROYALTY SURCHARGE ACTS LIKE A

TAX ON THE COMPETITORS.

SO THE MORE SENSIBLE APPROACH AND THE ANALOGY WOULD BE TO

SAY, LET'S LOOK AND INVESTIGATE AND SEE IF THE TEAM ACCUSED OF

PLACING THE ROCKS DID SO AND WHETHER THEY WERE SUFFICIENTLY

HEAVY TO MAKE ANY DIFFERENCE.

WELL, THE ANALOGY WOULD BE, LET'S LOOK AND SEE WHETHER THE

CONDUCT CREATED A ROYALTY SURCHARGE, AND WAS IT SIGNIFICANT? I

DID THAT FIRST.

AND THEN WE CAN THEN TRACE THROUGH THE EFFECTS, HOW DID

THAT AFFECT THE MARKET? IN THE CASE OF THE ANALOGY, I

CERTAINLY WOULD NOT THINK IT WOULD BE VERY GOOD FOR THE RACE

OFFICIALS TO SAY, OH, WELL, THEY PUT THE ROCKS IN THE BOATS,

BUT, YOU KNOW, THIS BOAT REALLY WASN'T VERY GOOD AND THEY MADE

A MISTAKE ON THAT RAPID, SO WE DON'T CARE ABOUT THE ROCKS.

THAT WOULD AMOUNT TO BLAMING THE VICTIMS.

I JUST DON'T THINK THAT METHODOLOGY IS RELIABLE.

BY MR. JAMES:

Q. QUALCOMM'S ECONOMIC EXPERTS ALL ASSERT THAT THE OVERALL

PERFORMANCE OF THE MODEM CHIP INDUSTRY IS INCONSISTENT WITH

YOUR CONCLUSION THAT QUALCOMM'S CONDUCT HARMED COMPETITION.

WHAT'S YOUR REACTION TO THAT TESTIMONY?

A. AS I SAID AT THE BEGINNING, WE AGREE THAT THERE'S BEEN A

GREAT IMPROVEMENT IN MODEM CHIPS, AS IN MANY OTHER HIGH TECH

MARKETS.

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UNITED STATES COURT REPORTERS

2038

IF ONE WERE TO LOOK AT THAT FACT ALONE AND SAY, OH, THERE

CAN'T BE ANY ANTITRUST PROBLEM HERE, THERE COULDN'T BE ANY

ABUSE OF MONOPOLY POSITION, THAT WOULD AMOUNT TO BASICALLY NOT

HAVING ANTITRUST ENFORCEMENT IN THE HIGH TECH SECTOR.

AND AS AN ANTITRUST ECONOMIST, I THINK THAT WOULD BE A

TERRIBLE MISTAKE BECAUSE IN THESE TYPES OF DYNAMIC INDUSTRIES,

IT'S VERY IMPORTANT THAT THE FIRMS THAT ARE LEADERS, WHO VERY

OFTEN TYPICALLY GOT THERE ON THE MERITS, THAT THEY DON'T THEN

ENGAGE IN CONDUCT THAT BASICALLY TRIPS UP OR STIFF ARMS

COMPETITORS WHO ARE TRYING TO CATCH AND OVERTAKE THEM.

Q. OKAY. LET'S SHIFT GEARS NOW AND TURN TO DR. CHIPTY'S

TESTIMONY RELATING TO MONOPOLY POWER.

HOW DO YOU RESPOND TO DR. CHIPTY'S TESTIMONY REGARDING

QUALCOMM'S MONOPOLY POWER OVER CDMA MODEM CHIPS AND PREMIUM LTE

MODEM CHIPS?

A. MY MAIN RESPONSE IS THAT SHE DID NOT ENGAGE REALLY WITH

THE DIRECT EVIDENCE OF MONOPOLY POWER, THAT IS TO SAY, THE

EXTENSIVE EVIDENCE THAT THE OEM'S HAD POOR ALTERNATIVES TO

QUALCOMM'S MODEM CHIPS, AND THAT GAVE QUALCOMM A GREAT DEAL OF

LEVERAGE WHEN IT WAS THREATENING TO NOT SUPPLY THEM WITH MODEM

CHIPS. THAT'S THE QUESTION, OR THE POWER THAT WE'RE TALKING

ABOUT HERE, AND SHE DID NOT REALLY ADDRESS THAT.

SHE JUMPED RIGHT TO THE STRUCTURAL APPROACH TO EVALUATING

MONOPOLY POWER AND DID NOT ADDRESS THE DIRECT EVIDENCE WHICH IS

SO STRONG HERE.

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UNITED STATES COURT REPORTERS

2039

Q. REGARDING THE MARKET FOR PREMIUM LTE MODEM CHIPS,

DR. CHIPTY TESTIFIED THAT YOU, QUOTE, "HAVE NOT DONE THE WORK

TO IDENTIFY AN ECONOMICALLY COHERENT ANTITRUST MARKET,"

UNQUOTE.

HOW DO YOU RESPOND TO THAT TESTIMONY?

A. WELL, IT'S PRETTY STRONG LANGUAGE.

LET ME REVIEW WHAT I DID. I PERFORMED THE HYPOTHETICAL

MONOPOLIST TEST ON A CANDIDATE MARKET OF PREMIUM LTE MODEM

CHIPS. THIS IS THE STANDARD TEST THAT ANTITRUST ECONOMISTS USE

TO DEFINE RELEVANT PRODUCT MARKETS. DR. CHIPTY ACKNOWLEDGED

THAT IN HER REPORT.

SHE DID NOT MAKE ANY ASSERTION, AS FAR AS I COULD TELL,

THAT I HAD MADE AN ERROR IN PERFORMING THE TEST.

SO I AM LEFT RATHER BAFFLED WITH -- SHE SEEMS UNHAPPY OR

DISSATISFIED WITH THE RESULTS OF THE TEST, BUT IT WAS PERFORMED

PROPERLY, AND SHE AGREES IT'S THE RIGHT TEST. SO I DON'T KNOW

WHAT TO MAKE OF THAT.

Q. IS THE PRECISE BOUNDARY BETWEEN PREMIUM AND NON-PREMIUM

LTE MODEM CHIPS CRITICAL TO YOUR CONCLUSIONS ABOUT QUALCOMM'S

MONOPOLY POWER?

A. NO, IT'S NOT. FOR ONE THING, THE DIRECT EVIDENCE ABOUT

MONOPOLY POWER IS NOT AT ALL BASED ON THAT BOUNDARY OR THE

SPECIFIC WAY IN WHICH THE MARKET'S DEFINED.

SECOND, IT'S ALWAYS THE CASE -- WELL, VIRTUALLY ALWAYS THE

CASE THAT -- LET ME SAY IT'S OFTEN THE CASE THAT PRODUCTS

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2040

OUTSIDE A RELEVANT MARKET COMPETE TO SOME DEGREE WITH PRODUCTS

INSIDE THE RELEVANT MARKET. SHE'S POINTED OUT SOME OF THAT,

BUT THAT DOES NOT UNDERCUT MY CONCLUSIONS.

IF A FIRM HAD A MONOPOLY IN FLYING AN AIRLINE FLIGHT FROM

SAN FRANCISCO AREA TO THE L.A. AREA, THEY WOULD FACE SOME

COMPETITION FROM BUS OR TRAIN.

BUT THEY WOULD STILL HAVE A MONOPOLY AND THAT WOULD ALMOST

CERTAINLY BE A RELEVANT PRODUCT MARKET, NOTWITHSTANDING SOME

COMPETITION TO THINGS THAT ARE MORE DISTANT SUBSTITUTES OUTSIDE

THAT MARKET.

SO THAT DOESN'T, DOESN'T DISTURB THE RESULTS. AND AS I

SAID, I PERFORMED THE TEST.

SO, NO, THIS DOESN'T REALLY -- I DON'T THINK THAT THIS

GOES ANYWHERE.

AND IN THE END, EVEN IF ONE INCLUDED -- MOVED THE

BOUNDARY, IT WOULD NOT AFFECT QUALCOMM'S MARKET SHARE VERY

MUCH.

IN MY REPORT, I SHOW THAT EVEN IF YOU INCLUDED ALL LTE

MODEM CHIPS RATHER THAN JUST PREMIUM, THEN QUALCOMM'S SHARE OF

THAT BROADER GROUP WOULD BE SOMEWHAT SMALLER THAN, AS I MEASURE

IT, BUT THE DIFFERENCE WOULD BE IN THE SINGLE DIGITS AS A

PERCENTAGE POINT.

Q. DR. CHIPTY TESTIFIED THAT YOU, QUOTE, "OVERSTATED

QUALCOMM'S MARKET POWER," UNQUOTE, AND THAT SHE, QUOTE, "HAS

NOT SEEN EVIDENCE OF CONSISTENT AND UNCONSTRAINED MARKET POWER

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UNITED STATES COURT REPORTERS

2041

OF A TYPE THAT WOULD BE REQUIRED TO SUSTAIN THE ALLEGED CONDUCT

IN THIS CASE," UNQUOTE.

HOW DO YOU RESPOND TO THAT?

A. WELL, I THINK THIS IS ACTUALLY A REVEALING STATEMENT ON

HER PART BECAUSE SHE USED THE TERM "UNCONSTRAINED MARKET

POWER," AND THAT'S NOT WHAT WE SHOULD BE LOOKING FOR, OKAY?

EVEN -- FOR INSTANCE, A GREAT DEAL OF MARKET POWER FACE

SOME CONSTRAINTS. IT'S VERY HARD TO THINK OF A FIRM THAT

DOESN'T FACE ANY CONSTRAINTS.

THERE'S ALWAYS A REASON, IF THEY PRICE HIGH ENOUGH, THEY

WILL START TO LOSE BUSINESS. THIS IS THE WELL-KNOWN CELLOPHANE

FALLACY IN ANTITRUST LAW AND ECONOMICS.

IN MY AIRLINE EXAMPLE, CERTAINLY THE AIRLINE, THE MONOPOLY

AIRLINE, WHEN THEY'RE CHARGING A MONOPOLY PRICE FOR AIR TRAVEL

BETWEEN SAN FRANCISCO AND LOS ANGELES, THEY WOULD FACE SOME

CONSTRAINTS.

SO ASKING FOR UNCONSTRAINED MARKET POWER IS THE WRONG

QUESTION. AND SO I THINK SHE'S PUT A BAR WAY HIGH FOR WHAT IT

WOULD TAKE TO FIND MONOPOLY POWER. NOT SO SURPRISING, SHE DOES

NOT THINK THAT THAT HAS BEEN SHOWN.

Q. I WANT TO MOVE ON FROM DR. CHIPTY'S TESTIMONY REGARDING

MARKET POWER TO HER OPINIONS RELATING TO QUALCOMM'S AGREEMENTS

WITH APPLE, AND I'D SPECIFICALLY LIKE TO ASK YOU ABOUT THE

BUSINESS JUSTIFICATIONS THAT SHE OFFERED FOR THOSE AGREEMENTS.

AS AN ANTITRUST ECONOMIST, HOW DO YOU EVALUATE POSSIBLE

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BUSINESS JUSTIFICATIONS FOR THESE KINDS OF PAYMENTS IN EXCHANGE

FOR EXCLUSIVITY?

A. AS AN ANTITRUST ECONOMIST, I ASK WHETHER THERE ARE

PROCOMPETITIVE BUSINESS OBJECTIVES THAT ARE ACHIEVED BY THESE

PAYMENTS THAT COULD NOT BE ACHIEVED THROUGH A LESS RESTRICTIVE

ALTERNATIVE CONTRACTUAL ARRANGEMENT.

Q. DID DR. CHIPTY PERFORM THAT KIND OF ANALYSIS?

A. NO, SHE DID NOT, SO FAR AS I CAN DETERMINE, PERFORM ANY

LESS RESTRICTIVE ALTERNATIVE ANALYSIS TO THE AGREEMENTS BETWEEN

QUALCOMM AND APPLE.

AS AN EXAMPLE, SHE POINTED OUT THAT QUALCOMM NEEDED TO

INCUR SOME SUBSTANTIAL COSTS IN ORDER TO SERVE APPLE. THAT'S

TRUE, AND THAT PRESENTS A BUSINESS ISSUE FOR QUALCOMM, HOW DO

THEY MAKE SURE THE INVESTMENTS ARE GOING TO BE PROFITABLE?

NOW, IN FACT, THE RELATIONSHIP WAS HIGHLY PROFITABLE.

BUT IN THAT SITUATION, ONE NATURAL BUSINESS RESPONSE --

WAY OF DEALING WITH THAT PROBLEM IS FOR APPLE TO HELP DEFRAY

THE COSTS SO THAT QUALCOMM'S RISK IS REDUCED.

BUT INSTEAD, WHAT WE SAW IN THE FIRST AMENDMENT

TRANSITION -- FIRST AMENDED TRANSITION AGREEMENT WAS VERY LARGE

PAYMENTS GOING FROM QUALCOMM TO APPLE, IN EXACTLY THE OPPOSITE

DIRECTION THAT ONE WOULD EXPECT IN TERMS OF AT LEAST ONE WAY OF

THE TWO COMPANIES SOLVING THIS RISK SHARING QUESTION.

Q. I'M GOING TO MOVE ON FROM DR. CHIPTY'S OPINIONS TO

PROFESSOR NEVO'S.

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DID YOU REVIEW PROFESSOR NEVO'S EMPIRICAL TEST OF THE NO

LICENSE, NO CHIPS POLICY AS PRESENTED IN HIS REPORT?

A. YES. I -- MY REBUTTAL REPORT HAS AN EXTENSIVE RESPONSE TO

HIS EMPIRICAL TESTS.

Q. CAN YOU SUMMARIZE YOUR CONCLUSIONS WITH REGARD TO THE

TESTS THAT PROFESSOR NEVO PRESENTED TO THIS COURT ON FRIDAY?

A. I DON'T THINK THEY WERE AT ALL RELIABLE OR INFORMATIVE.

THERE ARE TWO FUNDAMENTAL PROBLEMS WITH HIS TESTS.

FIRST ARE MEASUREMENT PROBLEMS. HIS DATA IS NOT -- THE

DATA HE PULLED TOGETHER IS -- THE MEASUREMENT IS ALL MESSED UP.

AND THEN SECOND, THE TESTS ARE JUST POORLY CONCEIVED. HE

CLAIMS THEY TEST THE THEORY OF HARM IN THIS CASE, BUT THEY

DON'T PROPERLY DO SO.

Q. WHAT IS THE FUNDAMENTAL MEASUREMENT PROBLEM THAT YOU REFER

TO?

A. WELL, I THINK THIS, THIS -- THERE WAS A LOT OF TIME SPENT

ON THIS ON FRIDAY WHEN HE TESTIFIED HERE. HE LOOKED AT THE

CONTRACTUAL RATE -- LET ME BACK UP.

HE HAD HUNDREDS OF LICENSE AGREEMENTS BETWEEN QUALCOMM AND

VARIOUS OEM'S, AND FROM THOSE HE HAD HIS STAFF EXTRACT, FOR

EACH AGREEMENT, A NUMBER, WHICH WAS THE CONTRACTUAL ROYALTY

RATE.

AND IN SOME OTHER CASES, HE USED A SLIGHTLY DIFFERENT

MEASURE, BUT MOST OF HIS ANALYSIS WAS BASED ON THE CONTRACTUAL

ROYALTY RATE.

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2044

BUT THAT'S NOT AN ECONOMICALLY MEANINGFUL MEASURE. IT

DOESN'T MEASURE EVEN WHAT THE OEM'S WERE ACTUALLY PAYING TO

QUALCOMM UNDER THESE AGREEMENTS IN TERMS OF RUNNING ROYALTIES.

Q. PROFESSOR NEVO ALSO SAID THAT HE LOOKED AT THE EFFECTIVE

ROYALTY RATE FOR AT LEAST SOME OF HIS ANALYSES; RIGHT?

A. YES. SO FOR SOME, WHAT HE CALLED AN EFFECTIVE ROYALTY

RATE, BUT THAT IS NOT ACTUALLY -- HE WASN'T PROPERLY MEASURING

THE ROYALTIES THAT AN OEM WOULD PAY TO QUALCOMM AS A PERCENTAGE

OF THE REVENUE ON THE LICENSED DEVICES, AND IN ALMOST ALL

CASES, THIS CALCULATED RATE THAT HE USED WAS IDENTICAL TO THE

CONTRACTUAL RATE.

SO THIS -- AND THAT DIDN'T REALLY SOLVE THE PROBLEM, THE

MEASUREMENT PROBLEM AT ALL.

Q. WHEN CROSSED, PROFESSOR NEVO DEFENDED HIS USE OF THE

CONTRACTUAL ROYALTY RATE THIS WAY:

"QUESTION: AND WHAT ASPECT OF QUALCOMM'S CONTRACTS DOES

PROFESSOR SHAPIRO ALLEGE IMPOSES A TAX ON QUALCOMM'S RIVALS?

"ANSWER: I BELIEVE IT IS THE CONTRACTUAL RATE."

IS THAT CORRECT?

A. NO. THIS IS -- THIS IS JUST OUTRAGEOUS TESTIMONY. I

MEAN, HE WAS ASKED OVER AND OVER AGAIN, "WHY DID YOU USE THE

CONTRACTUAL RATE? IT'S GOT ALL THESE PROBLEMS. IT'S GOT ALL

THESE PROBLEMS."

AND OVER AND OVER AGAIN HE SAID, "WELL, I DID IT BECAUSE I

DID IT. THIS IS WHAT I DID," AND HE GAVE NO REASON FOR IT.

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2045

AND THEN, AFTER ALL OF THAT, EVENTUALLY HIS REASON WAS

THIS: THAT I AM SUPPOSEDLY MAKING CLAIMS ABOUT THIS

CONTRACTUAL RATE.

THIS IS AN ECONOMICALLY MEANINGLESS RATE. WHY WOULD I DO

THAT? THERE'S NOTHING IN MY REPORTS OR TESTIMONY TO SUGGEST

THAT AT ALL. THIS IS COMPLETELY FABRICATED.

Q. ARE THERE OTHER FUNDAMENTAL PROBLEMS WITH PROFESSOR NEVO'S

APPROACH?

A. I THOUGHT THAT WAS ENOUGH.

BUT THE OTHER PROBLEMS, AS I MENTIONED, ARE MORE

CONCEPTUAL, WHICH IS HE CONSISTENTLY SAYS HE'S TESTING

IMPLICATIONS OF THE THEORY OF HARM, AND I DON'T BELIEVE HE'S

DOING THAT. OKAY?

IN OTHER WORDS, HE'S TESTING -- THESE TESTS DON'T

ACCURATELY REFLECT -- THEY DON'T REFLECT PREDICTIONS. IN OTHER

WORDS, THERE ARE CERTAIN PREDICTIONS FROM THE THEORY OF HARM,

AND HE CLAIMS HE'S TESTING THOSE AND SHOWING THEY'RE NOT TRUE,

BUT HE'S GOT THE LOGIC WRONG.

BUT TO SEE THAT IN DETAIL, WE HAVE TO LOOK AT THE SPECIFIC

TESTS.

Q. LET'S GO THROUGH SOME OF THOSE SLIDES PRESENTED BY

PROFESSOR NEVO.

MR. KOTARSKI, CAN YOU BRING UP PROFESSOR NEVO'S SLIDE

NUMBER 4, CDMA CONTRACTUAL RATES.

WHAT'S YOUR REACTION TO PROFESSOR NEVO'S TESTIMONY

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2046

REGARDING HIS SLIDE NUMBER 4?

A. OKAY. SO, YOUR HONOR, JUST TO REMIND YOU, WHAT HE WAS

DOING HERE IS YOU SEE THE GREY AREA TOWARDS THE RIGHT WHERE IT

SAYS SHAPIRO ALLEGES CDMA MARKET POWER, THAT'S STARTING IN

2006.

HE'S COMPARING THAT ERA -- EXCUSE ME -- THAT TIME PERIOD

TO PRIOR YEARS WHEN THERE WAS NO ALLEGATION IN THE CASE OF CDMA

MARKET POWER.

SO NOW -- HE THEN ASSUMES THAT QUALCOMM HAD NO MARKET

POWER OVER CDMA CHIPS PRIOR TO 2006 SO HE CAN DO A BEFORE AND

AFTER.

OKAY. BUT THAT DOESN'T MAKE ANY SENSE -- WELL, LET ME --

THAT'S NOT WHAT I MEAN.

THAT ASSUMPTION IS NOT JUSTIFIED. THE WHOLE TEST IS BASED

ON AN ASSUMPTION THAT THERE'S A BEFORE AND AFTER, QUALCOMM

DIDN'T HAVE POWER AND THEN THEY DID.

BUT HE DIDN'T TEST THAT. HE JUST ASSUMED THEY DIDN'T HAVE

POWER, MARKET POWER BEFORE 2006. AND HE'S -- THAT JUST -- THAT

ASSUMPTION IS UNJUSTIFIED, AND HE'S GOING TO HAVE A VERY

DIFFICULT TIME TRYING TO DEFEND THAT -- WELL, HE DIDN'T DEFEND

IT.

THERE'S EVIDENCE TO THE CONTRARY, AND HE ACKNOWLEDGED THAT

QUALCOMM WAS, FOR YEARS, THE SOLE SUPPLIER OF CDMA CHIPS AND

WAS, YOU KNOW, WAS THE PIONEER AND OUT AHEAD.

SO HE'S GOT A COMPLETELY UNJUSTIFIED ASSUMPTION THAT IS

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2047

THE BASIS FOR THE ENTIRE TEST. THAT'S WHY I'M SAYING IT'S NOT

A VALID TEST.

Q. YOU DEALT WITH THE ASSUMPTION THAT QUALCOMM DIDN'T HAVE

MARKET POWER IN CDMA MODEM CHIPS PRIOR TO 2006.

BUT WHAT ABOUT PRIOR TO 1995 BEFORE PROFESSOR NEVO SAYS

QUALCOMM WAS EVEN SELLING CDMA MODEM CHIPS?

A. WELL, I THINK THERE'S TWO POINTS ON THAT. FIRST, THOSE --

THE EARLY ROYALTY AGREEMENTS WERE ALSO RELATED TO CHIP SUPPLY

AGREEMENTS, OKAY? SO PEOPLE PLAN AHEAD. AT&T IS PLANNING

AHEAD.

SO I THINK TRYING TO DISCONNECT THE ROYALTIES FROM THE

CHIPS BACK THEN IS NOT CORRECT BASED ON WHEN THE CHIPS STARTED

TO BE SELLING.

AND SECOND, THIS BRINGS IN ANOTHER FUNDAMENTAL ASSUMPTION

HE'S MAKING. LET'S SUPPOSE THE 5 PERCENT ROYALTY WAS

REASONABLE IN 1992 OR 1991. HE'S NOW ASSUMING EFFECTIVELY THAT

THE REASONABLE RATE IS UNCHANGING. SO IF A -- AND THERE ARE NO

OTHER FACTORS THAT CAUSE IT TO CHANGE.

BUT THAT, TOO, IS DISCONNECTED FROM REALITY. WE HAVE GOOD

REASONS TO SUSPECT AND EXPECT THAT THE REASONABLE RATE WOULD

DECLINE OVER THIS 20, 25 YEAR PERIOD. QUALCOMM'S FUNDAMENTAL

PATENTS HAVE EXPIRED DURING THIS PERIOD OF TIME. THE HANDSETS

HAVE BECOME COMPLETELY DIFFERENT AND, YOU KNOW, THERE'S A WHOLE

DIFFERENT SET OF FUNCTIONS IN THEM. AND QUALCOMM'S SHARE OF

THE CELLULAR STANDARD ESSENTIAL PATENTS HAS DECLINED.

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2048

SO HE NEEDS TO DO THAT TEST, GOING WAY BACK THERE, HE

NEEDS TO SOMEHOW ESTABLISH THAT THE REASONABLE RATE HASN'T

CHANGED IF HE'S GOING TO DO THIS LONG TIME SERIES, AND HE

DIDN'T DO THAT, EITHER.

Q. PROFESSOR SHAPIRO, HOW DO YOU EXPLAIN THE DATA SHOWN IN

THIS SLIDE?

A. SO, LOOK, FIRST OFF, REMEMBER, THESE ARE THESE CONTRACTUAL

ROYALTY RATES.

SO FIRST, WHAT ARE WE LOOKING AT HERE? WE'RE LOOKING AT

BASICALLY A BUNCH OF 5 PERCENTS IN A LOT OF CONTRACTS OVER A

LONG PERIOD OF TIME.

SO LOOKING AT THIS, THE FIRST QUESTION IS, WHY IS IT

5 PERCENT? WHY IS IT SO STEADY?

AND IF YOU LOOK IN THE RECORD AND THE EVIDENCE, YOU LEARN

PRETTY QUICKLY, QUALCOMM HAD AN EXPLICIT STRATEGY OF TRYING AT

LEAST TO KEEP THE, THE HEADLINE RATE AT 5 PERCENT AND

NEGOTIATING ON OTHER TERMS AND CONDITIONS, DISCOUNTS IN THE

ROYALTY BASE, CROSS-LICENSING ARRANGEMENTS, FIXED FEES, IN SOME

CASES THERE'S PATENT TRANSFERS, THERE'S EQUITY INVESTMENTS,

THERE'S THINGS THAT STEP DOWN THE RATE OVER TIME THAT HE DIDN'T

INCLUDE BECAUSE HE DIDN'T DO AMENDMENTS HERE.

SO THERE'S -- BASICALLY THESE DATA ARE ALMOST, BY DESIGN,

PICKING THE ONE VARIABLE THAT DOESN'T CHANGE. SO YOU CAN'T DO

ECONOMIC ANALYSIS WITH THAT.

BUT WE DO UNDERSTAND WHAT'S CAUSED IT, WHICH IS QUALCOMM'S

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2049

STRATEGY TO KEEP THE HEADLINE RATE THE SAME AND NEGOTIATE ON

OTHER, LARGELY ON OTHER TERMS AND CONDITIONS.

AND ACTUALLY, I THINK THAT'S A BIG PART OF THE CONCERN

HERE IS NOT THE HEADLINE RATE BECAUSE THAT'S NOT ECONOMICALLY

MEANINGFUL, BUT THAT QUALCOMM'S STRATEGY HAS BEEN TO KEEP THE

EFFECT OF THE REAL ROYALTIES PAID BY OEM'S FROM FALLING AND

THEY'VE USED CHIP LEVERAGE AND OTHER TACTICS TO DO THAT.

Q. LET'S MOVE TO A DIFFERENT SLIDE THAT PROFESSOR NEVO

PRESENTED, SLIDE NUMBER 6, WCDMA CONTRACTUAL RATES.

WHAT'S YOUR REACTION TO PROFESSOR NEVO'S TESTIMONY

REGARDING THIS SLIDE?

A. WELL, WE HAVE PRETTY MUCH THE SAME PROBLEM AS THE PREVIOUS

ONE, YOUR HONOR. HERE HE'S LOOKING AT 2011 AND AFTER WHERE

THERE'S, AS HE PUTS THERE, SHAPIRO ALLEGES PREMIUM LTE MARKET

POWER, AND THEN SAYING BEFORE THAT THERE'S NO -- THERE IS NO

PREMIUM LTE MARKET. SO HE'S TRYING TO DO A BEFORE AND AFTER.

BUT NOW HE HAS TO MAKE THE ASSUMPTION THAT QUALCOMM HAD NO

CHIP LEVERAGE PRIOR TO 2011, OKAY, AND REGARDING WCDMA AND IN

SOME CASES CDMA CHIPS.

AND HIS ASSUMPTION THAT QUALCOMM HAD NO CHIP LEVERAGE

BASED ON WCDMA CHIPS, HE HASN'T ANALYZED THAT. IT'S AN

ASSUMPTION.

AND, AGAIN, THAT'S INCONSISTENT WITH THE EVIDENCE. LET ME

PUT IT THIS WAY. HE WOULD HAVE A DIFFICULT TIME SUSTAINING

THAT, HE DIDN'T DO THE ANALYSIS, SO THE TEST IS NOT VALID.

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2050

BUT THERE'S EVIDENCE -- I'VE SEEN EVIDENCE FROM QUALCOMM'S

OWN RECORDS THAT THEY VIEWED THAT THEY HAD A LEADERSHIP

POSITION, PARTICULARLY SELLING IN THE MERCHANT MARKET, AND A

HIGH SHARE IN THAT MARKET, IN THAT GROUP OF SALES AS WELL.

SO, AGAIN, THE TEST JUST, APART FROM THE DATA BEING NO

GOOD, IS NOT WELL CONCEIVED. THERE'S A CRITICAL ASSUMPTION

THAT'S NOT JUSTIFIED AND SEEMS INCONSISTENT WITH THE EVIDENCE.

Q. HAVE YOU ALSO SEEN EVIDENCE THAT OEM'S THAT WERE LESS

DEPENDENT ON QUALCOMM FOR WCDMA MODEM CHIPS PAID LESS THAN

WCDMA ROYALTIES TO QUALCOMM?

A. YES. THIS IS PART OF THE ISSUE THAT HE EXCLUDED A LOT OF

AGREEMENTS HERE.

NOKIA AND ERICSSON IN PARTICULAR, I UNDERSTAND THAT THE

SPECIFIC NUMBERS ARE CONFIDENTIAL, THEY'RE IN MY REPORT, BUT

THEY PAID SUBSTANTIALLY LOWER -- WELL, IN HIS OWN DATABASE, THE

RATES THAT ARE RECORDED ARE SIGNIFICANTLY LOWER, AND THEY WERE

NOT DEPENDENT ON QUALCOMM FOR THE WCDMA MODEM CHIPS.

Q. I'M GOING TO MOVE TO ANOTHER DEMONSTRATIVE.

YOUR HONOR, PORTIONS OF THIS DEMONSTRATIVE ARE UNDER SEAL,

BUT PROFESSOR SHAPIRO SHOULD BE ABLE TO TESTIFY WITHOUT

REVEALING ANY CONFIDENTIAL INFORMATION.

I WANT TO MOVE IN PARTICULAR TO PROFESSOR NEVO'S SLIDE

NUMBER 8, ALLEGED SUPRA-FRAND WCDMA ROYALTIES VERSUS CDMA

REVENUES.

WHAT IS YOUR RESPONSE TO PROFESSOR NEVO'S TESTIMONY

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REGARDING HIS SLIDE NUMBER 8?

A. OKAY. WE'RE NOT GOING TO GET INTO ALL THE NUMBERS, IT

WOULD TAKE TOO LONG. BUT HE WAS USING THIS SLIDE TO SAY HERE'S

A BUNCH OF PEOPLE WHO PAID, IF YOU USE MR. LASINSKI'S NUMBERS,

PAID SUBSTANTIAL OVERCHARGES FOR WCDMA ROYALTIES, AND HE'S

SAYING THEY WEREN'T DEPENDENT ON QUALCOMM FOR CDMA, SO THE

THEORY IS A PROBLEM. THAT'S WHAT HE'S SAYING.

BUT THIS IS REALLY MESSED UP, I HAVE TO SAY, AND SLOPPY

WORK.

IN THE HUNDREDS OF CONTRACTS HE HAD TO LOOK AT, HE PICKED

THESE SEVEN TO HIGHLIGHT. AND WHEN WE LOOK IN DETAIL AT EACH

OF THESE SEVEN LICENSING AGREEMENTS AND OEM'S, WE FOUND THAT HE

HAD MISSED JUST REALLY IMPORTANT ASPECTS OF THE RELATIONSHIP.

FIVE OF THESE ARE JAPANESE OEM'S: SHARP, NEC, PANASONIC,

FUJITSU, AND MITSUBISHI, AND IN ALL OF THOSE CASES, THE JFTC,

JAPANESE FAIR TRADE COMMISSION, FOUND THAT QUALCOMM HAD, USING

THEIR WORD, COERCED THESE OEM'S TO PAY, I DON'T KNOW EXACTLY

WHAT THEIR LANGUAGE WAS, UNREASONABLY HIGH RATES THROUGH

VARIOUS TACTICS.

SO THAT SEEMS LIKE A REALLY BAD SET OF AGREEMENTS TO LOOK

AT TO CLAIM WHAT'S GOING ON, TO CLAIM THERE'S NO UNDUE LEVERAGE

BEING BROUGHT BY QUALCOMM IN THOSE CASES. SO PUT THOSE FIVE

ASIDE.

THEN FOXCONN, WHICH IS THE FIRST ONE HERE WITH THE LARGEST

BAR, THAT'S COMPLETELY MESSED UP AS WELL FOR TWO REASONS.

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2052

FIRST, AT THE TIME, FOXCONN DIDN'T EXPECT TO PAY MUCH UNDER

THE AGREEMENT THEY SIGNED WITH QUALCOMM BECAUSE -- BASICALLY

BECAUSE OF THE AGREEMENTS BETWEEN THEIR CUSTOMERS -- FOXCONN

BEING A CONTRACT MANUFACTURER, BECAUSE OF THE AGREEMENTS

BETWEEN THEIR CUSTOMER'S OEM AND QUALCOMM THAT WOULD GOVERN A

LOT OF THE ROYALTIES.

AND, SECOND, THE WAY HE TREATED APPLE HERE JUST DID NOT

REFLECT THE REALITY OF THE BUSINESS ARRANGEMENTS. APPLE HAD

ITS OWN ARRANGEMENT WITH QUALCOMM THAT YOU HEARD ABOUT.

AND SO THIS IS JUST A MISLEADING CHART REGARDING FOXCONN.

THEN THE LAST ONE IS HTC, AND AGAIN, HE'S SUGGESTING, WITH

HIS 0 HERE FOR HTC, THAT THEY DIDN'T DEPEND ON -- THAT THEY

DIDN'T DEPEND ON QUALCOMM FOR CDMA CHIPS BECAUSE HE'S ONLY

LOOKING OUT TWO YEARS.

THE REALITY WAS HTC WANTED TO BUILD CDMA COMPLIANT

HANDSETS AND THEY WENT TO QUALCOMM AND THEY NEEDED QUALCOMM FOR

THAT, AND THIS WAS A CONDITION -- SIGNING THIS LICENSE WAS A

CONDITION OF GETTING THE SUPPORT AND ULTIMATELY THE CHIPS FROM

QUALCOMM.

SO ALL OF THESE EXAMPLES EVAPORATE ONCE YOU LOOK AT WHAT'S

ACTUALLY GOING ON IN THE SPECIFIC NEGOTIATIONS.

Q. LET'S MOVE ON TO PROFESSOR NEVO'S TESTIMONY REGARDING HIS

SLIDE 9.

AND WHAT'S YOUR RESPONSE TO THAT TESTIMONY REGARDING THIS

SLIDE?

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A. SO THIS ONE, YOUR HONOR, IF YOU LOOK ON THE HORIZONTAL

AXIS, HE'S MEASURING SHARE OF CDMA CHIPS PURCHASED FROM

QUALCOMM, AND HE'S POINTING OUT THERE'S A BUNCH OF PEOPLE AT 0,

MEANING THEY DIDN'T PURCHASE ANY OF THEIR CDMA CHIPS FROM

QUALCOMM, AND THEY PAID THE SAME, PRETTY MUCH THE SAME RATES AS

THE PEOPLE WHO BOUGHT ALL THEIR CHIPS FROM QUALCOMM. SO HE'S

SAYING THE CHIP LEVERAGE DOESN'T MATTER AND CLAIMS THAT REJECTS

THE THEORY.

BUT THERE'S A REALLY BIG ERROR HERE. I WAS -- I LOOKED AT

THIS AND WAS, LIKE, WHAT'S GOING ON? WHERE WERE THEY GETTING

THE CHIPS?

IT TURNS OUT WHAT PROFESSOR NEVO NEGLECTED TO ACCOUNT FOR

IS THAT THE OTHER PLACE PEOPLE WERE GETTING THE CHIPS WAS VIA,

AND VIA'S ARRANGEMENT WITH QUALCOMM MEANT THAT IF AN OEM WASN'T

LICENSED WITH QUALCOMM, FOR QUALCOMM SEPS, THAT QUALCOMM COULD

BASICALLY INSTRUCT VIA, AS I UNDERSTAND IT, TO STOP SUPPLYING

THAT OEM WITH MODEM CHIPS.

SO WHAT YOU REALLY WANT TO MEASURE IN TERMS OF THE OEM'S

RELIANCE ON QUALCOMM, I SHOULD SAY THE BITE BEHIND THE NO

LICENSE, NO CHIPS POLICY IS WHAT SHARE OF THESE OEM'S PURCHASES

ARE FROM QUALCOMM AND VIA COMBINED? BECAUSE QUALCOMM

EFFECTIVELY COULD PULL BACK THE VIA CHIPS AS WELL.

SO WE HAVE THE NEXT DEMONSTRATIVE WHERE WE CORRECTED FOR

THIS ERROR, AND ALSO GOT RID OF LICENSES THAT WERE MORE THAN 15

YEARS OLD BECAUSE THOSE RATES ARE -- THOSE RATES ARE EITHER

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STALE AND, IN ANY EVENT, THOSE PEOPLE WERE ALL RELIANT ON

QUALCOMM AND VIA FOR CHIPS, AND YOU SEE ALMOST EVERYBODY HAS

GOT 100 PERCENT.

BUT THERE ARE TWO DIAMONDS THERE THAT STILL HAVE 0

PERCENT. WHAT'S GOING ON WITH THEM?

IT TURNS OUT THESE ARE TWO COMPANIES, GIONEE GROUP AND

LIME-I, THAT, WHY ARE THEY SHOWN AS 0? THEY DIDN'T GET CDMA

CHIPS FROM ANYWHERE ELSE.

BUT THIS IS ANOTHER GLITCH WITH HIS METHOD. UNDER HIS

METHOD, SINCE THEY DIDN'T BUY ANY CDMA CHIPS FOR TWO YEARS

AFTER THEY SIGNED THE AGREEMENT, OR AT LEAST THEY DIDN'T SELL

THE PHONES, HE COUNTS THEM AS 0.

BUT THAT JUST MEANS THEY WERE TAKING LONGER, THERE WAS A

LONGER LAG BETWEEN WHEN THEY SIGNED THE AGREEMENT AND WHEN THEY

ACTUALLY STARTED SHIPPING THE PHONES.

WHEN THEY DID START SHIPPING THE PHONES, THESE TWO

COMPANIES ALSO WERE COMPLETELY RELIANT ON QUALCOMM AND VIA, SO

YOU PUT THEM IN THE 100 PERCENT CATEGORY. SO THERE'S NO

VARIATION TO LOOK AT HERE AT ALL IN TERMS OF ACTUAL RELIANCE ON

QUALCOMM AND VIA.

TO MY AMAZEMENT, WHEN PROFESSOR NEVO WAS PRESENTED WITH

THE FACT THAT HE MADE THIS MAJOR ERROR REGARDING VIA, HE SAID

IT DIDN'T MATTER, HE STILL STOOD BY HIS RESULTS. I DON'T

UNDERSTAND THAT.

Q. DURING HIS TESTIMONY, PROFESSOR NEVO CRITICIZED YOU FOR

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NOT ATTEMPTING EMPIRICAL ANALYSES ALONG THE LINES OF THOSE THAT

HE PRESENTED.

WHY DIDN'T YOU TRY THOSE KIND OF ANALYSES?

A. LOOK, I WOULDN'T WANT TO DO THESE TYPE OF ANALYSES. I'VE

JUST EXPLAINED WHY THEY'RE NOT RELIABLE AND THEY'RE POORLY

DONE.

ANOTHER WAY TO PUT IT IS PRESENTED WITH HUNDREDS OF

LICENSES, COMPLICATED LICENSES, MAYBE ONE COULD TEASE THROUGH

THAT, LOOK THROUGH THAT AND CONSTRUCT A DATA SET BASED ON THOSE

LICENSES. I DON'T SEE A WAY TO DO THAT RELIABLY.

PROFESSOR NEVO CERTAINLY DID NOT DO SO.

Q. I WANT TO MOVE ON TO OUR NEXT AND FINAL TOPIC, IN

PARTICULAR PROFESSOR NEVO'S TESTIMONY RELATED TO THE EFFECTS OF

QUALCOMM'S ROYALTY SURCHARGE.

PROFESSOR NEVO SAYS YOUR ANALYSIS OF TRANSACTIONS BETWEEN

AN OEM AND QUALCOMM IS INCORRECT BECAUSE YOU FAILED TO ACCOUNT

FOR THE FACT THAT WHEN AN OEM NEGOTIATES WITH QUALCOMM OVER THE

PURCHASE OF MODEM CHIPS, THE ROYALTY'S ALREADY BEEN SET.

WHAT DO YOU SAY?

A. THAT'S A FALSE STATEMENT. MY ANALYSIS I THINK ABSOLUTELY

INCORPORATED THE FACT THAT MOST CHIP SUPPLY AGREEMENTS ARE

NEGOTIATED REGULARLY, EVERY YEAR OR TWO, AND THE LICENSE

AGREEMENTS TEND TO LAST A LONG TIME. SO WHEN THEY'RE

NEGOTIATING OVER CHIP SUPPLY, THE ROYALTY HAS BEEN SET.

I ACCOUNTED FOR THAT. TO CLAIM OTHERWISE IS FALSE.

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Q. PROFESSOR NEVO ALSO SAID THAT YOUR ANALYSIS OF THE EFFECTS

OF A ROYALTY SURCHARGE WERE OVERLY SIMPLISTIC BECAUSE YOU

IGNORED COMPETITION.

HOW DO YOU RESPOND?

A. THAT'S ALSO INCORRECT. I ACCOUNTED FOR COMPETITION AMONG

THE, AMONG MODEM CHIP SUPPLIERS. I EXPLAINED THAT THE ROYALTY

SURCHARGE RAISED THE COSTS OF QUALCOMM'S RIVALS, AND THEN IN

RESPONSE -- AND THEN THE WAY CHIP COMPETITION WOULD WORK,

QUALCOMM WOULD, IN RESPONSE TO THAT, RAISE THE ALL-IN PRICE OF

THEIR CHIPS AS WELL. SO I ACCOUNTED FOR COMPETITION AT THE

CHIP LEVEL.

ALSO AT THE OEM LEVEL IN DISCUSSING HOW OEM'S WOULD

COMPETE AND PASS THROUGH MANY OF THESE ROYALTY SURCHARGE, MUCH

OF THE ROYALTY SURCHARGE TO FINAL CONSUMERS.

Q. PROFESSOR NEVO TESTIFIED THAT, QUOTE, "IF WE'RE WORRIED

ABOUT RAISING RIVALS' COSTS, IT SEEMS COUNTERINTUITIVE TO ME

THAT WE WANT TO SOLVE THAT BY SAYING WE WANT TO HAVE LICENSING

DIRECTLY TO RIVALS," UNQUOTE.

A. THIS IS NOT -- YOU HAVE THE WRONG THING UP HERE.

RIGHT.

Q. HOW DO YOU RESPOND TO THE TESTIMONY REGARDING LICENSING

DIRECTLY TO RIVALS?

A. SO, YOUR HONOR, WHEN I WAS HERE LAST TIME, I EXPLAINED HOW

A ROYALTY SURCHARGE ACTS AS A TAX ON -- RAISES RIVALS' COSTS

BECAUSE IT IS A BURDEN ON THE TRANSACTIONS BETWEEN THE RIVAL

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AND THE OEM AND CUTS INTO THE GAINS FROM TRADE.

THAT ANALYSIS IS CORRECT. WHETHER THE ROYALTY SURCHARGE

IS PAID TO QUALCOMM BY THE OEM OR THE RIVAL IS IMMATERIAL.

THAT'S A STANDARD TEXTBOOK RESULT IN ECONOMICS. I CITED THE

TEXTBOOK IN MY REPORT. I THINK I MENTIONED THIS LAST TIME.

THAT IS JUST NOT A MATTER OF DEBATE, IT'S A MATTER OF

ECONOMICS.

NOW, PROFESSOR NEVO DID NOT SAY THAT I GOT IT WRONG. HE

JUST SAID IT SEEMS VERY COUNTERINTUITIVE.

WELL, I DON'T KNOW ABOUT HIS INTUITION. I'M HERE TO

TESTIFY ABOUT ECONOMICS. IT SEEMS TO ME MAYBE HE'S TESTIFYING

AS A PSYCHOLOGIST.

Q. PROFESSOR NEVO TESTIFIED THAT ANY ROYALTY SURCHARGE WOULD

BE CHIP NEUTRAL AS BETWEEN QUALCOMM AND ITS RIVALS BECAUSE THE

OEM PAYS A SURCHARGE REGARDLESS OF THE MODEM CHIP THAT IT USES.

WHAT'S YOUR REACTION TO THAT TESTIMONY?

A. SO, YOUR HONOR, THIS IS A CRITICAL POINT HERE SO I'M GOING

TO DWELL ON IT A LITTLE BIT.

FIRST, OF COURSE THE RIVAL -- OF COURSE THE OEM PAYS THE

ROYALTY AND THE SURCHARGE REGARDLESS OF WHICH CHIP THEY BUY.

THAT'S NOT IN DISPUTE.

BUT THAT'S NOT THE ANSWER TO THE ECONOMICS, SO LET'S GO

BACK THROUGH THIS.

FIRST, I WENT THROUGH THE GAINS FROM TRADE ANALYSIS LAST

TIME AND EXPLAINED THAT WHEN THE -- WHEN QUALCOMM COLLECTS THIS

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ROYALTY SURCHARGE ON A TRANSACTION WHERE AN OEM PURCHASES A

CHIP FROM A RIVAL, THAT'S -- THAT RAISES THE COST THERE,

BURDENS THAT TRANSACTION, AND WEAKENS THE RIVAL AS A

COMPETITOR.

NOW, I ALSO POINTED OUT THAT THE IMPACT IS NOT AT ALL THE

SAME ON A TRANSACTION BETWEEN QUALCOMM AND THE OEM BECAUSE,

YES, SURE, THE OEM PAYS THE ROYALTY SURCHARGE TO QUALCOMM, BUT

THAT'S -- QUALCOMM'S THE RECIPIENT OF THAT. IT'S IN ONE POCKET

AND OUT THE OTHER.

SO THE GAINS FROM TRADE BETWEEN THE OEM AND QUALCOMM ARE

NOT REDUCED IN THE SAME WAY BY THE SURCHARGE. IT'S NOT GOING

OUT TO THIRD PARTIES. SO THAT BASIC ANALYSIS STANDS.

I JUST WANT TO REMIND THE COURT OF THAT BECAUSE HE DID

NOT -- HE DID NOT SHOW THAT THERE'S ANYTHING WRONG WITH THAT.

OKAY?

ANOTHER WAY TO SEE THIS -- THIS IS SUCH A KEY POINT IN THE

CASE -- IS THINK ABOUT THE ROYALTY SURCHARGE. SUPPOSE WE HAVE

A $10 ROYALTY SURCHARGE.

NOW, INTEL IS TRYING TO SELL A CHIP TO AN OEM. THEY'RE

LIKE, WELL, LOOK, THE ONLY WAY TO NEUTRALIZE THE EFFECT OF THAT

ROYALTY SURCHARGE SO THE OEM'S COSTS AREN'T GOING UP, THEY'D

HAVE TO CUT THEIR CHIP PRICE BY $10. THEY COULD MATHEMATICALLY

DO THAT. OKAY? SO THEY HAVE TO CUT THE CHIP PRICE BY $10,

THAT WOULD CUT THEIR MARGIN BY $10. OKAY.

NOW, THINK ABOUT QUALCOMM -- BECAUSE PROFESSOR NEVO IS

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2059

SAYING THIS IS CHIP NEUTRAL -- WHAT WOULD HAPPEN -- THINK ABOUT

A TRANSACTION BETWEEN THE OEM AND QUALCOMM. NOW THE OEM IS

PAYING THE EXTRA $10. QUALCOMM COULD ALSO NEUTRALIZE THAT SO

THE OEM'S TOTAL ALL-IN PRICE WOULDN'T BE -- THEY WOULD REDUCE

THEIR CHIP PRICE BY $10. OKAY. THAT WOULD BE THE SAME.

BUT WHAT'S THE EFFECT ON QUALCOMM? THE EFFECT ON QUALCOMM

IS NO CHANGE. THEIR ALL-IN PRICE HAS NOT CHANGED.

ALL WE'VE DONE IS RAISED THE ROYALTY PART BY $10 AND

REDUCE THE CHIP PART BY $10. SO THE ALL-IN PRICE IS THE SAME.

SO QUALCOMM CAN NEUTRALIZE THIS WITH NO HARM TO THEIR

BOTTOM LINE AT ALL, THEIR MARGIN BASICALLY, WHEN YOU LOOK AT

THE ALL-IN PRICE, WHILE INTEL HAD TO TAKE THE FULL HIT OF THE

ROYALTY SURCHARGE TO NEUTRALIZE.

THIS IS JUST ARITHMETIC, BY THE WAY. THIS ISN'T EVEN

ECONOMICS.

SO JUST BY ARITHMETIC YOU CAN SEE THAT THE EFFECT OF THE

ROYALTY SURCHARGE IS NOT SYMMETRIC AS BETWEEN INTEL AND

QUALCOMM IN MY EXAMPLE.

OKAY. NOW, TO GO BACK CORRECTLY TO THINK ABOUT THIS, NOT

WHAT PROFESSOR NEVO HAS SAID, IS THAT THE ROYALTY SURCHARGE

RAISES INTEL'S COSTS, AND OTHER RIVALS, THAT'S GOING TO RAISE

THE ALL-IN PRICE OF THEIR MODEM CHIPS AS THAT COST IS PASSED

THROUGH.

QUALCOMM WILL RESPOND TO THAT -- I SAID THIS ALL LAST

TIME -- BY RAISING THE ALL-IN PRICE OF THEIR CHIPS AS WELL.

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2060

NORMALLY IT WOULD BE BY LESS THAN THE FULL AMOUNT OF THE

ROYALTY SURCHARGE.

AND SO THE RIVAL IS DISADVANTAGED, THE PRICE OF CHIPS GOES

UP, THE ALL-IN PRICE, WHICH IS WHAT MATTERS FOR OEM'S COSTS,

AND A LOT OF THAT WILL BE PASSED ON TO FINAL CONSUMERS WHO ARE

HARMED. OKAY?

SO ALL OF THAT ANALYSIS ABSOLUTELY STANDS. THERE'S

NOTHING THAT'S BEEN SAID THAT INDICATES THERE WAS ANYTHING

WRONG WITH THAT ANALYSIS, AND MY ARITHMETIC EXAMPLES IN GAINS

FROM TRADE SHOW THAT PROFESSOR NEVO IS SIMPLY MISTAKEN IN WHAT

HE SAID.

A FINAL WAY TO LOOK AT THIS IS TO THINK ABOUT --

PROFESSOR NEVO SEEMS TO BE SAYING, YOU IMPOSE THIS ROYALTY

SURCHARGE, IT'S AGNOSTIC, IT DOESN'T REALLY HURT THE RIVALS. I

GUESS THAT'S WHAT CHIP AGNOSTIC MEANS BECAUSE IT'S NEUTRAL.

WELL, WHERE'S THE MONEY COMING FROM? THE ROYALTY

SURCHARGE IS GOING TO GET -- SOMEBODY HAS GOT TO BE PAYING IT.

QUALCOMM IS PICKING UP THE MONEY.

AND I'M SAYING THE RIVAL IS GOING TO EAT PART OF THAT.

WHAT I SAID WAS THE RIVAL ATE PART OF IT, THE OEM EATS PART OF

IT, AND PART OF IT IS PASSED ON TO CONSUMERS. THEY'RE GOING TO

SPLIT THE PAIN.

PROFESSOR NEVO SEEMS TO BE SUGGESTING, WELL, THE RIVAL

ISN'T GOING TO GET HURT.

I DON'T THINK THAT'S RIGHT. BUT IF YOU JUST FOLLOW HIS

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OWN LOGIC, IF THAT WERE TRUE AND THE RIVALS' MARGINS AREN'T

CUT, WHO'S PAYING THE SURCHARGE? IT WOULD HAVE TO BE ENTIRELY

THE OEM'S, WHICH MEANS BASICALLY THE FINAL CONSUMERS.

SO AS FAR AS I CAN TELL, HIS DEFENSE OF THIS IS IT WOULD

HURT CONSUMERS EVEN WORSE THAN I HAVE SAID. THAT DOES NOT

STRIKE ME AS A VERY STRONG DEFENSE IN AN ANTITRUST CASE.

Q. AND PROFESSOR NEVO TESTIFIED THAT THE ECONOMICS OF A

ROYALTY SURCHARGE HERE ARE VERY DIFFERENT FROM THOSE IN THE

MICROSOFT PER PROCESSOR CASE FROM THE '90S. AND HE SAID THAT,

QUOTE, "THE BIG DIFFERENCE IS MICROSOFT WAS GIVING AWAY ITS

OPERATING SYSTEM FOR FREE," UNQUOTE, AND HE CONTRASTED THAT TO

THE SITUATION HERE WHERE QUALCOMM'S CHIPS, QUOTE, "ACTUALLY

HAVE A PRETTY NICE MARGIN," UNQUOTE.

HOW DO YOU RESPOND?

A. YOUR HONOR, THE MICROSOFT CASE WAS CLEARLY ABOUT THE --

ABOUT MICROSOFT CHARGING OEM'S A FEE WHEN THEY SHIPPED A

PERSONAL COMPUTER THAT DID NOT CONTAIN A MICROSOFT OPERATING --

THE WINDOWS OPERATING SYSTEM. OKAY?

IF YOU LOOK AT THE COMPLAINT THE D.O.J. FILED, I THINK

IT'S 1994, IT ACTUALLY TALKS ABOUT A PENALTY, OR TAX -- THAT'S

THEIR WORDS -- ON THESE COMPUTERS THAT DON'T CONTAIN THE

MICROSOFT OPERATING SYSTEM. OKAY?

NOW, PROFESSOR NEVO HAS NOT ADDRESSED THAT AT ALL, OKAY?

I GUESS MY CHARITABLE INTERPRETATION OF THIS IS THAT HE

COMPLETELY FAILS TO UNDERSTAND WHAT THE MICROSOFT PER PROCESSOR

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2062

CASE WAS ABOUT. IT WASN'T ABOUT MICROSOFT GIVING AWAY WINDOWS

FOR FREE. IT WAS ABOUT THIS PENALTY OR TAX, EXACTLY THE SAME

AS WE HAVE HERE.

SO THE FACT THAT HE ANSWERS THIS WAY I THINK IS VERY

REVEALING ABOUT THE INTELLECTUAL BANKRUPTCY, HIS ARGUMENT HERE

ON THE EFFECTS OF THE ROYALTY SURCHARGE.

MR. JAMES: NO FURTHER QUESTIONS, YOUR HONOR.

THE COURT: OKAY. TIME IS 9:47.

MR. VAN NEST: GIVE ME JUST A MINUTE, YOUR HONOR.

THE COURT: TAKE YOUR TIME.

(PAUSE IN PROCEEDINGS.)

MR. VAN NEST: YOUR HONOR, I'M ALL READY.

THE COURT: OKAY. TIME IS 9:49. GO AHEAD, PLEASE.

CROSS-EXAMINATION

BY MR. VAN NEST:

Q. GOOD MORNING, PROFESSOR SHAPIRO.

A. GOOD MORNING.

Q. AND WELCOME BACK.

A. THANK YOU.

Q. YOU TALKED A LITTLE BIT ABOUT THE INDUSTRY IN YOUR

TESTIMONY.

YOU DON'T DISPUTE THAT THE TECHNOLOGY INVOLVED IN MOBILE

DEVICES HAS IMPROVED AT AN IMPRESSIVE PACE OVER THE PAST 10 TO

20 YEARS; CORRECT?

A. THAT IS CORRECT.

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Q. OR THAT THE TECHNOLOGICAL PROGRESS IN MODEM CHIPS AND

MOBILE TELECOMMUNICATIONS IS ONGOING; RIGHT?

A. I AGREE WITH THAT.

Q. AND THAT WORLDWIDE SALES OF HANDSETS HAVE GROWN

DRAMATICALLY OVER THE PAST 10 TO 20 YEARS? THAT'S ALSO TRUE?

A. I AGREE.

Q. AND THAT PRICES OF MOBILE PHONES HAVE BEEN FALLING THROUGH

THAT PERIOD; RIGHT?

A. QUALITY ADJUSTED, I BELIEVE THAT IS TRUE.

Q. AND THAT GLOBAL PENETRATION OF MOBILE PHONES HAS INCREASED

DURING THIS PERIOD?

A. CERTAINLY.

Q. AND THE TECHNOLOGICAL CAPABILITIES OF SMARTPHONES HAS

IMPROVED DRAMATICALLY?

A. I AGREE.

Q. CORRECT?

NOW, YOUR TAX THEORY PREDICTS THAT AS THE ALL-IN PRICE OF

RIVAL CHIPS GOES UP, QUALCOMM WILL GAIN MARKET SHARE AT THE

EXPENSE OF ITS RIVALS; ISN'T THAT RIGHT?

A. YES, EVERYTHING ELSE EQUAL, THAT IS CORRECT.

Q. SO USING INTEL AS AN EXAMPLE, YOU ACTUALLY PREDICTED IN

YOUR REBUTTAL REPORT THAT QUALCOMM WILL GAIN MARKET SHARE AT

THE EXPENSE OF INTEL; RIGHT?

A. AGAIN, EVERYTHING ELSE EQUAL, THAT IS THE NATURAL AND

INEVITABLE ECONOMIC CONSEQUENCE OF THE RAISING RIVALS' COSTS.

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I STAND BY THAT.

Q. BUT, IN FACT, AS YOU ACKNOWLEDGED TWO WEEKS AGO HERE IN

THIS COURTROOM, QUALCOMM'S MARKET SHARE IN WHAT YOU CALL THE

LTE PREMIUM MARKET HAS BEEN DECLINING SINCE 2014; RIGHT?

A. IT HAS.

Q. AND IT'S BEEN DECLINING AS THE SHARES OF COMPETITORS, LIKE

SAMSUNG AND MEDIATEK, HAVE BEEN GROWING; RIGHT?

A. I THINK THAT FOLLOWS ARITHMETICALLY, YES.

Q. AND, INDEED, WHEN YOU AND I SPOKE ABOUT THIS TWO WEEKS

AGO, YOU SAID THAT IN 2017, QUALCOMM'S MARKET SHARE FELL AND

INTEL'S MARKET SHARE ROSE WHEN INTEL GOT IN AT APPLE; CORRECT?

A. THAT IS TRUE.

Q. NOW, YOUR TAX THEORY ALSO PREDICTS THAT TOTAL DEMAND FOR

MODEM CHIPS WILL TEND TO FALL AS THE ALL-IN PRICES TEND TO

RISE; ISN'T THAT CORRECT?

A. YES, OTHER THINGS EQUAL, THAT'S THE NORMAL LAW OF DEMAND,

THAT'S CORRECT.

Q. BUT, IN FACT, AS YOUR OWN STUDIES SHOW US, THE NUMBER OF

PREMIUM LTE MODEMS SOLD HAS INCREASED DRAMATICALLY DURING THE

PERIOD WHEN YOU ALLEGE QUALCOMM HAD MARKET POWER; RIGHT?

A. THAT'S CORRECT. THE QUALITY ADJUSTED PRICE OF THESE

DEVICES HAS COME DOWN A LOT. THE OPERATING SYSTEMS, THERE'S SO

MANY FEATURES THAT HAVE LED TO THAT. TO SUGGEST THAT THAT

IS -- THAT CONTRADICTS THE THEORY, THE LAW OF DEMAND REGARDING

PRICE OF MODEM CHIPS IS INCORRECT.

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Q. EXCUSE ME. BUT IT IS THE CASE, AS YOU ESTABLISHED LAST

TIME, THAT THE NUMBER OF PREMIUM LTE MODEMS SOLD DURING THE

PERIOD YOU CLAIM QUALCOMM HAD MONOPOLY POWER HAS INCREASED

DRAMATICALLY; RIGHT?

A. YES, I'VE SAID THE, THIS IS A --

Q. THANK YOU, PROFESSOR SHAPIRO.

COULD I HAVE SLIDE 14 UP FROM PROFESSOR SHAPIRO'S EARLIER

PRESENTATION.

THIS IS THE PREMIUM LTE UNITS AND SHARE CHART YOU PREPARED

BASED ON YOUR REPORT; CORRECT?

A. YES, THAT LOOKS RIGHT.

Q. AND IT SHOWS THAT DURING THE PERIOD IN WHICH YOU CLAIM

QUALCOMM HAD MARKET POWER, THE NUMBER OF UNITS SOLD SKYROCKETED

FROM ABOUT 15 MILLION IN 2011 TO ALMOST 600 MILLION IN 2016;

CORRECT?

A. YOU'RE JUST LOOKING AT LTE. WELL, IT WAS 0 BEFORE THAT.

I MEAN, SO OF COURSE IT WENT UP BECAUSE IT'S A NEW GENERATION

OF DEVICES.

Q. AND IT WENT UP YEAR AFTER YEAR AFTER YEAR DURING THIS

PERIOD; CORRECT?

A. UNTIL 2016 WHEN IT LOOKS LIKE IT WENT DOWN.

Q. AND THE SAME IS TRUE FOR CDMA. THE NUMBER OF CDMA MODEMS

SOLD DURING THE PERIOD YOU CLAIM QUALCOMM HAD MONOPOLY POWER,

THAT'S RISEN SHARPLY AS WELL; RIGHT?

A. IT'S GENERALLY RISEN A LOT DURING THE 3G ERA. WE CAN LOOK

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AT THE DATA.

Q. WELL, LET'S LOOK AT SLIDE 12 FROM PROFESSOR SHAPIRO'S

OPENING. THE CDMA TREND IS JUST THE SAME, DEMAND AND SALES

HAVE RISEN DRAMATICALLY DURING THIS PERIOD WHEN YOU CONTEND

QUALCOMM WAS ENGAGED IN ANTICOMPETITIVE CONDUCT; RIGHT?

A. I AGREE, OUTPUT HAS GONE UP SUBSTANTIALLY.

Q. NOW, YOU TOLD US THAT THIS IS MEANINGLESS BECAUSE YOU NEED

TO KNOW HOW HEAVY THE ROCKS ARE IN THE KAYAK; RIGHT?

A. I DIDN'T SAY THIS IS MEANINGLESS.

Q. BUT YOU TOLD US LAST TIME THAT YOU'VE DONE NO EMPIRICAL

WORK WHATSOEVER TO DETERMINE THE SIZE OF ANY SUPRA-FRAND

ROYALTY YOU'RE ASSUMING EXISTED; CORRECT?

A. WHAT I SAID IS I HAVE NOT QUANTIFIED IT. I EXPLAINED WHY

WE HAVE GOOD REASON TO BELIEVE THAT IT WAS SUBSTANTIAL.

Q. NOW, YOU HAVEN'T OFFERED ANY OPINION THAT QUALCOMM HAS

MONOPOLY POWER IN THE MARKET FOR WCDMA; ISN'T THAT RIGHT?

A. THAT IS CORRECT.

Q. IN CONNECTION WITH YOUR EVALUATION OF THE CDMA MARKET, YOU

PERFORMED A HYPOTHETICAL MONOPOLIST TEST; CORRECT?

A. I DID.

Q. AND YOU DID THAT IN ADDITION TO -- IN CONNECTION WITH YOUR

WORK ON PREMIUM LTE; RIGHT?

A. I DID.

Q. YOU PERFORMED NO SUCH TEST ON THE WCDMA MARKET AND,

THEREFORE, YOU HAVEN'T EXPRESSED AN OPINION AS TO WHETHER THAT

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MARKET -- WHETHER QUALCOMM HAD MONOPOLY POWER IN THAT MARKET;

CORRECT?

A. THAT IS CORRECT.

Q. AND WHEN WE WERE HERE LAST TIME, YOU TOLD JUDGE KOH

POINTBLANK THAT YOUR OPINION OF QUALCOMM'S MARKET POWER BEGAN

IN 2006 FOR CDMA AND IN 2011 FOR LTE; CORRECT?

A. THAT IS CORRECT.

Q. YOU GAVE SOME TESTIMONY ABOUT A JAPAN FAIR TRADE

COMMISSION CEASE AND DESIST ORDER.

DO YOU RECALL THAT?

A. I DO.

Q. NOW, THAT ORDER ISSUED IN 2009; RIGHT?

A. I AM CHECKING. I BELIEVE THAT'S CORRECT.

Q. AND THE ORDER HAS BEEN STAYED BY ORDER OF THE TOKYO HIGH

COURT PENDING AN EVIDENTIARY HEARING; ISN'T THAT RIGHT?

A. IT'S BEEN A LONG, ENTANGLED PROCESS THERE. THAT SOUNDS

RIGHT.

Q. AND AS OF SEPTEMBER 2017, AS YOU SAID IN YOUR REPORT, THE

JAPAN FAIR TRADE COMMISSION HAD HELD HEARINGS ON 37 DIFFERENT

DATES, BUT HAD NOT YET ISSUED A FINAL DECISION; RIGHT?

A. I'M LOOKING FOR THAT PART HERE. IT'S AROUND PAGE 74. DO

YOU HAVE --

Q. IT'S ACTUALLY IN -- IT'S YOUR REBUTTAL REPORT, FOOTNOTE

175.

A. THANK YOU. GOOD.

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Q. DO YOU HAVE IT?

A. I DO.

Q. I HAVE IT UP.

A. YES.

Q. THE ORDER HAS BEEN STAYED; CORRECT?

A. LET ME JUST CATCH UP WITH YOU HERE.

Q. I HAVE IT ON THE MONITOR, PROFESSOR SHAPIRO.

A. OH, OKAY.

Q. IN FEBRUARY, THE TOKYO HIGH COURT STAYED IT; RIGHT?

A. OKAY, THANK YOU. YES, I SEE THAT NOW.

Q. AND THEN YOU INDICATE IN THE FINAL SENTENCE THAT AS OF

SEPTEMBER, THE JFTC HELD HEARINGS ON 37 DIFFERENT DATES, BUT

HAD NOT YET ISSUED A FINAL DECISION.

THAT'S CORRECT, TOO, ISN'T IT?

A. AS FAR AS I KNOW.

Q. I THOUGHT I HEARD YOU SAY DURING EXAMINATION THAT THIS

ORDER HAD SOMETHING TO DO WITH CHIP LEVERAGE AND ROYALTY RATES.

DID I HEAR THAT RIGHT?

A. I'M NOT SURE I -- I THINK THIS HAD MORE TO DO WITH -- I

THOUGHT THERE WAS ISSUES ABOUT THE INFRASTRUCTURE EQUIPMENT

MORE THAN THE CHIPS. SO I MAY HAVE MISS -- I'M NOT SURE WHAT I

SAID.

Q. THIS ORDER HAS NOTHING TO DO WHATSOEVER WITH USING CHIP

LEVERAGE TO INFLUENCE ROYALTY RATES, DOES IT?

A. I BELIEVE THAT -- I DON'T KNOW -- I DO NOT KNOW, WITHOUT

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CHECKING MY REPORT MORE CAREFULLY, WHICH I CAN DO, EXACTLY WHAT

THE NATURE OF THE COERCION WAS.

I THOUGHT THIS -- IN MY MIND, I'M REMEMBERING SOMETHING

ABOUT INFRASTRUCTURE, BUT YOU'LL HAVE TO HELP ME WITH THAT

BECAUSE I -- I AM NOT CERTAIN ABOUT THAT POINT.

MR. VAN NEST: YOUR HONOR, I'D LIKE TO PUT QX --

CX 8243 UP TO REFRESH THE WITNESS'S RECOLLECTION. I DON'T

THINK IT'S IN EVIDENCE, BUT IT IS THE ORDER.

THE COURT: WHY CAN'T YOU JUST HAND IT TO HIM TO

REFRESH HIS RECOLLECTION? DO YOU NEED TO PUBLISH IT?

MR. VAN NEST: I CAN.

Q. IT'S ACTUALLY IN YOUR BINDER. IT'S IN YOUR BINDER,

PROFESSOR SHAPIRO. IT'S QX 8243.

DO YOU HAVE IT?

A. I'M GETTING THERE. I'M SORRY.

Q. OH, I'M SORRY, CX. CX.

A. CX.

Q. IT'S THE VERY BACK, AT THE VERY BACK.

A. 8243?

Q. YEP.

A. OKAY.

Q. OKAY. THAT'S THE -- THAT'S THE ORDER THAT YOU DISCUSSED

IN YOUR REBUTTAL REPORT AT PARAGRAPH 461; CORRECT?

A. IT LOOKS LIKE THAT, YES.

Q. COULD WE PUT UP THE SECOND PART OF THE PAGE THERE NEAR THE

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BOTTOM, OUTLINE OF THE VIOLATION.

WELL, PROFESSOR SHAPIRO, THIS ORDER DEALS WITH

CROSS-LICENSES FROM JAPANESE MANUFACTURERS, NOT WITH CHIP

LEVERAGE; ISN'T THAT RIGHT?

A. WELL, THIS IS A PRESS RELEASE. THIS IS NOT THE ORDER

ITSELF. THIS IS A PRESS RELEASE ABOUT THE ORDER.

Q. THAT'S RIGHT.

A. OKAY. I THOUGHT YOU SAID IT WAS THE ORDER.

I'LL HAVE TO READ IT TO ANSWER THAT.

Q. WELL, LET ME ASK YOU THIS, PROFESSOR SHAPIRO: ARE YOU

FAMILIAR AT ALL WITH THE TERMS OF THIS ORDER?

A. NO. I LOOKED AT IT A WHILE AGO. I'M NOT FAMILIAR AS I

SIT HERE, NO.

Q. LET'S MOVE ON BECAUSE, AS YOU KNOW, MY TIME IS LIMITED.

A. OKAY. BUT I WOULD ALSO POINT OUT THAT IN APPENDIX E TO MY

REBUTTAL REPORT, I HAVE FURTHER DISCUSSION ABOUT THE LEVERAGE

THAT WAS BROUGHT TO BEAR HERE.

Q. ALL RIGHT. LET'S -- CAN WE PUT UP PROFESSOR SHAPIRO'S

REBUTTAL DEMONSTRATIVE SLIDE 8?

YOU TALKED ABOUT PROFESSOR NEVO'S CALCULATION CONCERNING

ROYALTY RATES IN CONNECTION WITH THE DEGREE OF DEPENDENCE OF AN

OEM ON QUALCOMM'S CHIPS; CORRECT?

A. YES.

Q. AND YOU MADE SOME CORRECTIONS, SOME CHANGES TO

PROFESSOR NEVO'S ANALYSIS?

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A. I DID, YES.

Q. RIGHT? YOU TOOK COMPANIES WHO BOUGHT FROM VIA AND TREATED

THOSE AS DEPENDENT ON QUALCOMM?

A. BECAUSE OF THE ARRANGEMENT BETWEEN QUALCOMM AND VIA.

Q. AND YOU MOVED FOLKS OVER?

A. I DIDN'T MOVE FOLKS OVER. I ENCODED THE DATA CORRECTLY.

Q. AND YOU ALSO EXCLUDED ALL LICENSES SIGNED BEFORE 2002;

CORRECT?

A. THAT'S CORRECT.

Q. NOW, FOR EXAMPLE, IF YOU HAD CHOSEN 1999 AS A CUTOFF DATE,

THAT'S THE DATE AT WHICH WCDMA WAS FIRST COMMERCIALIZED, YOU

WOULD HAVE PICKED UP A NUMBER OF LICENSES ON THE LEFT SIDE OF

THE CHART; CORRECT?

A. YES, AND THEY WOULD HAVE ALL HAD THE SAME FLAW THAT I

POINTED OUT FOR THE TWO THAT ARE SHOWN HERE. SO THE EFFECT

WOULD BE MORE DIAMONDS ON THE LEFT THAT WOULD INCORRECTLY

SUGGEST A LACK OF RELIANCE ON QUALCOMM AND VIA.

Q. NOW, IN FACT, THOSE TWO DIAMONDS ON THE LEFT, THEY'RE BOTH

IN THE 5 PERCENT RANGE; RIGHT?

A. IT LOOKS THAT WAY, YES.

Q. AND ONE OF THOSE IS GIONEE GROUP; CORRECT?

A. YES.

Q. AND GIONEE GROUP ENDED UP SELLING A VERY SIGNIFICANT

NUMBER OF CDMA HANDSETS OVER THE YEARS; CORRECT?

A. I THINK THEY SOLD AROUND 650,000 IS WHAT I REMEMBER.

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Q. ACTUALLY, YOUR REPORT REFLECTS 697,000 CDMA CAPABLE

HANDSETS; RIGHT?

A. OKAY, I STAND CORRECTED, 697, NOT 650.

Q. AND THEY PURCHASED NO CDMA CHIPS FROM EITHER QUALCOMM OR

VIA IN THE TWO YEARS AFTER SIGNING THE LICENSE; CORRECT?

A. THAT'S CORRECT, BECAUSE THEY DIDN'T COME OUT WITH THE

HANDSETS UNTIL MORE THAN TWO YEARS LATER.

Q. SO FOR THE TWO YEAR PERIOD IN WHICH -- FOLLOWING EXECUTION

OF THE LICENSE, THEY HAD NO RELIANCE WHATSOEVER ON QUALCOMM OR

VIA?

A. I THINK THAT IS FALSE.

Q. NOW, YOU GAVE SOME TESTIMONY ABOUT PROFESSOR NEVO'S

EMPIRICAL TESTS.

I TAKE IT YOU'VE DONE NO TESTING WHATSOEVER, EMPIRICAL OR

OTHERWISE, TO DETERMINE WHETHER THE CONTRACT RATE OR SOME OTHER

RATE IS ECONOMICALLY MEANINGFUL; CORRECT?

A. I DON'T UNDERSTAND THE QUESTION.

I CAN TELL YOU WHETHER A RATE IS ECONOMICALLY MEANINGFUL

ONCE I UNDERSTAND WHAT IT MEASURES. THAT'S NOT AN EMPIRICAL

QUESTION.

Q. MY QUESTION, PROFESSOR SHAPIRO, IS YOU DID NO RETESTING OF

PROFESSOR NEVO'S NUMBERS USING SOME RATE OTHER THAN THE

CONTRACT RATE? AS YOU TOLD US IN YOUR TESTIMONY, YOU HAVEN'T

DONE THESE SORTS OF TESTS AT ALL; RIGHT?

A. I HAVE NOT GONE BACK TO HIS SET OF CONTRACTS AND TRIED TO

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CONSTRUCT AN ECONOMICALLY MEANINGFUL VARIABLE. LIKE I SAID, I

THINK THAT WOULD BE VERY DIFFICULT, IF NOT IMPOSSIBLE.

Q. AND YOU HAVEN'T DONE IT; RIGHT?

A. THAT'S CORRECT.

Q. YOU'RE LIMITED TO CRITICIZING THE EMPIRICAL WORK THAT

PROFESSOR NEVO DID BECAUSE YOU HAVEN'T DONE ANY EMPIRICAL WORK

OF YOUR OWN; RIGHT?

A. I'VE DONE -- MY ANALYSIS STANDS ON ITS OWN. YOU'RE

REFERRING TO SPECIFIC REBUTTAL TESTIMONY, SO, YEAH, I'M

RESPONDING TO WHAT HE DID AND EXPLAINING WHY IT'S GOT ALL THESE

PROBLEMS.

Q. AND YOU'VE DONE NO EMPIRICAL STUDY OF QUALCOMM'S LICENSE

RATES, ROYALTY RATES, OR UPFRONT PAYMENTS OVER THE YEARS AT

ALL; CORRECT?

A. AGAIN, I LOOKED AT THE LICENSES. BUT IF YOU MEAN BY

EMPIRICAL STUDY TRYING TO TAKE ALL OF THESE HUNDREDS OF

LICENSES AND DISTILL THEM INTO SIMPLE DATA, I DON'T THINK YOU

CAN DO THAT. SO, NO, I DIDN'T DO IT.

Q. AND YOU HAVE NOT DONE IT?

A. I JUST SAID I DIDN'T DO IT.

Q. SIMILARLY, WITH RESPECT TO YOUR TAX THEORY, YOU'VE DONE

NOTHING TO ANALYZE THE R&D SPENDING OF ANY PARTICULAR CHIP

MAKING RIVAL TO QUALCOMM; CORRECT?

A. I HAVE NOT ANALYZED -- I THINK IF YOU MEAN BY ANALYZED,

LOOK AT EXACTLY WHY THEY SPENT THIS AMOUNT OF MONEY OR WHEN

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THEY DID IT, I HAVE NOT GOT INTO THAT, THAT IS CORRECT.

Q. YOUR TAX THEORY PREDICTS THAT SPENDING WILL GO DOWN, BUT

YOU DID NO TESTING TO DETERMINE WHETHER OR NOT THAT WAS THE

CASE; CORRECT?

A. I DID NOT -- LOOK, I STAND BY THE THEORY THAT IF YOU HAVE

A -- IF YOUR MARGINS ARE CUT AND YOUR QUANTITIES OF UNITS ARE

CUT, YOU'RE GOING TO HAVE SMALLER OPERATING INCOME AND THAT'S

GOING TO BE A DRAG ON POSSIBLE INVESTMENTS.

I DID NOT EMPIRICALLY TEST HOW THAT PLAYED OUT WITH

DIFFERENT MODEM CHIP SUPPLIERS.

Q. IN OTHER WORDS, YOU DIDN'T ACTUALLY LOOK AT ANYBODY'S

MARGINS OR ANYBODY'S SPENDING OR ANYBODY'S RESEARCH AND

DEVELOPMENT, YOU SIMPLY ASSUMED THERE WOULD BE AN IMPACT

BECAUSE THAT'S WHAT YOUR TAX THEORY PREDICTS; CORRECT?

A. I DID NOT LOOK AT -- I DID NOT DO THE TYPE OF ANALYSIS

PROFESSOR SNYDER DID REGARDING LOOKING AT RIVAL BY RIVAL AND I

EXPLAINED, I BELIEVE, ACCORDING TO MY ANALOGY, WHY I DON'T

THINK THAT'S A GOOD METHODOLOGY. THAT IS NOT AN ACCURATE WAY

OF DETERMINING THE EFFECTS OF QUALCOMM'S CONDUCT.

Q. AND YOU KNOW THAT PROFESSOR SNYDER ACTUALLY ANALYZED

FIRM-WIDE R&D SPENDING OVER THE PERIOD WHEN YOU SAY QUALCOMM

HAD MARKET POWER; RIGHT?

A. HE ANALYZED A NUMBER OF THE FIRMS AND LOOKED AT THEIR

SPENDING, YES.

Q. COULD I HAVE QDX 9348 UP, PLEASE. THIS WAS ONE OF THE

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2075

DEMONSTRATIVES THAT PROFESSOR SNYDER PRESENTED.

NOW, YOU HAD A CHANCE, IN YOUR REBUTTAL REPORT, TO ADDRESS

THIS, BUT YOU DIDN'T SAY ANYTHING ABOUT IT; CORRECT?

A. I THINK THAT'S CORRECT.

Q. AND -- EXCUSE ME. THIS IS -- LET'S GO TO .001, THE R&D

SPENDING. QDX 9348.001. THERE WE GO.

NOW, THIS SHOWS THAT DURING THE PERIOD WHEN YOU SAY YOUR

TAX THEORY PREDICTS THAT R&D SPENDING WILL GO DOWN, FIRM-WIDE

R&D SPENDING FROM THESE CHIP MAKING RIVALS EITHER WENT UP OR

REMAINED CONSTANT?

A. WELL, I DON'T KNOW WHAT YOU'RE SEEING IN THESE LINES

SAYING UP OR CONSTANT.

I COMPLETELY REJECT THE NOTION THAT LOOKING AT INTEL AND

SAMSUNG'S FIRM-WIDE R&D IS A WAY OF TELLING YOU ANYTHING ABOUT

THEIR MODEM CHIP BUSINESSES.

Q. WELL, LET'S TAKE A LOOK AT MEDIATEK. MEDIATEK, IN 2005,

WAS SPENDING ABOUT 15 PERCENT OF ITS FIRM-WIDE R&D ON

REVENUE -- ON -- OF ITS FIRM-WIDE REVENUE ON R&D; CORRECT?

A. I SEE THAT.

Q. LOOK AT MEDIATEK.

A. I SEE THAT.

Q. AND THAT WENT UP THROUGH THE PERIOD SO THAT BY 2017, THEY

WERE SPENDING NEARLY 25 PERCENT OF THEIR REVENUE ON R&D; ISN'T

THAT RIGHT?

A. I SEE THAT.

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Q. AND THEY'RE ONE OF THE SUCCESS STORIES IN THIS MARKET?

A. I THINK THEY ARE, YES.

Q. OKAY. AND THAT TRACKS CLOSELY TO SPENDING R&D, WHICH YOU

SAID IS VERY IMPORTANT IN A MARKET LIKE THIS WHERE INNOVATION

IS CRITICAL; RIGHT?

A. YES. THEY'RE A SUCCESS STORY AND BROADCOM IS A -- IS NOT

A SUCCESS STORY. WE'VE GOT BOTH HERE.

Q. RIGHT. AND PROFESSOR SNYDER WENT THROUGH THOSE

CASE-BY-CASE, AND THAT'S SOMETHING THAT YOU REJECT AND HAVEN'T

DONE; RIGHT?

A. I HAVE NOT DONE THAT. I EXPLAINED WHY I DON'T THINK THAT

THAT IS INFORMATIVE FOR EVALUATING THE EFFECTS OF QUALCOMM'S

CONDUCT.

Q. NOW, YOU'VE ALSO HEARD OR READ TESTIMONY DURING OUR TRIAL

THAT SOME OF THE RIVALS SPENT R&D MONEY INEFFICIENTLY; RIGHT?

A. I HAVE HEARD THAT.

Q. FOR EXAMPLE, INTEL COMMISSIONED A STUDY FROM BAIN, WHICH

WAS PRESENTED IN COURT FRIDAY, WHICH CONCLUDED THAT ALTHOUGH

INTEL'S SPENDING WAS ON PAR, THEIR OUTPUT OF R&D LAGGED

QUALCOMM VERY SIGNIFICANTLY; RIGHT?

A. I REMEMBER THAT.

Q. AND MS. EVANS FROM INTEL TESTIFIED THAT INTEL ELECTED NOT

TO ENGAGE IN THE CDMA MARKET AT AN EARLY POINT IN TIME AND ONLY

CAME IN LATER; RIGHT?

A. WITH THE ACQUISITION OF VIA THAT YOU'RE REFERRING TO, YES.

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I THINK SHE WOULD HAVE FAVORED DOING THAT EARLIER AS I RECALL.

Q. ALL RIGHT. AND THE REPORT THAT SHE SAID SHE AGREED WITH

SHOWED THAT, OVERALL, INTEL MOBILE PRODUCTIVITY LAGS QUALCOMM

BY 50 PERCENT BASED ON THE SAME SPENDING OF RESOURCES; RIGHT?

A. I DON'T REMEMBER THAT SPECIFIC NUMBER.

Q. BUT CERTAINLY THE REPORT WAS NOT COMPLIMENTARY OF INTEL'S

R&D EFFORTS; RIGHT?

A. AS I RECALL, THAT'S CORRECT. AND SHE VIEWED HER JOB WAS

TO TRY TO TURN THAT AROUND AND IMPROVE THINGS.

Q. RIGHT. AND EVENTUALLY THEY DID AND NOW THEY HAVE 100

PERCENT SHARE OF THE MODEMS AT APPLE FROM 2018 ON; RIGHT?

A. I THINK THEY MADE SIGNIFICANT PROGRESS AND, YOU KNOW, ARE

TO BE CREDITED FOR THAT.

Q. NOW, DID YOU READ THE TESTIMONY OF MR. ZANDER FROM

ST-ERICSSON WHO SAID THAT ERICSSON'S PROBLEM WAS THEY HAD TOO

MANY RESOURCES COMMITTED TO RESEARCH AND DEVELOPMENT?

A. NO, I DID NOT.

Q. HAVE YOU READ MR. ZANDER'S VIDEO TESTIMONY FROM LAST WEEK?

A. NO, I HAVE NOT.

Q. FAIR ENOUGH.

NOW, WITH RESPECT TO APPLE, I THOUGHT I HEARD YOU SAY THAT

A BETTER WAY FOR THAT TRANSACTION TO HAVE OCCURRED WOULD HAVE

BEEN FOR APPLE TO PAY INTEL -- TO PAY QUALCOMM MONEY. DID I

HEAR THAT RIGHT?

A. YES, THEY COULD HAVE HELPED DEFRAY THE COSTS OF R&D IN

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EXCHANGE FOR CHIP DISCOUNTS.

Q. IS THERE ANY EVIDENCE IN THE RECORD THAT APPLE WOULD HAVE

AGREED TO DO THAT?

A. I THINK THEY DID NOT WANT TO HELP -- THEY DID NOT WANT TO

PAY MONEY TO QUALCOMM. THEY WERE MORE INTERESTED IN GETTING

MONEY FROM QUALCOMM.

Q. RIGHT. AND THAT SEEMS LOGICAL; RIGHT? THEY'RE A BIG BOY

AND A BIG GIRL, AND THEY WANT THE BEST DEAL THEY CAN GET;

RIGHT?

A. ABSOLUTELY.

Q. SO AS AN ECONOMIST, IS IT YOUR VIEW THAT IT'S REALISTIC,

IN LOOKING AT ALL THE FACTS AND EVIDENCE SURROUNDING APPLE,

THAT, IN FACT, IN THE REAL WORLD WHERE PEOPLE ARE NEGOTIATING

AND THEY HAVE LEVERAGE, APPLE WOULD HAVE AGREED TO PAY QUALCOMM

HUNDREDS OF MILLIONS OF DOLLARS TO MAKE THIS TRANSITION?

A. WHAT I'M SAYING IS THE FACT -- IF QUALCOMM -- QUALCOMM

DEFENDED ITS MONOPOLY WITH THIS AND QUALCOMM'S SHARING THOSE

MONOPOLY PROFITS WITH APPLE DOES NOT CONSTITUTE A LEGITIMATE

BUSINESS JUSTIFICATION.

Q. I THINK YOU SAID DURING YOUR DIRECT TESTIMONY THAT THE

TRANSACTION WAS HIGHLY PROFITABLE. THAT'S CERTAINLY TRUE,

ISN'T IT?

A. I THINK THE OVERALL BUSINESS AT APPLE OVER THE YEARS TO

COME FOLLOWING THE, THE FATA WAS PROFITABLE FOR QUALCOMM.

Q. VERY PROFITABLE, IN FACT?

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A. THAT'S MY UNDERSTANDING AND THAT'S WHAT THE EVIDENCE --

THAT'S WHAT THE EVIDENCE HAS SHOWN.

Q. AND IT WAS NEGOTIATED AT ARM'S LENGTH BETWEEN TWO LARGE

AND SOPHISTICATED COMPANIES, APPLE AND QUALCOMM; RIGHT?

A. YES.

Q. BOTH OF WHOM HAD LEVERAGE IN THE NEGOTIATION; RIGHT?

A. OF COURSE. OF COURSE.

Q. NEITHER OF WHOM WOULD DO ANYTHING THAT WASN'T TO ITS

ADVANTAGE; RIGHT?

A. THAT'S MY WORKING ASSUMPTION AS AN ANTITRUST ECONOMIST.

Q. BOTH OF WHOM HAD SOPHISTICATED BUSINESS PEOPLE, LAWYERS

AND OTHERS, INVOLVED IN NEGOTIATING THIS TRANSACTION?

A. CERTAINLY.

Q. AND IN THE REAL WORLD, WHAT HAPPENED WAS BOTH COMPANIES

MADE A GREAT DEAL OF MONEY; RIGHT?

A. WELL, WE'VE TALKED ABOUT QUALCOMM'S PROFITS. I HAVE -- I

DON'T KNOW THAT I'VE SEEN A FINANCIAL ANALYSIS ON THE APPLE

SIDE, AT LEAST I DON'T HAVE ONE MEMORIZED.

Q. CERTAINLY, THOUGH, YOU WOULD AGREE, APPLE'S NOT GOING TO

ENTER INTO AN AGREEMENT THAT'S NOT TO ITS ADVANTAGE; CORRECT?

A. OF COURSE I WOULD AGREE WITH THAT. AGAIN, THAT WOULD BE

MY WORKING ASSUMPTION AS AN ANTITRUST ECONOMIST.

Q. NOW, PROFESSOR SHAPIRO, THIS IS NOT THE FIRST TIME YOU'VE

BEEN CRITICIZED IN PUBLIC FOR IGNORING REAL-WORLD EVIDENCE, IS

IT?

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A. OH, PROBABLY NOT. I'VE BEEN DOING THIS A LONG TIME.

Q. AS A MATTER OF FACT, YOU RECENTLY TESTIFIED ON BEHALF OF

THE GOVERNMENT AS THEIR CHIEF ECONOMIC EXPERT IN THE

GOVERNMENT'S CHALLENGE TO THE AT&T/TIME WARNER MERGER; RIGHT?

MR. JAMES: OBJECTION. THIS IS OUTSIDE THE SCOPE OF

THE REBUTTAL TESTIMONY.

MR. VAN NEST: YOUR HONOR, THIS IS IMPEACHMENT. IT

GOES TO HIS RELIABILITY AND CREDIBILITY AS AN EXPERT. AND HE

RAISED, HIMSELF, IN HIS TESTIMONY, THAT HE'S DONE THIS A LOT,

INCLUDING FOR THE D.O.J., INCLUDING IN MERGER CONTEXTS, AND

THAT'S WHAT I WANT TO ASK HIM ABOUT.

THE COURT: IT'S OVERRULED.

GO AHEAD. YOU MAY CONTINUE.

MR. VAN NEST: THANK YOU.

Q. YOU WERE THE GOVERNMENT'S CHIEF ECONOMIC EXPERT IN THE

GOVERNMENT'S CHALLENGE TO THE AT&T/TIME WARNER MERGER; CORRECT?

A. CORRECT.

Q. AND YOU TESTIFIED JUST LAST YEAR, IN MARCH OR APRIL, IN

THAT PROCEEDING; RIGHT?

A. THAT IS CORRECT.

Q. AND YOU PRESENTED A THEORY OF BARGAINING LEVERAGE BASED ON

BARGAINING THEORY. YOU SAID THE MERGER WOULD ALLOW AT&T TO

EXERCISE TOO MUCH LEVERAGE OVER CONTENT PROVIDERS IN FUTURE

NEGOTIATIONS; RIGHT? CORRECT?

A. THAT SOUNDS CORRECT.

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Q. UM-HUM. AND THE COURT THERE COMPLETELY REJECTED YOUR

OPINION AS UNRELIABLE, NOT CREDIBLE, AND COMPLETELY

INCONSISTENT WITH THE REAL-WORLD EVIDENCE; RIGHT?

A. I DON'T -- THAT SOUNDS VERY STRONG. JUDGE LEON HAD A

NUMBER OF CRITICISMS OF MINE. IF YOU WANT TO REFER TO HIS

SPECIFIC CRITICISMS, LET'S LOOK AT HIS OPINION.

Q. LET'S DO IT. IT'S IN YOUR BINDER, UNITED STATES VERSUS

AT&T IS WHAT THE HEADING SAYS, AND IT'S JUDGE LEON'S OPINION OF

JUNE 12TH, 2018.

AND I'LL CALL YOUR ATTENTION TO PAGE 113 OF THAT OPINION

WHERE JUDGE LEON SAID, "UNFORTUNATELY FOR PROFESSOR SHAPIRO,

THE FACTS ADDUCED AT TRIAL REGARDING THE REAL-WORLD OPERATION

OF AFFILIATE NEGOTIATIONS DEMONSTRATED THAT HIS TESTIMONY

'RESTS ON ASSUMPTIONS' THAT ARE 'IMPLAUSIBLE AND INCONSISTENT

WITH RECORD EVIDENCE.'"

HE SAID THAT; CORRECT?

A. I SEE THAT.

Q. HE WENT ON TO SAY, "INDEED, THIS OPINION BY

PROFESSOR SHAPIRO RUNS CONTRARY TO ALL OF THE REAL-WORLD

TESTIMONY DURING THE TRIAL FROM THOSE WHO HAVE ACTUALLY

NEGOTIATED ON BEHALF OF VERTICALLY INTEGRATED COMPANIES."

HE SAID THAT AS WELL?

A. WHERE IS THAT?

Q. THAT'S JUST A LITTLE BIT BELOW WHAT I JUST READ, SAME

PAGE, 113. "INDEED, THIS OPINION BY PROFESSOR SHAPIRO RUNS

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SHAPIRO CROSS BY MR. VAN NEST

UNITED STATES COURT REPORTERS

2082

CONTRARY TO ALL OF THE REAL-WORLD TESTIMONY DURING THE TRIAL

FROM THOSE WHO HAVE ACTUALLY NEGOTIATED ON BEHALF OF VERTICALLY

INTEGRATED COMPANIES."

HE SAID THAT; RIGHT?

A. I SEE THAT, YES.

Q. AND ON THE NEXT PAGE HE SAID, PAGE 114, "ONE WAS LEFT TO

WONDER WHY PROFESSOR SHAPIRO TURNED A BLIND EYE TO SUCH

EXTENSIVE REAL-WORLD EXPERIENCE."

HE SAID THAT AS WELL; RIGHT?

A. I SEE THAT.

Q. AND AT THE END OF THE DAY, WHAT HE CONCLUDED WAS THAT YOUR

MODEL, YOUR BARGAINING MODEL, YOUR LEVERAGE MODEL, "LACKED BOTH

'RELIABILITY AND FACTUAL CREDIBILITY,' AND, THUS, FAILED TO

GENERATE PROBATIVE PREDICTIONS OF FUTURE HARM."

THAT'S AT PAGE 149. HE SAYS THAT AS WELL; RIGHT?

THAT'S WHAT HE SAID?

A. 149.

Q. 149. MIDDLE OF THE PAGE, "BY CONTRAST, THE EVIDENCE AT

TRIAL SHOWED THAT PROFESSOR SHAPIRO'S MODEL LACKS BOTH

'RELIABILITY AND FACTUAL CREDIBILITY' AND THUS FAILS TO

GENERATE PROBATIVE PREDICTIONS OF FUTURE HARM ASSOCIATED WITH

THE GOVERNMENT'S INCREASED-LEVERAGE THEORY."

THAT'S WHAT THE JUDGE CONCLUDED IN YOUR OPINION REGARDING

THE MODEL; CORRECT?

A. I SEE THAT.

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SHAPIRO REDIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2083

MR. VAN NEST: YOUR HONOR, I HAVE NO FURTHER

QUESTIONS, BUT WOULD LIKE TO RESERVE TIME FOR RECROSS.

THE COURT: OKAY. IT'S 10:18, SO I THINK YOU WOULD

HAVE, LIKE, 3 MINUTES.

MR. VAN NEST: EXCUSE ME?

THE COURT: IT'S 10:18. YOU WOULD HAVE 3 MINUTES --

MR. VAN NEST: THANK YOU.

THE COURT: -- TO RECROSS.

MR. VAN NEST: THANK YOU.

THE COURT: ALL RIGHT. THE GOVERNMENT HAS 17 MINUTES

LEFT, QUALCOMM HAS 3 MINUTES LEFT.

GO AHEAD, PLEASE.

OH, WAIT A MINUTE. HANG ON. LET ME JUST DOUBLE-CHECK

THAT.

YEAH, THAT'S RIGHT. SO QUALCOMM HAS 3 MINUTES LEFT;

GOVERNMENT HAS 17 MINUTES LEFT.

IT'S 10:18. ARE YOU READY?

MR. JAMES: YES.

THE COURT: ALL RIGHT. GO AHEAD, PLEASE.

REDIRECT EXAMINATION

BY MR. JAMES:

Q. PROFESSOR SHAPIRO, HAVE YOU TESTIFIED IN COURT APART FROM

THE AT&T CASE THAT MR. VAN NEST TALKED ABOUT?

A. YES. OVER MY CAREER, I THINK I SAID ABOUT 20 OR 25 TIMES.

Q. HOW DOES THE AT&T CASE COMPARE TO THE OTHER EXPERIENCES

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SHAPIRO REDIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2084

YOU'VE HAD?

A. IT'S JUST AN OUTLIER. I HAVE TO SAY, I -- YOU KNOW, I CAN

EXPLAIN WHAT I THINK HAPPENED. BUT I -- IN MY VIEW, MY

OPINIONS AND TESTIMONY HAS BEEN GENERALLY VERY WELL RECEIVED BY

JUDGES AND RELIED UPON MANY TIMES.

Q. IS THERE ANYTHING FURTHER YOU WANTED TO ADD TO YOUR

QUESTIONING BY MR. VAN NEST ABOUT THE AT&T MATTER?

A. YES, THANK YOU.

YOUR HONOR, IF YOU WANT TO GO DOWN THAT ROAD, I WOULD JUST

SUGGEST YOU LOOK AT THE D.O.J.'S APPEAL BRIEFS, AND WE'LL SEE

WHAT THE D.C. CIRCUIT DOES WITH THIS.

JUDGE LEON DID REJECT THE BASICS OF BARGAINING THEORY AS

APPLIED HERE, WHICH WOULD, IF HIS OPINION IS -- IF THAT IS

ACCEPTED, IT WOULD BE CONTRARY I THINK BASICALLY TO WHAT ALL

ECONOMISTS WOULD SAY ABOUT BARGAINING THEORY, AND IN PARTICULAR

HOW IT WOULD APPLY IN VERTICAL MERGERS.

SOME OF THE TESTIMONY HE WAS RELYING ON WAS FROM, FOR

EXAMPLE, COMCAST, WHICH WAS A VERTICALLY INTEGRATED SUPPLIER

AND HAD ITS OWN ISSUES REGARDING ITS OWN DEAL WITH NBC.

SO I -- YOU KNOW, I VERY MUCH DISAGREE WITH WHAT HE SAID.

BUT, AGAIN, I WOULD POINT YOU TO THE D.O.J.'S APPEAL. IT

EXPLAINS WHERE HE WENT WRONG.

Q. TURNING FROM AT&T TO THIS CASE, DOES YOUR OPINION IN THIS

CASE RUN COUNTER TO THE REAL-WORLD TESTIMONY THAT'S BEEN

PRESENTED HERE?

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SHAPIRO REDIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2085

A. NO. I THINK WHAT -- MY TESTIMONY ABOUT THE, ABOUT

QUALCOMM'S ABILITY TO OBTAIN A ROYALTY SURCHARGE, I'M LISTENING

CAREFULLY AND RELYING ON THE REAL-WORLD TESTIMONY ABOUT THE

CHIP LEVERAGE AND HOW IT OPERATED.

I THINK THE PERSON WHO'S NOT PAYING ATTENTION TO THAT IS

PROFESSOR NEVO.

Q. MR. VAN NEST ASKED YOU ABOUT DIFFERENT CHANGES OVER TIME

IN MARKET SHARES AND R&D AND IN PRICES.

DO THOSE QUESTIONS CAUSE YOU TO DOUBT YOUR, QUOTE-UNQUOTE,

TAX THEORY AS MR. VAN NEST CALLED IT?

A. NO, AND HE'S NOT REALLY EVEN CHALLENGING THE TAX THEORY AS

SUCH. HE'S -- THIS WHOLE LINE THAT HE WAS ASKING, AND ALL OF

THEIR EXPERTS HAVE DEVELOPED, THAT THE MARKETS -- YOU KNOW, THE

PRODUCTS ARE GETTING BETTER, EVERYTHING HAS GOT TO BE FINE, YOU

KNOW, IT'S -- IT'S NOT AN ACCURATE WAY TO LOOK AT WHAT'S GOING

ON.

THE ROYALTY SURCHARGE -- LOOK, IF WE'RE TALKING ABOUT --

LOOK, I'M JUST GOING TO -- I DON'T KNOW EXACTLY WHAT THE NUMBER

IS, BUT IF IT'S DOLLARS PER PHONE, OF COURSE THE MARKET IS

GOING TO STILL GROW AND WORLDWIDE ADOPTION IS GOING TO GROW.

BUT IT WOULD HAVE GROWN A BIT FASTER, IT WOULD HAVE BEEN

CHEAPER IF YOU TAKE AWAY THAT TAX.

SO I JUST -- I JUST THINK IT'S THE SAME -- IT'S NOT A

RELIABLE WAY TO LOOK AT THE PROBLEM. AND I THINK THAT NEITHER

DR. CHIPTY OR PROFESSOR NEVO ACKNOWLEDGED THAT THEY CAN'T

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SHAPIRO REDIRECT BY MR. JAMES

UNITED STATES COURT REPORTERS

2086

SAY -- I THINK PROFESSOR NEVO -- HE CAN'T SAY THE MARKET

WOULDN'T HAVE DONE BETTER WITHOUT QUALCOMM'S CONDUCT OR WITHOUT

THE SURCHARGE. BUT HE THEN SAID, BUT IT DID VERY WELL.

SO I JUST DON'T THINK THEY'RE ENGAGING ON THE QUESTION,

WHAT ARE THE EFFECTS OF THE CONDUCT?

Q. MR. VAN NEST ASKED YOU QUESTIONS ABOUT THE JFTC ORDER AND

THE JAPANESE OEM'S. WAS THE ANALYSIS THAT YOU CONDUCTED

CONFINED TO THE FOUR CORNERS OF THE JFTC ORDER?

A. NO. SO APPENDIX E OF MY -- THIS IS THE REBUTTAL REPORT,

IT HAS A SECTION, IT'S CALLED DETAILS OF QUALCOMM'S LICENSING

NEGOTIATIONS.

AND WHAT I DID -- THIS IS IN REBUTTAL. SO I WAS LOOKING

AT PROFESSOR NEVO'S EXAMPLES, HIS DATA POINTS, AND I'M, LIKE,

WHAT'S GOING ON BEHIND THESE NEGOTIATIONS? AND IN PARTICULAR,

THIS SECTION HERE, THESE WCDMA LICENSE NEGOTIATIONS.

SO THIS SECTION THAT RUNS FOR THREE PAGES IS -- DISCUSSES

A NUMBER OF THE JAPANESE OEM'S AND WHAT WAS GOING ON IN THEIR

NEGOTIATIONS AND THE LEVERAGE QUALCOMM BROUGHT TO BEAR. AND

PART OF THAT IS THIS JAPAN FAIR TRADE COMMISSION CHALLENGE,

WHATEVER IT IS, THEIR ACTION AGAINST QUALCOMM.

BUT THERE'S MORE THAN THAT HERE THAT'S DESCRIBED. I DON'T

HAVE IT ALL MEMORIZED, BUT IT IS HERE.

Q. MR. VAN NEST ALSO ASKED YOU WHETHER YOU HAD FORMED AN

OPINION AN QUALCOMM'S MARKET POWER IN WCDMA OR IN CDMA PRIOR TO

2006.

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SHAPIRO RECROSS BY MR. VAN NEST

UNITED STATES COURT REPORTERS

2087

DID YOU NEED TO FORM THOSE OPINIONS TO REACH THE

CONCLUSIONS YOU REACHED IN THIS CASE?

A. NO. NO. THE -- MY ANALYSIS OF THE MARKET -- THE CDMA

MARKET STARTS IN 2006 AND THE LTE MARKET STARTS IN 2011. WHAT

HAPPENED YEARS BEFORE IS JUST NOT PART OF MY ANALYSIS.

AS I SAID BEFORE, IF PROFESSOR NEVO IS GOING TO MAKE AN

ASSUMPTION ABOUT SOMETHING THAT HAPPENED YEARS BEFORE, HE

SHOULD JUSTIFY THAT ASSUMPTION, AND HE DID NOT.

AND AS I SAID, IT'S CONTRARY TO A BUNCH OF EVIDENCE,

INCLUDING SOME THINGS HE ACKNOWLEDGED, FOR EXAMPLE, OF

QUALCOMM'S CDMA LEADERSHIP.

MR. JAMES: NO FURTHER QUESTIONS.

THE COURT: OKAY. IT'S 10:24.

ANY RECROSS?

ARE YOU READY?

MR. VAN NEST: I'M READY, YOUR HONOR.

THE COURT: ALL RIGHT. 10:25. GO AHEAD, PLEASE.

RECROSS-EXAMINATION

BY MR. VAN NEST:

Q. I DON'T WANT TO BEAT A DEAD HORSE, PROFESSOR SHAPIRO, BUT

IN YOUR APPENDIX E CONCERNING THE JAPANESE FAIR TRADE

COMMISSION ORDER, THERE'S NOT A WORD ABOUT ROYALTIES OR CHIP

LEVERAGE ANYWHERE, IS THERE?

A. THERE'S -- I SEE SOMETHING HERE ABOUT ROYALTIES. I SEE

INFRASTRUCTURE ISSUES THAT I BROUGHT UP BEFORE. I CAN READ

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SHAPIRO RECROSS BY MR. VAN NEST

UNITED STATES COURT REPORTERS

2088

DIFFERENT PARAGRAPHS.

Q. THE FACT OF THE MATTER IS THAT THE ORDER AFFECTED

CROSS-LICENSING, NOT CHIP LEVERAGE OR ELEVATED ROYALTIES AT

ALL; RIGHT?

A. LOOK, I'D HAVE TO READ THE ORDER TO BE SURE ABOUT THAT.

THE POINT -- LOOK, MY POINT IS THAT THERE WAS VARIOUS

LEVERAGE THAT QUALCOMM BROUGHT TO BEAR ON THOSE LICENSES AND

THAT WAS VIEWED TO BE COERCIVE BY THE JAPANESE -- BY THE JFTC.

AND SO THESE ARE BAD BENCHMARKS TO USE TO TALK ABOUT WHAT WOULD

HAPPEN WITHOUT SUCH LEVERAGE.

THE PARTICULAR TYPE OF LEVERAGE IS IRRELEVANT FOR THAT

ARGUMENT.

Q. ALL RIGHT. BUT THAT WAS FOUR OR FIVE LICENSES OUT OF THE

HUNDREDS THAT PROFESSOR NEVO ANALYZED; RIGHT?

A. THIS WAS FIVE OUT OF THE SEVEN THAT HE SHOWED ON THAT

EXHIBIT.

Q. NOW, PROFESSOR SHAPIRO, YOU TOLD US THAT THERE'S NO WAY TO

KNOW HOW MUCH BETTER THINGS WOULD HAVE BEEN IN THIS DYNAMIC,

GROWING MARKET BUT FOR QUALCOMM'S CONDUCT; CORRECT?

A. I THINK IT'S VERY DIFFICULT TO KNOW THAT, AND I HAVE NOT

QUANTIFIED THAT.

Q. AND THAT'S WHAT I WANTED TO FIND OUT.

YOU'VE DONE NOTHING WHATSOEVER TO QUANTIFY HOW PRICES,

MARKET SHARES, SPENDING, OR ANYTHING ELSE WOULD HAVE DIFFERED

IN YOUR BUT FOR WORLD; RIGHT?

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SHAPIRO RECROSS BY MR. VAN NEST

UNITED STATES COURT REPORTERS

2089

A. I HAVE NOT CALCULATED DAMAGES HERE.

Q. ISN'T THE ANSWER TO MY QUESTION NO?

A. I HAVE NOT QUANTIFIED THOSE EFFECTS SUCH AS ONE WOULD WANT

TO DO FOR DAMAGES. I'M TALKING ABOUT THE HARM TO COMPETITION

THAT WAS A RESULT OF QUALCOMM'S CONDUCT.

Q. IN PRESENTING YOUR OPINIONS THAT THE WORLD COULD HAVE BEEN

BETTER, YOU'VE DONE NOTHING EMPIRICAL TO SUPPORT THAT VIEW;

RIGHT?

A. I'VE EXPLAINED HOW QUALCOMM'S CONDUCT HARMED

COMPETITION --

Q. EXCUSE ME, PROFESSOR SHAPIRO.

A. -- TO COMPETITION, AND --

Q. MY QUESTION WAS DIFFERENT. YOU'VE DONE NOTHING EMPIRICAL

TO SUPPORT THAT VIEW; RIGHT?

A. THAT IS INCORRECT.

MR. VAN NEST: I HAVE NOTHING FURTHER, YOUR HONOR.

THE COURT: OKAY. TIME IS 10:27. SO QUALCOMM HAS NO

MORE TIME.

FTC, YOU HAVE 10 MINUTES LEFT. WHAT ARE YOU GOING TO DO

WITH YOUR TIME?

MR. JAMES: NO FURTHER QUESTIONS FOR THIS WITNESS.

THE COURT: OKAY. I ASSUME, THEN, THAT HE IS

EXCUSED, NOT SUBJECT TO RECALL; IS THAT RIGHT?

(LAUGHTER.)

THE COURT: ALL RIGHT. SO YOU HAVE COMPLETED YOUR

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LEE, KIM, AND AHN DEPOSITIONS

UNITED STATES COURT REPORTERS

2090

TRIAL TESTIMONY, AND YOU'RE FREE TO LEAVE.

THE WITNESS: THANK YOU, YOUR HONOR.

THE COURT: YOU HAVE 10 MINUTES LEFT. WHAT ARE YOU

GOING TO DO WITH IT?

MS. IKEDA: WE HAVE A FEW SHORT VIDEO CLIPS.

THE COURT: OKAY.

MS. IKEDA: OUR FIRST REBUTTAL WITNESS IS GOING TO BE

INJUNG LEE, AND WE HAVE NO DOCUMENTS.

THE COURT: 10:28.

(THE VIDEOTAPED DEPOSITION OF INJUNG LEE WAS PLAYED IN

OPEN COURT OFF THE RECORD.)

THE COURT: 10:30.

MS. IKEDA: OUR NEXT WITNESS IS YOOSEOK KIM FROM

SAMSUNG.

THE COURT: OKAY.

(THE VIDEOTAPED DEPOSITION OF YOOSEOK KIM WAS PLAYED IN

OPEN COURT OFF THE RECORD.)

THE COURT: 10:32.

MS. IKEDA: OUR NEXT WITNESS IS SEUNGHO AHN OF

SAMSUNG.

(THE VIDEOTAPED DEPOSITION OF SEUNGHO AHN WAS PLAYED IN

OPEN COURT OFF THE RECORD.)

THE COURT: OKAY. 10:35.

MS. IKEDA: OUR NEXT WITNESS IS JOHN GRUBBS OF

BLACKBERRY.

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GRUBBS DEPOSITION

UNITED STATES COURT REPORTERS

2091

THE COURT: IS THAT THE ONE THAT NEEDS SEALING?

MS. IKEDA: NO.

THE COURT: NO, OKAY.

MR. EVEN: THAT'S NOT THE ORDER THAT I BELIEVE WE

HAVE.

MS. IKEDA: GIVEN THE TIME CONSTRAINTS, WE'VE HAD TO

GO A LITTLE BIT OUT OF ORDER.

SO WITH THE COURT'S PERMISSION, WE'D LIKE TO --

THE COURT: LET ME SEE HOW MUCH TIME YOU HAVE.

HOW LONG IS THAT?

MS. IKEDA: THE GRUBBS IS 1 MINUTE AND 10 SECONDS.

WE HAD TO SKIP OVER BLAYLOCK.

THE COURT: OKAY. BECAUSE YOU HAVE 2 MINUTES LEFT.

YEAH, YOU HAVE 2 MINUTES LEFT.

MS. IKEDA: SO WE'LL PLAY GRUBBS.

THE COURT: OKAY. ARE YOU READY TO PLAY IT?

MS. IKEDA: YES.

THE COURT: GO AHEAD, PLEASE.

(THE VIDEOTAPED DEPOSITION OF JOHN GRUBBS WAS PLAYED IN

OPEN COURT OFF THE RECORD.)

THE COURT: OKAY. 10:36.

MS. IKEDA: AND OUR NEXT WITNESS IS --

THE COURT: I THINK YOU'RE OUT OF TIME.

MS. IKEDA: OH, IS THAT RIGHT?

THE COURT: I THINK SO. I'LL DOUBLE-CHECK.

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UNITED STATES COURT REPORTERS

2092

MS. IKEDA: IT'S 45 SECONDS. OH, 33, SORRY.

THE COURT: WELL, I THINK YOU'RE OUT OF TIME.

MS. IKEDA: OKAY.

MS. MILICI: THANK YOU.

THE COURT: ALL RIGHT. SO WE'RE DONE FOR THE DAY.

AND TOMORROW WE'LL HAVE CLOSINGS, ONE HOUR EACH, STARTING

AT 1:30.

I THINK WHAT I'D LIKE TO DO -- I DON'T WANT TO BREAK UP

ANYONE'S CLOSINGS, SO WHAT WE'LL PROBABLY DO IS DO FTC'S AND

THEN TAKE A TEN MINUTE BREAK AND THEN DO QUALCOMM'S AND THEN DO

FTC'S. OKAY?

ANYTHING MORE FOR TODAY?

YOUR HIGH PRIORITY OBJECTIONS ARE DUE TOMORROW MORNING AT

8:00. WE'LL TRY TO GET THE RULING OUT AS QUICKLY AS POSSIBLE

SO YOU CAN INCORPORATE IT INTO YOUR PREPARATION.

ANYTHING ELSE FOR TODAY?

MR. BYARS: YOUR HONOR, ONE HOUSEKEEPING.

THE COURT: YES.

MR. BYARS: IN THE AHN DEPOSITION, THERE WERE LINES

THAT, PURSUANT TO YOUR HONOR'S HPO RULING, WERE NOT TO BE

ADMITTED FOR THE TRUTH OF THE MATTER ASSERTED.

THE COURT: OKAY. AND I'M ASSUMING ALL THESE

WITNESSES ARE NOT SUBJECT TO RECALL.

(LAUGHTER.)

MS. MILICI: THAT'S CORRECT.

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UNITED STATES COURT REPORTERS

2093

MR. BYARS: THAT'S CORRECT, YOUR HONOR.

THE COURT: OKAY. WHAT LINES WERE THOSE?

MR. BYARS: THOSE WERE PAGE 103:19, AND PAGE 103:22

THROUGH PAGE 104:18.

THE COURT: I'M SORRY. CAN YOU PLEASE REPEAT THAT?

MR. BYARS: SURE. PAGE 103:19.

THE COURT: OKAY.

MR. BYARS: PAGE 103:22 THROUGH PAGE 104:18.

THE COURT: OH, JUST THE ONE LINE, 103:19?

MR. BYARS: YEAH. I THINK THAT WAS PART OF A

QUESTION AND THEN THERE WAS AN ANSWER.

THE COURT: AND THEN 103, YOU SAID 22?

MR. BYARS: YES, THROUGH 104:18, AND THIS IS DOCKET

1445.

THE COURT: OKAY.

YOU AGREE WITH THAT?

MS. IKEDA: YES, YOUR HONOR.

THE COURT: ALL RIGHT. ANYTHING ELSE?

SO WHAT I WOULD LIKE IS IF YOU WOULD PLEASE FILE THE FINAL

JOINT ADMITTED EXHIBIT LIST, CAN YOU DO THAT TOMORROW MORNING?

MR. BYARS: WE CAN.

MS. IKEDA: YES.

THE COURT: ALL RIGHT. THANK YOU.

ANYTHING ELSE THAT WE NEED TO TAKE CARE OF?

MR. VAN NEST: NOT FROM QUALCOMM, YOUR HONOR.

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UNITED STATES COURT REPORTERS

2094

MS. MILICI: NOT FROM THE FTC.

THE COURT: OKAY. SO TOMORROW, THE SECOND ROW ON

BOTH SIDES OF THE COURTROOM WILL BE FOR MEDIA, SO I'M GOING TO

ASK IF YOU WOULD PLEASE NOT HAVE YOUR TEAMS SIT THERE. OKAY?

THEY'LL HAVE TO MOVE BACK.

THE SECOND ROW -- THE FIRST ROW IS FOR THE PARTIES AND

YOUR COUNSEL. THE SECOND ROW IS FOR MEDIA, AND THEN EVERYTHING

AFTER THAT IS A FREE-FOR-ALL, SO SIT WHEREVER YOU'D LIKE.

ANYTHING ELSE THEN FOR TODAY?

MR. VAN NEST: I DON'T BELIEVE SO, YOUR HONOR.

MS. MILICI: NOT FROM THE FTC.

THE COURT: NO? ALL RIGHT. THANK YOU. WE'LL SEE

YOU TOMORROW AFTERNOON.

(THE EVENING RECESS WAS TAKEN AT 10:39 A.M.)

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UNITED STATES COURT REPORTERS

CERTIFICATE OF REPORTERS

WE, THE UNDERSIGNED OFFICIAL COURT REPORTERS OF THE

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF

CALIFORNIA, 280 SOUTH FIRST STREET, SAN JOSE, CALIFORNIA, DO

HEREBY CERTIFY:

THAT THE FOREGOING TRANSCRIPT, CERTIFICATE INCLUSIVE, IS

A CORRECT TRANSCRIPT FROM THE RECORD OF PROCEEDINGS IN THE

ABOVE-ENTITLED MATTER.

______________________________

IRENE RODRIGUEZ, CSR, CRR

CERTIFICATE NUMBER 8076

_______________________________

LEE-ANNE SHORTRIDGE, CSR, CRR

CERTIFICATE NUMBER 9595

DATED: JANUARY 28, 2019

Case 5:17-cv-00220-LHK Document 1518 Filed 07/02/19 Page 69 of 69