"The Apple iPod iTunes Anti-Trust Litigation"

Filing 740

Administrative Motion to File Under Seal filed by Apple Inc.. (Attachments: # 1 Declaration Kiernan Declaration ISO Administrative Motion to Seal, # 2 Proposed Order Granting Motion to Seal, # 3 Exhibit Rdacted Version of Defendant's Notice of Motion and Motion for Summary Judgment and to Exclude Expert Testimony of Roger G. Noll, # 4 Exhibit SEALED Version of Motion for Summary Judgment and to Exclude Testimony, # 5 Exhibit REDACTED - Separate Statement ISO MSJ, # 6 Exhibit SEALED - Separate Statement ISO MSJ, # 7 Exhibit REDACTED - Exhibit 3 to Amiri Decl., # 8 Exhibit SEALED - Exhibit 3 to Amiri Dec, # 9 Exhibit REDACTED - Exhibit 4 to Amiri Dec, # 10 Exhibit SEALED - Exhibit 4 to Amiri Dec, # 11 Exhibit REDACTED - Exhibit 5 to Amiri Dec, # 12 Exhibit SEALED - Exhibit 5 to Amiri Dec, # 13 Exhibit REDACTED - Exhibit 6 to 8 to Amiri Dec, # 14 Exhibit SEALED - Exhibits 6 to 8 to Amiri Dec, # 15 Exhibit REDACTED - Exh 9 to Amiri Dec, # 16 Exhibit SEALED - Exh 9 to Amiri Dec, # 17 Exhibit REDACTED - Exh 10 to Amiri Dec, # 18 Exhibit SEALED - Exh 10 to Amiri Dec, # 19 Exhibit REDACTED - Exh 11 to Amiri Dec, # 20 Exhibit SEALED - Exh 11 to Amiri Dec, # 21 Exhibit SEALED - Exh 13 to Amiri Dec, # 22 Exhibit REDACTED - Exh 14 to Amiri Dec, # 23 Exhibit SEALED - Exh 14 to Amiri Dec, # 24 Exhibit SEALED - Exh 15 to Amiri Dec, # 25 Exhibit SEALED - Exh 16 to Amiri Dec, # 26 Exhibit SEALED - Exh 17 to Amiri Dec, # 27 Exhibit SEALED - Exh 18 to Amiri Dec, # 28 Exhibit SEALED - Exh 19 to Amiri Dec)(Kiernan, David) (Filed on 12/21/2013)

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Exhibit 4 [PUBLIC VERSION - REDACTED] IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION __________________________________________ ) ) ) THE APPLE IPOD ITUNES ) ANTITRUST LITIGATION ) ) ) __________________________________________) Case No. C 05 00037 YRG C 06 04457 YRG HIGHLY CONFIDENTIAL EXPERT REPORT OF ROBERT H. TOPEL August 19, 2013 (Amended) TABLE OF CONTENTS I. INTRODUCTION AND BACKGROUND................................................................. - 1 A. Summary of Qualifications ............................................................................................. - 1 B. Assignment ..................................................................................................................... - 2 C. Summary of Opinions ..................................................................................................... - 3 - II. BACKGROUND: ITUNES, IPODS AND THE CHALLENGED CONDUCT ...... - 6 A. The Development of the iTunes/iPod/iTMS Platform .................................................... - 6 1. iTunes ........................................................................................................................ - 7 2. iPod ........................................................................................................................... - 7 3. The iTunes Store ..................................................................................................... - 10 B. The Introduction and Use of DRM ............................................................................... - 12 C. RealNetworks RealPlayer with Harmony ..................................................................... - 13 1. RealNetworks (Real), Harmony and the Real Music Store .................................... - 13 D. Challenged Conduct ...................................................................................................... - 15 E. The End of DRM .......................................................................................................... - 17 F. Quality Adjusted iPod Prices Rapidly Declined During the Period at Issue ................ - 18 - III. PLAINTIFFS’ AND PROFESSOR NOLL’S THEORY OF IMPACT AND DAMAGES .................................................................................................................. - 19 - IV. PROFESSOR NOLL’S HEDONIC PRICE REGRESSION AND INFERENCE OF DAMAGES ................................................................................... - 21 A. Multiple Linear Regression........................................................................................... - 21 B. Hedonic Models of Prices for Products with Changing Quality................................... - 24 - V. PROFESSOR NOLL’S HEDONIC DAMAGE MODEL ....................................... - 24 A. How Professor Noll Constructs His Data ..................................................................... - 25 B. What Professor Noll Claims to Find ............................................................................. - 27 - VI. PROFESSOR NOLL’S CLAIMS OF PRECISION AND STATISTICAL SIGNIFICANCE ARE INCORRECT ...................................................................... - 28 A. Professor Noll’s “Before and After” Experiment: The Wrong But-For World ........... - 37 B. Professor Noll’s Confusion about the “Log of Time” .................................................. - 43 C. Additional Features and the “Quality” of Professor Noll’s Regression ....................... - 47 D. Professor Noll’s Regression Produces Implausible Results That Are Inconsistent With The Basic Economics Of Plaintiffs’ Theory. ....................................................... - 49 - HIGHLY CONFIDENTIAL i E. Professor Noll’s Regression Improperly Estimates A Single Average Overcharge Across All Models ........................................................................................................ - 50 F. The Impact of DRM-Free Music on the Price of iPods ................................................ - 53 VII. PROFESSOR NOLL’S DAMAGE CALCULATIONS .......................................... - 54 - VIII. SOME FINAL POINTS: PROFESSOR NOLL’S REGRESSION HAS NO CONNECTION TO THE CHALLENGED CONDUCT, PLAINTIFFS’ THEORY, OR APPLE’S PRICING PRACTICES ................................................. - 55 - HIGHLY CONFIDENTIAL ii LIST OF APPENDICES APPENDIX A: Curriculum Vitae APPENDIX B: List of Materials Relied Upon APPENDIX C: Collection of iPod Characteristics APPENDIX D: Additional Regression Results HIGHLY CONFIDENTIAL iii I. INTRODUCTION AND BACKGROUND 1. I am Robert H. Topel, Isidore Brown and Gladys J. Brown Distinguished Service Professor of Economics at The University of Chicago Booth School of Business. I am also Director of the George J. Stigler Center for the Study of the Economy and State and Co-Director of the Energy Policy Institute at Chicago (EPIC), both at The University of Chicago. In addition, I am a Senior Consultant at Charles River Associates (CRA), an economics consulting firm that specializes in the application of economic theory and statistics to legal and regulatory issues. A. Summary of Qualifications 2. I am an economist, and I specialize in (among other things) microeconomics, which is the study of markets, pricing, and firm and industry behavior. I received a B.A. in economics from the University of California, Santa Barbara in 1974, and a Ph.D. in economics from the University of California, Los Angeles in 1981. In addition to my position at the Booth School of Business at The University of Chicago, I have been a member of the faculties in the Department of Economics at The University of Chicago and the Department of Economics at the University of California, Los Angeles. At these institutions, I have taught courses on Markets and Prices, Economic Theory, Labor Markets, Empirical Methods in Economics, Compensation and Personnel Policies, Industrial Organization and Antitrust, Business Strategy, and Law and Economics. 3. From 1993 to 2003, I served as Editor of the Journal of Political Economy, and from 1991 to 1993 I was a member of the Editorial Board of the American Economic Review, two of the leading professional publications in economics and economic theory. I am also a past founding editor of the Journal of Labor Economics (1982-92), and I currently am a member of the Editorial Advisory Board of the International Journal of the Economics of Business and the Advisory Board of the Economics Research Network. I am a Research Associate of the National Bureau of Economic Research, an elected member of the Council on Income and Wealth, an elected Founding Member of the National Academy of Social Insurance, and a Fellow of the Stanford University Center for the Study of Poverty and Inequality. In 2004, I was elected a Fellow of the Society of Labor Economists. In 2005, I received the Eugene Garfield Award for HIGHLY CONFIDENTIAL -1- But these observations are not independent; they are perfectly correlated — if one knows the price of one unit, one knows the price of all of them. By incorrectly treating millions of highly correlated observations as independent pricing decisions, Professor Noll has claimed to estimate his model with an absurd degree of precision. Correcting his error using standard econometric techniques that account for non-independence, I demonstrate that his estimates of alleged “overcharges” are indistinguishable from zero. • Opinion 2: Professor Noll’s regression analysis produces implausible results that are inconsistent with the economics of Plaintiffs’ theory. His results are based on unsupported assumptions that are inconsistent with the basic facts of this case. • His regression purports to show that the challenged conduct had an immediate and uniform impact on prices of all iPods sold from September 12, 2006 onward. This is contrary to his and Plaintiffs’ theory in which the degree of “lock-in” would be proportional to the increase in iPod owners’ accumulated stocks of FairPlay-protected music caused by the challenged update. This effect was zero in September of 2006, so even under Plaintiffs’ theory the update could not have raised iPod prices at that time. Professor Noll’s regressions are incapable of determining when an overcharge, if any, would have occurred. • The regression also produces “but-for” prices that are contrary to the way in which Apple actually sets prices. • Opinion 3: Notwithstanding other flaws in Professor Noll’s model, his overcharge estimates are based on an incorrect characterization of the “but-for” world that would have existed in the absence of the challenged update. The DRM protection technology in versions of iTunes used prior to HIGHLY CONFIDENTIAL -4- that date — specifically in iTunes 4.7, 5 and 6 — has been found legal. Thus the proper “before-and-after” estimate of the effect of the would compare the level of iPod prices after the introduction of iTunes 7.0 to the “but-for” price level that existed under the legal DRM technology of iTunes 4.7 through 6. Professor Noll incorrectly measures the but-for price level from a three-month period before the introduction of iTunes 4.7 in October 2004 — nearly two years before the introduction of iTunes 7. This means that he does not measure the incremental effect on iPod prices of the contained in iTunes 7; rather he includes the legal “effect” of iTunes 4.7 technology and functionality in his estimate of an alleged overcharge due to iTunes 7. This error alone doubles Professor Noll’s estimated of “overcharge” among resellers, and it increases his estimated “overcharge” among direct purchasers by a factor of six. • Opinion 4: Professor Noll’s regression model is incorrectly formulated. Among other errors: • His model does not and cannot separate the impact of the challenged feature from other factors that impact iPod prices and occurred at the same time the feature was introduced. Despite his claim to control for relevant product attributes and market forces, he omits many valuable attributes of iPods, iTunes, and iTMS that affect the prices of iPods. He also fails to account for the fact that 80 percent of the iTMS music catalogue was DRM-free on January 6, 2009, nearly four months before he turns on his indicator variable. • Professor Noll also incorrectly constrains his model so that iTunes 7 must have the same percentage impact on the prices of all iPod models, even models that could not invoke the challenged feature and so continued to be compatible with Harmony. There is no economic or factual support for the assumption that any overcharge would be exactly the same for different products purchased by different class members, especially models that could not invoke the challenged feature. At deposition, Professor Noll suggested that he might attempt to fix this problem by estimating product-specific price effects of the iTunes 7 introduction. But this is not a fix. Even ignoring his model’s other flaws, this HIGHLY CONFIDENTIAL -5- approach yields estimated “effects” of iTunes 7 that are inconsistent with Plaintiffs’ theory. Moreover, this approach cannot provide an “overcharge” estimate for the iPod Touch because it did not exist prior to the introduction of iTunes 7. • Professor Noll’s attempt to account for technological progress (“Moore’s Law”) by using the “log of time” is, by his own testimony, incorrect and inconsistent with standard econometric practice. As in other instances, each of these errors and omissions increased Professor Noll’s estimates of overcharges. • Opinion 5: Correcting Professor Noll’s errors in the context of his own model causes his estimates of “overcharge” and “damage” to vanish. • Opinion 6: A necessary predicate for his theory of damages is that enough iPod owners were purchasing RMS music, and would have continued to do so, to have an impact on iPod prices. Professor Noll merely assumes that this was the case — i.e., that iPod owners were in fact purchasing RMS music and would have continued to do so in sufficient quantities to impact iPod demand. To the extent this is not the case, Professor Noll’s damages theory fails as a threshold matter. Professor Noll has offered no evidence that anyone, let alone a material fraction of iPod owners, would have used Harmony and RMS, or ever did. Prior to the challenged update, RMS accounted for only about three percent of all digital downloads, a share that would have been substantially lower among iPod owners. II. BACKGROUND: ITUNES, IPODS AND THE CHALLENGED CONDUCT 11. This section presents a brief overview of the relevant products and technologies at issue and a timeline of relevant events. A. The Development of the iTunes/iPod/iTMS Platform 12. Exhibit 1 is a timeline of key events in the evolution of the iTunes/iPod/iTMS platform. HIGHLY CONFIDENTIAL -6- 1. iTunes 13. iTunes is a “jukebox” software program that allows users to import, manage and play digital music files on the users’ computers. Apple introduced the first version of iTunes for its Mac line of computers in 2001 and iTunes for Windows in October 2003. Since iTunes was first introduced, there have been ten major (version) updates, or just under one per year on average. The first of these version updates, iTunes 2.0, added integration with iPods along with improvements in CD burning capabilities and enhanced sound capabilities.5 In general, the new version updates enhanced the operation of the music player; added or supported new features in iPods, such as photo and/or video; and supported new content from the iTMS (e.g., movies, TV shows, and games).6 There have also been 78 smaller updates: some added features or supported new iPods; others were released in order to “fix” particular technical issues. For example, iTunes 4.7 was released to support the new photo feature added to the iPod Classic, improved FairPlay in response to hacks, and fixed other bugs.7 All told, there have been 88 different updates, the most recent of which (iTunes 11.0.4) was released on June 5, 2013.8 (See Exhibit 2 for a history of the various versions of iTunes and the major updates to those versions through March 2012.) 2. iPod 14. Apple introduced the first iPod in October 2001. The iPod could play music from a variety of sources, including a CD collection copied or ripped to the user’s computer and then synced or loaded to an iPod using iTunes; music obtained online without DRM protection, including from music stores that offered music without DRM; music that originally had DRM protection but had been copied to a CD and then copied back to a computer (burned and ripped); 5 Apple Press Release, “Apple Announces iTunes 2; Best Digital Music Software Gets Even Better,” October 23, 2001 (Apple_AIIA00974863-5). 6 Apple Press Release, “Apple Introduces iPod shuffle; First iPod Under $100,” January 11, 2005 (Apple_AIIA00974708). 7 “iTunes version history,” Wikipedia, The Free Enclyclopedia, http://en.wikipedia.org/wiki/ITunes_version_history (accessed June 25, 2013); Declaration of Dr. John P. J. Kelly in Support of Defendant’s Renewed Motion for Summary Judgment, April 18, 2011 (hereinafter, “Kelly declaration in support of MSJ”), ¶22. 8 This number includes 10 versions after version 1, 26 sub-version updates, and 52 more minor updates. iTunes 4.7 is not counted as a separate version, but rather as one of the sub-version updates. See “iTunes version history,” Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/wiki/ITunes_version_history (accessed June 25, 2013 and verified July 17, 2013). HIGHLY CONFIDENTIAL -7- and later, music purchased from iTMS. From the time the iPod was first introduced, Apple released new generations that added features to the first model, which it later called the “classic,” and introduced new iPod models that had significantly different features. (For a description of the evolution of iPod features over time, see Exhibit 3.) The following paragraphs offer a brief overview of these product introductions and enhancements. 15. iPod Classic. The first iPod (iPod Classic 1st Generation) was smaller and lighter than other devices then on the market, had only 5GB memory, and was touted for its ability to put “a thousand songs in your pocket.”9 Five months later, Apple introduced a second-generation iPod with twice the memory, and four months after that Apple introduced their next update with twice again the memory. In just nine months, the capacity of the iPod had quadrupled from 5GB to 20GB. Over the years, Apple continued to add memory to the iPod Classic: by September 2006 the iPod Classic 5th Generation was available with 80GB memory and a year later, the iPod Classic 6th Generation was available with 160GB. (See Exhibit 4 for a summary of enhancements to iPod memory.) At the same time, Apple continued to add features. In April 2003, Apple began to offer iPods with USB connectivity in addition to the FireWire cable that they had offered initially.10 Over time, successive generations of the iPod Classic became smaller and lighter, had more memory and longer battery life, and were generally sold at prices lower than the models they replaced. Later, when photo and video were introduced, the iPod began to feature high-resolution color screens that improved with each new generation. (For a summary of the history of the iPod Classic, see Exhibit 5a.) 16. iPod Mini. The iPod Mini was introduced in January 2004. It was half the size of the original iPod. With 4GB of memory the Mini held 1000 songs – the smallest portable digital music player to do so at the time. According to Apple’s press release, it could also transfer music at the rate of a song per second, and it could be conveniently charged using either the 9 Apple Press Release, “Apple Presents iPod; Ultra-Portable MP3 Music Player Puts 1,000 Songs in Your Pocket,” October 23, 2001 (Apple_AIIA00974636). See also http://www.vaughanpl.info/vortex/?p=5261. 10 Although FireWire was faster at the time the iPod was introduced, it was also limited by the fact that it was not usually standard on personal computers. See, e.g., http://www.qimaging.com/support/pdfs/firewire_usb_technote.pdf. HIGHLY CONFIDENTIAL -8- included FireWire or USB cable.11 The 2nd Generation Mini was introduced a year later. It was smaller, lighter, held 50 percent more music and featured increased battery life of up to 18 hours, and it sold for the same price as the previous model. While it was in production, the Mini was one of the most popular electronic products on the market.12 (See Exhibit 5b.) 17. iPod Shuffle. On January 11, 2005, Apple introduced the iPod Shuffle, a digital music player based on iTunes’ shuffle feature, which randomly selected songs from the user’s library for placement on the iPod. In replaying the music, the Shuffle “shuffled” the music so that users got a new combination of music every time they listened. The Shuffle was smaller and lighter than a pack of gum and was available for less than $100.13 (See Exhibit 5c.) 18. iPod Nano. In September 2005, Apple introduced the iPod Nano as a replacement model for the Mini. The Nano was a full-featured iPod that was smaller and lighter than anything then on the market and featured a redesigned color screen.14 Industry commentators praised the Nano for its innovative design.15 PC World named it one of five ground-breaking products in the audio category in its 2006 World Innovations Awards.16 The 1st Generation Nano was 1.6 inches wide, 3.5 inches long, .27 inches thick and weighed 1.5 oz.; it had a stated battery life of up to 14 hours; and the screen was a 1.5-inch (diagonal) liquid crystal display panel at 176×132 resolution. The Nano could also hold and display between 15,000 and 25,000 photos.17 The following year, Apple introduced a completely redesigned 2nd Generation Nano with twice the 11 Apple Press Release, “Apple Introduces iPod mini; Smallest 1,000 Song Music Player Ever Comes in Five Colors,” January 6, 2004 (Apple_AIIA00974840). 12 “iPod Mini,” Wikipedia, The Free Encyclopedia, https://en.wikipedia.org/wiki/IPod_Mini (accessed July 16, 2013). 13 Apple Press Release, “Apple Introduces iPod shuffle; First iPod Under $100,” January 11, 2005 (Apple_AIIA00974708). 14 Apple Press Release, “Apple Introduces iPod nano,” September 7, 2005 (Apple_AIIA00974603). 15 The Nano turned out to be very popular – more than a million were sold in the 17 days following its introduction. Drew Turner, Daniel, “Apple hits $1 Billion in Profit for 2005,” eWeek, October 10, 2011, http://www.eweek.com/c/a/Apple/Apple-Hits-1-Billion-in-Profit-for-2005/ (accessed July 16, 2013). PC World named it one five ground-breaking products in the audio category in its 2006 World Innovations Awards. “2006 PC World Innovations Awards,” PR Newswire, January 4, 2006, http://www.prnewswire.com/newsreleases/2006-pc-world-innovations-awards-winners-unveiled-53127872 html (accessed July 16, 2013). 16 “2006 PC World Innovations Awards,” PR Newswire, January 4, 2006, http://www.prnewswire.com/newsreleases/2006-pc-world-innovations-awards-winners-unveiled-53127872 html (accessed July 16, 2013). 17 http://support.apple.com/kb/sp42. HIGHLY CONFIDENTIAL -9- storage capacity and 24 hours of battery life for the same price as the previous generation.18 Apple continued to introduce new generations of Nanos with additional innovative features. In September 2009, for example, it introduced the first Nano with a built-in video camera. (See Exhibit 5d.) 19. iPod Touch. The most recent addition to the iPod product line is the iPod Touch. Introduced in September 2007, the Touch featured a multi-touch interface, together with widescreen display and built-in Wi-Fi wireless networking, which allowed browsing and wireless viewing of internet videos. In addition, users could browse, preview, and buy and download songs from iTMS.19 A year later, Apple introduced the 2nd Generation Touch. Smaller and lighter than the original, it featured a thin metal design and a 3.5-inch widescreen glass display. With the new Touch, users could “listen to millions of songs, watch thousands of Hollywood movies and now, thanks to the App Store [which opened at about the same time], download and play hundreds of great games on their iPods.”20 (For a summary of the history of the iPod Touch, see Exhibit 5e.) 3. The iTunes Store 20. Apple opened its online music store (“iTMS”) in April 2003, which allowed users to purchase DRM-protected music files that could be played on an Apple personal computer or, after syncing with iTunes, on an iPod. The only way to access the iTMS was and is through iTunes. In October 2003, Apple introduced iTunes for Windows, which allowed owners of personal computers using the Windows operating system to use iTunes to purchase content from iTMS and to sync that content on iPods. When the iTMS opened in April 2003, it offered 200,000 songs.21 By March 2004, there were more than 500,000 songs available, and in August 2004 Apple announced that its catalogue topped one million songs.22 On February 23, 2006, 18 Apple Press Release, “Apple Introduces the New iPod nano; World’s Most Popular Digital Music Player Features New Aluminum Design in Five Colors & 24 Hour Battery Life,” September 12, 2006 (Apple_AIIA00974838). 19 Apple Press Release, “Apple Unveils iPod Touch,” September 5, 2007 (Apple_AIIA00974641). 20 Apple Press Release, “Apple Introduces New iPod touch,” September 9, 2008 (Apple_AIIA00974932). 21 Apple Press Release, “Apple Launches the iTunes Music Store,” April 28, 2003 (Apple_AIIA00974776). 22 Apple Press Releases, “iTunes Music Store Downloads Top 50 Million Songs,” March 15, 2004 (Apple_AIIA00974577); “iTunes Music Store Catalog Tops One Million Songs,” August 10, 2004 (Apple_AIIA00974782). HIGHLY CONFIDENTIAL - 10 - Apple announced that one of its users had purchased and downloaded the one-billionth song from iTMS. At the time, there were two million songs available.23 By January 2009, iTMS offered approximately ten million songs, approximately eight million without DRM; and by September 2012, it offered 26 million songs.24 The competition lagged far behind. When the Real Music Store (RMS) opened in January 2004, it had a catalogue of 300,000 songs, which was about half the size of the iTMS catalogue at the time.25 By the time the Amazon.com music store debuted in September 2007 with approximately two million songs,26 iTMS had a catalogue with more than five million songs.27 21. Music is not the only thing available from the iTMS.28 On October 12, 2005, the iTMS began to offer music videos, Pixar short films, and hit TV shows for $1.99.29 At the same time, 23 Apple Press Releases, “iTunes Music Store Downloads Top One Billion Songs; Scholarship at Juilliard School of Music to be Created February 23, 2006 (Apple_AIIA00974735); Levy, Steven, The Perfect Thing: How the iPod Shuffles Commerce, Culture, and Coolness, hereinafter “The Perfect Thing,” pp. 135-136. 24 Apple Press Release, “Changes Coming to the iTunes Store,” January 6, 2009, http://www.apple.com/pr/library/2009/01/06Changes-Coming-to-the-iTunes-Store html (accessed July 16, 2013); “Apple Unveils New iTunes; Featuring Dramatically Simplified Design & Seamless iCloud Integration,” September 12, 2012, http://www.apple.com/pr/library/2012/09/12Apple-Unveils-New-iTunes.html (accessed July 16, 2013). 25 CNET News, “Real offers new tech, song store,” January 7, 2004, http://news.cnet.com/2100-10275136275.html (accessed July 16, 2013). 26 Amazon.com began to offer digital downloads in a public beta test in September 2007. However, music from two of the major labels, Warner and Sony, was not available until January 2008. At that time Amazon’s music catalogue reached over 3.1 million songs. See, e.g., ArsTechnica, “Amazon’s MP3 store brings more DRMfree music at lower prices than iTunes Store,” September 25, 2007, http://arstechnica.com/uncategorized/2007/09/amazon-launches-public-beta-of-mp3-music-store/ (accessed May 28, 2013); NY Times, “Amazon to Sell Warner Music Minus Copy Protection,” December 28, 2007, http://www nytimes.com/2007/12/28/technology/28music html?_r=0 (accessed May 28, 2013); NY Times, “Sony Joins Other Labels on Amazon MP3 Store,” January 11, 2008, http://www nytimes.com/2008/01/11/technology/11sony html (accessed May 28, 2013); Antone Gonsalves, “Amazon Adds Fourth Major Record Label To DRM-Free Music Store,” Information Week, January 10, 2008, http://www.informationweek.com/amazon-adds-fourth-major-record-label-to/205602334 (accessed May 28, 2013). 27 Apple Press Release, “Apple Announces iTunes U on the iTunes Store; Free Content From Top Universities Now Available.” May 30, 2007 (Apple_AIIA00974843). 28 With the release of iTunes 4.9 on June 28, 2005, Apple began to offer users the ability to discover, manage and subscribe and listen to podcasts right on their computers. In just the first two days, iTunes customers subscribed to more than one million Podcasts. Apple Press Release, “Apple Takes Podcasting Mainstream; Discover, Subscribe, Manage & Listen to Podcasts Right in iTunes 4.9,” June 28, 2005 (Apple_AIIA00974620); Apple Press Release, “iTunes Podcast Subscriptions Top One Million in First Two Days,” June 30, 2005 (Apple_AIIA00974799). HIGHLY CONFIDENTIAL - 11 - Apple introduced the iPod Classic 5th Generation (video) so that consumers could take advantage of the additional content. Over the first three weeks video was available, iTMS customers purchased more than one million videos.30 The following September, Apple announced that the iTMS would start selling movies. When the service first became available, the iTMS offered 75 movies from Walt Disney Pictures, Pixar, Touchstone Pictures and Miramax Films that customers could download to watch on their computers and iPods.31 By January 2007, the iTMS offered 250 feature films and 350 television shows.32 By the end of May, there were more than 500 movies.33 Also in September 2006, the iTMS began to offer downloads of popular video games for fifth generation Classic iPods, all available for $4.99.34 B. The Introduction and Use of DRM 22. Apple complied with this contractual requirement by developing and using its own proprietary DRM called FairPlay. Other music stores used different proprietary DRM such as RealNetworks’ Helix and Microsoft’s WMA DRM. The result was that DRM-protected music files purchased from a vendor using one of these methods could only be loaded and played on devices that supported that DRM technology. This meant that digital music downloads obtained from online music stores that used Microsoft’s WMA DRM or downloads from the RMS could 29 Apple Press Release, “Apple Announces iTunes 6 With 2,000 Music Videos, Pixar Short Films & Hit TV Shows,” October 12, 2005 (Apple_AIIA00974906). At the time, the Chairman of record label Interscope Geffen A&M said: “Apple is giving music fans a great way to own their favorite music videos.” 30 Apple Press Release, “iTunes Music Store Sells One Million Videos in Less Than 20 Days,” October 31, 2005 (Apple_AIIA00974894). 31 Apple Press Release, “Apple Announces iTunes 7 with Amazing New Features,” September 12, 2006 (Apple_AIIA00974982). Sometime between June and September, the name of the iTunes Music Store was changed to the iTunes Store. Nonetheless, I continue to refer to the store as the iTMS. 32 Apple Press Release, “iTunes Store Tops Two Billion Songs; 50 Million TV Shows & Over 1.3 Million Movies Sold.” January 9, 2007 (Apple_AIIA00974561). 33 Apple Press Release, “Apple Announces iTunes U on the iTunes Store; Free Content From Top Universities Now Available,” May 30, 2007 (Apple_AIIA00974843). 34 Apple Press Release, “Apple Announces iTunes 7 with Amazing New Features.” September 12, 2006 (Apple_AIIA00974982). HIGHLY CONFIDENTIAL - 12 - not be played on iPods. Similarly, music obtained from the iTMS could not be played on devices that used other (non-FairPlay) DRM technology. C. RealNetworks RealPlayer with Harmony 1. RealNetworks (Real), Harmony and the Real Music Store 23. RealNetworks operated the RMS. Like the iTMS, the RMS was an online store that sold downloadable digital media files that could be played on personal computers and portable devices. Similar to iTunes, RealPlayer was Real’s proprietary program for acquiring purchased downloads from the RMS, managing digital files, and loading those files on a portable music player. 24. In July 2004, RealNetworks announced that version 10.5 of its RealPlayer jukebox would include a new feature, which it called Harmony.35 .37 35 Cohen, Peter, “RealNetworks’ Harmony Promises iPod Compatibility,” PCWorld, July 26, 2004, http://www macworld.com/article/1035237/harmony html (accessed May 28, 2013). 36 See Expert Report of David M. Martin Jr., PH.D., April 8, 2013 (hereinafter, “Martin report”), ¶27; Robbin declaration in support of MSJ, ¶9; Kelly declaration in support of MSJ, ¶¶32-33. 37 Apple_AIIA00093860, pp. 3-5. See also Cohen, Peter, “RealNetworks’ Harmony Promises iPod Compatibility,” PCWorld, July 26, 2004, http://www macworld.com/article/1035237/harmony html (accessed May 28, 2013); Declaration of David F. Martin in Support of Plaintiffs’ Opposition to Apple’s Motion for Summary Judgment, February 28, 2011, ¶¶26-27. HIGHLY CONFIDENTIAL - 13 - had already dissuaded iPod owners from purchasing RMS music and using Harmony. This is clearly a major problem for Plaintiffs’ theory, which requires that in the absence of iTunes 7 iPod owners would avail the RMS in substantial numbers. Yet, in the absence of iTunes 7, Professor Noll doesn’t believe that iPod owners were using Harmony or RMS, an opinion that accords with the evidence on RMS sales. 28. Ignoring all of this, Professor Noll refers to RealNetworks’ claim that it sold 3 million downloads during its three-week promotional sale when it launched Harmony in August 2004.42 But the relevant question is not what Harmony was doing in 2004, but rather what its sales were at the time it was blocked in 2006. D. Challenged Conduct 29. On September 12, 2006, Apple introduced iTunes 7, which included many enhancements and upgrades to iTunes functionality (see Exhibit 6). 30. Two new iPod models were introduced at the same time as iTunes 7: the iPod Shuffle 2nd Generation and the iPod Nano 2nd Generation. In addition, Apple added some features to the iPod Classic 5th Generation (a.k.a. iPod video), which had been introduced the previous year, but did not introduce a new generation of the Classic. 42 Noll declaration, p. 53, note 93. 43 See Martin report, ¶¶98-99. HIGHLY CONFIDENTIAL - 15 - 31. 32. I understand that, as of the date of his April 3, 2013 report, Professor Noll did not know which iPod models included the and and which did not. 44 Supplemental Declaration of Augustin Farrugia, July 3, 2013, ¶3; Martin report, ¶84. 45 Martin report, ¶¶21-22. 46 Martin report, ¶84; Supplemental Declaration of Augustin Farrugia, July 3, 2013, ¶¶2-3. HIGHLY CONFIDENTIAL - 16 - E. The End of DRM 33. As early as 1998, there was at least one paid service (eMusic) that offered paid downloads of music without DRM protection.49 By September 2006, there were at least 24 sites that offered DRM-free music, all but four of which offered fully or partially paid service.50 (See Exhibit 7.) On February 6, 2007 — less than five months after the introduction of iTunes 7 — Apple CEO Steve Jobs published an open letter called “Thoughts on Music.” In it, he called on the major labels to allow Apple to sell their music without DRM protection: “This is clearly the best alternative for consumers, and Apple would embrace it in a heartbeat. If the big four music companies would license Apple their music without the requirement that it be protected with a DRM, we would switch to selling only DRM-free music on our iTunes store.”51 34. Two months after Jobs’ open letter, on April 2, 2007, EMI announced it was launching new premium download service and that, effectively immediately, all of its digital catalog would 47 Declaration of Agustin Farrugia in Support of Defendant’s Renewed Motion for Summary Judgement, ¶¶31-32. 48 Noll deposition, p. 200:9-19; Exhibits 15.1, 15.2. 49 eMusic was a subscription service that primarily sold music from independent labels. See “eMusic,” Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/wiki/Emusic (accessed May 28, 2013). 50 Three of these – Kazaa, Morpheus and Limewire – were peer-to-peer file sharing sites, and all three were sued by the record industry. Kazaa converted to a “legal” site in 2006; Morpheus filed for bankruptcy in 2008; and Limewire was shut down by a judge in 2010. “Kazaa site becomes legal service,” BBC News, http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/2/hi/technology/5220406.stm (accessed May 28, 2013); “Encyclopedia: Kazaa,” PCMag.com, http://www.pcmag.com/encyclopedia/term/45734/kazaa (accessed May 28, 2013); “LimeWire,” Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/wiki/Limewire (accessed May 28, 2013); “Morpheus (software),” Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/wiki/Morpheus_(software) (accessed May 28, 2013); “National Geographic unveils World Music downloads service,” PC Pro.co.uk, http://www.pcpro.co.uk/news/90308/national-geographic-unveils-world-music-downloads-service (accessed May 28, 2013). 51 Jobs, Steve, “Thoughts on Music,” February 6, 2007 (AIIA00093477). HIGHLY CONFIDENTIAL - 17 - overcharge for all iPod models sold between September 12, 2006 (when iTunes 7 was introduced and March 31, 2009 (when all music on the iTMS was available without DRM). IV. PROFESSOR NOLL’S HEDONIC PRICE REGRESSION AND INFERENCE OF DAMAGES 41. Professor Noll uses a hedonic multiple linear regression in an attempt to estimate damages by comparing iPod prices during the proposed class period to prices during a “before” period that, he assumes, represents what would have occurred “but-for” the challenged conduct, while at the same time attempting to control for factors such as product features and functionality that would also affect iPod prices.60 Using his regressions, he claims to show that the caused an anticompetitive increase in the price of all iPod models. His regression predicts that the effect was immediate and constant, beginning on September 12, 2006 when the was introduced and lasting until March 31, 2009, the end of the class period. He also claims that the percentage overcharge was exactly the same for each iPod model, even models that could not invoke the 42. . I begin with a brief overview of regressions. Next I discuss the concept of “hedonic” models of prices and how regressions have been used to estimate such models. With these elements as background, I then turn to a description of Professor Noll’s regressions. A. Multiple Linear Regression 43. A multiple linear regression is a statistical technique for estimating the empirical relationship between one measureable variable, call it P, and “multiple” other variables, X = {X1, X2, X3, ….,XK}, which are often called “explanatory variables.” In the current context, P might measure the price of a particular model (m) of MP3 player at a particular date (t), which we could denote Pmt. For example, the retail price (P) of an iPod Touch with 8 GB of storage capacity (m) in September 2007 (t) was $299, so Pmt = $299. X1 might be a continuous variable that measures some valuable characteristic of the Touch, such as the megapixel resolution of its screen, and so on. 60 Noll declaration, p. 71. HIGHLY CONFIDENTIAL - 21 - 44. An indicator variable (or “dummy variable”) is used to indicate that a particular condition is true or false. It takes the value 1.0 if the condition is true, and zero otherwise. For example, let Xmt be an indicator for whether model m had a touch screen at date t. Then this indicator would take the value Xmt = 1 if the model had a touch screen and Xmt = 0 otherwise. (The iPod Touch in fact had a touch screen in September 2007, so Xmt = 1 for that model and date. On the same date, the iPod Shuffle did not have a touch screen, so Xmt = 0 for the Shuffle.) Similarly, an indicator variable for time periods where music downloads were DRM-free would take the value 1 during such periods, and zero otherwise. 45. The adjective “linear” refers to the maintained assumption that in a given dataset that records values of P and X, the relationship between P and the multiple X’s is linear. Then Pmt may be expressed as a linear combination of the X’s: (1) Pmt = X1mtB1 + X2mtB2 + X3mtB3 + … + XKmtBK + Umt In equation (1) the parameters Bj j=1,2,…,K are unknown constants that represent how much P changes when a particular Xj increases by one unit, holding constant all the other Xi for i≠j. For example, if “all else equal” the addition of a touch screen (X1mt increases from X1mt = 0 to X1mt = 1) was associated with a $50 increase in price, then B1 =$50. And so on. 46. In addition to the linear combination of observed and measurable variables Xj, the right side of equation (1) includes a “residual” quantity Umt, which represents the portion of Pmt that cannot be represented by the linear combination of Xs that are included in the model. In general, the most useful way to think about Umt is that it represents all of the “left out” factors that affect P but were not included in the model, either because the person constructing the model chose not to include them or because they are “unobserved” (i.e., not recorded in the available data). 47. Given the model (1) for the relation between X and P, there are well-known regression techniques available to estimate the unknown parameters Bj j=1,…K. The most basic of these techniques is called “ordinary least squares” (OLS), and that is the technique Professor Noll used in the hedonic regression model reported in Exhibits 13.1 and 13.2 of his report.61 Under very 61 In his deposition, Professor Noll appears to be confused about the technique he used to produce the estimates in Exhibits 13.1 and 13.2. He claims that these exhibits show “generalized least squares” estimates with “robust” standard errors that have been adjusted for heteroskedasticity. This is incorrect. His Exhibits 13.1 and 13.2 HIGHLY CONFIDENTIAL - 22 - specific assumptions, the OLS estimator bj of the unknown parameter Bj has certain “nice” properties. One is that bj is “unbiased,” which means that while bj is itself a random variable that will vary from one random sample to another, the expected value of bj is equal to the unknown value of the parameter Bj. Put differently, if the OLS estimator is unbiased, then repeated samples from the same population will generate a number of OLS estimates, but these estimates will tend to cluster around the true value Bj. When will the OLS estimator bj of Bj have this “nice” property of being unbiased? The 48. key assumption is that the elements of U—the “excluded” variables—are not correlated with the “included” variables X. The idea is quite simple and can be illustrated in the context of Professor Noll’s regression. Suppose that iPod models that use the updated iTunes 7 also have higher resolution displays compared to earlier models, but resolution is not included among the explanatory variables, X. This means that display resolution is an omitted variable—in other words, it’s in U. Then the estimated coefficient on iTunes 7 will “pick up” the effect of resolution on price, because the indicator for iTunes 7 and the omitted factors in U are correlated with one another. As a result, if the impact on price of higher resolution is positive and the impact of the on price is zero, the estimated coefficient on the iTunes 7 indicator variable would be positive because it is “picking up” the effects of higher resolution. This is called “omitted variables bias,” and it is, in fact, one of the many fatal flaws in Professor Noll’s regression analysis. I mentioned above that the least squares estimator bj of the unknown parameter Bj is itself 49. a random variable, with a mean and a standard deviation, which in the case of regression estimators is called the “standard error” of the estimator. The standard error SEj of bj is a measure of the precision of the estimator—the confidence we can have that the true value Bj is near the estimated value. SEj can also be estimated from the data under appropriate assumptions. As explained below, Professor Noll’s implicit assumptions in this regard are wildly at odds with the facts, which causes him to vastly overstate the precision and statistical significance of his results. report OLS results. Videotaped Deposition of Roger G. Noll, May 16, 2013, hereinafter “Noll deposition,” p. 196:4-22. The Appendix to his report contains other exhibits in which standard errors have been adjusted for heteroskedasticity. HIGHLY CONFIDENTIAL - 23 - B. Hedonic Models of Prices for Products with Changing Quality 50. Economists have long recognized the difficulty of comparing prices over time for products with changing attributes. Computers provide a good illustration. In 2004, a personal computer with about 1 gigabyte (GB) of system memory, a 60 GB hard drive and a 15-inch cathode ray monitor could be had for about $1200. By 2010, the same $1200 expenditure would get a computer with 8 GB of memory, a 700 GB hard drive and 21-inch LCD monitor. The nominal price of a standard computer system had not changed, but technical progress in storage, memory and production made the 2010 model vastly superior. The “real” price of a standard computer had fallen dramatically, even though the nominal price had not changed. 51. Now consider iPods. In 2001, an original iPod Classic with 5 GB of storage capacity sold for $399. By 2005 the same $399 nominal price fetched a Classic with photo and video capabilities and 60 GB of storage, among other features. And by 2009, for a $249 nominal price a consumer could purchase a 160 GB iPod Classic with further product enhancements. Like computers, “real” prices of iPods were falling dramatically. 52. As these examples illustrate, an analysis of product pricing that ignores the evolution of product quality and features can be highly misleading. One way of dealing with this issue is to employ “hedonic” models of product pricing, in which products are explicitly viewed as bundles of changing attributes or characteristics.62 A hedonic regression model is in the (basic) form of equation (1), above, where the XJ represent measures of product characteristics and the Bj represent the “relative valuation” of such characteristics or qualities. V. PROFESSOR NOLL’S HEDONIC DAMAGE MODEL 53. Professor Noll’s damages model is built on a hedonic regression model of iPod prices and certain product attributes.63 The basic framework of this regression follows the form of equation (1) above: a particular measure of iPod prices (the natural logarithm of price, ln(P)) is regressed on a chosen set of product characteristics, X, and the estimated coefficients b are interpreted as 62 Griliches, Zvi, “Hedonic Price Indexes and the Measurement of Capital and Productivity: Some Historical Perspectives.” NBER Working Paper 2634 (June 1988). 63 Noll declaration, pp. 71-72. HIGHLY CONFIDENTIAL - 24 - measuring “the relative valuation of such qualities.”64 Putting it differently, Professor Noll starts with the hedonic regression model described above and adds a set of indicators for the occurrence of certain events that, in his view, affected the nature of competition between Apple and other unspecified sellers of MP3 players. This set of “event” indicators is the centerpiece of Professor Noll’s claim that he has measured the impact of Apple’s challenged conduct. 54. Specifically, his model includes an indicator variable for the introduction of iTMS, which is meant to measure the impact of iTMS on iPod prices (the iTMS coefficient), an indicator variable for Harmony’s introduction to measure its impact on iPod prices (Harmony coefficient), an indicator variable for iTunes 4.7 (Harmony blocked coefficient), an indicator variable for iTunes 7 (iTunes 7.0 coefficient), as well as indicator variables for when competing online music stores went DRM-free (competitors DRM free coefficient) and when iTMS went completely DRM-free (iTMS all DRM free coefficient). Professor Noll constrains his model so that the iTunes 7 variable estimates a single percentage overcharge on all iPod models sold after September 12, 2006, whether the iPod model included or not. The regression makes no attempt to measure any impact of the reintroduction of Harmony, changes to iTunes or iTMS or the introduction of the . 55. As I explain below, it is improper and invalid to interpret these unreliable empirical “results” as evidence of overcharge or damage from Apple’s challenged conduct. Professor Noll’s conclusions are unreliable and highly misleading. A. How Professor Noll Constructs His Data 56. Professor Noll implements his pricing regression using a measure of the unit price of individual iPod models and some of their characteristics. His price measure is constructed from Apple’s transactional databases for resellers and direct purchasers, for which he estimates separate damage models. For resellers, the data he uses for his regression encompass 2.14 64 Griliches, Zvi, “Hedonic Price Indexes and the Measurement of Capital and Productivity: Some Historical Perspectives,” NBER Working Paper 2634 (June 1988), p. 1. HIGHLY CONFIDENTIAL - 25 - million multi-unit transactions that occurred between November 2001 and December 2010. (By multi-unit, I mean the sale of more than one iPod in a single purchase/sale transaction.) For direct purchasers the data he uses for his regression include 36.9 million transactions — many of which are multi-unit — that occurred between November 2001 and December 2010.65 57. “Price” is not directly reported in either of these databases; instead the data report the total number of units purchased and the amount paid in each individual transaction between Apple and the buyer. He does this for every such transaction, for both resellers and direct purchasers. His reseller regression data are made up of 2.14 million actual multiunit transactions, but by counting each transaction hundreds or even thousands of times, he effectively pretends that his regression model is using 113 million independent price observations. This is a serious error. As I discuss below, by ignoring the fact that his observations are not independent, Professor Noll exaggerates the precision of his regression estimates and their statistical significance. 58. It is important to understand how to interpret the regression estimates when this is done. The dependent variable in his regression is the natural logarithm of the calculated price. A basic mathematical “fact” about natural logarithms is that a change in the natural logarithm of some quantity is approximately the percentage change in that quantity. This fact is useful in interpreting Professor Noll’s regression results — if a variable in his regression has a coefficient 65 Noll declaration, Exhibits 13.1 and 13.2. HIGHLY CONFIDENTIAL - 26 - of .05, for example, this means that a unit (1.0) change in that variable is associated with (not “caused”) a price that is about five percent higher. 59. Professor Noll’s regression estimates are displayed in two of his exhibits—Exhibit 13.1 of his report shows his estimates for resellers, and Exhibit 13.2 shows his results for direct purchasers. For completeness, I include Professor Noll’s Exhibits 13.1 and 13.2 as Exhibits 12a and 12b. The main results from my review of his regressions will also be summarized in two exhibits, Exhibit 13a for resellers and Exhibit 13b for direct purchasers. Unlike Professor Noll’s tables, each of which reported results from only one regression, Exhibits 13a and 13b report results from many regressions that correct Professor Noll’s errors. Because of this, for each regression model shown in Exhibits 13a and 13b, I report the estimates for only the most relevant variables in Professor Noll’s model. Complete results for all the variables in every regression in my review are reported in Appendix D. (See Exhibits D1a and D1b]. 60. For clarity of exposition, I will focus much of my discussion on Professor Noll’s reseller regression results. Nearly identical arguments apply to his direct purchaser regression, which I will note along the way. B. What Professor Noll Claims to Find 61. Exhibit 12a (Noll Exhibit 13.1) shows Professor Noll’s reseller sales regression results. His estimate of “overcharge” is based on the coefficient on the “itunes7_0” indicator. This is the overcharge percentage that Professor Noll uses in his Exhibit 14 to calculate damages on all reseller transactions. 62. Along with each coefficient estimate, Professor Noll also reports the standard error he calculates for that estimate. In general, the standard error (standard deviation) of a coefficient measures the precision with which the coefficient in question is estimated. When the standard error is very small, the estimate is correspondingly very precise. Economists are also typically 66 Noll declaration, p. 81. HIGHLY CONFIDENTIAL - 27 - interested in expressing the degree of confidence they have that the estimated value of the coefficient did not arise by chance when the true effect of the variable in question is actually zero. This can be measured by taking the ratio of a coefficient estimate to its standard error, which is called the “t-ratio” or “t-statistic” for that estimate. Intuitively, the t-statistic measures the distance between the estimated value of the parameter in question and zero, measured in standard deviations. When the t-statistic is large, the estimated coefficient is “far” from (many standard deviations away from) zero, which increases our confidence that the true effect of that variable is not zero. 63. When sample sizes are sufficiently large, as they are in this case, a common benchmark for saying that an estimated coefficient is “statistically significant” is that it has a t-statistic that is 2.0 or larger (t ≥ 2.0) so that the estimated coefficient is at least twice its standard error. A tstatistic of 2.0 corresponds to approximately a five percent (p = .05) probability that a coefficient estimate as large as the one obtained could have arisen by chance if the true value of that coefficient is zero. This would sometimes be referred to as “statistical significance at the five percent level.” Larger values of the t-statistic correspond to rapidly declining probabilities that the true effect of the variable in question is zero. For example, a t-statistic of t = 2.58 corresponds to a 1-in-100 (p=.01) probability of arising by chance—”statistical significance at the 1 percent level.” A t-statistic of t = 4.9 corresponds to a one-in-one million chance (p = .000001). VI. PROFESSOR NOLL’S CLAIMS OF PRECISION AND STATISTICAL SIGNIFICANCE ARE INCORRECT 64. In his Exhibits 13.1 and 13.2, Professor Noll places three stars (***) next to each of his estimated coefficients, which he points out “Denotes statistical significance at the 1% level.”67 This means that all of his estimated t-statistics are greater than 2.58 in absolute value. As Professor Noll puts it: “The coefficients on indicators of market conditions all are highly significant.”68 They are so significant, in fact, that Professor Noll should have noticed that something is seriously wrong with his model—his claims of precision and statistical significance 67 Noll declaration, Exhibits 13.1, 13.2. 68 Noll declaration, p. 90. HIGHLY CONFIDENTIAL - 28 - 67. In Exhibit 13.1 of his report (my Exhibit 12a), Professor Noll reports that his Reseller Sales regression is based on 2.14 million “observations,” but this is highly misleading. An accurate statement is that his data contained 2.14 million multi-unit transactions, each of which allowed him to calculate a single price, as in the example above. When he ran his regression, he “frequency weighted” each of these 2.14 million transactions by the number of identical iPods represented in each transaction. This is equivalent to treating a single transaction involving N iPods for which he calculated a single average price P as N independent observations, each of which coincidently had the same price P. But of course there are not 28,050 independent observations; Professor Noll has simply counted the one piece of information from this single transaction 28,050 times. The result is that the regression procedure “thinks” it is dealing with far more than 2.14 million observations— in fact, Professor Noll’s Reseller Sales regression output is calculated as if he had 113 million independent price observations, though he does not report that number in his declaration.70 68. In his deposition, Professor Noll was asked whether the 2.14 million observations reported in his Exhibit 13.1 was the number of observations used for his standard error calculations. Q: When you do the log regression, Exhibit 13.1, you report that you had 2.1 million observations. A: Yes. Q: Is that the number that you used for the denominator of your standard errors—for your standard error calculations? A: Probably, I mean, yes. Q: Is that an appropriate number to use? A: I mean, remember, it’s not quite that simple, because the quantity went into regression, but yes, you know. These are heteroskedastic robust standard error estimates. Q: So what formula did you use? 70 The numbers above refer to Professor Noll’s reseller regression. He took a similar approach in calculating the standard errors in his regression of direct sales. In that case, Professor Noll had data on 36.9 million transactions. However, after frequency weighting, he calculated his standard errors as if he had 42.4 million independent observations. See Noll declaration, Exhibits 13.1 and 13.2; and Exhibits 13a and 13b to this report (“Den DF” line, column 1). HIGHLY CONFIDENTIAL - 30 - A: It’s a quantity weighted - it’s - the observations are quantity weighted, so it doesn’t - it’s not 2.1 million. It’s a quantity weighting of all the observations.71 69. This “quantity weighting” (or as it is more generally called, “frequency weighting”) is a serious error. The user’s guide for SAS, the statistical software package that Professor Noll used for his regression analysis, clearly explains the meaning of frequency weighting and its consequence for the assumed number of observations on which the model is based: When a FREQ statement appears, each observation in the input data set is assumed to represent n observations, where n is the value of the FREQ variable. The analysis produced when you use a FREQ statement is the same as an analysis produced by using a data set that contains n observations in place of each observation in the input data set. When the procedure determines degrees of freedom for significance tests, the total number of observations is considered to be equal to the sum of the values of the FREQ variable.72 An online Stata tutorial on “Choosing the Correct Weight Syntax” posted by the Carolina Population Center at the University of North Carolina at Chapel Hill contains a specific warning about the consequences of frequency weighting. 73 Referring to frequency weights, or “fweights,” this tutorial specifically states: Do not use fweights to specify sampling weights. Your variance of estimates, p-values and standard errors will be computed incorrectly.74 70. My inspection of Professor Noll’s computer code confirms that he did, indeed, use frequency weights as sampling weights in his regression analysis. This is a major error when, as here, the data consist of multi-unit aggregates in which each unit is an exact replica of the others. Then each of these price “observations” from a particular transaction is (by construction) perfectly correlated with the others. This matters because Professor Noll assumed exactly the 71 Noll deposition, p. 197:6-9. Professor Noll is also confused about what types of standard errors he actually reported in Exhibits 13.1 and 13.2. They are not “heteroskedastic robust standard errors.” They are ordinary least squares standard errors, calculated under the assumption that the 113 million observations are independent and that their residuals have common variance. The footnotes to his report indicate that he also ran these regressions allowing for robust standard errors, but those are not the results reported in Exhibit 13.1. (See Noll declaration, notes 127 and 133.) 72 SAS/STAT(R) 9.2 User’s Guide, Second Edition, “FREQ Statement.” Available at http://support.sas.com/ documentation/cdl/en/statug/63033/HTML/default/viewer htm#statug_reg_sect011 htm. 73 Stata is another one of the most prominent statistics and econometrics software packages. 74 “Choosing the Correct Weight Syntax,” Carolina Population Center at the University of North Carolina at Chapel Hill, http://www.cpc.unc.edu/research/tools/data_analysis/statatutorial/sample_surveys/weight_syntax (accessed June 20, 2013). HIGHLY CONFIDENTIAL - 31 - opposite in calculating “the variance of estimates, p-values and standard errors” for his model — he assumed that literally millions of identical price “observations” are statistically independent, when they clearly are not. 71. The fundamental problem is that Professor Noll assumes his “113 million” observations are statistically independent of one another, but they are not. Professor Noll appears to be confused about the concept of “independence” that is required to run his regression in the way that he did. He appears to believe that the independence of his price observations depends on whether buyers of iPods are making independent purchase decisions. Asked whether two consumers purchasing the same product from the same store at the same price on the same day provide independent observations on price, he responded: “The two consumers made their decisions independently whether to buy the iPod. The price they were charged were [sic] the same, but it doesn’t mean the observation of the transaction is not independent.” (Noll deposition pp. 211:7-10). This is the wrong concept. The question isn’t whether the individuals made independent decisions about whether to purchase their iPods; it’s whether Apple set the prices of those two iPods independently. This analysis is about the determination of prices. Professor Noll’s answer reveals that he has it backwards — he’s thinking of the wrong decision-maker. 72. This erroneous assumption that the prices of 113 million iPods (in his reseller regression) are statistically independent causes Professor Noll to vastly exaggerate what the data can show and to totally misrepresent the accuracy and statistical significance of his results. In order to understand the issue, one must first understand the strict assumptions of the “ordinary least squares” (OLS) procedure he used to estimate his model. Estimates of standard errors in regression models depend critically on what one assumes about the “covariance structure” of the residuals, U, across observations—that is, what one assumes about how the residuals are correlated with each other. The key but unstated assumption made by Professor Noll is that the residuals in his data are independent of one another (uncorrelated), which in layman’s terms means that if I knew that the residual (the portion of the price that cannot be represented by the explanatory variables) for one iPod was, say, five percent, that information would not help me HIGHLY CONFIDENTIAL - 32 - predict the residual for any other iPod in the data — my best guess would be zero, because that is the expected value and Professor Noll assumes the residuals are independent. 73. They are not independent as Professor Noll assumed; they are perfectly correlated. As the saying goes: “If you’ve seen one, you’ve seen them all.” The consequence is that Professor Noll is pretending to have much more information than he actually does. The technical consequence of this exaggeration is that his standard errors will be underestimated or, put the other way around, his claims about the precision and statistical significance of his results will be greatly overstated. 74. In the data analyzed by Professor Noll, the problem is deeper than the obvious (but ignored) fact that all the iPods in a single transaction have the same price. By construction, the residuals will be highly correlated across transactions for a given buyer, but also across buyers. In the jargon of econometrics, this means that the price observations for an iPod model at a given point in time form a “cluster” within which the residuals are (highly) positively correlated both within and across transactions. HIGHLY CONFIDENTIAL - 33 - 75. An econometrician who neglects to account for this clustering will underestimate the true standard errors of his results. That is what Professor Noll did when he ignored these facts and falsely assumed that the price observations he created were independent of one another. As Professors Joshua Angrist and Jorn-Steffen Pischke (2009) put it in their useful survey of modern econometric methods: A pillar of traditional cross section inference ….is the assumption that the data are independent. Each observation is treated as a random draw from the population, uncorrelated with the observation before or after. We understand today that this sampling model is unrealistic and potentially even foolhardy. …We call this correlation the clustering problem.75 76. The same warning appears in the most recent edition of the American Bar Association’s reference volume Proving Antitrust Damages: Legal and Economic Issues (2010): There can be substantial consequences from estimating the standard errors for the coefficient estimates as if the errors were uncorrelated when they are in fact correlated. With positive correlation between the error terms, the incorrectly estimated standard errors generally will be biased downward, making the regression coefficients seem to be more precisely estimated than they really are. As a result, a statistical test on the coefficients may yield what appears to be a statistically significant result but is not.76 77. In his deposition Professor Noll was adamant that clustering is not an issue for his model, and he expressed some annoyance when he was asked about it: Q: Did you cluster standard errors? A: This is not something that requires a cluster analysis. Again, you’re perpetuating an econometric mistake you’ve been making for two years. This is not a problem of clustering. … Q: Did you cluster standard errors? A: That would have been inappropriate. This is not a clustering problem. … 75 Angrist, Joshua and Jorn-Steffan Pischke, Mostly Harmless Econometrics: An Empiricist’s Companion, Princeton University Press, Princeton, New Jersey, 2009, pp. 293-294. Professor Noll cites Chapter 8 of this book as one of the documents he considered in preparing his report, and Chapter 8 is the chapter from which this quotation was taken. Noll declaration, Documents Considered #944. 76 ABA Section of Antitrust Law, Proving Antitrust Damages: Legal and Economic Issues, ABA Publishing, Second Edition, 2010, pp. 145-6. The citation notes that standard methods of allowing for clustering “produce consistent estimates of the standard errors even when there is no correlation among the error terms. In other words, they work well in both situations.” (p. 147). HIGHLY CONFIDENTIAL - 34 - A: I also didn’t fly to the moon because it’s not a fly-to-the-moon problem. It’s inappropriate to do any cluster analysis on this data set, because it’s not a clustering problem. … Q: So you didn’t do a cluster analysis? A: There aren’t any clusters to do the analysis of. How can you do an analysis of something that isn’t there?77 78. Unfortunately, it is Professor Noll who is “perpetuating an econometric mistake.” If it is in fact true that “there aren’t any clusters to do the analysis of,” he could easily have offered evidence to prove his point: He could simply have shown that the residuals generated by his model are uncorrelated and that clustering by, say, product family would not affect his standard errors. Indeed, the American Bar Association volume cited above notes that standard econometric methods of allowing for clustering, which are “used generally in practice” and available in the software package used by Professor Noll, “produce consistent estimates of the standard errors even when there is no correlation among the error terms. In other words, they work well in both situations.”78 But he would not have been able to show this. As the examples above illustrate, his assumption that the residuals in his model are independently distributed is untrue in the extreme: the existence of clusters is obvious. However, one need not take my word for it. One can demonstrate the existence of clusters directly from Professor Noll’s regression. 79. I used the parameter estimates in Professor Noll’s reseller regression reported in Exhibit 13.1 of his report (my Exhibit 12a) to calculate the estimated residual for each of the 113 million iPods in his reseller data. Then, within each product family and quarter, I divided the observations randomly into two equally-sized groups and calculated the average residual within each group. If Professor Noll’s assumption that his observations are independent is correct, then these family-by-quarter clusters would be meaningless. In particular, the average residuals in each family-quarter-group would satisfy the assumptions Professor Noll used in estimating his model and standard errors. First, because the model assumes that the expected value of the residuals is zero, the average value of the residual in each group should be very close to zero. 77 Noll deposition, pp. 186:6-187:22. 78 ABA Section of Antitrust Law, Proving Antitrust Damages: Legal and Economic Issues, ABA Publishing, Second Edition, 2010, p. 147. HIGHLY CONFIDENTIAL - 35 - Second, the Group-1 and Group-2 average residuals should be uncorrelated with one another — in other words, knowing the Group-1 average residual for iPod Classics in the first quarter of 2005 should not help me predict the Group-2 residual for that same model sold in that same quarter. 80. The results of this exercise are shown in Exhibit 14a, which graphs each value of a Group-1 average residual for a family-quarter cluster, measured on the horizontal axis, against the corresponding Group-2 average residual measured on the vertical axis. The exhibit demonstrates two important facts. First, the average within-cluster residuals are not closely distributed around zero — they range from -0.45 to more than 0.30. With regard to withincluster correlation, if Professor Noll was correct we should find that the average residual for Group 1 of each cluster does not help to predict the value for Group 2. In other words, the relationship between them should have a slope of zero. But the exhibit shows exactly the opposite — the within-cluster average residuals for Group 1 and Group 2 lie very close to a 45degree line. Put differently, if I know the Group-1 average residual within a family-quarter cluster, I can almost exactly predict the Group-2 average residual within that cluster. These facts are completely at odds with Professor Noll’s assertion that “there aren’t any clusters.”79 There are clusters, and he ignored them. The existence of these clusters explains why Professor Noll’s implausible claims of statistical significance, and his corresponding claim that clustering is not appropriate in these data, are simply wrong. 81. The consequences of Professor Noll’s mistake in calculating standard errors are shown in column (2) of Exhibits 13a and 13b. Consider the reseller sales regression in Exhibit 13a. Using standard and well-accepted econometric methods that are part of the regression package used by Professor Noll, I calculated the standard errors of his model allowing for “clusters” of nonindependent price observations within product family and quarter. Because I have changed nothing about Professor Noll’s regression or the variables in it, the coefficient estimates are exactly the same as in his model. The only thing that changes here is the claim one can make about the precision of these estimates. The previous discussion indicates there is very 79 Repeating this exercise for Professor Noll’s direct sales regression leads to the same conclusions. (See Exhibit 14b.) HIGHLY CONFIDENTIAL - 36 - high correlation of residuals within product family and quarter as a consequence of Apple’s pricing practices and the construction of the data. Once I correct for this clustering, the standard errors of his estimates are much larger than what Professor Noll claims and much more reasonable as estimates of precision. 82. This point is demonstrated by looking at the t-statistics associated with each of Professor Noll’s coefficients. Recall that the t-statistic is the ratio of a coefficient to its standard error. But the correct estimated standard error that accounts for non-independence is 0.04216, which is 468 times greater than the standard error Professor Noll claims. That is, it is not statistically distinguishable from zero, and thus there is no material or reliable evidence of an “overcharge,” even in Professor Noll’s otherwise incorrect model. 83. The same is true of Professor Noll’s direct sales regression. Again, Professor Noll’s estimate of an “overcharge” is not statistically distinguishable from zero. 84. The bottom line is this: Professor Noll’s standard error calculations, and hence his claims of “statistical significance,” are indisputably wrong. This conclusion alone is enough to undermine his claims to have identified a meaningful “overcharge” associated with the challenged conduct. But this failure to correctly represent the precision of his estimates is only one of many mistakes that materially affect his results and claims. A. Professor Noll’s “Before and After” Experiment: The Wrong But-For World 85. The measured product characteristics in Professor Noll’s regression, such as the storage capacity of a device or functionalities such as the ability to store and display photo or video files, are used to control for “other factors” that affect the price of iPods. His real interest centers on a HIGHLY CONFIDENTIAL - 37 - set of “event” variables that are meant to identify “market conditions” and the impact of Apple’s challenged conduct on iPod prices. Specifically, Professor Noll views these variables as representing a “before and after” comparison of iPod prices. As he describes it: “The ‘beforeafter’ method compares the prices of the reference products (here, iPods) before and/or after the occurrence of the anticompetitive acts with prices in the damage period.”80 He goes on to explain that “[t]he initial period before iTS was created and the period after the launch of the iTS establish the ‘before’ period for measuring Apple’s market power prior to the events surrounding the release of Harmony, the attempts to disable Harmony, and the movement to DRM-free files.”81 Though this explanation is a bit confusing, the specification of his model demonstrates that what Professor Noll is trying to say is that his “before” period — his “but-for” world benchmark — is a three-month period between the launch of Harmony in July 2004 and the release of iTunes 4.7 in late October of 2004. 86. I understand the court has determined that the relevant FairPlay technology contained in iTunes version 4.7 — which initially “blocked” Harmony for several months — is not anticompetitive. This means that Professor Noll’s “before” but-for benchmark for measuring the impact of the allegedly anticompetitive introduction of the in September 2006 is incorrect. Other flaws aside, the logic of Professor Noll’s “before and after method” implies that the “before” period should be the period before September 2006, when the did not exist, FairPlay technology was legal, and Harmony was capable of interoperating with all iPod models. 87. Professor Noll’s reseller sales regression is a good template for illustrating how he claims to find an anticompetitive increase in iPod prices. Exhibit 15a is a timeline that shows the periods when each of his six “event” indicators is “on” — that is, when the relevant indicator takes a value of 1 instead of zero. On each line that indicates an event I also show Professor Noll’s estimate of the impact that event had on iPod prices. The “omitted” time period is the period before the opening of the iTMS in April 2003.82 80 Noll declaration, p. 71. 81 Noll declaration, p. 73. 82 Exhibit 15b contains a similar timeline for the direct sales regression. HIGHLY CONFIDENTIAL - 38 - 90. The third indicator in the sequence of Professor Noll’s “events” is the introduction of iTunes 4.7 in October 2004, which included FairPlay technology with which Harmony could not initially interoperate. Professor Noll refers to this event as “harmony_blocked,” and in his deposition he refers to it as “4.7.” He turns this indicator on in October 2004 and turns it off on September 12, 2006, the day iTunes 7 was introduced. This choice is conspicuous because, as shown in Exhibit 15a, “harmony_blocked/4.7” is the only one of his event indicators that is ever turned off—once turned on, all the others remain on until the end of the data. 91. Exhibit 15a shows that the next indicator to turn on is for iTunes 7, on September 12, 2006. On exactly the same day, Professor Noll turns off his indicator for iTunes 4.7. 92. Professor Noll’s decision to turn off his “harmony_blocked/4.7” indicator when he turns on his iTunes 7 indicator is very important. Recall the example above, where I examined what Professor Noll’s regression would show if we hypothetically turned off the iTMS indicator on the same day that the Harmony indicator turned on. In the example, by omitting the impact of the iTMS during the Harmony period, the Harmony indicator was forced to “pick up” the 84 Noll declaration, p. 80. HIGHLY CONFIDENTIAL - 40 - omitted effect of the iTMS. This biased the estimated effect of Harmony, and as a result, its coefficient roughly doubled. 93. Precisely the same thing happens here: by turning off the iTunes 4.7 indicator during the period where the iTunes 7 indicator is on, Professor Noll forces the iTunes 7 indicator to pick up the omitted “effect” of iTunes 4.7. In other words, Professor Noll’s decision to turn off his indicator for the existence of iTunes 4.7 technology has the effect of doubling his estimate of impact and, therefore, damages, for the reseller class. Note that nothing else in his regression changes — the coefficient on every other variable would have been exactly the same had he left “on” the iTunes 4.7 indicator. 94. The exercise in the previous paragraph is not just arithmetic. Professor Noll’s decision to turn off the iTunes 4.7 indicator on September 12, 2006 precisely defines the “but-for” world that he assumes would have existed in the absence of the challenged conduct. Specifically, by turning off the iTunes 4.7 indicator he assumes that the FairPlay technology included in iTunes 4.7 through iTunes 6 would not exist in the but-for world, even though this was the legal technology in use immediately prior to the introduction of iTunes 7. Instead, Professor Noll’s but-for world is a very brief period immediately before the release of iTunes 4.7, i.e., it is the 3month period between July 26, 2004, when Harmony was first announced, and October 26, 2004, when iTunes 4.7 was introduced. He does not explain why this is the appropriate but-for world for measuring the incremental effect of the challenged , or iTunes 7, or for anything else relevant to this case. But this choice doubles his estimated impact of the feature of iTunes 7 on resellers. 95. In his Second Supplemental Declaration on Class Certification Professor Noll attempted to explain his decision to turn off his iTunes 4.7 indicator upon the release of iTunes 7.85 He 85 Second Supplemental Declaration of Roger G. Noll on Class Certification, September 23, 2011, p. 10, HIGHLY CONFIDENTIAL - 41 - said: “The iTunes 7.0 release replaced the prior version of iTunes software and contained new code for disabling Harmony. If the iTunes 4.7 release was not anticompetitive, but the iTunes 7.0 release was anticompetitive, as plaintiffs allege, then the appropriate specification is for the indicator variable for iTunes 4.7 to be reset to zero when it is replaced by iTunes 7.0.” While this is nothing more than an assertion, the assertion itself is incorrect. Putting aside the other problems with his model, the logically correct “before-and-after” experiment would compare the level of iPod prices during the period of challenged conduct to the level of prices prior to that conduct, when Apple’s practices were legal. This is the period prior to September 12, 2006, when iTunes 4.7 through 6 were operative. Technically, in a regression this incremental effect on prices is found by leaving on the iTunes 4.7 indicator, which then captures the level of prices before September 2006, in which case the coefficient on the iTunes 7.0 indicator will measure the difference between average prices before and after the introduction of iTunes 7. As I explained above, Professor Noll’s incorrect procedure compares prices after the introduction of iTunes 7 to those in a three-month window in 2004, which was two years earlier. But 2004 (or any earlier period) cannot be the but-for world of Plaintiffs’ theory if technology and prices in 2005 and 2006 were legal. 96. In other words, by turning off the “harmony_blocked/4.7” indicator in his direct sales regression, Professor Noll overstates the claimed incremental effect of the feature of iTunes 7 by a factor of more than six. And of course his reported damages are overstated by this factor as well. 97. The points just discussed are formally presented in column (3) of Exhibits 13a (for resellers) and 13b (for direct purchasers). As indicated, the incremental effect of iTunes 7 in Professor Noll’s model can be found by leaving “on” the indictor for “harmony_blocked/4.7,” just as other indicators are left on. HIGHLY CONFIDENTIAL - 42 - B. Professor Noll’s Confusion about the “Log of Time” 98. As described by Professor Noll, “Moore’s Law” is an empirical regularity regarding technical progress: “the amount of functionality that can be placed on a semiconductor of a given size doubles every 18 months.”86 This is one of the reasons “prices for consumer electronics generally fall through time.”87 To capture this effect in his model, Professor Noll includes a variable he refers to as “the log of time” in his log price regressions. Professor Noll also offers the negative estimated coefficient on “the log of time” in his regression as a test of his model’s validity. 99. Based on his discussions of this “log of time” variable in his report and in his deposition, one can only conclude that Professor Noll is confused both about the use and meaning of logarithmic variables in regression analyses and about their connection to economic theory. While it is quite common in empirical research to control for the impact of technical progress and other time-related factors by including a time trend, in nearly 40 years as an empirical researcher and journal editor I have never seen an economist use the “log of time” in any regression. Not even once. There is good reason for this: the “log of time” makes absolutely no sense as an economic control variable. And as it turns out, had Professor Noll used more conventional and widely accepted methods to control for technical progress, his results would have been quite different and his “damage” estimates much smaller. These points require some technical explanation. 100. Consider Moore’s Law — as Professor Noll describes it in his report this “law” says the functionality that can be placed on a given size semiconductor doubles every 18 months. Turned into a prediction for prices of electronic goods, this means that each increment of time of a given size — say a month or a year — should reduce costs and prices of an electronic device with given functionality by a constant percentage amount. For example, if between 2002 and 2003 prices fall by 20 percent due to this form technical progress, then the constant pace of such 86 Noll declaration, p. 18. 87 Noll declaration, p. 80. HIGHLY CONFIDENTIAL - 43 - progress implies that prices should fall by 20 percent between 2003 and 2004 or between 2007 and 2008. Each additional year reduces price by a constant percentage amount. Recalling that the change in the logarithm of a given quantity is approximately the percentage change in that quantity, this constant-percentage-change relationship between price and the passage of time may be represented mathematically as ln(P) = C + At. In this equation, “t” is a measure of time such as the number of months from a given starting point—t = 1, 2, 3, … — and “A” is the constant percentage amount by which price changes between one month and the next. For example, if A = -0.02 then price falls at a rate of 2 percent per month. In other words, the proper representation of technical progress that causes prices to fall at roughly a constant rate — as implied by Moore’s Law — is a linear relationship between the logarithm of price and time counted in integer units, not “the log of time”. 101. What would be the meaning of using the “log of time” — as advocated by Professor Noll — rather than simply “time” to describe technical progress? The mathematical relationship would be ln(P) = C + Bln(t), which would mean that each percentage increment of “time” causes the same (B) percentage change in price. So suppose we start time at t=1 in November of 2001 as Professor Noll does in his data set. The change in ln(t) between month 1 (November) and month 2 (December) of 2001 is ln(2) - ln(1) = .693. In other words, Professor Noll’s use of “the log of time” to represent unmeasured technical progress actually constrains his model so that the effect of such progress is effectively zero during most of the period of interest, and particularly during the period in which iTunes 7 is relevant. HIGHLY CONFIDENTIAL - 44 - 103. In his deposition Professor Noll was asked about this odd choice to use “the log of time” in his regression. His explanation was exactly backwards — there is no other way to put it. Apparently thinking that he is offering a technical defense for why the “log of time” is an appropriate explanatory variable, he actually explains why it is not appropriate. Here is his answer, with emphasis added: Q: And why did you decide to use the log of time rather than time in levels? A: Because the — if you — there’s no reason to believe that you have an exponentially increasing price in time. That the — if you, if you, you know if you think about if you use level, if the dependent variable’s a log of price, and you’re measuring time by, you know, the first - the first month is month one and the second month is month two. When you go from one to two you’re doubling it. That’s a hundred percent increase, all right. When you’re going from the hundredth month to the hundred-and-first month that’s a one percent increase. One would not expect that the – the effect of time would be such that going from 100 to 101 was one percent of going from one to two. The only – the way you get that to be a constant rate of increase is to take the logarithm of time.88 104. As I explained above, I completely agree that one would not expect “the effect of time would be such that going from 100 to 101 was one percent of going from one to two.” But that is precisely what Professor Noll forces his model to do when he uses the “log of time” as a control for technical progress. His statement “The only way you get that to be a constant rate of increase is to take the logarithm of time” is flatly wrong. He has it backwards. Using the logarithm of time forces a non-constant rate of change, which, as I showed above, rapidly approaches zero. The mathematical truth is that “the only way you get that to be a constant rate” is to measure time in levels, not in logarithms. In response to further questions about “the log of time” Professor Noll demonstrates complete confusion, cogently explaining why what he did is exactly wrong. Q: Why do you say that the choice of the starting time period is arbitrary? A: Well, I could - I could start my – my first period could be 1842, and I could measure time by every month since January 1842, all right. And in principle, that shouldn’t affect anything. I mean what I pick as the starting date shouldn’t matter, because what I’m interested in is the effect of technological change during the period of the data.89 88 Noll deposition, pp. 24:17-25:9, emphasis added. 89 Noll deposition, p. 27:4-12, emphasis added. HIGHLY CONFIDENTIAL - 45 - 105. Professor Noll’s reasoning is correct—choosing January of 1842 as the starting date from which time is measured “shouldn’t affect anything.” And it wouldn’t if he had measured time in levels instead of logs. To be precise, had he chosen January 1842 as the starting date, then November 2001 (the first month in his data) would be month 1919 instead of month 1, and December 2001 would be month 1920. The level of time would change by one month between November and December, and this would be true no matter what starting year was used. In contrast, if time is measured from January of 1842 the passage of one calendar month between November and December of 2001 changes “the log of time” by ln(1920) - ln(1919) = 0.0005, which is vanishingly small. However, if time is measured from November of 2001 the exact same passage of one calendar month changes “the log of time” by ln(2) - ln(1) = 0.693, which is 1330 times larger. 106. Professor Noll correctly offers that “what I pick as a starting date shouldn’t matter.” If time is measured in levels, the arbitrary choice of starting date will not matter. However, if one uses his “log of time” variable the arbitrary choice of a starting date matters enormously. In other words, Professor Noll’s deposition testimony is a clear acknowledgement that his reliance on “the log of time” is indisputably wrong. At another point in this exchange Professor Noll offers “that’s why you – you always use the log of time in a logarithmic equation.”90 As I noted earlier, in nearly 40 years as a professional economist I have never seen a research paper that uses “the log of time in a logarithmic equation,” because it would be wrong. Professor Noll’s remark would have been correct had he said “never” instead of “always.” 107. Correcting this error in Professor Noll’s reasoning and model is easy — all one needs to do is use time measured in levels (months) instead of the “log of time” in his regression. The effect of doing so is shown in column (4) of Exhibits 13a and 13b. 90 Noll deposition, p. 26:15-17. HIGHLY CONFIDENTIAL - 46 - C. Additional Features and the “Quality” of Professor Noll’s Regression 108. At page 80 of his report Professor Noll offers a way to “test” the quality of a regression: “Another test of the quality of a regression is whether the estimated coefficients are consistent with expectations derived from economic theory.” He then offers an example: “For example, prices for consumer electronics generally fall through time due to the presence of ubiquitous learning by doing and Moore’s Law. The positive coefficient on the logarithm of time bears out this expectation.” In any case, we have already established that the “logarithm of time” is a meaningless construct for measuring Moore’s Law and technical progress, or for any other purpose. 109. Professor Noll neglects to mention other, equally important estimates from his regression that are not “consistent with expectations derived from economic theory.” Further, if Professor Noll’s standard errors are to be believed (and they are not — see discussion above), then these estimates are highly statistically significant. But there can be little doubt that these features are valuable to users, which is why Apple puts them in iPods. He similarly “finds” that the number of downloads available from the iTMS reduces iPod prices. According to Professor Noll’s view of economic theory these effects should be positive, not negative as Professor Noll confidently estimates. If consistency with theory is a test of a model’s quality, then these results indicate that Professor Noll’s regressions fail multiple tests, and by a very wide margin. 110. These “tests” reject the conceptual foundation of Professor Noll’s model, which is that it should be consistent with theory — especially the Plaintiffs’ theory. But the conceptual foundation of Professor Noll’s “before-and-after” experiment is incorrect in other ways as well. HIGHLY CONFIDENTIAL - 47 - Most prominently, he fails to recognize that the challenged conduct is not the introduction of iTunes 7 itself, but rather the introduction of a specific feature of iTunes 7. iTunes 7 had many additions and enhancements that were unrelated to the challenged conduct.91 (See Exhibit 6.) In addition, iTunes 7 was introduced at the same time as new iPod models that were upgrades to previous versions, with enhanced functionalities.92 At best, his iTunes_7 indicator is a catch-all for any and all things relevant to iPod pricing that are correlated with the time period in which iTunes 7 or later versions existed, but that are not among the (very) limited product characteristics he chose to include in his regression. Professor Noll does not explain why an indicator for the mere existence of iTunes 7 would measure and identify the impact of the allegedly anticompetitive as opposed to the array of other features and functionalities of both the iTunes 7 software itself and the hardware devices with which it operated. 111. This raises the obvious question of why Professor Noll chose to include some product attributes in his model and to exclude others. Beyond the short list of attributes that Professor Noll included, Apple’s data contain information on many other measurable attributes of iPod models that an economist would reasonably expect to affect pricing. For example, as indicated in Exhibit 10, the data indicate whether a particular model and generation of iPod could be attached by FireWire or USB, its weight, its battery life, the size of its display, its display resolution, and the number of hours required to charge its battery. To the extent that any or all of these measurable features are valuable — and why would they not be? — they should have been included in Professor Noll’s model of iPod pricing. But they were not.93 112. Column (5) of Exhibits 13a and 13b takes this step, adding additional controls for measurable (and presumably valuable) features of iPods that Professor Noll chose to omit.94 In 91 See Exhibit 2 for a list of iTunes features included in each version and Exhibit 6 for a list of those in iTunes 7. 92 See Exhibit 3 for a description of the evolution of iPod features in successive models. 93 Professor Noll apparently was aware of the fact that he had failed to consider a number of characteristics – See Expert Report of Dr. Michelle M. Burtis in Apple Inc.’s Opposition to Plaintiffs’ Motion to Exclude, May 2, 2011, ¶¶16-17; Noll January 18, 2011 declaration, pp. 39, 76-78, 81-82, and Exhibits 1-6; Noll April 7, 2011 deposition, pp. 87:18-88:1. 94 In choosing these characteristics, I used the following approach. I asked my staff to create a list of all iPod models (classified by MPN) that Apple had introduced between 2001 and December 2010 (the latest date for which I have usable price data). (Note: MPN stands for “Marketing Part Number” and is the most detailed level at which information on iPod characteristics is available. “Marketing Part Number,” Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/wiki/Marketing_part_number (accessed June 14, 2013).) I then asked my HIGHLY CONFIDENTIAL - 48 - both cases the data indicate these features should not have been excluded from the model – tests of their joint significance solidly reject excluding these features from the regressions for both resellers and direct purchasers. Just as importantly, including these features leads to results that completely undermine any notion that iTunes 7 caused or allowed Apple to raise prices. D. Professor Noll’s Regression Produces Implausible Results That Are Inconsistent With The Basic Economics Of Plaintiffs’ Theory. 113. The issue for damages is how and when the might have affected consumers’ willingness to pay for new iPods and ultimately the prices that Apple would have charged for them. Exhibit 16 shows the way in which the affected the interoperability of each new iPod model as of September 12, 2006 when the was introduced. Professor Noll forces his regression to find that the challenged update would have had an immediate impact on prices of all iPods on the same date the update was introduced. This is contrary to his and Plaintiffs’ theory, in which the update would cause the incremental degree of “lock-in” would rise over time as iPod owners accumulated more iTMS music relative to RMS. 114. Any “lock in” created by the would play out over time. For example, consider an individual who purchased an iPod Nano 2nd Generation on September 12, 2006. The effect of the was zero on September 12, 2006, because the owner’s accumulated stock of iTMS music had not changed. When this owner goes to replace that Nano at some future date and assuming that that same owner had more iTMS music relative other music on her Nano, her staff to compile available information on the characteristics of each of these models. In doing this search, they reviewed information from Apple.com and Everymac.com. They also reviewed Apple press releases and Apple price committee documents that were produced as part of the discovery in this case. When information was not available or needed corroboration, they searched a variety of other websites. (For a list of the websites used and a description of the process by which the search was conducted, see Appendix C.) Ultimately they collected information on 39 different characteristics from which I selected for the regression those that logically appear to be relevant for the explanation of prices and would not generate perfect collinearity with other variables already included in the model. HIGHLY CONFIDENTIAL - 49 - stock of DRM-protected music would be less portable than it otherwise would have been, which might increase the likelihood of purchasing a new iPod instead of some other MP3 player. But notice how distant in time this effect would be — the “lock-in” of some new owners of a device affects their next purchase of an MP3 player. 115. So even under Professor Noll’s theory, the September 2006 update would not have raised iPod prices at that time. Indeed, Professor Noll notes that MP3 players are replaced roughly every 18 months to two years, on average.95 It is therefore implausible that there would be a material effect of -induced “lock-in” on or soon after the introduction of iTunes 7 and the . And even in a vaguely defined “long run,” if the incremental “lock-in” is to increase the prices that Apple charges, then it must offset the reduced demand for iPods by other buyers who, in Plaintiffs’ theory, would have preferred the option of purchasing music from RMS. E. Professor Noll’s Regression Improperly Estimates A Single Average Overcharge Across All Models 116. Professor Noll improperly constrains his model by using a single variable for iTunes 7 that he has “on” for each model. Consequently, his model is forced to estimate a single average percentage overcharge across all iPod models and generations of models, including models and generations that never included the challenged update. His regression thus assumes that the would not only cause overcharges on all other models, but also that the percentage overcharge would be exactly the same regardless of their feature sets or customer bases or ability to interoperate with Harmony. Estimating a single average percentage overcharge will mask the fact that certain models might have been impacted while others were not. It also hides the fact that his model does not include products that were sold before and after iTunes 7. The iPod Touch, for example, was not sold in the “before” period. This means that his regression cannot estimate the impact of iTunes 7 on the Touch by comparing its prices before and after the introduction of iTunes 7, for the simple reason that the Touch did not exist before iTunes 7. To overcome this, Professor Noll’s assumes that the iPod Touch must have been impacted by the exact same percentage “overcharge” as models that were sold before and after the introduction of iTunes 7, including models that were and were not 95 Noll declaration, pp. 4, 18. HIGHLY CONFIDENTIAL - 50 - 120. At deposition, Professor Noll suggested that he may change his regression to fix this problem by interacting the iTunes 7.0 variable with product-specific dummy variables, which would allow for separate “effects” on each model. 121. As explained above, if Plaintiffs are correct that use of Harmony and the RMS were valuable to prospective iPod buyers, then models that maintained interoperability would 99 Noll deposition, pp. 85:12-87:24. HIGHLY CONFIDENTIAL - 52 - Finally, a model with product specific effects of iTunes 7 cannot estimate an effect on the price of the iPod Touch, because the Touch did not exist prior to the introduction of iTunes 7. 122. These flaws aside, and to demonstrate the extreme sensitivity of Professor Noll’s model, column (6) of Exhibits 13a and 13b take the additional step of allowing for separate effects of iTunes 7 on each iPod model other than the Touch, for which no such estimate is possible. Again, this pattern is the opposite of Plaintiffs’ damage claim. F. The Impact of DRM-Free Music on the Price of iPods 123. Throughout this case, Professor Noll has made much of the fact that the widespread availability of DRM-free music would dramatically limit Apple’s ability to lock in its iPod customers.100 And, of course, once the iTMS began to offer DRM-free music, there could be no additional lock in. Earlier, in the class certification portion of this case, he recognized that Apple announced on January 6, 2009 that effectively immediately, eight million of the ten million songs in the iTMS would be available without DRM protection and that “by April 1, 2009, all digital audio files sold through iTMS could be purchased without FairPlay DRM.”101 In deposition Professor Noll was asked: “Do you think that as of the time Apple was selling 80 100 See, e.g., Declaration of Roger Noll, July 15, 2008, p. 41; Reply Declaration of Roger Noll, October 19, 2009, p. 44; Noll January 18, 2011 declaration, p. 59. 101 Noll January 18, 2011 declaration, p. 13; see also Reply Declaration of Roger Noll, October 19, 2009, p. 44 (citing Apple Press Release, “Changes Coming to iTunes Store,” January 6, 2009, http://www.apple.com/pr/library/2009/01/06Changes-Coming-to-the-iTunes-Store html (accessed July 19, 2013)). HIGHLY CONFIDENTIAL - 53 - percent of its music from its music store DRM-Free, that that had any impact on iPod demand?” he answered: “Of course.”102 When asked where that impact would show up, he said: It won’t show up. It won’t show up. What it will do is just reduce the magnitude to the pre DRM-Free effect of 7.0, because the 7.0 effect would be less in the last few days of the period, and so the overall effect on the coefficient would be to reduce it to reduce the magnitude of the damages. So – you have – because the 7.0 period is really long compared to the DRM-Free, it’s not going to have much of an effect, but the effect will be to suppress the coefficient on – on 7.0.103 124. Professor Noll’s conjecture is wrong—notwithstanding the many other flaws of his regression and its interpretation, corrections to his “competitive market conditions” indicators for the availability of DRM-free music have a large impact on his estimated “overcharges.” To show this, I have reproduced the analyses in 13a and 13b, but instead of setting the indicator variable for the iTMS being DRM-free to equal 1 as of April 1, 2009, I have set it to equal 1 three months earlier, as of January 6, 2009, when 80 percent of iTMS music went DRM-free.104 The results of these sensitivity tests are reported in Appendix D. [See Exhibits D2a through D2c and D3a through D3c.] The key finding is that, again, these corrections uniformly reduce the estimated “effect” of iTunes 7. VII. PROFESSOR NOLL’S DAMAGE CALCULATIONS 125. Each of the changes above has an effect on Professor Noll’s estimate of the coefficient on his iTunes 7 indicator and thus on his estimate of damages. Although none of the estimated effects from Professor Noll’s model are statistically significant, I have nonetheless used these coefficients to re-estimate “damages” in order to show the sensitivity of his damage estimates. The results of this exercise are shown in Exhibit 13c. As the exhibit shows, Professor Noll’s damage estimates quickly vanish once his errors and omissions are corrected — and, in the end, “damages” are negative because the estimated “effect” of iTunes 7 is negative. This is further 102 Noll deposition, p. 117:7-10. 103 Noll deposition, pp. 118:17-119:1. 104 To make sure that these results are robust, I tested these changes individually, and I find that each of them has the effect of lowering Professor Noll’s coefficients across the board. See Appendix D, Exhibits D4a1 through D4c3. HIGHLY CONFIDENTIAL - 54 - evidence that Professor Noll’s approach to estimating impact and damages in this case is not scientifically valid, accurate or reliable. VIII. SOME FINAL POINTS: PROFESSOR NOLL’S REGRESSION HAS NO CONNECTION TO THE CHALLENGED CONDUCT, PLAINTIFFS’ THEORY, OR APPLE’S PRICING PRACTICES 126. The fact remains that for all of these alternative specifications of Professor Noll’s model, and for any others one can imagine, the entire exercise is futile. As explained above, any connection between the and Plaintiffs’ theory of “lock-in” depends on owners of affected iPods purchasing less music from the RMS after the introduction of the they would have had the than not been introduced, an effect that (if it exists at all) would accumulate slowly over time and might affect future purchase decisions. But Plaintiffs have provided no evidence that iPod owners ever purchased enough music from RMS to have a material impact on iPod prices, and have certainly provided no evidence that the had a material incremental impact on whatever purchases there might have been. Prior to the introduction of the the RMS accounted for only about three percent of protected music downloads overall, and this proportion would have been lower among iPod owners. With the introduction of the , the Plaintiffs’ theory suggests that the most intense users of Harmony would be “locked out” from playing their music on new iPod models affected by the and thus would be unlikely to purchase an affected new iPod. Thus Plaintiffs’ entire case rests on a small and unobserved population of iPod owners who had not used Harmony much in the past, but allegedly would in the future. It is implausible that this unobserved and unmeasured group had a material impact on the price of iPods, even in the long run. 127. Professor Noll’s method for estimating damages is also inconsistent with the way in which Apple set its prices. 105 Videotaped Deposition of Mark Donnelly, December 20, 2010 (“Donnelly deposition”), pp. 46:1-47:2. HIGHLY CONFIDENTIAL - 55 - 128. As a result of the above analysis, my opinion is that there is no credible evidence that class members were damaged by Apple’s challenged conduct. ___________________________________ Robert H. Topel 106 Donnelly deposition, p. 20:5-23. 107 Donnelly deposition, pp. 46:5-47:21, 49:21-50:12. 108 Donnelly deposition, pp. 72:2-74:7. HIGHLY CONFIDENTIAL - 56 - Exhibit 1 Sources (cont): http://www.apple.com/pr/library/2007/04/02Apple-Unveils-Higher-Quality-DRM-Free-Music-on-the-iTunes-Store.html http://www.apple.com/pr/library/2007/06/28iPhone-Premieres-This-Friday-Night-at-Apple-Retail-Stores.html http://www.apple.com/pr/library/2007/09/05Apple-Introduces-All-New-iPod-nano.html http://www.apple.com/pr/library/2007/09/05Apple-Unveils-iPod-touch.html http://www.apple.com/pr/library/2007/09/05Apple-Unveils-iPod-touch.html http://www.apple.com/pr/library/2009/09/09Apple-Premieres-iTunes-9.html http://www.apple.com/pr/library/2010/03/29iPad-Arrives-This-Saturday.html http://www.apple.com/pr/library/2010/09/01Apple-Introduces-iTunes-10-With-Ping.html http://www.apple.com/pr/library/2011/10/04Apple-to-Launch-iCloud-on-October-12.html http://en.wikipedia.org/wiki/Ipod http://en.wikipedia.org/wiki/Itunes http://en.wikipedia.org/wiki/ITunes_Store http://en.wikipedia.org/wiki/Apple_TV http://www.wired.com/science/discoveries/news/2004/07/64341 http://news.cnet.com/RealNetworks-rekindles-iPod-tech-tussle/2100-1027_3-5685286.html http://www.pcworld.com/article/115553/article.html http://en.wikipedia.org/wiki/ITunes_version_history http://en.wikipedia.org/wiki/IPad http://en.wikipedia.org/wiki/Icloud HIGHLY CONFIDENTIAL Exhibit 2 iTunes Update History iTunes Version Update 1.0 Release Date Major changes 1/9/2001 Original release based on SoundJam MP code 1.1 2/22/2001 External burners, improved visual effects, more supported CD burners 2.0 10/23/2001 Adds support for newly introduced iPod, CD burning improvements, equalizer/crossfader/sound enhancer added 3.0 7/17/2002 Smart playlists, more song list categories (including the My Rating column) 4.0 4/28/2003 Adds support for new iTunes Music Store, AAC audio codec, DVD burning, music sharing, GUI improvements 4.1 10/16/2003 Music store/CD burning improvements, Windows support added, voice notes, on-the-go playlists. 4.2 12/18/2003 AOL accounts with music store, GUI, and performance improvements 4.5 4/28/2004 iMix, party shuffle, CD insert printing, music store improvements, WMA to AAC conversion (Windows only), Apple Lossless audio codec 4.6 6/9/2004 AirTunes support, minor improvements. 4.7 10/27/2004 4.8 5/9/2005 Video support, international music stores supported, security enhancements 4.9 6/28/2005 Podcasting, Motorola ROKR E1 mobile phone support added 5.0 9/7/2005 GUI refined, search bar improvements, parental controls, smart shuffle, iPod Nano support 6.0 10/12/2005 GUI/music store changes, blocks DRM remover utilities, transfer videos to 5th generation iPod classic, included a complete redesign of FairPlay 7.0 9/12/2006 Video playback/purchasing improvements, iPod games, Major GUI changes, gapless playback and album, sync purchased content from iPod to computer, Cover Flow added, support 7.1 3/4/2007 Apple TV support, additional 2G shuffle support, GUI improvements, fixes Windows Vista issues, enhanced sorting options, full-screen Cover Flow 7.2 5/29/2007 Fully supports Vista, iTunes Plus introduced with 256 kbit/s DRM-free music tracks, iTunes U introduced which offers free content from some of the top universities around the United States. Also included GUI Update for Windows Vista 7.3 6/29/2007 Support for iPhone activation/synching, GUI changes/fixes. Changes sorting pattern 7.4 9/6/2007 7.5 11/5/2007 Support for iPod Touch, Classic (6G), Nano (3G), and adds interface art for new iPod Shuffle colors. GUI improvements; Allows activation of iPhones outside of the United States wherever activation is available, (e.g. United Kingdom and Germany) as well as security and stability fixes. Also included is a GUI update for Leopard, and the ability to add custom ringtones for free. Includes support for iPod game Phase. Shows iPod battery level in source list (iPod Nano 3G, iPod Classic, iPod Touch, and iPhone with 1.1.2 software) 7.6 1/15/2008 Rent movies from the iTunes Store. Transfer Apple TV purchases to your computer. Allows manual management of music on iPhones. Added support for Windows Vista 64-bit 7.7 7/10/2008 Support for iPhone 3G, iOS 2.0 and the new App Store which features application downloads for the iPhone and iPod Touch as well as enabling the two products to act as remotes for wireless iTunes control 8.0 9/9/2008 Genius Sidebar and playlists, Grid View, HD TV shows, Shows capacity of Apps on iPhone/iPod Touch on device summary tab, new default visualizer, more flexible podcast options and support for second generation iPod Touch and 4th generation iPod Nano Copying photos to iPod Photo, GUI/performance improvements, Windows taskbar minimizing, updated FairPlay in effort to block hacking of music from the iTMS HIGHLY CONFIDENTIAL Exhibit 2 iTunes Version Update Release Date 8.1 3/11/2009 Support for the third generation iPod Shuffle, speed improvements for browsing large libraries and the iTunes Store, as well as 'preparing to sync' and 'optimizing photos' for syncing to iPods and iPhones, Party Shuffle has been replaced by iTunes DJ which now has the ability to receive requests for songs, the ability to import/convert files and CDs to iTunes Plus format, better performance when downloading iTunes Plus songs, accessibility improvements, Genius has been expanded to cover TV shows and movies, refined parental controls and refined auto-fill options. Supports Multi-touch gestures 8.2 6/1/2009 Supports iPhone 3GS and iOS 3.0 Software Update for the iPhone and iPod Touch. Includes many accessibility improvements and bug fixes 9.0 9/9/2009 New UI and redevelopment of the iTunes Store using WebKit. Genius Mixes were added, as were Home Sharing, iTunes LPs and iTunes Extras. Support for activation/syncing of iPod touch (late 2009). Music is automatically added to the library from a watched folder. 1-Click purchases. 9.1 3/30/2010 Adds support for iPad, adds the ability to sync and organize downloaded books between iPad and the iTunes library, and Genius Mixes can now be renamed, rearranged, or removed. "Applications" are renamed "Apps" 9.2 6/16/2010 Added ability to sync with iPhone 4. Also added ability to sync and read books with iPhone or iPod touch with iOS 4 and iBooks 1.1. Added ability to organize and sync PDF documents as books, and to read PDFs with iBooks 1.1 on iPad and any iPhone or iPod touch with iOS 4. Added option to organize your apps on iOS 4 home screens into folders using iTunes. Speed up back-ups while syncing an iPhone or iPod touch with iOS 4. Album artwork improvements make artwork appear more quickly when exploring your library 10.0 9/1/2010 10.1 11/12/2010 Adds new social networking layer named "Ping". Adds support for iPod shuffle 4G, iPod nano 6G, iPod touch 4G, and Apple TV (late 2010). Renamed AirTunes to AirPlay. Adds visual improvements to list view. Improves performance. Adds additional support for VoiceOver Kit for iPod. New application icon. Bug fixes. Streaming to AirTunes speakers working again. Adds Twitter connectivity to Ping. Adds printing support and support for devices running iOS 4.2 10.2 4/18/2011 Adds support for iPad 2, and iOS 4.3. Improves Home Sharing, allowing browsing and playback of entire iTunes libraries on devices running iOS 4.3, and brings back the colored icons in the Preferences window 10.3 6/6/2011 Adds support for iTunes in the Cloud (beta), allowing automatic downloading of purchased content between iTunes and iOS devices, and downloading previously purchased music. Adds support for iBookstore on the iTunes Store 10.4 7/20/2011 10.5 10.6 10/11/2011 3/7/2012 Adds support for Mac OS X Lion. It now allows users to take advantage of the Full-Screen App capability. GUI slightly improved. Better integration with Windows Vista and Windows 7 (Aero effects support). Adds support for iPhone 4S, iCloud, iTunes in the Cloud, Wi-Fi Syncing, and iOS 5. Adds support for iPad (3rd generation). Adds the ability to play 1080p HD movies and TV shows from the iTunes Store. Higher bit rate songs can be converted to 128, 196, or 256 kbit/s when syncing to iOS devices or iPods. Improvements for iTunes Match. Bug fixes Major changes Sources: http://en.wikipedia.org/wiki/ITunes_version_history http://www.apple.com/pr/library/2001/01/09Apple-Introduces-iTunes-Worlds-Best-and-Easiest-To-Use-Jukebox-Software.html http://www.apple.com/pr/library/2001/10/23Apple-Announces-iTunes-2.html http://www.apple.com/pr/library/2002/07/17Apple-Announces-iTunes-3.html HIGHLY CONFIDENTIAL Exhibit 2 Sources (cont.): http://www.apple.com/pr/library/2003/04/28Apple-Launches-the-iTunes-Music-Store.html http://www.apple.com/pr/library/2003/10/16Apple-Updates-iPod.html http://www.apple.com/pr/library/2004/10/26Apple-Introduces-iPod-Photo.html http://www.oldapps.com/itunes.php?old_itunes+4#changelog http://gigaom.com/2005/05/09/itunes-48-released http://www.apple.com/pr/library/2005/06/28Apple-Takes-Podcasting-Mainstream.html http://www.apple.com/pr/library/2005/09/07Apple-Introduces-iTunes-5.html http://www.apple.com/pr/library/2005/10/12Apple-Announces-iTunes-6-With-2-000-Music-Videos-Pixar-Short-Films-Hit-TV-Shows.html http://www.apple.com/pr/library/2006/09/12Apple-Announces-iTunes-7-with-Amazing-New-Features.html http://appleinsider.com/articles/07/03/05/apple_releases_itunes_71_quicktime_715_more http://www.apple.com/pr/library/2007/05/30Apple-Announces-iTunes-U-on-the-iTunes-Store.html http://www.apple.com/pr/library/2007/05/30Apple-Announces-iTunes-U-on-the-iTunes-Store.html http://appleinsider.com/articles/07/06/29/itunes_7_3_supports_iphone_adds_apple_tv_photo_streaming http://www.apple.com/pr/library/2007/09/05Apple-Unveils-the-iTunes-Wi-Fi-Music-Store.html http://www.apple.com/pr/library/2008/01/15Apple-Premieres-iTunes-Movie-Rentals-With-All-Major-Film-Studios.html http://www.apple.com/pr/library/2003/10/16Apple-Updates-iPod.html http://www.apple.com/pr/library/2008/09/09Apple-Announces-iTunes-8.html http://www.macworld.com/article/1139330/itunes.html HIGHLY CONFIDENTIAL Exhibit 3 Evolution of iPod Features Model Update Major Changes Release Date iPod Classic: Original iPod introduced October 23, 2001 iPod P68 Oct01 10/23/2001 First iPod introduced; portable device design; large capacity; featured Auto-Sync technology Available capacity: 5GB iPod P95 Mar02 3/21/2002 Added 10 GB model to the family; users now can personalize their iPods with the laser engraving Available capacity: 5GB, 10GB iPod P68A/97 Jul02 7/17/2002 Introduced 20 GB model; compatible with Windows; 10GB model is physically smaller than the previous comparable models Available capacity: 10GB, 20GB iPod Q14 Apr03 4/28/2003 Introduced 15 GB and 30 GB models; smaller and lighter than earlier iPods; prices are lower than previous comparable models Available capacity: 10GB, 15GB, 30GB iPod Q14A Sep03 9/8/2003 Upgraded 15 GB and 30 GB models to 20 GB and 40 GB, respectively, while keeping the same introduction prices Available capacity: 10GB, 20GB, 40GB iPod Q14A Sep03 1/6/2004 Added 15 GB back to the family; 15 GB model is smaller, lighter, and costs less than previous comparable models Available capacity: 10GB, 15GB, 20GB, 40GB iPod Q21 Jul04 7/19/2004 New 20 GB and 40 GB models have longer battery life and are in smaller sizes than the previous comparable models Available capacity: 20GB, 40GB iPod Photo P98 Oct04 10/26/2004 Allow photo browsing on the high-resolution color screeen; have more memory Available capacity: 40GB, 60GB iPod Photo P98A Feb05 2/23/2005 Replaced the 40 GB model with the 30 GB model; longer battery life Available capacity: 30GB, 60GB iPod Photo P98A Feb05 6/28/2005 Merged iPod and iPod photo lines; all iPods now equiped with color display Available capacity: 20GB, 60GB iPod Video M25 Oct05 10/12/2005 Enhanced color display with larger screen and higher resolution; smaller and lighter; faster battery recharge; introduced at lower prices Available capacity: 30GB, 60GB iPod Video M25B Sep06 9/12/2006 Upgraded 60 GB model to 80 GB while maintaining the same size; enhanced color display with larger screen and higher resolution; supported video playback; increased game support; longer battery life for the 30 GB model than the previous comparable models; lower introduction price Available capacity: 30GB, 80GB iPod Classic N25 Sep07 9/5/2007 Introduced the 160 GB model; longer battery life for music, photo, and video playback while keeping the same introduction prices Available capacity: 80GB, 160GB iPod Classic N25B Sep08 9/9/2008 Introduction at same price as 80 GB model of iPod Video M25B in Sep07 Available capacity: 120GB iPod Classic N25C Sep09 9/9/2009 Greater capacity while keeping the introduction price the same as the 120 GB model of iPod Classic N25B Sep08 Available capacity: 160GB HIGHLY CONFIDENTIAL Exhibit 3 Model Update Major Changes Release Date iPod Mini: Introduced January 6, 2004 iPod Mini Q22 Jan04 1/6/2004 Introduced iPod mini, smallest portable music player available; lightweight; new design in various colors; touch-sensitive click wheel controller; large capacity Available capacity: 4GB iPod Mini Q22B Feb05 2/23/2005 Added 6GB model; lower introduction prices; longer battery life Available capacity: 4GB, 6GB iPod Nano: Introduced September 7, 2005 to replace iPod Mini iPod Nano M26 Sep05 9/7/2005 Available in black and white for both Mac and Windows users; held 1000 songs; thinner than a standard #2 pencil; supported photo playback Available capacity: 2GB, 4GB iPod Nano M26 Sep05 2/7/2006 Introduced the 1 GB model Available capacity: 1GB, 2GB, 4GB iPod Nano N36 Sep06 9/12/2006 Introduced 8 GB model at same price as 4 GB model from the first generation Nano; longer battery life; improved screen resolution; aluminum body with click wheel; smaller and lighter; additional colors; lower prices for 2 GB and 4 GB models Available capacity: 2GB, 4GB, 8GB iPod Nano N46 Sep07 9/5/2007 New design; enhanced video user interface; larger screen with higher resolution; supported video playback Available capacity: 4GB, 8GB iPod Nano N58 Sep08 9/9/2008 Additional colors; new design with a curved aluminum and glass enclosure; incorporate "Genius" technology; lower introduction prices than previous comparable models Available capacity: 8GB, 16GB iPod Nano N33 Sep09 9/9/2009 New design; built-in video camera; larger screen with higher resolution; lower introduction prices than previous comparable models Available capacity: 8GB, 16GB iPod Nano N20 Sep10 9/1/2010 New design; multi-touch interface; smaller and lighter than previous comparable models at same introduction prices Available capacity: 8GB, 16GB iPod Shuffle: Introduced January 11, 2005 iPod Shuffle Q98 Jan05 1/11/2005 smaller and lighter than any other iPods; 512 MB model for under $100. Available capacity: 512MB, 1GB iPod Shuffle N98 Sep06 9/12/2006 Built-in clip; smaller, lighter, and more affordable than previous comparable model Available capacity: 1GB iPod Shuffle N98A Jan07 1/30/2007 Additional colors; built-in clip; smaller, lighter, and more affordable than the previous comparable model Available capacity: 1GB iPod Shuffle N98C Sep07 9/5/2007 New colors Available capacity: 1GB iPod Shuffle N98E Feb08 2/19/2008 New colors; higher capacity while maintaining the same size and weight at a lower introduction price than the 1 GB model of iPod Shuffle N98C Sep07; reduced price of 1 GB model Available capacity: 2GB iPod Shuffle N98F Sep08 9/9/2008 New colors; lower prices Available capacity: 1GB, 2GB iPod Shuffle D98 Mar09 3/11/2009 Greater capacity; smaller and lighter; faster battery recharge Available capacity: 4GB HIGHLY CONFIDENTIAL Exhibit 3 Model Update Major Changes Release Date iPod Shuffle D55 Sep09/ iPod Shuffle D98A Sep09 9/9/2009 Lower price; button controller with voice over; in-ear headphones with remote Available capacity: 2GB, 4GB iPod Shuffle N12 Sep10 9/1/2010 New design Available capacity: 2GB iPod Touch: Introduced September 5, 2007 iPod Touch N45 Sep07 9/5/2007 Multi-touch interface; built-in wifi wireless networking; 3.5-inch display; longer battery life for audio and video playback Available capacity: 8GB, 16GB iPod Touch N45 Sep07 2/5/2008 Introduced 32 GB model Available capacity: 8GB, 16GB, 32GB iPod Touch N72 Sep08 9/9/2008 New design; longer battery life for audio and video playback; lighter than previous comparable models Available capacity: 8GB, 16GB, 32GB iPod Touch N18 Sep09/ iPod Touch N72B Sep09 9/9/2009 Introduced 64 GB model; new design; longer battery life for audio and video playback; lighter and lower introduction prices than the previous comparable models; greater memory and onboard RAM capacity for 32 GB and 64 GB models Available capacity: 8GB, 32GB, 64GB iPod Touch N81 Sep10 9/1/2010 Higher screen resolution; included front-facing camera for FaceTime; longer battery life for audio and video playback; lighter and smaller than previous comparable models Available capacity: 8GB, 32GB, 64GB Sources: iPod characteristics data in Murphy/Topel reports, Wikipedia and Apple press releases, including: http://www.apple.com/pr/products/ipodhistory/ http://www.apple.com/pr/library/2002/07/17Apple-Unveils-New-iPods.html http://www.apple.com/pr/library/2002/07/17Apple-Unveils-New-iPods.html http://www.apple.com/pr/library/2003/04/28Apple-Introduces-New-iPods.html http://www.apple.com/pr/library/2004/01/06Apple-Introduces-iPod-mini.html http://www.apple.com/pr/library/2004/07/19Apple-Introduces-the-New-iPod.html http://www.apple.com/pr/library/2004/10/26Apple-Introduces-iPod-Photo.html http://www.apple.com/pr/library/2005/01/11Apple-Introduces-iPod-shuffle.html http://www.apple.com/pr/library/2005/02/23Apple-Unveils-New-iPod-mini-Starting-at-Just-199.html http://www.apple.com/pr/library/2005/06/28Apple-Merges-iPod-iPod-photo-Lines.html http://www.apple.com/pr/library/2005/09/07Apple-Introduces-iPod-nano.html http://www.apple.com/pr/library/2005/10/12Apple-Unveils-the-New-iPod.html http://www.apple.com/pr/library/2006/05/23Nike-and-Apple-Team-Up-to-Launch-Nike-iPod.html http://www.apple.com/pr/library/2006/09/12Apple-Introduces-the-New-iPod-nano.html http://www.apple.com/pr/library/2006/09/12Apple-Unveils-the-New-iPod-shuffle.html http://www.apple.com/pr/library/2006/09/12Apple-Introduces-the-New-iPod.html http://www.apple.com/pr/library/2007/09/05Apple-Unveils-iPod-touch.html http://www.apple.com/pr/library/2007/09/05Apple-Introduces-New-iPod-classic.html http://www.apple.com/pr/library/2007/09/05Apple-Introduces-All-New-iPod-nano.html http://www.apple.com/pr/library/2008/09/09Apple-Introduces-New-iPod-nano.html http://www.apple.com/pr/library/2008/09/09Apple-Introduces-New-iPod-touch.html http://www.apple.com/pr/library/2009/09/09Apple-Introduces-New-iPod-nano-With-Built-in-Video-Camera.html http://www.apple.com/pr/library/2010/09/01Apple-Introduces-New-iPod-touch.html http://www.apple.com/pr/library/2010/09/01Apple-Reinvents-iPod-nano-With-Multi-Touch-Interface.html HIGHLY CONFIDENTIAL Exhibit 4 iPod Timeline by Memory Size 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F M 0.5 GB 0.5 GB 1 GB 1 GB 2 GB 2 GB 4 GB 4 GB 5 GB 5 GB 6 GB 6 GB 8 GB 8 GB 10 GB 10 GB 15 GB 15 GB 16 GB 16 GB 20 GB 20 GB 30 GB 30 GB 32 GB 32 GB 40 GB 40 GB 60 GB 60 GB 64 GB 64 GB 80 GB 80 GB 120 GB 120 GB 160 GB 160 GB iPod Classic iPod Mini iPod Nano iPod Shuffle iPod Touch Note: Special editions of U2, Harry Potter, and Product Red are excluded from this exhibit. Source: Price change data, Price Committee Documents, Apple Press Release, Direct Sales Data, Everymac.com. HIGHLY CONFIDENTIAL Exhibit 5a iPod Timeline of iPod Classic Family Start Date Memory IPOD CLASSIC N25C GOOD 9/9/2009 9/9/2008 9/5/2007 9/5/2007 9/12/2006 9/12/2006 30 IPOD VIDEO M25 BEST 10/12/2005 60 IPOD VIDEO M25 BETTER 10/12/2005 30 IPOD PHOTO P98A GOOD 6/28/2005 20 IPOD PHOTO P98A BEST 2/23/2005 60 IPOD PHOTO P98A BETTER 2/23/2005 30 IPOD PHOTO P98 BEST 10/26/2004 60 IPOD PHOTO P98 BETTER 10/26/2004 40 IPOD Q21 BEST 7/19/2004 40 IPOD Q21 BETTER 7/19/2004 20 IPOD Q14B GOOD 1/6/2004 15 IPOD Q14A BEST 9/8/2003 40 IPOD Q14A BETTER 9/8/2003 20 IPOD Q14 BEST 4/28/2003 30 IPOD Q14 BETTER 4/28/2003 15 IPOD Q14 GOOD 4/28/2003 10 IPOD P97 BEST 7/17/2002 20 IPOD P97 BETTER 7/17/2002 10 IPOD P68A GOOD 7/17/2002 5 IPOD P95 BETTER 3/21/2002 10 IPOD P68 GOOD 10/23/2001 5 2007 2008 2009 2010 2011 O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MA M J J A S O N D J F M 80 IPOD VIDEO M25B BETTER 2006 80 IPOD VIDEO M25B BEST 2005 160 IPOD CLASSIC N25 GOOD 2004 120 IPOD CLASSIC N25 BETTER 2003 160 IPOD CLASSIC N25B GOOD 2002 $249 $249 $349 $249 $349 $249 $399 $299 $299 $449 $349 $599 $499 $399 $299 $299 $499 $399 $499 $399 $299 $499 $399 $299 $499 $399 Note: Special editions of U2, Harry Potter, and Product Red are excluded from this exhibit. Source: Price change data, Price Committee Documents, Apple Press Release, Direct Sales Data, Everymac.com. HIGHLY CONFIDENTIAL Exhibit 5b iPod Timeline of iPod Mini Family Start Date Memory IPOD MINI Q22B BEST 2/23/2005 2/23/2005 1/6/2004 4 2004 2005 2006 2007 2008 2009 2010 2011 O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F M 4 IPOD MINI Q22 BEST 2003 6 IPOD MINI Q22B BETTER 2002 $249 $199 $249 Note: Special editions of U2, Harry Potter, and Product Red are excluded from this exhibit. Source: Price change data, Price Committee Documents, Apple Press Release, Direct Sales Data, Everymac.com. HIGHLY CONFIDENTIAL Exhibit 5c iPod Timeline of iPod Shuffle Family Start Date Memory IPOD SHUFFLE N12 BETTER 9/1/2010 2002 2003 2004 2005 2006 2007 2008 2009 9/9/2009 9/9/2009 4 IPOD SHUFFLE D98A BETTER 9/9/2009 $49 4 IPOD SHUFFLE D98A BEST 2 IPOD SHUFFLE D98 BEST 3/11/2009 9/9/2008 $79 $59 2 IPOD SHUFFLE N98F BETTER 9/9/2008 $99 4 IPOD SHUFFLE N98F BEST 1 IPOD SHUFFLE N98E BEST 2/19/2008 9/5/2007 $69 $49 1 IPOD SHUFFLE N98A BEST 1/30/2007 $79 2 IPOD SHUFFLE N98C BEST 1 IPOD SHUFFLE N98 BEST 9/12/2006 1/11/2005 1 $69 $79 $79 1 IPOD SHUFFLE Q98 BEST 2011 O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F M 2 IPOD SHUFFLE D55 BEST IPOD SHUFFLE Q98 BETTER 1/11/2005 2010 0.5 $79 $149 $99 Note: Special editions of U2, Harry Potter, and Product Red are excluded from this exhibit. Source: Price change data, Price Committee Documents, Apple Press Release, Direct Sales Data, Everymac.com. HIGHLY CONFIDENTIAL Exhibit 5d iPod Timeline of iPod Nano Family Start Date Memory IPOD NANO N20 BEST 9/1/2010 9/1/2010 9/9/2009 9/9/2009 2006 2007 2008 2009 2010 16 IPOD NANO N58 BEST 9/9/2008 9/5/2007 9/5/2007 9/12/2006 9/12/2006 9/12/2006 2 IPOD NANO M26C GOOD 2/7/2006 1 IPOD NANO M26 BEST 9/7/2005 4 IPOD NANO M26 BETTER 9/7/2005 2 $199 4 IPOD NANO N36 GOOD $149 8 IPOD NANO N36 BETTER $179 4 IPOD NANO N36 BEST $149 8 IPOD NANO N46 BETTER $179 8 IPOD NANO N46 BEST 2011 O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F M 8 IPOD NANO N58 ULTIMATE 9/9/2008 2005 16 IPOD NANO N33 GOOD 2004 8 IPOD NANO N33 BETTER 2003 16 IPOD NANO N20 BETTER 2002 $149 $199 $149 $249 $199 $149 $149 $249 $199 Note: Special editions of U2, Harry Potter, and Product Red are excluded from this exhibit. Source: Price change data, Price Committee Documents, Apple Press Release, Direct Sales Data, Everymac.com. HIGHLY CONFIDENTIAL Exhibit 5e iPod Timeline of iPod Touch Family Start Date Memory IPOD TOUCH N81 BEST 9/1/2010 9/1/2010 9/1/2010 9/9/2009 9/9/2009 9/9/2009 9/9/2008 9/9/2008 16 IPOD TOUCH N72 GOOD 9/9/2008 8 IPOD TOUCH N45A BEST 2/5/2008 32 IPOD TOUCH N45 BETTER 9/5/2007 16 IPOD TOUCH N45 GOOD 9/5/2007 2009 2010 2011 O N D J F MA M J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D J F M 32 IPOD TOUCH N72 BETTER 2008 8 IPOD TOUCH N72 BEST 2007 32 IPOD TOUCH N72B GOOD 2006 64 IPOD TOUCH N18 BETTER 2005 8 IPOD TOUCH N18 BEST 2004 32 IPOD TOUCH N81 GOOD 2003 64 IPOD TOUCH N81 BETTER 2002 8 $399 $299 $229 $399 $299 $199 $399 $299 $229 $499 $399 $299 Note: Special editions of U2, Harry Potter, and Product Red are excluded from this exhibit. Source: Price change data, Price Committee Documents, Apple Press Release, Direct Sales Data, Everymac.com. HIGHLY CONFIDENTIAL Exhibit 6 iTunes 7.0 Features · Released 9/12/2006 · First version of iTunes to sell movies (All of the first 75 movies from 4 studio of the Walt Disney Company) · Movies will become available on the iTunes Store the same day they are released on DVD, with new releases priced at $12.99 when pre-ordered and during their first week of availability, and $14.99 thereafter, and library titles available for just $9.99 every day · Delivers video near-DVD quality at a resolution of 640x480, 4 times higher than the previous version · Redesigned layout to better organize and enjoy digital music and video · New Cover Flow which lets you visually browse through your music and video by cover art · iPod can now be used to transfer content to different computers · The iTunes Store now also offers downloads of popular video games for fifth generation iPods (New iPod Classic only) available for $4.99 each · Existing iPods can be updated with all features listed above · Sources: Apple_AIIA00974436 http://www.apple.com/pr/library/2006/09/12Apple-Announces-iTunes-7-with-Amazing-New-Features.html HIGHLY CONFIDENTIAL Exhibit 7 S P d Online Music Service Summary Y dd Y P Y Y d Y Y B B B B B Y Y Y Y Y B Y d Y Y Y Y B Y Y Y d Y Y Y Y Y d Y Y d Y d Y W Y Y d Y Y Y Y Y R Y Y W Y W d Y P d R d P P P P P d P P R R d R Y Y Y Y Y Y Y Y d Y Y Y Y R R Y d Y Y d Y R Y Y Y W Y Y Y d Y Y R R R d HIGHLY CONFIDENT AL Exhibit 7 Sources: Addictech Amazon MP3 Amie Street Arkade artistxite Batanga (eLatinMusic) Beatport Bleep.com Boomkat BuyMusic CDBaby Cdigix Classical Archives Digital-Tunes Discogs eBay Digital Music Center eMusic FYE Download Zone GoMusicNow Grazemusic HDtracks iMesh Indieburn iTunes Music Store Jamendo Juno / Juno Download Source 1 Source 2 http://www.trademarkia.com/addictech76553281.html http://www.gizmag.com/go/7269/ http://en.wikipedia.org/wiki/Amazon_ MP3 http://en.wikipedia.org/wiki/Amie_Stre et http://www.arkade.com/ http://musowiki.net/index.php/ArtistXit http://artistxite.com/ e http://www.batanganetwork.com/batan http://www.bizjournals.com/triad/storie ga-inc-announces-seamless-musics/2006/11/06/story6.html?page=all purchase-experience-linked-directly-withhttp://en.wikipedia.org/wiki/Beatport http://www.beatport.com/ http://en.wikipedia.org/wiki/Bleep.com http://www.boomkat.com/ http://www.webwiki.com/boomkat.com http://usatoday30.usatoday.com/tech/n http://en.wikipedia.org/wiki/BuyMusic ews/2003-07-28-buymusic_x.htm http://www.cdbaby.com/About http://en.wikipedia.org/wiki/CD_Baby http://en.wikipedia.org/wiki/Cdigix http://www.classicalarchives.com/about. http://en.wikipedia.org/wiki/Classical_ html Archives http://www.digital-tunes.net/ http://www.prleap.com/pr/73840/ http://en.wikipedia.org/wiki/Discogs http://news.cnet.com/eBay-plugs-intohttp://www.ebaychatter.com/the_chatter digital-music-market/2100-1025_3/2008/03/digital-downloa.html 5270681.html http://en.wikipedia.org/wiki/Emusic http://www.emusic.com/listen/#/ http://www.prnewswire.com/newsreleases/trans-world-entertainmenthttp://www.trademarkia.com/fyeannounces-launch-of-fye-download-zonedownload-zone-78763697.html 74257247.html http://en.wikipedia.org/wiki/GoMusicN http://hardnews1.ansci.usu.edu/archive ow /dec2006/121306_15cents.html http://www.billboard.biz/bbbiz/retail/t rans-world-to-launch-digital-servicehttp://news.minnesota.publicradio.org/f 1003571570.story eatures/2005/10/26_horwichj_graze/ http://www.berkleegroove.com/2010/04 https://www.hdtracks.com /29/david-chesky-hd-tracks/ http://en.wikipedia.org/wiki/Imesh http://www.prweb.com/releases/2005/0 7/prweb258343.htm http://en.wikipedia.org/wiki/ITunes_St ore http://www.jamendo.com/en http://en.wikipedia.org/wiki/Jamendo http://en.wikipedia.org/wiki/Juno_Reco rds http://www.junodownload.com/ HIGHLY CONFIDENTIAL Source 3 http://website.informer.com/artistxite.co m http://www.underconsideration.com/sp eakup/archives/001534.html http://www.billboard.biz/bbbiz/retail/t rans-world-to-launch-digital-service1003571570.story http://en.wikipedia.org/wiki/Chesky_R ecords http://www.junodownload.com/welcom e_to_junodownload/ Source 4 Exhibit 7 Sources: Kazaa Lifeway Stores LimeWire Misrolas mMode Music Store Morpheus mp3tunes.com Mperia MSN Music Music Giants Music Rebellion Musica360 MusicNOW Napster 2.0 National Geographic World Music Optus Music Store Pandora Radio Pass Along PayPlay.FM Source 1 Source 2 Source 3 http://deadspin.com/titus-young-willtake-a-nap-in-your-at-t-store496122722?utm_campaign=socialflow_dea dspin_twitter&utm_source=deadspin_twi tter&utm_medium=socialflow http://www.baptiststandard.com/index. php?option=com_content&task=view&id =1249&Itemid=131 http://en.wikipedia.org/wiki/LimeWire http://www.billboard.com/features/mis rolas-com-shuts-download-storehttp://www.billboard.com/features/mis 1003844475.story#/features/misrolas-com-http://www.theorchard.com/news/2005 rolas-mobile-links-with-at-tshuts-download-store-1003844475.story _08C.htm 1003716969.story http://news.cnet.com/AT38T-Wirelessopens-mobile-music-store/2100-1027_3- http://www.phonenews.com/cingular-to5396072.html?tag=item shut-down-mmode-lbs-services-1117/ http://en.wikipedia.org/wiki/MMode http://en.wikipedia.org/wiki/Morpheus _(software) http://news.cnet.com/MP3tunes.comshuns-digital-rights-management/2100http://www.mp3tunes.com/cb/about/ 1027_3-5569293.html http://en.wikipedia.org/wiki/BitPass http://en.wikipedia.org/wiki/MSN_Mus http://news.cnet.com/8301-10784_3ic 9926476-7.html http://www.stereophile.com/news/more http://www.wired.com/listening_post/2 _on_musicgiants/index.html 007/09/musicgiants-a-h/ http://www.avsforum.com/t/365725/ishttp://keynet.blogs.com/networks/2004 http-www-musicrebellion-com-legal-inhttp://web.archive.org/web/2006042507 /01/psychology_schm.html usa 1714/http://www.musicrebellion.com/ http://web.archive.org/web/2007031205 http://www.latinrapper.com/news_octo http://www.cnet.com/profile/Musica360 4839/http://musica360.com/store/about ber25d.html .com/ us.php http://www.internetretailer.com/2003/1 http://www.pcworld.com/article/128520 1/10/best-buy-music-now-launch-digital- http://news.cnet.com/aols-got/aol_scraps_music_now_in_favor_of_nap music-store musicnow/2100-1027_3-5930749.html ster.html http://news.cnet.com/8301-17938_105http://en.wikipedia.org/wiki/Napster_( http://techcrunch.com/2011/10/06/jon9945987-1.html pay_service) irwin-on-why-rhapsody-bought-napster/ http://press.nationalgeographic.com/200 6/08/03/worldmusicchanneldeliverssoun http://worldmusic.nationalgeographic.co dtrackoftheworldwithfreedownloads/ m/ http://en.wikipedia.org/wiki/Optus_Mu sic_Store http://www.techhttp://lifehacker.com/219114/downloadrecipes.com/rx/1391/pandora_how_to_ri http://lifehacker.com/232533/download- of-the-day-pandoras-jarp_save_music_mp3/ of-the-day-pandora-downloader-windows windows?tag=softwarepandora http://en.wikipedia.org/wiki/PassAlong _Networks http://en.wikipedia.org/wiki/PayPlay.F M HIGHLY CONFIDENTIAL Source 4 http://reviews.cnet.com/musicservices/fullaudio-music-now/45059240_7-30974743-2.html Exhibit 7 Sources: Peer Impact Philadelphia Orchestra PlayNow Puretracks RCN Music Rhapsody (Started as Listen.com) Rhino Entertainment Songtouch Sony Connect Streamwaves Tower Records Digital Traxsource TVT Records URGE Virgin Digital Vitaminic Music Club Voy Music Wal-Mart Yahoo! Music Unlimited Source 1 Source 2 http://www.technologyreview.com/new s/407000/p2p-from-internet-scourge-to- http://en.wikipedia.org/wiki/Peer_Impa savior/ ct http://www.playbillarts.com/news/artic http://www.philorch.org/recordings/ le/5262.html http://en.wikipedia.org/wiki/PlayNow_ http://www.javamidlet.com/2007/11/09 Arena /playnow-music-download-service.html http://us.puretracks.com/content/viewer http://en.wikipedia.org/wiki/Puretracks .aspx?cid=GlobalNav_Home http://www.businesswire.com/news/ho me/20061117005100/en/RCN-Reacheshttp://music.rcn.net/ Enhance-Music-Game-Content-Choices http://en.wikipedia.org/wiki/Rhapsody _(online_music_service) http://www.allamericanpatriots.com/487 http://www.rhino.com/global/faq#restri 35056_music_led_zeppelin_rocks_over_ai ctions_on_digital r_verizon_wireless http://christianmusic.about.com/od/top http://www.songtouch.com/ 10songtouchsongs/tp/tpSTsgl41805.htm http://downloadsquad.switched.com/20 http://en.wikipedia.org/wiki/Sony_Con 07/08/30/sony-kills-off-connect-onlinenect music-store-atrac-format/ http://en.wikipedia.org/wiki/Streamwa ves http://www.ipodobserver.com/ipo/artic le/Tower_Records_Digital_Joins_Music_ http://www.dmwmedia.com/news/tag/ Download_Market/ tower_records http://www.traxsource.com/index.php?a ct=page&page_id=311 http://en.wikipedia.org/wiki/TVT_Reco rds http://en.wikipedia.org/wiki/URGE_(di http://www.pcmag.com/article2/0,2817, gital_music_service) 2009421,00.asp http://en.wikipedia.org/wiki/Virgin_Di gital http://www.prnewswire.com/newsreleases/epo-technology-announcesbundle-agreement-with-vitaminic-to-addinstant-music-access-to-the-vitaminichttp://www.vitaminic.co.uk/pressmusic-club-76927317.html releases.html http://www.dmwmedia.com/news/2006 http://www.hispanicbusiness.com/2005/ /06/08/starmedia-voy-music-launch-latin- 11/21/voyr_announces_launch_of_voy_ digital-music-service musictm.htm http://www.macobserver.com/tmo/artic le/Inside_Walhttp://arstechnica.com/business/2011/0 Marts_Online_Music_Store_Digital_Right 8/walmart-pulling-the-plug-on-its-mp3s_Management/ store-but-not-its-drm-servers/ http://en.wikipedia.org/wiki/Yahoo!_M http://www.informationweek.com/news usic_Unlimited /191000022 HIGHLY CONFIDENTIAL Source 3 http://www.fatwallet.com/forums/offtopic/943427/ http://news.cnet.com/8301-1023_310049186-93.html http://www.gazette.com/articles/music15226-christian-songtouch.html http://betanews.com/2007/07/24/drmfree-mp3s-coming-to-yahoourge/#comments http://www.dmwmedia.com/news/tag/ voy http://tech.fortune.cnn.com/2011/08/10 /itunes-triumphant-walmart-kills-itsmusic-download-store/ Source 4 Exhibit 7 Sources: YouTube Zune Marketplace Source 1 Source 2 http://labnol.blogspot.com/2007/04/ho w-to-rip-audio-from-youtube-videos.html http://en.wikipedia.org/wiki/Zune http://www.zune.net/en-US/ HIGHLY CONFIDENTIAL Source 3 Source 4 Exhibit 8 Timeline of DRM-Free Downloads 2003 - 2013 By Mar. 31st, 2009, entire iTMS is available DRM-free. Jan. 6th, 2009: Apple announces that effectively immediately 80% of the iTMS catalogue will be available DRM-free. DRM-Free Development By Jan. 10th, 2008, Amazon.com MP3 is fully operational with music from all four major labels (EMI, Universal, Warner, and Sony). Sept. 25th, 2007: Amazon.com launches public beta test of DRM-free music store. Apr. 2nd, 2007: EMI begins to offer DRM-free through iTunes. Feb. 6th, 2007: Jobs issues "Thoughts on Music," an open letter about DRM-free. By Sept. 2006, 27 sites offer DRM-free downloads, all but 4 are fully or partially paid. iTMS launches on Apr. 28th, 2003; eMusic has been offering DRM-free music for monthly subscription since 1998. 1/1/2003 1/1/2004 1/1/2005 1/1/2006 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 Sources: Apple press releases, Amazon press releases, EMI press releases, sources reflected in Exhibit 7, and Wikipedia. HIGHLY CONFIDENTIAL 1/1/2012 1/1/2013 HIGHLY CONFIDENTIAL Exhibit 10 Attributes Considered and Attributes Ignored by Professor Noll Attributes Considered by Professor Noll Attributes Ignored by Professor Noll Class U2 Capacity (MB) Photo Video and Photo Size (cubic inches) Cost per Unit ($/Unit) Reprice Sale End of Life Sale Quantity Sold Seasonality Number of Songs Available to Download Coupon (direct sales only) USB* Firewire* Weight (oz)* Display (inches)* Resolution (pixels)* Music Battery Hours* Recharge Hours OEM sale (reseller regression only)* * Professor Noll's datasets contain this variable. Sources: Declaration of Roger G. Noll on Liability and Damages and iPod Characterictics data in Murphy/Topel reports. HIGHLY CONFIDENTIAL Exhibit 11 HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit 12a CONFIDENTIAL - ATTORNEYS EYES ONLY Exhibit 12a Exhibit 13.1 Reseller Sales Log Regression Results CONFIDENTIAL - ATTORNEYS EYES ONLY Exhibit 12b Exhibit 13.2 Direct Sales Log Regression Results CONFIDENTIAL - ATTORNEYS EYES ONLY Exhibit 12b CONFIDENTIAL - ATTORNEYS EYES ONLY Exhibit 13a (Amended) Summary of Resellers Data Regressions - Dependent Variable: Log Price (RPU) HIGHLY CONFIDENTIAL Exhibit 13b (Amended) Summary of Direct Data Regressions - Dependent Variable: Log Price (RPU) HIGHLY CONFIDENTIAL Exhibit 13c (Amended) Effects of Correcting Professor Noll's Calculation of Damages HIGHLY CONFIDENTIAL 01/01/02 Noll's Indicator Variables Exhibit 15a Notes: 2) Dates are as used in Professor Noll's latest declaration. Sources: Declaration of Roger G. Noll on Liabilities and Damages, Apple Sales Data. HIGHLY CONFIDENTIAL Exhibit 15b Sources: Declaration of Roger G. Noll on Liabilities and Damages, Apple Sales Data. HIGHLY CONFIDENTIAL Exhibit 16 Content Interoperability of New Digital Media Players FairPlay (iTMS) Before Harmony (7/24/2004) iPods (all models) Other portable media players Contents' Type of DRM Helix (RMS) Yes No No Yes DRM Free Yes Yes Between Harmony and iTunes 4.7 [harmony_blocked] (7/25/2004 - 10/26/2004)1 iPods (all models) Yes Yes Other portable media players No Yes Yes Yes Between iTunes 4.7 [harmony_blocked] and Harmony2 (10/27/2004 - 4/25/2005)1 iPods (all models) Yes No Other portable media players No Yes Yes Yes Between Harmony2 and iTunes 7 (4/26/2005 - 9/11/2006)1 iPods (all models) Yes Other portable media players No Yes Yes Yes Yes Notes: (1) Upgrading to iTunes 4.7 was optional until 3/21/2005 when it became mandatory for anyone who wished to buy from the iTMS. HIGHLY CONFIDENTIAL Appendix A Robert H. Topel CURRICULUM VITAE May, 2013 CURRENT POSITIONS Isidore Brown and Gladys J. Brown Distinguished Service Professor of Economics, Booth School of Business, University of Chicago Director, George J. Stigler Center for the Study of the Economy and the State Co-Director, Energy Policy Institute at Chicago (EPIC) Research Associate, National Bureau of Economic Research EDUCATION B.A. (with High Honors), University of California, Santa Barbara, 1974 Ph.D., University of California, Los Angeles, 1980 FIELDS OF SPECIALIZATION Microeconomics, Labor Economics, Industrial Organization, Health Economics, Economic Policy, Energy Economics, National Security Economics PREVIOUS ACADEMIC POSITIONS Professor of Economics, Graduate School of Business, University of Chicago, 1986-93 Kirby Distinguished Visiting Professor of Economics, Texas A&M University, 2006 Professor of Economics, Department of Economics, University of California, Los Angeles, 1986 Associate Professor of Economics, Department of Economics, University of California, Los Angeles, 1985-86 Associate Professor of Economics, Graduate School of Business, University of Chicago, 1983-85 Assistant Professor of Economics, Department of Economics, University of Chicago, 1980-83 OTHER AFFILIATIONS Research Associate, National Bureau of Economic Research, 1984—present Senior Fellow, the Milken Institute, 1999—present Faculty Member, MacLean Center for Clinical Medical Ethics, University of Chicago Member, National Petroleum Council Taskforce on Transportation Fuels Supply and Infrastructure, 2010-2012 Fellow, Center for the Study of Poverty and Inequality, Stanford University, 2006-present Member, Brookings Panel on Economic Activity, various years. Visiting Scholar, Board of Governors of the Federal Reserve, 1990 Research Associate, Economics Research Center, NORC, 1980—1990 Consulting Economist, The Rand Corporation, 1982—1989 Research Associate, Center for the Study of the Economy and the State, 1980—present Faculty Research Fellow, National Bureau of Economic Research, 1981-83 Research Economist, Unicon Corporation, 1981-88 Consultant, U.S. Department of Labor, 1985-90 Partner, Chicago Partners LLC 1994-2008 Principal & Managing Director, Navigant Economics, 2008-2013 Board of Directors, Ingalls Hospitals and Ingalls Health Service, 2000-2012 Director, WGA Evans Scholars Foundation, 2011-present Senior Consultant, Charles River Associates, 2013-present EDITORIAL POSITIONS Editor, Journal of Political Economy, 1993-2003 Board of Editors, American Economic Review, 1992-94 Associate Editor, Journal of Labor Economics, 1982-92 Editorial Board, International Journal of the Economics of Business, 1993-present Member of the Advisory Board, ERN Labor Journals, 1998-present HONORS & AWARDS Kenneth J. Arrow Award, International Health Economics Association, 2007 Kirby Distinguished Visiting Professor, Texas A&M University, 2006 Research America Eugene Garfield Prize for Medical and Health Research, 2005 Elected Fellow, Society of Labor Economists, 2004 Elected Member, Conference on Research in Income and Wealth Elected Founding Member, National Academy of Social Insurance William Ladany Research Scholar, University of Chicago, 1989-91 William Fishman Research Scholar, University of Chicago, 1986-87 Smith Richardson Dissertation Fellowship in Political Economy, 1978-79 Foundation for Research in Economics and Education Fellowships, 1975-79 Chancellor’s Intern Fellow, University of California, Los Angeles, 1975-79 University Fellow, Northwestern University, 1975 General Electric Dissertation Fellowship, 1978 TEACHING EXPERIENCE Graduate Economic Theory I, II, III Law, Economics and Business Competitive Strategy Advanced Topics in Labor Economics Advanced Topics in Microeconomics Managing the Workplace Industrial Organization/Antitrust Price Theory OTHER PROFESSIONAL ACTIVITIES Thompson Lecture (Keynote Address), Midwest Economic Association, 2000 Nominating Committee, American Economic Association, 1996, 1997 Program Committee, American Economic Association, 2006-2007. Organizer, Universities-NBER Research Conference: “Labor Markets in the 1990s,” Cambridge, December 1989. Program Chair, Labor Economics, Econometric Society Meetings, December 1989. National Science Foundation Review Panel in Economics, 1998, 1999 Inaugural Keynote Lecture, Missouri Economics Conference, University of Missouri, 2001 Pihl Lecturer, Wayne State University, November, 2004 Keynote Address, Federal Reserve Bank of Cleveland Conference on Education and Economic Development, November, 2004 Kirby Lecturer, Texas A&M University, 2006 Huggins Lecturer, Department of Surgery Huggins Conference, University of Chicago, May, 2007 Keynote Address, Conference Board of Canada Conference on Medical Research, Montreal, January 2009 Keynote Address, Council on Competitiveness Conference on Energy Policy, Argonne National Laboratory, May 2009 Keynote Address, University of Chicago/RFF/University of Illinois Conference on Energy Policy and the Economy, Washington, D.C., January 2010 Keynote Address, Humana Health Economics Forum, Santa Fe Institute, 2011 Keynote Address, Toyota Sustainability Conference, La Jolla, 2011 Keynote Address, Conference on Health Policy, Arizona State University, 2013 UNIVERSITY SERVICE Director, Undergraduate Program in Economics, 1980-83 Chairman, Graduate School of Business Curriculum Review, 1990-91 Committee on Graduate Education, 1992-94 Committee on Undergraduate Education, 1993-94 Council of the University Senate, 1992-94, 1995-97, 1999-2002, 2004-2007, 2010Committee of the Council of the University Senate, 2000-2002, 2006-2007 Graduate School of Business Policy Committee, 1995-97, 1999-2001 Member, Presidential Search Committee, 1999-2000 Board of Directors, University of Chicago Laboratory Schools, 1986-92, 1998-2007 Chairman, Director Search Committee, U of C Laboratory Schools, 2002-2003 Area Coordinator, PhD Program in Economics, 2002-2008 Director, George J. Stigler Center, 2007-present Director, University of Chicago Energy Initiative, 2008-2010 Co-Director, Energy Policy Institute at Chicago, 2010-present BIBLIOGRAPHY Books: The Welfare State in Transition, with Richard Freeman and Birgitta Swedenborg. Chicago: University of Chicago Press for NBER, 1997. Labor Market Data and Measurement, with John Haltiwanger and Marilyn Manser. Chicago: University of Chicago Press for NBER, 1998. Välfärdsstat i omvandling: Amerikanskt Perspectiv pä den Svenska Modelten, with Richard Freeman and Birgitta Swedenborg. Författarna och SNS Förlag, 1995. Measuring the Gains from Medical Research: An Economic Approach, with Kevin M. Murphy. Chicago: University of Chicago Press (2003). 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Oxford: Oxford University Press, 1989. “Unemployment and Unemployment Insurance,” Research in Labor Economics 7 (1985): 91-135. “Efficient Labor Contracts with Employment Risk,” (with F. Welch), Rand Journal of Economics 17 (Winter 1986): 490-507. “Financing Unemployment Insurance: History, Incentives, and Reform,” in Unemployment Insurance: The Second Half Century, ed. W. Lee Hansen and J. Byers. University of Wisconsin Press, 1990. “Sectoral Uncertainty and Unemployment,” UCLA Department of Economics Working Paper No. 384, September 1985 (with L. Weiss), in Employment, Unemployment, and Labor Utilization, ed. R. A. Hart. Boston: Allen & Unwin, 1988. “The Housing Market in the United States” (with S. Rosen), Journal of Political Economy (August 1988): 718-40. “What They Say or What They Do? The Use of Survey Data in Predicting Behavior” (with K. M. Murphy), Graduate School of Business, University of Chicago, March 1985. “Unemployment, Risk and Earnings: Theory and Evidence from a Model of Equalizing Wage Differentials” (with K. M. Murphy), in Unemployment and the Structure of Labor Markets, ed. J. Leonard and K. Lang. London: Basil Blackwell, 1986, pp. 103-140. “Job Mobility, Search, and Earnings Growth: A Reinterpretation of Human Capital Earnings Functions,” Research in Labor Economics 8 (1986): 199-233. Reprinted in Research in Labor Economics 35th Anniversary Retrospective, 2012, 401-435. “The Evolution of Unemployment in the United States: 1968-1985” (with K. M. Murphy), The NBER Macroeconomics Annual, vol. 2, 1987, pp. 7-58. “The Impact of Immigration on the Labor Market,” in Immigration, Trade, and the Labor Market, ed. R. Freeman. University of Chicago Press for NBER, 1988. “Efficiency Wages Reconsidered: Theory and Evidence” (with K. M. Murphy), in Advances in the Theory and Measurement of Unemployment, pp. 204-40. Edited by Yoram Weiss and Gideon Fishelson. London: Macmillan, 1990. “Labor Market Adjustments to Increased Immigration,” (with R. LaLonde), in Immigration, Trade, and the Labor Market, ed. R. Freeman. University of Chicago Press for NBER, 1989. “Job Mobility and the Careers of Young Men” (with M. P. Ward), Quarterly Journal of Economics 107 (May 1992): 441-79. “Employment Risk, Diversification, and Unemployment,” (with George Neumann) Quarterly Journal of Economics (November 1991): 1341-1365. “Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority,” Journal of Political Economy 99 (February 1991): 145-76. Reprinted in Outstanding Contributions in Labor Economics, ed. Orley Ashenfelter, Worth Publishers, 1999: 162-192. “Specific Capital and Unemployment: Measuring the Costs and Consequences of Worker Displacement.” Carnegie-Rochester Series on Public Policy 33 (1990): 181-214. “The Assimilation of Immigrants in the United States: Immigrant Quality and the Changing Price of Skills,” In Immigration and the Work Force: Economic Consequences for the United States and Source Areas, ed. G. Borjas and R. Freeman. Chicago: University of Chicago Press for NBER, 1992. “Trends in the American Labor Market,” GSB Chicago, vol. 12, no. 2, Winter 1990, pp. 11-16. “Why Has the Natural Rate of Unemployment Increased over Time?” (with K. Murphy and C. Juhn), Brookings Papers on Economic Activity 2 (1991), pp. 75-142. “Immigrant Quality and Assimilation in the American Labor Market” (with R. LaLonde), American Economic Review, 81 ( May 1991): 297-302. “Unemployment and Insurance,” in Proceedings of National Academy of Social Insurance, 1992. “Labor Markets and Economic Growth: Lessons from Korea’s Industrialization, 19701990” (with D. Kim), Differences and Changes in Wage Structures, ed. Richard Freeman and Larry Katz (Chicago: University of Chicago Press for NBER, 1995. “Wage Inequality and Regional Labor Market Performance in the United States,” Labour Market and Economic Performance: Europe, Japan, and the USA, ed. Toshiaki Tachibanaki (New York: St. Martin’s Press, 1994). “Discretion and Bias in Performance Evaluation” (with C. Prendergast), European Economic Review 36 (June 1993): 355-65. “What Have We Learned from Empirical Studies of Unemployment and Turnover?” American Economic Review, 83 (May 1993): 110-115. “Regional Labor Markets and the Determinants of Wage Inequality,” American Economic Review, 84 (May 1994): 17-22. “Ekonomiska problem i Sveriges välfärdsstat -- inledning, sammanfattning och slutsatser,” with Richard B. Freeman and Birgitta Swedenborg. In Välfärdsstat i omvandling: Amerikanskt Perspectiv pä den Svenska Modelten, with Richard Freeman and Birgitta Swedenborg. Författarna och SNS Förlag, 1995. “Lönepolitik och strukturomvandling,” with Per-Anders Edin. In Välfärdsstat i omvandling: Amerikanskt Perspectiv pä den Svenska Modelten, with Richard Freeman and Birgitta Swedenborg. Författarna och SNS Förlag, 1995. “Favoritism in Organizations” (with C. Prendergast), Journal of Political Economy 104 (October 1996): 958-78. “In Celebration of Armen Alchian’s 80th Birthday: Living and Breathing Economics”, (with Armen A. Alchian, James M. Buchanan, Harold Demsetz, Axel Leijonhufvud, John R. Lott, Jr., and William F. Sharpe), Economic Inquiry, Vol. XXXIV, July 1996, 412426. “Another Look at Look Labor Market Adjustments to Increased Immigration” (with J. Hojvat-Gallin and R. LaLonde), 1996. “Economic Impact of International Migration and the Economic Performance of Migrants,” (with R. LaLonde), in Handbook of Population and Family Economics, ed. Mark R. Rosenzweig and Oded Stark (Amsterdam: North-Holland, 1997), pp. 799-850. “Economic Troubles in Sweden's Welfare State,” in The Welfare State in Transition, ed. Richard Freeman, Robert Topel, and Birgitta Swedenborg. Chicago: University of Chicago Press for NBER, 1997. “Wage Policy and Restructuring: The Swedish Labor Market Since 1960” (with PerAnders Edin), in The Welfare State in Transition, ed. Richard Freeman, Robert Topel, and Birgitta Swedenborg. Chicago: University of Chicago Press for NBER, 1997. “Unemployment and Nonemployment” (with Kevin M. Murphy), American Economic Review 87 (May 1997): 295-300. “Factor Proportions and Relative Wages: The Supply Side Determinants of Wage Inequality,” Journal of Economic Perspectives 11 (Spring 1997): 55-74. “Empirical Knowledge in Labor Economics,” in Labor Market Data and Measurement, ed. John Haltiwanger, Marilyn Manser, and Robert Topel. Chicago: University of Chicago Press for NBER, 1998. “Labor Markets and Economic Growth,” in Handbook of Labor Economics, ed. Orley Ashenfelter and David Card. Amsterdam: Elsevier Science B.V., 1999, pp. 2943-2984. “Medical Research: What's It Worth?” (with K. M. Murphy), Milken Institute Review: A Journal of Economic Policy (First Quarter 2000): 23-30. “Entry, Product Design, and Pricing in an Initially Monopolized Market” (with S. Davis and K. M. Murphy), University of Chicago GSB, September 2001, revised January, 2003. Journal of Political Economy, vol. 112 no. 1, pt. 2, February, 2004, pp188-225. “Adverse Price Effects of Entry in Markets with Few Firms” (with Steven J. Davis and Kevin M. Murphy), Working Paper, University of Chicago, April 2001. “The Economic Value of Medical Research” (with Kevin M. Murphy), in Measuring the Gains from Medical Research: An Economic Approach, edited by Kevin M. Murphy and Robert H. Topel. Chicago: University of Chicago Press, 2003, pp 41-73. “Current Unemployment, Historically Contemplated” (with Kevin M. Murphy and Chinhui Juhn), Brookings Papers on Economic Activity 1. Washington, D.C.: The Brookings Institution, 2002. “Estimation and Inference in Two-Step Econometric Models” (with K.M. Murphy), Journal of Business and Economic Statistics, 20, issue 1, 2002: 88-97 (reprint: 20th Anniversary issue of the most important contributions published in JBES). “Labor Markets in the United States and Korea: Factor Proportions, Inequality, and Unemployment” in Macroeconomic Implications of Post-Crisis Structural Change, L.J. Cho, D. Cho and Y.H. Kim, KDI press, 2005, pp 131-60. “Diminishing Returns? Evidence on the Costs and Benefits of Improving Health” (with K.M. Murphy) November 2002, Perspectives in Biology and Medicine, volume 46, no. 3, (Summer, 2003): pp108-128. “War vs. Containment” (with S.J. Davis and K.M. Murphy), March 2003; presented at NBER Conference on National Security Economics, November 2003. “Black-White Differences in the Economic Value of Improving Health” (with K. M. Murphy). Presented at the National Institutes of Health Conference on Racial Disparities in Health Outcomes, December 2001. Perspectives in Biology and Medicine, Summer, 2004. “The Value of Health and Longevity” (with K.M. Murphy), Revised March, 2005, NBER Working Paper #11405, June 2005. Journal of Political Economy, October 2006, pp 871-904. Winner of the 2005 Eugene Garfield Economic Impact of Medical Research Award, given by Research America. Winner of the 2007 Kenneth J. Arrow Award, given by the International Health Economics Association for the best paper in health economics published in 2006. “The Private and Social Benefits of Education”, (with Fabian Lange), Handbook of the Economics of Education, North-Holland, 2006 “The Social Value of Education”, Keynote Address, Federal Reserve Bank of Cleveland Conference on Education and Economic Development, November 2004, in Education and Economic Development, Federal Reserve Bank of Cleveland Economic Review, 2004, pp 47-58. “On Human Capital and Economic Growth” (with Fabian Lange), Working Paper, University of Chicago, September, 2005. “Äterhämtning och terstaende problem I den svenska valfardsstaten—inlendning, sammanfattning och slutsatser” in Att Reformera Välfärdsstaten, with Richard Freeman and Birgitta Swedenborg, SNS Förlag, Stockholm, 2006, 9-34. ”Forandrade forutsattningar for svensk lonebildning” (with Peter Fredriksson), in Att Reformera Välfärdsstaten, with Richard Freeman and Birgitta Swedenborg, SNS Förlag, Stockholm, 2006, 65-82. ”War in Iraq versus Containment” (with Steven J. Davis and Kevin M. Murphy), for CESifo Conference “Guns and Butter: The Economic Causes and Consequences of Conflict”, Munich, December 2005, February, 2006. “Social Value and the Speed of Innovation” (with Kevin M. Murphy), American Economic Review, May, 2007. “Unemployment”, The New Palgrave of Economics, 2008 “Critical Loss Analysis in the Whole Foods Case”, Global Competition Policy, March, 2008, @ http://www.globalcompetitionpolicy.org/index.php?&id=949&action=907. “Wage Determination and Employment in Sweden Since 1990”, (with Peter Fredricksson), Working Paper, University of Chicago and Uppsala University, August, 2006, revised December, 2008, in Recovery and Beyond: Reforming the Welfare State in Sweden, Richard Freeman, Birgitta Swedenborg and Robert Topel, eds., University of Chicago Press for NBER, 2009 “Reforming the Welfare State: Recovery and Beyond in Sweden” (with Richard Freeman and Birgitta Swedenborg), in Recovery and Beyond: Reforming the Welfare State in Sweden, Richard Freeman, Birgitta Swedenborg and Robert Topel, eds., University of Chicago Press for NBER, 2009 “On the Economics of Climate Policy”, (with Gary S. Becker and Kevin M. Murphy), BE Journal of Economic Analysis and Policy, April, 2011 “Introduction to ‘Job Mobility Search and Earnings Growth, A Reinterpretation of Human Capital Earnings Functions”, Research in Labor Economics 35th Anniversary Retrospective, Emerald Group Publishing 2012, 397-400. “Some Basic Economics of National Security” (with Kevin M. Murphy), American Economic Review, May 2013 “Competitive Discounts and Antitrust Policy” (with Kevin. M. Murphy and Edward A. Snyder), Oxford Handbook of Antitrust Economics, 2013 (forthcoming) Selected Congressional Testimony and Presentations: “Unemployment and Insurance,” Testimony before the U.S. Senate Committee on Finance, April 23, 1991. “The Economic Value of Medical Research,” Testimony before the U.S. Senate Committee on Health, Education, Labor, and Pensions, May 10, 2001. “The Value of Improvements in Health and Longevity”, Presentation for Congressional Staff and the American Cancer Society, Washington, July, 2005. Selected Reports: “Unemployment Insurance Financing and Unemployment: Empirical Investigation of Adverse Incentives,” Final Report, U.S. Department of Labor Contract No. B9M22046, November 1982. “Unemployment and Unemployment Insurance,” Final Report, U.S. Department of Labor, ETA, May 1984. “Local Labor Markets,” Final Report, U.S. Department of Labor, Office of the Assistant Secretary for Policy, March 1984. “The Use of Survey Data in Predicting Behavior: The Case of Enlistment Intentions,” Final Report, U.S. Department of Defense, May 1985. “Equalizing Wage Differences,” Final Report, U.S. Department of Labor, Office of the Assistant Secretary for Policy, August 1985. “Sectoral Change and Worker Displacement,” Final Report, U.S. Department of Labor, Office of the Assistant Secretary for Policy, March 1990. Book Reviews: Employment Hazards by W. Kip Viscusi. In Journal of Economic Literature, March 1982. Handbook of Labor Economics, ed. O. Ashenfelter and R. Layard. In Journal of Economic Literature, 1988. Selected Comments: “Comment on ‘Some Recent Developments in Labor Economics and Their Implications for Macroeconomics’,” Journal of Money, Credit and Banking 20 (August 1988, part 2). “Comment on ‘Industry Rents: Evidence and Implications’,” (by Lawrence Summers and Lawrence Katz) Brookings Papers on Economic Activity, Brookings Institution, Washington, D.C., 1989. “Comment on ‘Wage Dispersion between and within U.S. Manufacturing Plants’, Brookings Papers on Economic Activity, 1991. “Comment on ‘Why Is the U.S. Unemployment Rate So Much Lower?’” NBER Macroeconomics Annual, 1998, pp. 67-72. “Comment on ‘Does Immigration Grease the Wheels of the Labor Market?’” by George J. Borjas. Brookings Papers on Economic Activity. edited by William C. Brainard and George L. Perry. Washington, D.C. Brookings Institution, 2001. “Comment on ‘Where did the Productivity Growth Go? Inflation Dynamics and the Distribution of Income’” by Ian Dew-Becker and Robert J. Gordon. Brookings Papers on Economic Activity. edited by William C. Brainard and George L. Perry. Washington, D.C. Brookings Institution, 2005, 135-44. Recent Cases, Reports and Testimony Roderick Arnold et al. v. Cargill, Inc. in the U.S. District Court for the District of Minnesota Third Division. No. 01-CV-2086 DWF/AJB. Expert on behalf of Cargill in racial discrimination class action. Expert Report, June 29, 2004. Applied Medical v. Ethicon, Inc., et. al. in the Central District of California. No. SACV 03-1329. Expert on behalf of Johnson & Johnson (Ethicon) in antitrust litigation. Expert Report, May 24, 2005. Deposition, November 7, 2005. Trial Testimony, August 18, 2006. Conmed Corp. v. Johnson & Johnson, United States District Court, Southern District of New York 03-CV8800. Expert on behalf of Johnson and Johnson in antitrust litigation. Expert Report, August 1, 2005. Daryal T. Nelson, et. al. v. Wal-Mart Stores Inc. and Wal-Mart Transportation LLC., Eastern District of Arkansas Helena Division, N). 2:05 CV-00134-WRW. Expert on behalf of Wal-Mart in racial discrimination class action. Expert Report, April 12, 2006. Deposition, May 2, 2006. Expert Report, July 28, 2008. Rebuttal Expert Report, September 12, 2008. Deposition, September 23 2008. Declaration, October 2, 2008. Sulfuric Acid Antitrust Litigation, In the US District Court for the Northern District of Illinois Eastern Division, No. 03-C-4576. Expert on behalf of Marsulex and Chemtrade in antitrust class action. Expert Report, February 3, 2006. Deposition March 2006. Amy Velez, et. al. v. Novartis Corporation, Novartis Pharmaceuticals Corporation, and Thomas Ebeling, US District Court, Southern District of New York, 04 Civ. 09194. Economic (compensation practices) expert on behalf of Novartis Pharmaceuticals in class action gender discrimination case. Expert Report, November 9, 2006. Peter P. Jonites, et. al. v. Exelon Corporation, et. al., United States District Court, Northern District of Illinois, No. 05CV04234. Expert on behalf of Exelon in class action labor case. Expert Report, April 16, 2007, Amended Expert Report, June 14, 2007. Clifford L. Whitaker, et. al. v. 3M Company, United States District Court for the Second Judicial District of Minnesota Civ.C4-04-012239. Expert on behalf of 3M in class action discrimination case. Expert Report, July 25, 2007. Deposition, August 21, 2007. Pinkowski et al,. v. 3M Company, United States District Court, District of New Jersey, No. 205CV05668. Expert on behalf of 3M in class action age discrimination case. Expert Report January 29, 2007. Deposition, March 2007. Trial Testimony, May 8, 2010. Sun Microsystems, Inc., et al. v. Hynix Semiconductor, Inc., et al. (Consolidated), Unisys Corporation v. Hynix Semiconductor, Inc., et al., Jaco Electronics, Inc. v. Hynix Semiconductor, Inc., et al., Edge Electronics, Inc. v. Hynix Semiconductor, Inc., et al., All American Semiconductor, Inc., et al., v. Hynix Semiconductor, Inc. et al., DRAM Claims Liquidation Trust, by its Trustee Wells Fargo Bank, NA v. Hynix Semiconductor, et al., United States District Court for the Northern District of California San Francisco Division. Expert on behalf of Hynix Semiconductor, Inc. and Hynix Semiconductor America, Inc. in antitrust class action. Expert Report, March 7, 2008. Deposition, April 25, 2008. Declaration, April 16, 2009. Katherine Puffer, on behalf of herself and all others similarly situated, v. Allstate Insurance Company in the U.S. District Court for the Northern District of Illinois Eastern Division. Expert on behalf of Allstate Insurance Company in class action gender discrimination case. Expert Report, April 1, 2008. Declaration, October 20, 2008. William Syverson, Patrick Boone, Lee Deshler, Robert Flowers, Barry Gerard, Tina Gleisner, Thomas Gomez, Edwin “Dana” Goodloe, Rolf Marsh, Daniel Moczan, James Payne, and Antonio Rivera, individually and on behalf of others similarly situated, v. International Business Machines Corporation in the U.S. District Court for the Northern District of California San Jose Division. Expert on behalf of IBM in class action age discrimination case. Expert Report, August 19, 2008. Deposition, September 9, 2008. Declaration in support of IBM, December 19, 2008. The United States of America v. Canada, in support of the United States’ request for arbitration regarding Canadian softwood lumber subsidies. Expert on behalf of the United States and US Dept. of Justice in softwood lumber international trade arbitration. Expert Report, November 21, 2008. Expert Response Report, March 23, 2009. Expert Rejoinder Report, June 19, 2009. Trial Testimony, July 20, 2009. Expert Report for the Tribunal, June 15, 2010. Valassis Communications, Inc. v. News America Incorporated, a/k/a News America Marketing Group, News America FSI, Inc. a/k/a News America Marketing FSI, LLC and News America Marketing In-Store Services, Inc. a/a/a News American Marketing In-Store Services, LLC in the United States District Court for the Eastern District of Michigan Southern Division, No. 06-10240. Expert on behalf of New America in antitrust litigation. Expert Report, November 21, 2008. Rebuttal Expert Report, December 26, 2008. Deposition, January 22, 2009. Supplemental Expert Report, December 21, 2009. Supplemental Rebuttal Expert Report, January 14, 2010. Deposition, January 25, 2010. Valassis Communications, Inc., v. News America Incorporated, No. 07-706645-CZ. Expert on behalf of News America in antitrust litigation. Expert Report, November 21, 2008. Rebuttal Expert Report, December 26, 2008. Deposition, January 22, 2009. Trial Testimony, July 15-16, 2009. EBay Seller Antitrust Litigation in the U.S. District Court for the Northern District of California San Jose Division. Expert on behalf of Ebay Inc.’s opposition to plaintiffs’ motion for class certification in antitrust case. Declaration, August 14, 2009. Deposition, August 28, 2009 and September 18, 2009. Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, in the U.S. District Court for the Eastern District of New York. Expert on behalf of card issuing banks, Visa and Mastercard in class action antitrust litigation. Expert Report, December 14, 2009. Deposition, April 20, 2010. Applied Medical Resources Corp., and Applied Medical Distribution Corp. v. Ethicon Endo-Surgery, Inc. in the United States District Court for the Central Division of California Southern Division, No. CV09-3605-RSWL (VBKx). Expert Report, March 19, 2010. Deposition, April 15, 2010. Wallace Bolden, et al. vs. Walsh Group, et.al in the U.S. District Court Northern District of Illinois, Eastern Division, No. 06cv104. Expert on behalf of Walsh Group in class action race discrimination case. Expert Report, December 22, 2010. Deposition, February 18, 2011. Jones, et al. vs. Wells Fargo Bank N.A., Wells Fargo Home Mortgage, Inc. in the Superior Court of California, County of Los Angeles, BC337821. Expert on behalf of Wells Fargo Bank in class action lending discrimination case. Expert Report & Deposition. Trial Testimony, December 21, 2010. Peterson v. Seagate U.S. LLC, 534 F.Supp.2d 996, 2008 WL398968. Expert on behalf of Seagate Corporation in class action age discrimination case. Expert Report, October 25, 2010. Deposition, February 15, 2011. NRLC and Railroad Employees, National Mediation Board Case Nos. A-13569; A13570; A-13572; A-13573; A-13574; A-13575; A-13592. Expert on behalf of major US railroads in labor mediation. Expert Report, October 10, 2011. Testimony December, 2011. Toyota Motor Corporation Hybrid Brake Marketing Sales Practices and Products Liability Litigation in the United States District Court Central District of California Southern Division, No. 8:10-ML-02172-CJC-RNB. Expert on behalf of Toyota in class action product liability (hybrid brakes) case. Expert Report, May 28, 2012. Deposition, July 19, 2012. Text Messaging Antitrust Litigation in the United States District Court Northern District of Illinois Eastern Division, No. 08 C 7082. Expert on behalf of wireless providers in antitrust litigation. Expert Report, July 3, 2013. Appendix B: List of Materials Relied Upon Court Documents 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. DECLARATION OF ROGER G. NOLL ON LIABILITY AND DAMAGES – April 3, 2013 (and sources and documents considered, cited or relied upon therein) CORRECTIONS TO DECLARATION OF ROGER G. NOLL ON LIABILITY AND DAMAGES – May 31, 2013 (and sources and documents considered, cited or relied upon therein) EXPERT REPORT OF DAVID M. MARTIN – April 8, 2013 (and sources and documents considered, cited or relied upon therein) DEPOSITION OF JEFFREY L. ROBBIN – December 3, 2010 (and sources and documents considered, cited or relied upon therein) DEPOSITION OF ROGER G. NOLL – September 19, 2008 (and sources and documents considered, cited or relied upon therein) DEPOSITION OF ROGER G. NOLL - April 7, 2011 (and sources and documents considered, cited or relied upon therein) DEPOSITION OF ROGER G. NOLL - May 16, 2013 (and sources and documents considered, cited or relied upon therein) DECLARATION OF ROGER G. NOLL – January 18, 2011 (and sources and documents considered, cited or relied upon therein) SUPPLEMENTAL DECLARATION OF ROGER G. NOLL - July 18, 2011 (and sources and documents considered, cited or relied upon therein) SECOND SUPPLEMENTAL DECLARATION OF ROGER G. NOLL – September 23, 2011 (and sources and documents considered, cited or relied upon therein) SECOND SUPPLEMENTAL REPORT OF DR. MICHELLE M. BURTIS – November 14, 2011 (and sources and documents considered, cited or relied upon therein) DECLARATION OF DR. JOHN P. J. KELLY - April 18, 2011 (and sources and documents considered, cited or relied upon therein) See Expert Report of Dr. John P. J. Kelly - July 19, 2013 (and sources and documents considered, cited or relied upon therein) DEPOSITION OF AUGUSTIN J. FARRUGIA - December 8, 2010 (and sources and documents considered, cited or relied upon therein) DECLARATION OF AUGUSTIN FARRUGIA – January 18, 2011 (and sources and documents considered, cited or relied upon therein) SUPPLEMENTAL DECLARATION OF AUGUSTIN FARRUGIA - July 2, 2013 (and sources and documents considered, cited or relied upon therein) DEPOSITION OF JOHN P.J. KELLY, Ph.D. - February 22, 2011 (and sources and documents considered, cited or relied upon therein) DECLARATION OF DAVID F. MARTIN – February 28, 2011 (and sources and documents considered, cited or relied upon therein) DEPOSITION OF DAVID M. MARTIN, JR., PH.D. - May 9, 2013 (and sources and documents considered, cited or relied upon therein) 20. DEFENDANT APPLE INC.'S RESPONSES TO PLAINTIFF'S FIRST SET OF INTERROGATORIES August 29, 2008 (and sources and documents considered, cited or relied upon therein) 21. DECLARATION OF BONNY E. SWEENEY – January 18, 2011 (and sources and documents considered, cited or relied upon therein) 22. DECLARATION OF DAVID KIERNAN - January 18, 2011 (and sources and documents considered, cited or relied upon therein) 23. DECLARATION OF BONNY E. SWEENEY – February 28, 2011 (and sources and documents considered, cited or relied upon therein) 24. DECLARATION OF DAVID KIERNAN - February 28, 2011 (and sources and documents considered, cited or relied upon therein) 25. DECLARATION OF MICHAEL SCOTT – June 6, 2006 (and sources and documents considered, cited or relied upon therein) 26. Deposition of Michelle Burtis – September 30, 2009 (and sources and documents considered, cited or relied upon therein) 27. Deposition of David K. Heller – December 15, 2010 (and sources and documents considered, cited or relied upon therein) 28. Deposition of Arthur Rangel – December 17, 2010 (and sources and documents considered, cited or relied upon therein) 29. Deposition of Eddy Cue – December 17, 2010 (and sources and documents considered, cited or relied upon therein) 30. APPLE’S MOTION FOR SUMMARY JUDGMENT - April 18, 2011 (and sources and documents considered, cited or relied upon therein) 31. AMENDED CONSOLIDATED COMPLAINT FOR VIOLATIONS OF SHERMAN ANTITRUST ACT, CLAYTON ACT, CARTWRIGHT ACT, CALIFORNIA UNFAIR COMPETITION LAW, CONSUMERS LEGAL REMEDIES ACT, AND CALIFORNIA COMMON LAW OF MONOPOLIZATION – January 25, 2010 (and sources and documents considered, cited or relied upon therein) 32. ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT; DENYING AS PREMATURE PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION – May 19, 2011 (and sources and documents considered, cited or relied upon therein) 33. UNREDACTED MEMORANDUM IN OPPOSITION TO MOTION FOR CLASS CERTIFICATION (December 15, 2008) 34. Plaintiffs’ Rule 30(b)(6) Notice of Videotaped Deposition of Corporate Designees (2010-11-17) 35. SFI_658005_1_AIIA_ Responses to Data Questions 12.23.10 36. Plaintiffs’ Notice of Motion and Renewed Motion for Class Certification and Appointment of Lead Class Counsel Under Seal (April 18, 2011) 37. SFI_658005_3_Responses to Data Questions 12.23.10 38. SFI_658269_4_Responses to Reseller Transaction Data Questions 2011-01-28 39. SFI_658573_3_Updated answers to 1.6.11 Follow Up Data Questions 40. SFI_658573_4_Responses to 1.7.2011 Data Questions 41. SVI_88493_7_Responses to iPod BOM and Gross Margin Reports 2011-02-04 42. PLAINTIFFS’ MEMORANDUM IN OPPOSITION TO APPLE’S MOTION FOR SUMMARY JUDGMENT - April 18, 2011 43. DECLARATION OF BONNY E. SWEENEY IN SUPPORT OF PLAINTIFFS' MEMORANDUM IN OPPOSITION TO APPLE'S MOTION FOR SUMMARY JUDGMENT - April 18, 2011 44. EXPERT REPORT OF DR. MICHELLE M. BURTIS - April 18, 2011 (and sources and documents considered, cited or relied upon therein) 45. APPLE’S OPPOSITION TO RENEWED MOTION FOR CLASS CERTIFICATION - April 18, 2011 46. APPLE’S REPLY IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT - April 18, 2011 47. DECLARATION OF MICHAEL T. SCOTT IN SUPPORT OF APPLE'S REPLY IN SUPPORT OF ITS MOTION FOR SUMMARY JUDGMENT - April 18, 2011 48. DECLARATION OF CARMEN A. MEDICI IN SUPPORT OF REPLY MEMORANDUM IN SUPPORT OF PLAINTIFFS’ RENEWED MOTION FOR CLASS CERTIFICATION - April 18, 2011 49. REPLY MEMORANDUM IN SUPPORT OF PLAINTIFFS’ RENEWED MOTION FOR CLASS CERTIFICATION - April 18, 2011 50. Reply Declaration of Roger G. Noll 2011-03-28 51. SFI_662507_4_AIIA_ APPLE’S OPPOSITION TO RENEWED MOTION FOR CLASS CERTIFICATION 2011-04-11 52. ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT; DENYING AS PREMATURE PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 2011-05-19 53. SUPPLEMENTAL REPORT OF DR. MICHELLE M. BURTIS 2011-07-26 54. Exhibit 1 to DECLARATION OF DAVID C. KIERNAN IN SUPPORT OF APPLE’S RESPONSE TO PROFESSOR NOLL’S JULY 18 DECLARATION 2011-01-26 55. Exhibit 2 to DECLARATION OF DAVID C. KIERNAN IN SUPPORT OF APPLE’S RESPONSE TO PROFESSOR NOLL’S JULY 18 DECLARATION 2011-01-26 56. DECLARATION OF DAVID C. KIERNAN IN SUPPORT OF APPLE’S RESPONSE TO PROFESSOR NOLL’S JULY 18 DECLARATION 57. APPLE’S RESPONSE TO PROFESSOR NOLL’S JULY 18 DECLARATION 58. ORDER GRANTING PLAINTIFFS’ MOTION FOR CLASS CERTIFICATION 2011-11-22 59. ORDER REGARDING SCHEDULE 2013-01-28 60. Class Certification Report Backups for Michelle Burtis 61. DECLARATION OF JEFFREY ROBBIN IN SUPPORT OF DEFENDANT’S RENEWED MOTION FOR SUMMARY JUDGEMENT - January 18, 2011 Bates Numbered Documents 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. Internal Apple iTMS Surveys Internal Apple iPod Surveys Apple_AIIA00178491 Apple_AIIA00178737 iTunes Surveys Mac customers (Aug ‘03) Windows customers (Dec ‘03) Windows Prospects (Dec ‘03) December 2003 Apple_AIIA00323221 Apple_AIIA00477469 Final Report 2005 CYQ3 iTMS Tracker Program October 2005 Apple_AIIA00355775 Apple_AIIA00526882 Apple_AIIA00178867 73. iTunes Store Tracker Program Final Report—2006 CYQ4 January 2007 74. Apple_AIIA00193099 75. iTunes Store Tracker Survey CYQ4 2008 – Apple Market Research & Analysis March 2009 76. iTunes Store Tracker Survey CYQ1 2010 – June 2010 77. Apple_AIIA00331445 78. Apple_AIIA00389307 - Wave 4 79. Apple_AIIA00331431 - Forrester – Apple iTunes Jump-Starts Windows Digital Music 80. Apple_AIIA00455825 - iPod and iPod mini Buyer Survey January 2005 81. Apple_AIIA00493743 - iPod Buyer Survey — Wave 1 July 2005 82. iPod Owner Survey - Wave 2 January 2006 83. iPod Buyer Survey FY09 – Q2 84. iPod Owner Survey - Wave 3 June 2006 85. W5 iPod/iPhone Buyer Survey - Nov 2007 Apple Confidential Internal Use Only 86. Apple_AIIA00002914 87. Apple_AIIA00115845 88. Apple_AIIA00135089 89. Apple_AIIA00178888 90. Apple_AIIA00180903 91. Apple_AIIA00195126 92. Apple_AIIA00199264 93. Apple_AIIA00199280 94. Apple_AIIA00319774 95. Apple_AIIA00320223 96. Apple_AIIA00331431 97. Apple_AIIA00331434 98. Apple_AIIA00333439 99. Apple_AIIA03335100 100. Apple_AIIA00336153 101. Apple_AIIA00351078 102. Apple_AIIA00446624 103. Apple_AIIA00445669 104. Apple_AIIA004489705 105. Apple_AIIA00458544 106. Apple_AIIA00481550 107. Apple_AIIA00481589 108. Apple_AIIA00511000 109. Apple_AIIA00549197 110. Apple_AIIA00572228 111. Apple_AIIA00572232 112. Apple_AIIA00572600 113. Apple_AIIA00572676 114. Apple_AIIA00572699 115. Apple_AIIA00573587 116. Apple_AIIA00575626 117. Apple_AIIA00576776 118. Apple_AIIA00577214 119. Apple_AIIA00093860 120. Apple_AIIA00945275 121. Apple_AIIA00945600 122. Apple_AIIA00959717 123. Apple_AIIA00959724 124. Apple_AIIA00948352 125. Apple_AIIA00948381 126. Apple_AIIA00948413 127. Apple_AIIA00948739 128. Apple_AIIA00948960 129. Apple_AIIA00948962 130. Apple_AIIA00950304 131. Apple_AIIA00951449 132. Apple_AIIA00953603 133. Apple_AIIA00954126 134. Apple_AIIA00954141 135. Apple_AIIA00954156 136. Apple_AIIA00956496 137. Apple_AIIA00956962 138. Apple_AIIA00959170 139. Apple_AIIA00959446 140. Apple_AIIA00959620 141. Apple_AIIA00959724 142. Apple_AIIA00959757 143. Apple_AIIA00959872 144. Apple_AIIA00959648 145. Apple_AIIA00959694 146. Apple_AIIA00959713 147. Apple_AIIA00959717 148. Apple_AIIA00959740 149. Apple_AIIA00959787 150. Apple_AIIA00959792 151. Apple_AIIA00959851 152. Apple_AIIA00962282 153. Apple_AIIA00964813 154. Apple_AIIA00964990 155. Apple_AIIA00969312 156. Apple_AIIA00970146 157. Apple_AIIA00970153 158. Apple_AIIA00970162 159. Apple_AIIA00970250 160. Apple_AIIA00971555 161. Apple_AIIA00974904 162. Apple_AIIA00974636 163. Apple_AIIA00974470 164. Apple_AIIA00974713 165. Apple_AIIA00974667 166. Apple_AIIA00974749 167. Apple_AIIA00974463 168. Apple_AIIA00974546 169. Apple_AIIA00974840 170. Apple_AIIA00974588 171. Apple_AIIA00974603 172. Apple_AIIA00974838 173. Apple_AIIA00974708 174. Apple_AIIA00974519 175. Apple_AIIA00974641 176. Apple_AIIA00974932 177. Apple_AIIA00093477 178. Apple_AIIA00974824 179. Apple_AIIA00974776 180. Apple_AIIA00974577 181. Apple_AIIA00974782 182. Apple_AIIA00974735 183. Apple_AIIA00974843 184. Apple_AIIA00974620 185. Apple_AIIA00974799 186. Apple_AIIA00974906 187. Apple_AIIA00974894 188. Apple_AIIA00974982 189. Apple_AIIA00974561 190. Apple_AIIA00975107 191. Apple_AIIA00975139 192. Apple_AIIA00975167 193. Apple_AIIA00975191 194. Apple_AIIA00976658 195. Apple_AIIA00291156 196. Apple_AIIA01383364 197. Apple_AIIA01358752 198. Apple_AIIA01358805 199. Apple_AIIA00549184 200. Apple_AIIA00963459 201. Apple_AIIA00355606 202. Apple_AIIA00963492 203. Apple_AIIA00963340 204. Apple_AIIA00963340 205. Apple_AIIA00093499 206. Apple_AIIA00093499 207. Apple_AIIA00966312 208. Apple_AIIA00968156 209. Apple_AIIA00943649 210. Apple_AIIA00969283 211. Apple_AIIA01358744 212. Apple_AIIA00549183 213. Apple_AIIA00549198 214. Apple_AIIA0059199 215. Apple_AIIA00549200 216. Apple_AIIA01062282 217. Apple_AIIA01238828 218. Apple_AIIA01238820 219. Apple_AIIA00957597 220. Apple_AIIA01238839 221. Apple_AIIA00951291 222. Apple_AIIA00995575 223. Apple_AIIA01287859 224. Apple_AIIA00807000 225. Apple_AIIA01121058 226. Apple_AIIA00970285 227. Apple_AIIA00531624 228. Apple_AIIA01058774 229. Apple_AIIA01090043 230. Apple_AIIA01061533 231. Apple_AIIA01122425 232. Apple_AIIA00825977 233. Apple_AIIA00470249 234. Apple_AIIA00350891 235. Apple_AIIA00511587 236. Apple_AIIA00511463 237. Apple_AIIA00511581 238. Apple_AIIA00511483 239. Apple_AIIA00511572 240. Apple_AIIA00511549 241. Apple_AIIA00511499 242. Apple_AIIA00511544 243. Apple_AIIA00511540 244. Apple_AIIA00362516 245. Apple_AIIA00511501 246. Apple_AIIA00511476 247. Apple_AIIA00511467 248. Apple_AIIA00361301 249. Apple_AIIA00586924 250. Apple_AIIA00586940 251. Apple_AIIA00589630 252. Apple_AIIA00586761 253. Apple_AIIA00568674 254. Apple_AIIA00586947 255. Apple_AIIA005587043 256. Apple_AIIA00587053 257. Apple_AIIA00586847 258. Apple_AIIA00586841 259. Apple_AIIA00586961 260. Apple_AIIA00587018 261. Apple_AIIA00586956 262. Apple_AIIA00586928 263. Apple_AIIA00826100 264. Apple_AIIA00826134 265. Apple_AIIA00826069 266. Apple_AIIA00826063 267. Apple_AIIA00826053 268. Apple_AIIA00826010 269. Apple_AIIA00708248 270. Apple_AIIA00708205 271. Apple_AIIA00708163 272. Apple_AIIA00724232 273. Apple_AIIA00193955 274. Apple_AIIA00947706 275. Apple_AIIA00947643 276. Apple_AIIA01383219 277. Apple_AIIA01364726 278. Apple_AIIA01218566 279. Apple_AIIA01218377 280. Apple_AIIA01362655 281. Apple_AIIA01362603 282. Apple_AIIA01218253 283. Apple_AIIA00445995 284. Apple_AIIA00448231 285. Apple_AIIA00448356 286. Apple_AIIA00583911 287. Apple_AIIA00319724 288. Apple_AIIA00350916 289. Apple_AIIA00953526 290. Apple_AIIA00361480 291. Apple_AIIA00511322 292. Apple_AIIA00531724 293. Apple_AIIA00544957 294. Apple_AIIA00554643 295. Apple_AIIA00961911 296. Apple_AIIA01038556 297. Apple_AIIA01239186 298. Apple_AIIA00318980 299. Apple_AIIA00463988 300. Apple_AIIA00811549 301. Apple_AIIA01024886 302. Apple_AIIA00355620 303. Apple_AIIA01035239 304. Apple_AIIA00949979 305. Apple_AIIA00795191 306. Apple_AIIA00959232 307. Apple_AIIA00960451 308. Apple_AIIA00127056 309. Apple_AIIA00319983 310. Apple_AIIA00106919 311. Apple_AIIA00337602 312. Apple_AIIA00106989 313. Apple_AIIA00949715 314. Apple_AIIA00949772 315. Apple_AIIA00954873 316. Apple_AIIA00467172 317. Apple_AIIA00180654 318. Apple_AIIA001809902 319. Apple_AIIA00954933 320. Apple_AIIA00954724 321. Apple_AIIA00960055 322. Apple_AIIA01383038 323. Apple_AIIA00960073 324. Apple_AIIA00135124 325. Apple_AIIA00963542 326. Apple_AIIA00963282 327. Apple_AIIA00963298 328. Apple_AIIA00708319 329. Apple_AIIA01383386 330. Apple_AIIA01358855 331. Apple_AIIA00974863 332. Apple_AIIA00090447 333. Apple_AIIA00098417 334. Apple_AIIA00099100 335. Apple_AIIA00974436 336. Apple_AIIA00105851 Price Committee Documents 337. Apple_AIIA01278611 - 2001-03-11 iPod March line-up Decision 338. Apple_AIIA01276219 - 2004-06-30 iPod Decision 339. Apple_AIIA01278395 - 2004-10 iBook, Xserve RAID, iPod Decision 340. Apple_AIIA01278345 - 2005-01 iPod, Xserve, Displays, Keyboard & Mouse, Q97, Q88, PowerBook Decision 341. Apple_AIIA01277415 - 2005-06 iPod Decision 342. Apple_AIIA01277431 - 2005-06-09 iPod Decision 343. Apple_AIIA01384542 - 2005-08-15 PowerBook, iPod, Xserve RAID Decision 344. Apple_AIIA01277614 - 2006-01-18 iPod Decision 345. Apple_AIIA01278341 - 2006-01-18 PCM Back-up iPod Decision 346. Apple_AIIA01277439 - 2006-01-19 iPod Decision 347. Apple_AIIA01277541 - 2006-01-20 iPod Decision 348. Apple_AIIA01277329 - 2006-09 iPod Presentation 349. Apple_AIIA01276233 - 2007-04 iPod Presentation 350. Apple_AIIA01276249 - 2007-08 iPod, iPod nano Decision 351. Apple_AIIA01276307 - 2007-08 iPod, iPod nano, iPod shuffle Decision 352. Apple_AIIA01276342 - 2007-08-16 iPod, iPod nano, iPod shuffle Decision 353. Apple_AIIA01276402 - 2007-09 iPod Presentation 354. Apple_AIIA01276439 - 2007-10 iPod touch, app bundle pricing Decision 355. Apple_AIIA01276447 - 2007-10 iPod touch, software bundle Decision 356. Apple_AIIA01276570 - 2007-10 iPod touch, software bundle, iPhone Decision 357. Apple_AIIA01276584 - 2007-11 iPod touch, software bundle, iPhone Decision 358. Apple_AIIA01276598 - 2007-12-03 iPod touch, iPhone Decision 359. Apple_AIIA01276612 - 2008-01 iPod touch, iPhone Decision 360. Apple_AIIA01278046 - 2008-02-01 iPod shuffle Decision 361. Apple_AIIA01276714 - 2008-03-01 iPod shuffle, iPod touch Decision 362. Apple_AIIA01276791 - 2008-08 iPod touch, iPod classic, iPod nano Decision 363. Apple_AIIA01276935 - 2008-12 iPod shuffle Decision 364. Apple_AIIA01277156 - 2009-02 iPod shuffle Decision Data 365. Upgrades by month (version 1).xlsb - For US Units and Revenue for Upgardes by month Since January,2009 to 17th October,2010 366. AIIA_US iPod Sales_Family Level_Direct-Indirect-OEM.xlsx 367. US Sales_iPods_Direct_Indirect_OEM_FY02-FY10 368. NPD_DigitalOnlyJuly06_Dec11.xlsx 369. NPD_PhysicalandDigital_July06_Dec11.xlsx 370. NPDMP3Aug07Update.xls 371. NPDMP3October2005Update.xls 372. NPDUSMP3April2009.xls 373. NPDUSMP3July2010.xls 374. NPDUSMP3June08Update.xls 375. NPDUSMP3PriceBandJuly2010.xls 376. BDF percentages to apply to reseller data.csv 377. rslr_rc_data.sas7bdat 378. IpodClassic2002Q1v3.txt 379. IpodClassic2002Q2v3.txt 380. IpodClassic2002Q3v3.txt 381. IpodClassic2002Q4v3.txt 382. IpodClassic2003Q1v3.txt 383. IpodClassic2003Q2v3.txt 384. IpodClassic2003Q3v3.txt 385. IpodClassic2003Q4v3.txt 386. IpodClassic2004Q1v3.txt 387. IpodClassic2004Q2v3.txt 388. IpodClassic2004Q3v3.txt 389. IpodClassic2004Q4v3.txt 390. IpodMINI2004Q2v3.txt 391. IpodMINI2004Q3v3.txt 392. IpodMINI2004Q4v3.txt 393. RecordCheck_Ipod Sales.xlsx 394. IpodMini2005Q1.txt 395. IpodMini2005Q2.txt 396. IpodMini2005Q3.txt 397. IpodMini2005Q4.txt 398. IpodMini2006to2011Q1.txt 399. IpodShuffle2005.txt 400. IpodShuffle2006.txt 401. IpodShuffle2007Q1.txt 402. IpodShuffle2007Q2.txt 403. IpodShuffle2007Q3.txt 404. IpodShuffle2007Q4.txt 405. IpodShuffle2008Q1.txt 406. IpodShuffle2008Q2.txt 407. IpodShuffle2008Q3.txt 408. IpodShuffle2008Q4.txt 409. IpodNano2005.txt 410. IpodNano2006Q1SC2.txt 411. IpodNano2006Q1SR3.txt 412. IpodNano2006Q2.txt 413. IpodNano2006Q3.txt 414. IpodNano2006Q4.txt 415. IpodNano2007Q1SC2.txt 416. IpodNano2007Q1SR3.txt 417. IpodNano2007Q2.txt 418. IpodNano2007Q3.txt 419. IpodNano2007Q4.txt 420. IpodNano2008Q1SC2.txt 421. IpodNano2008Q1SR3.txt 422. IpodNano2008Q2.txt 423. IpodNano2008Q3.txt 424. IpodNano2008Q4.txt 425. RecordCheck2 - Copy.xls 426. RecordCheck2.xlsx 427. IpodShuffle2009.txt 428. IpodShuffle2010.txt 429. IpodShuffle2011.txt 430. IpodTouch2008Q1.txt 431. IpodTouch2008Q2.txt 432. IpodTouch2008Q3.txt 433. IpodTouch2008Q4.txt 434. IpodTouch2009Q1.txt 435. IpodTouch2009Q2.txt 436. IpodTouch2009Q3.txt 437. IpodTouch2009Q4.txt 438. IpodTouch2010Q1.txt 439. IpodTouch2010Q2.txt 440. IpodTouch2010Q3.txt 441. IpodTouch2010Q4.txt 442. IpodTouch2011Q1.txt 443. IpodTouch2011Q2.txt 444. IpodTouch2011Q3.txt 445. IpodTouch2011Q4.txt 446. IpodClassic2011Q3V2.txt 447. IpodNano2011Q3V2.txt 448. IpodShuffle2011Q3V2.txt 449. IpodTouch2011Q3V2.txt 450. price_group_MISC.csv 451. price_group_1.csv 452. price_group_7.csv 453. price_overirde_12.csv 454. price_overirde_code14.csv 455. SFI_791971_1_PriceOverrideReasonDesc.xls 456. AppleDataExtract_iPod BDF Accruals from 2001 to 2011.csv 457. RetailerCodeNames.csv 458. RetailerCodeNames_2.csv 459. 2002_Ipod_Sales 460. 2003_Ipod_Sales 461. 2004_Ipod_Sales 462. 2005_Ipod_Sales 463. 2006_Ipod_Sales 464. 2007_Ipod_Sales 465. 2008_Ipod_Sales 466. 2009_Ipod_Sales 467. 2010_Ipod_Sales 468. 2011_Ipod_Sales 469. 2002-2004_Ipod_Sales 470. 2005_Ipod_Sales 471. 2006_Ipod_Sales 472. 2007_Ipod_Sales 473. 2008_Ipod_Sales 474. 2009_Ipod_Sales 475. 2010_Ipod_Sales 476. 2011_Ipod_Sales 477. AppleDataExtract_iPod BDF Accruals from 2001 to 2011.xls 478. AIIA_iPod-OEM_HP.xls 479. RetailerCodeNames.xls 480. NPDUSMP3May2009.xls 481. NPDUSMP3July2010.xls 482. 2000-2007 (NPD data).xls 483. ~5844701.xls 484. BDF percentages to apply to reseller data.csv 485. Merged iPod features and costs_direct sales.csv 486. Merged iPod features and costs_direct sales_CKD.csv 487. 2002_Ipod_Sales to 20011_Ipod_Sales 488. Merged iPod features and costs_CKD.csv 489. AIIA - US iTS P&Ls_Q3FY03-Q4FY10 490. iTunes Music Store P&L Data NPD Monthly Trend Reports 491. Apple_AIIA00109997 492. Apple_AIIA00485090 493. Apple_AIIA00489689 494. Apple_AIIA 00127123 495. Apple_AIIA00129531 496. Apple_AIIA00135174 497. Apple_AIIA00358751 498. Apple_AIIA00358724 499. Apple_AIIA00358776 500. Apple_AIIA00358791 501. Apple_AIIA00358816 502. Apple_AIIA00358856 503. Apple_AIIA00358883 504. Apple_AIIA00431268 505. Apple_AIIA00485090 506. Apple_AIIA00489689 507. Apple_AIIA00505446 508. Apple_AIIA00511004 509. Apple_AIIA00536766 510. Apple_AIIA00555045 511. Apple_AIIA00559475 512. Apple_AIIA00621881 513. Apple_AIIA00625999 514. Apple_AIIA00630064 515. Apple_AIIA01085453 516. Apple_AIIA 00649138 517. Apple_AIIA00733250 518. Apple_AIIA00743040 519. Apple_AIIA00972703 520. Apple_AIIA01061216 521. Apple_AIIA01083128 522. Apple_AIIA01083366 523. Apple_AIIA01110277 524. Apple_AIIA 01121207 525. Apple_AIIA01121373 526. Apple_AIIA01279027 527. Apple_AIIA01326081 528. Apple_AIIA01326098 529. Apple_AIIA01326113 530. Apple_AIIA01326130 531. Apple_AIIA01326147 532. Apple_AIIA01326164 533. Apple_AIIA01326181 534. Apple_AIIA01326198 535. Apple_AIIA01326300 536. Apple_AIIA01326266 537. Apple_AIIA01358885 538. Apple_AIIA01358902 539. Apple_AIIA01358919 540. Apple_AIIA01358970 541. Apple_AIIA01358987 542. Apple_AIIA01358953 543. Apple_AIIA01358963 544. Apple_AIIA01359004 NPD Music Retail Shares 545. Apple_AIIA00167793 546. Apple_AIIA00187687 547. Apple_AIIA00188105 548. Apple_AIIA00189930 549. Apple_AIIA00327772 550. Apple_AIIA00429468 551. Apple_AIIA00662062 552. Apple_AIIA00678009 553. Apple_AIIA00725368 554. Apple_AIIA00946216 555. Apple_AIIA00946224 556. Apple_AIIA00946391 557. Apple_AIIA00946640 558. Apple_AIIA00946649 559. Apple_AIIA00946675 560. Apple_AIIA00960247 561. Apple_AIIA00960296 562. Apple_AIIA00960300 563. Apple_AIIA00960340 564. Apple_AIIA00962442 565. Apple_AIIA00965666 566. Apple_AIIA00965893 567. Apple_AIIA00966687 568. Apple_AIIA00967103 569. Apple_AIIA00968523 570. Apple_AIIA00968532 571. Apple_AIIA00968691 572. Apple_AIIA00968757 573. Apple_AIIA01205535 574. Apple_AIIA01205543 575. Apple_AIIA01205576 576. Apple_AIIA01205585 577. Apple_AIIA01205587 578. Apple_AIIA01205590 579. Apple_AIIA01205610 580. Apple_AIIA01205623 581. Apple_AIIA01206292 582. Apple_AIIA01206330 583. Apple_AIIA01208708 584. Apple_AIIA01208710 585. Apple_AIIA01208997 586. Apple_AIIA01233725 NPD Surveys 587. Apple_AIIA01309399 588. Apple_AIIA00178974 589. Apple_AIIA01309615 590. Apple_AIIA00945746 591. Apple_AIIA00964631 592. Apple_AIIA00178967 593. Apple_AIIA01217873 594. Apple_AIIA00968565 595. Apple_AIIA01309456 596. Apple_AIIA00952642 597. Apple_AIIA00481774 598. Apple_AIIA00945746 599. Apple_AIIA00948134 600. Apple_AIIA00952622 601. Apple_AIIA00957936 602. Apple_AIIA01214028 603. Apple_AIIA01215207 604. Apple_AIIA01215317 Apple Marketing Requirements Documents (MRDs) 605. Apple_AIIA01333844 606. Apple_AIIA00989705 607. Apple_AIIA00989713 608. Apple_AIIA01052191 609. Apple_AIIA01054705 610. Apple_AIIA00982117 611. Apple_AIIA00989717 612. Apple_AIIA00114451 613. Apple_AIIA00984872 614. Apple_AIIA01055013 615. Apple_AIIA00115742 616. Apple_AIIA01337461 617. Apple_AIIA_B_001604 618. Apple_AIIA01068163 619. Apple_AIIA01064431 620. Apple_AIIA01067923 621. Apple_AIIA01337470 622. Apple_AIIA01063781 623. Apple_AIIA01068809 624. Apple_AIIA01057554 625. Apple_AIIA01066740 Public Books and Articles 626. Apple Press Releases relating to iPod, iTunes, iTunes Music Store or iTunes Store, iPad, Apple TV, & iPhone 627. Joshua D. Angrist and Jörn-Steffen Pischke, Mostly Harmless Econometrics: An Empiricist’s Companion. March 2008 628. Jobs, Steve, “Thoughts on Music”, February 6, 2007 629. Brad Stone, “Want to Copy iTunes Music? Go Ahead, Apple Says.” New York Times. January 7, 2009 630. Mitchell Hall, “Apple iTunes going DRM-free.” The National Business Review. January 7, 2009 631. Smith, Tony, "Apple plugs PyMusique iTunes 'hole.'" The Register. March 22, 2005, http://www.theregister.co.uk/2005/03/22/apple_blocks_pymusique/ (accessed May 30, 2013) 632. “Apple cuts iTunes pricing, eases copy protection.” NBCNews.com. January 6, 2009 633. Brent Schlender, “How Big Can Apple Get?” Fortune Magazine. February 21, 2005 634. Tony Smith, “Downloading digital music - Majors and minors, players and platforms, lawsuits and licenses.” The Register. December 24, 2004 635. “FairPlay – QTFairUse,”, Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/wiki/FairPlay, (accessed May 28, 2013). 636. “FireWire vs. USB 2.0.” Q Imagining Technical Note 637. “Apple iPod shuffle 2nd Gen (Silver) 1 GB Specs.” EveryiPod.com. Accessed: May 28, 2013 638. “iPod: Not Just iCandy.” PCMag.com Accessed: May 28, 2013 http://www.pcmag.com/article2/0,2817,19362,00.asp 639. “iTunes strips songs' copy protection.” Boston.com January 7, 2009 Accessed: May 28, 2013 www.boston.com/business/technology/articles/2009/01/07/itunes strips songs copy protecti on/# 640. Levy, Steven, The Perfect Thing: How the iPod Shuffles Commerce, Culture and Coolness. Simon & Schuster Paperbacks. New York, NY 2006 641. Katie Dean, “Listen Up: Songs Now 79 Cents.” The New Yorker. May 28, 2003 642. Richtel, Matt, “TECHNOLOGY; Apple Introduces What It Calls an Easier to Use Portable Music Player,” NY Times, October 24, 2001, http://www.nytimes.com/2001/10/24/business/technology-apple-introduces-what-it-calls-aneasier-to-use-portable-music-player.html (accessed 9/25/2012) 643. “New & Noteworthy: New Apple retail stores to open; LCD rackmounts; Apple slams Microsoft proposal; more” CNET News November 28, 2001 644. Copeland, Michael V., “Unlocking the iPod: If you want to buy content for Apple's iPod, you have to go through iTunes. Navio Systems is hoping to change that.,” Business 2.0 Magazine (downloaded from CNN Money.com), May 22, 2006. http://money.cnn.com/2006/05/22/technology/business2_launchpad0522/ (accessed May 28, 2013) 645. 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The iPod characteristics research was initiated based on the list of order numbers (also called “MPN” or “Product Identifier”) provided in the direct sales and reseller sales transaction data from Professor Noll’s latest declaration backup materials. The order numbers were then individually searched online, and the available characteristics from all sources consulted were collected. For example, by searching order number “M8737LL/A” online, we collected information from sources such as“support.apple.com”, “everymac.com”, and “amazon.com”. The list of characteristic variables is a result of the union of the information collected from the different sources. 2. The full list of sources consulted includes Apple.com, Apple Price Documents (provided by client), Everymac.com (also known as “everyipod.com”), abt.com, amazon.com, bestbuy.com, brokerbin.com, buy.com, cdw.com, cnet.com, collegestoreonline.com, cowboom.com, ebay.com, facebook.com, falabella.com, flash-memory-store.com, ipodused.com, lowerpricestoday.com, milo.com, model spec, mp3-players.toptenreview.com, nexttag.com, onyougo.com, outlet.amazonwebstore.com, overstock.com, pacificgeek.com, partnumber.org, pcsuperstore.com, personafile.com, pricecheck.co.za, pricegrabber.com, reviewindex.net, shop.com, shop.neobits.com, techforless.com, Todoclon.com, toolowtogo.com, topperise.ch, warrantylife.com, wikipedia, youfindit.ca. 3. After the search of characteristics was completed for all order numbers, we compared and consolidated the information from various sources for each order number to obtain the order number level data. We first ranked the sources for a given order number depending on its reliability and the completeness of its information (referred to as “the ranking process” below). Reliability is determined by degree of consistency between the information reported by the source and Apple.com. Apple.com is considered the most reliable source, and all characteristics available on the Apple site were used for in constructing our characteristics dataset. However when information for certain characteristics or order numbers was not available on Apple.com (e.g., “discontinued dates”), we would refer to everymac.com as our second best source for characteristics since it has the most comprehensive technical specifications for most iPods, and its information is consistent with that on Apple.com when the latter is available. With these two sources (apple.com and everymac.com), we were able to collect information on the characteristics for most models across all iPod families. 4. We further compared characteristics of the order numbers within the same iPod family to collapse the information from the order number level to the family level. Order numbers within the same family should have the same characteristics. Through comparison, we resolved differences in characteristics by cross-checking the information against the comparable iPod description in the corresponding Apple press release. For example, suppose “order No. 123” and “order No. 321” belong to the same iPod family. We checked their characteristics for internal consistency and also for consistency with the description on the Apple’s product launch press for the respective family. If all sources agree, we use the characteristics for the family. If not, we adopt the information from the Apple press release when available. There are a few models for which some characteristics are not reported by Apple. In that case, we repeat the ranking process and use the information from the most reliable source. When using information from sources other than Apple.com, we verified the data by crosschecking multiple other sources. For example, if Apple.com does not report the battery life for iPod X and everymac.com reports 8 hours, we verified the data against a third reliable source such as “Amazon.com” or “CNET review,” if possible. 5. Final results are compared with the characteristics provided in Professor Noll’s latest declaration backup materials. The non-trivial differences between the two datasets are summarized in the table below. (In making this table, we exclude, for example, a difference in product width due to rounding – 2.43 inches vs. 2.4 inches.) No. VARIABLE Class MODEL family 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 1st Reprice - Month End of Life - Price End of Life - Price End of Life - Price End of Life - Price End of Life - Month End of Life - Month End of Life - Year End of Life - Year End of Life - Year End of Life - Year Music Battery Hours Music Battery Hours Music Battery Hours Size (cubic inches) Size (cubic inches) Size (cubic inches) Size (cubic inches) Size (cubic inches) Size (cubic inches) Weight (oz ) Onboard Ram (MB) Onboard Ram (MB) Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Playback Support Formats Connectivity Connectivity Connectivity Connectivity Connectivity Connectivity IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD TOUCH IPOD TOUCH IPOD TOUCH IPOD MINI IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD SHUFFLE IPOD TOUCH IPOD TOUCH IPOD MINI IPOD NANO IPOD NANO IPOD CLASSIC IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD SHUFFLE IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD CLASSIC IPOD P68 GOOD IPOD PHOTO P98A BEST IPOD PHOTO P98A GOOD IPOD SHUFFLE D98 BEST IPOD SHUFFLE N98A BEST IPOD SHUFFLE N98A BEST IPOD SHUFFLE N98E BEST IPOD SHUFFLE D98 BEST IPOD SHUFFLE N98A BEST IPOD SHUFFLE N98C BEST IPOD SHUFFLE N98E BEST IPOD TOUCH N72 BEST IPOD TOUCH N72 BETTER IPOD TOUCH N72 GOOD IPOD MINI Q22 BEST IPOD P68A GOOD IPOD P97 BEST MAC IPOD P97 BEST WIN IPOD P97 BETTER MAC IPOD P97 BETTER WIN IPOD SHUFFLE D55 BEST IPOD TOUCH N18 BEST IPOD TOUCH N18 BETTER IPOD MINI Q22 BEST IPOD NANO N20 BEST IPOD NANO N20 BETTER IPOD PHOTO P98A BEST IPOD SHUFFLE D98 BEST IPOD SHUFFLE N98 BEST IPOD SHUFFLE N98A BEST IPOD SHUFFLE N98C BEST IPOD SHUFFLE N98E BEST IPOD SHUFFLE N98F BEST IPOD SHUFFLE N98F BETTER IPOD PHOTO P98 BEST IPOD PHOTO P98 BETTER IPOD PHOTO P98A BEST IPOD PHOTO P98A BETTER IPOD PHOTO P98A GOOD IPOD PHOTO P98A GOOD COMPARISON u2 harrypotter 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Murphy/Topel Noll Jul 2002 349 349 79 79 Sep 2007 Sep 2008 2009 2007 2008 2008 36 36 36 3 89 7 62 8 21 8 21 7 03 7 03 0 60 256 256 doesn't include Apple lossless includes Apple lossless includes Apple lossless includes Apple lossless doesn't include HE-AAC includes audible includes audible includes audible includes audible includes audible includes audible doesn't include firewire doesn't include firewire doesn't include firewire doesn't include firewire doesn't include firewire doesn't include firewire Aug 2002 249 249 69 49 Feb 2008 Mar 2009 2010 2008 2009 2009 24 24 24 3 60 7 49 8 06 8 06 6 91 6 91 0 61 128 128 includes Apple lossless doesn't include Apple lossless doesn't include Apple lossless doesn't include Apple lossless includes HE-AAC doesn't include audible doesn't include audible doesn't include audible doesn't include audible doesn't include audible doesn't include audible includes firewire includes firewire includes firewire includes firewire includes firewire includes firewire Appendix D Additional Regression Results Exhibit D1a (Amended) HIGHLY CONFIDENTIAL Exhibit D1a (Amended) HIGHLY CONFIDENTIAL Exhibit D1a (Amended) HIGHLY CONFIDENTIAL Exhibit D1a (Amended) HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D2a (Amended) HIGHLY CONFIDENTIAL Exhibit D2a (Amended) HIGHLY CONFIDENTIAL Exhibit D2a (Amended) HIGHLY CONFIDENTIAL Exhibit D2a (Amended) HIGHLY CONFIDENTIAL Exhibit D2b (Amended) HIGHLY CONFIDENTIAL Exhibit D2b (Amended) HIGHLY CONFIDENTIAL Exhibit D2b (Amended) HIGHLY CONFIDENTIAL Exhibit D2b (Amended) HIGHLY CONFIDENTIAL Exhibit D2c (Amended) Note: Professor Noll's calculation of damages contains the following errors: - Coefficients on iTunes 7 were calculated relative to the wrong but-for world. - Standard errors were estimated incorrectly due to ignored clustering of residuals. - Percentage Overchages were calculated using an incorrect formula. HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D3a (Amended) HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D3b (Amended) HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D4a1 HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D4a2 (Amended) HIGHLY CONFIDENTIAL Exhibit D4a3 (Amended) HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D4b1 HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D4b2 (Amended) HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL HIGHLY CONFIDENTIAL Exhibit D4b3 (Amended) HIGHLY CONFIDENTIAL Exhibit D4c3 (Amended) Effects of Correcting Professor Noll's Calculation of Damages HIGHLY CONFIDENTIAL 1 2 3 4 5 6 7 8 9 Robert A. Mittelstaedt #60359 ramittelstaedt@jonesday.com Craig E. Stewart #129530 cestewart@jonesday.com David C. Kiernan #215335 dkiernan@jonesday.com Amir Q. Amiri #271224 aamiri@jonesday.com JONES DAY 555 California Street, 26th Floor San Francisco, CA 94104 Telephone: (415) 626-3939 Facsimile: (415) 875-5700 Attorneys for Defendant APPLE INC. 10 UNITED STATES DISTRICT COURT 11 NORTHERN DISTRICT OF CALIFORNIA 12 OAKLAND DIVISION 13 14 15 THE APPLE iPOD iTUNES ANTI-TRUST LITIGATION. Case No. C 05-00037 (YGR) [CLASS ACTION] 16 DECLARATION OF DR. ROBERT TOPEL 17 18 19 20 21 I, Robert H. Topel, Ph.D submitted my Amended Expert Report in the above-captioned matter on August 19, 2013, with supplemental exhibits served on November 8, 2013. The report and corrected exhibits are true and correct and based on my own personal knowledge. 22 I declare the forgoing is true and correct to the best of my knowledge and belief. 23 Executed this 19 day of December, 2013 in Payson, Arizona. 24 25 26 Robert H. Topel, Ph.D. 27 28 -1-

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