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0= UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA 1= BEFORE THE HONORABLE WILLIAM H. ORRICK, JUDGEAMERICAN BOOKSELLERS )
2= ASSOCIATION, INC., ET AL., ) ) 3= PLAINTIFFS, ) )
4= VS. ) NO. C 98-1059 WHO ) 5= BARNES & NOBLE, INC., )
6= ET AL., ) 7= )
8= DEFENDANTS. ) 9=____________________________)
10= SAN FRANCISCO, CALIFORNIA 11= MONDAY, APRIL 9, 2001
12= TRANSCRIPT OF COURT TRIAL -VOL. 1 13= APPEARANCES:
14= FOR PLAINTIFFS: FARELLA, BRAUN & MARTEL LLP 15= 235 MONTGOMERY STREET, 30TH FLOOR
16= SAN FRANCISCO, CALIFORNIA 94104 17= BY: DOUGLAS R. YOUNG
18= ADAM DAWSON 19= CLAUDIA LEWIS
20= HOLLY SUTTON 21= (APPEARANCES CONTINUED ON FOLLOWING PAGE.)
22= REPORTED BY: LEO T. MANKIEWICZ, CSR 5297 RMR, CRR 23= RAYNEE MERCADO, CSR 8258 RMR, CRR
24= OFFICIAL REPORTERS
25= APPEARANCES: (CONTINUED) FOR PLAINTIFFS: JENNER & BLOCK 26= 601 13TH STREET N. W. WASHINGTON, D. C. 20005
27= BY: DAVID W. DEBRUIN BRUCE V. SPIVA 28= DANIEL MACH JANIS KESTENBAUM
29= WILLIAM HOHENGARTEN KEVIN STACK 30= SHILPA SATOSKARFOR DEFENDANTS: O'MELVENY & MYERS LLP
31=( BARNES & NOBLE) 1999 AVENUE OF THE STARS, 7TH FLOOR LOS ANGELES, CALIFORNIA 90067-6035
32= BY: DANIEL M. PETROCELLI DAVID R. GARCIA 33= ALAN RADER PILLSBURY WINTHROP LLP
34= 50 FREMONT STREET POST OFFICE BOX 7880 35= SAN FRANCISCO, CALIFORNIA 94120-7880 BY: PAUL R. GRIFFIN
36= SUSAN WHITECOTTON 37= FOR DEFENDANTS: SKJERVEN, MORRILL, MAC PHERSON
38=( BORDERS GROUP) FRANKLIN & FRIEL 39= THREE EMBARCADERO CENTER, 28TH FLOOR
40= SAN FRANCISCO, CALIFORNIA 94111 41= BY: REGINALD D. STEER
42= ANDREW D. MASTIN 43= RICHARD J. NELSON
44= MORRISON & FOERSTER 45= 425 MARKET STREET
46= SAN FRANCISCO, CALIFORNIA 94105-2482 47= BY: PENELOPE PREOVOLOS
48= JUDSON LOBDELL 49= (APPEARANCES CONTINUED ON FOLLOWING PAGE.)

50= 51= THE COURT: PLEASE BE SEATED.
52= THE CLERK: CALLING CIVIL-98-1059, AMERICAN 53= BOOKSELLERS ASSOCIATION, INCORPORATED, ET AL., VERSUS BARNES &
54= NOBLE, INCORPORATED, ET AL. COUNSEL, PLEASE STATE YOUR 55= APPEARANCE FOR THE RECORD.
56= MR. YOUNG: GOOD MORNING, YOUR HONOR. DOUGLAS YOUNG 57= FROM FARELLA, BRAUN & MARTEL FOR THE PLAINTIFFS, AND IF IT MAY
58= PLEASE THE COURT, I HAVE SOME INTRODUCTIONS TO MAKE. 59= THE COURT: WOULD YOU PLEASE.
60= MR. YOUNG: WITH ME FROM MY FIRM, YOUR HONOR, ARE MY 61= PARTNERS CLAUDIA LEWIS AND ADAM DAWSON.
62= MR. DAWSON: GOOD MORNING, YOUR HONOR. 63= MR. YOUNG: AND ALSO IN THE COURTROOM IS OUR
64= COLLEAGUE HOLLY SUTTON. 65= THE COURT: MS. SUTTON.
66= MR. YOUNG: WE WILL EXPECT, YOUR HONOR, THAT 67= THROUGHOUT THE COURSE OF THE TRIAL AT LEAST ONE PERSON FROM OUR
68= FIRM WILL BE PRESENT, BUT THAT NOT ALL OF US WILL BE PRESENT ON 69= EVERY DAY.
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70= THE COURT: OKAY. 71= MR. YOUNG: MAY I ALSO INTRODUCE OUR LEAD TRIAL
72= COUNSEL, MR. DAVID DEBRUIN FROM THE LAW FIRM OF JENNER & BLOCK. 73= MR. DEBRUIN: GOOD MORNING, YOUR HONOR.
74=
75= MR. YOUNG: AND I'LL ASK MR. DEBRUIN TO INTRODUCE 76= THE MEMBERS OF HIS TRIAL TEAM. I SUSPECT THAT ALL OR MOST OF
77= THEM WILL BE PRESENT IN THE COURTROOM EACH DAY, YOUR HONOR. 78= THE COURT: ALL RIGHT.
79= MR. DEBRUIN: GOOD MORNING, YOUR HONOR. I BELIEVE 80= YOU'VE MET MANY OF THESE INDIVIDUALS BEFORE. WITH ME TODAY IS
81= MR. BRUCE SPIVA. 82= THE COURT: MR. SPIVA.
83= MR. DEBRUIN: MR. DANIEL MACH ALSO AT COUNSEL TABLE 84= AND MS. JANIS KESTENBAUM ALSO AT COUNSEL TABLE. ALSO IN THE
85= COURTROOM, MR. WILLIAM HOHENGARTEN; AND ATTORNEY KEVIN STACK IS 86= ALSO WITH US TODAY, YOUR HONOR, AND MS. SHILPA SATOSKAR FROM
87= JENNER & BLOCK. 88= THE COURT: YOU SURE ALL OF THOSE OTHER PEOPLE IN
89= THE COURTROOM AREN'T MEMBERS OF YOUR FIRM? 90= MR. DEBRUIN: WE HAVE SEVERAL PARALEGALS WHO HAVE
91= BEEN WORKING VERY HARD FROM BOTH FIRMS AND FROM ALL SIDES, AND 92= VARIOUS OTHER INDIVIDUALS, THANK YOU.
93= THE COURT: OKAY, MR. PETROCELLI. 94= MR. PETROCELLI: GOOD MORNING, YOUR HONOR. DANIEL
95= PETROCELLI FOR BARNES & NOBLE. WITH ME ARE MY COLLEAGUES ALAN 96= RADER, ROBERT WELSH, DAVID GARCIA.
97= MR. GARCIA: GOOD MORNING. 98= MR. PETROCELLI: ALSO WITH US FROM MORRISON &
99= FOERSTER, PENELOPE PREOVOLOS.
100= MS. PREOVOLOS: GOOD MORNING, YOUR HONOR. 101= MR. PETROCELLI: AND JUDSON LOBDELL, AND BELIEVE OR
102= OR NOT, THOSE ARE ALL LAWYERS FROM OUR FIRM, YOUR HONOR, IN THE 103= FIRST ROW.
104= THE COURT: I BELIEVE IT. 105= MR. PETROCELLI: THANK YOU.
106= MR. STEER: GOOD MORNING. I'M REG STEER FROM 107= SKJERVEN, MORRILL, MACPHERSON, FRANKLIN & FRIEL, ON BEHALF OF
108= THE BORDERS GROUP OF COMPANIES. WE HAVE A MORE MODEST PRESENCE 109= THAN SOME OF THE OTHER PARTIES HERE, BUT I'D LIKE TO INTRODUCE
110= THE PEOPLE WHO ARE HERE WITH ME. 111= YOU'VE MET MR. PAUL GRIFFIN FROM PILLSBURY WINTHROP,
112= AND I SHOULD STATE THAT SUSAN WHITECOTTON FROM THE SAME FIRM IS 113= AN ATTORNEY WHO WILL BE HERE FROM TIME TO TIME. MY COLLEAGUE
114= ANDREW MASTIN IS, OF COURSE, WITH ME, AS IS RICHARD NELSON, 115= ANOTHER OF MY COLLEAGUES.
116= THE COURT: MR. NELSON. 117= MR. STEER: WE ALSO HAVE A NUMBER OF PARALEGALS
118= PRESENT IN THE COURT, BUT MORE IMPORTANTLY, OUR CLIENT IS 119= REPRESENTED HERE BY THOMAS CARNEY, THE GENERAL COUNSEL OF
120= BORDERS GROUP. 121= THE COURT: OKAY, THANK YOU.
122= ALL RIGHT, MR. YOUNG. 123= OPENING STATEMENT BY MR. YOUNG
124= MR. YOUNG: THANK YOU, YOUR HONOR. MAY IT PLEASE
125= THE COURT, AND COUNSEL, I SPEAK FOR ALL OF THE LAWYERS HERE 126= WHEN I SAY THAT IT IS A HONOR AND PRIVILEGE TO APPEAR IN YOUR
127= COURTROOM TO TRY WHAT IS A SIGNIFICANT CASE; SIGNIFICANT NOT 128= ONLY BECAUSE WE DON'T ALWAYS TRY ROBINSON-PATMAN ACT CASES
129= THESE DAYS, BUT SIGNIFICANT ALSO BECAUSE THIS PARTICULAR 130= INDUSTRY, THE BOOKSELLING INDUSTRY, IS ONE IN WHICH THE
131= ROBINSON-PATMAN ACT MAY BE OF PARTICULAR USE, AN INDUSTRY IN 132= WHICH THE EVIDENCE WILL SHOW THAT IT IS IMPORTANT THAT THE
133= PURPOSES OF THE ACT, THAT IS, TO PROTECT SMALLER PLAYERS IN THE 134= INDUSTRY, WHO DO NOT HAVE THE POWER THAT THE LARGER PLAYERS
135= HAVE, TO PROTECT THE SMALLER PLAYERS AND TO HAVE THEM HAVE THE 136= SAME ACCESS TO THE SAME TERMS AND THE SAME CONDITIONS THAT ALL
137= PLAYERS IN THE INDUSTRY HAVE. 138= THE EVIDENCE WILL SHOW THAT THIS IS A COMPETITIVE
139= INDUSTRY, THAT DIVERSITY IS IMPORTANT, DIVERSITY IN THE
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140= BOOKSELLING OUTLETS, AND ULTIMATELY, YOUR HONOR, THROUGH THESE 141= DIFFERS BOOKSELLING OUTLETS, THE KINDS OF INTELLECTUAL PROPERTY
142= THAT IS MADE AVAILABLE TO THE PEOPLE OF THE UNITED STATES AND 143= THROUGHOUT THE WORLD, AND IT'S TO THAT END THAT WE ARE PLEASED
144= TO PRESENT OUR CASE TO THIS COURT IN AN EFFORT TO OBTAIN THE 145= INJUNCTIVE RELIEF THAT IS POTENTIALLY AVAILABLE TO US.
146= YOUR HONOR ASKED AT OUR LAST PRETRIAL CONFERENCE 147= THAT AT THE BEGINNING OF THE CASE WE HAND UP A PROPOSED FORM OF
148= INJUNCTION. 149= THE COURT: YES.

150= MR. YOUNG: AND I'M PLEASED AT THIS POINT TO HAND UP 151= TWO COPIES OF THE PROPOSED FORM OF INJUNCTION FOR THE COURT'S
152= CONSIDERATION. 153= THE COURT: THANK YOU. NO DOUBT COUNSEL HAS SEEN
154= IT. 155= MR. YOUNG: YES, COUNSEL HAS SEEN THESE ALREADY,
156= YOUR HONOR, AND OF COURSE, WE AGREED THAT THIS WOULD BE OF 157= POSSIBLE USE TO THE COURT AS WE WENT THROUGH THE REMAINDER OF
158= THE TRIAL. 159= THERE IS A FORM OF ORDER AS TO DEFENDANT BARNES &
160= NOBLE, AND THERE'S A FORM OF ORDER AS TO THE DEFENDANT BORDERS 161= GROUP.
162= IN THINKING ABOUT HOW AN OPENING STATEMENT IN THIS 163= CASE COULD BE OF ASSISTANCE TO THE COURT, AND RECOGNIZING THAT
164= THIS IS A COURT TRIAL, I WENT BACK AND REVIEWED THE TRIAL 165= BRIEFS AND YOUR HONOR'S SCHOLARLY AND COMPLETE OPINION ON THE
166= MOTION FOR SUMMARY JUDGMENT, AND IT WAS THE EVIDENT TO ME, AS 167= I'M SURE IT HAS BEEN EVIDENT TO ALL OF THE LAWYERS IN THE
168= COURTROOM, THAT A DISCUSSION OF THE LAW AND A DISCUSSION OF ALL 169= THE VARIOUS PARTIES HERE IS PROBABLY NOT GOING TO BE OF MUCH
170= ASSISTANCE TO THIS COURT. 171= MY EFFORT THIS MORNING, THEREFORE, IS TO BE BRIEF,
172= AND TO GIVE YOU A SHORT, AND INCOMPLETE, TO BE TRUE, BUT 173= PERHAPS USEFUL OVERVIEW OF WHAT WE EXPECT YOU WILL HEAR IN THE
174= DAYS TO COME.
175= YOUR HONOR HAS SPOKEN OF THIS CASE AS A BATTLE OF 176= THE EXPERTS, ON MORE THAN ONE OCCASION. IN THE RULING ON THE
177= MOTION FOR SUMMARY JUDGMENT AND IN THE RULING ON THE MOTIONS IN 178= LIMINE, YOUR HONOR IDENTIFIED THIS AS A BATTLE OF THE EXPERTS
179= CASE. 180= AND THE PLAINTIFFS SEE IT IN THAT WAY, AS WELL, AND
181= THAT IS WHY VERY EARLY IN THIS CASE YOU WILL SEE AN OVERVIEW 182= INDUSTRY EXPERT. SHE WILL BE THE THIRD WITNESS THAT THE
183= PLAINTIFFS PRESENT, AND SHE WILL DISCUSS FOR THE COURT SOME OF 184= THE TERMS AND CONDITIONS THAT ARE AT ISSUE IN THIS CASE.
185= IF I MAY HAND UP TO THE COURT WHAT HAS BEEN MARKED 186= AND WHICH COUNSEL HAVE ALREADY SEEN, AS WELL, A DEMONSTRATIVE
187= EXHIBIT THAT OUTLINES SOME OF THE EXAMPLES OF DISCRIMINATION 188= THAT THE PLAINTIFFS CLAIM WILL BE AT ISSUE IN THIS CASE.
189= I DON'T NEED TO BELABOR THESE THINGS THAT ARE ON 190= THIS LIST, YOUR HONOR, BECAUSE THEY ARE OUTLINED IN THE FIRST
191= THREE PAGES OF OUR TRIAL BRIEF, AND YOU HAVE ALREADY ADDRESSED 192= THEM TO SOME EXTENT IN MOTIONS THAT YOU HAVE HEARD, BUT YOU
193= WILL SEE THAT THE KINDS OF DISCRIMINATION THAT WE ARE ALLEGING 194= ARE AT ISSUE HERE FALL INTO VARIOUS CATEGORIES.
195= THEY INCLUDE SECRET DEALS WITH A WHOLESALER CALLED 196= INGRAM, WHICH, AS YOUR HONOR NOW KNOWS, IS THE LARGEST BOOK
197= WHOLESALER IN THE COMPANY; VARIOUS KINDS OF DISCOUNTS, MAXIMUM 198= DISCOUNTS, DISCOUNTS FROM RETAIL DISTRIBUTION CENTERS,
199= DISCOUNTS BASED UPON CARTON QUANTITY, AND OTHER KINDS OF
200= DISCOUNTS THAT WE CONTEND THE DEFENDANTS OBTAIN AND WE DO NOT, 201= AND OTHER KINDS OF SPECIAL DEALS THAT THE DEFENDANTS GET,
202= SPECIAL RETURNS, SHORTAGES ALLOWANCES THAT THE PLAINTIFFS ARE 203= NOT ABLE TO OBTAIN, AND COOPERATIVE ADVERTISING ALLOWANCES THAT
204= EXCEED COST INCURRED, AND OTHER THINGS. 205= THESE ARE THE CATEGORIES OF DISCRIMINATION THAT YOU
206= WILL HEAR ABOUT FROM THE EXPERTS THAT WE WILL PRESENT IN THE 207= DAYS TO COME.
208= NOW, PRECEDING OUR THIRD WITNESS WILL BE TWO 209= PLAINTIFF BOOKSELLERS THEMSELVES. THE FIRST WILL BE A
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210= GENTLEMAN NAMED RHETT JACKSON. MR. JACKSON IS THE OWNER OF A 211= CLASSIC, SINGLE-LOCATION SMALL BOOKSTORE IN SOUTH CAROLINA.
212= THE SECOND IS A GENTLEMAN NAMED ANDREW ROSS. MR. ROSS IS THE 213= OWNER OF CODY'S BOOKS, WHICH IS A LARGER INDEPENDENT BOOKSTORE
214= WITH TWO LOCATIONS IN BERKELEY, CALIFORNIA. 215= OUR REASONS FOR PRESENTING THESE TWO GENTLEMEN TO
216= YOU BEFORE YOU HEAR AN EXPERT WITNESS, YOUR HONOR, IS TWOFOLD: 217= ONE, TO PUT A FACE ON SOME OF THESE PLAINTIFFS, AND TO GIVE THE
218= COURT A SENSE OF WHO THEY ARE, AND WHAT THEY'RE MADE OF; AND 219= SECONDLY, BECAUSE EACH OF THESE GENTLEMEN WILL, IN SOME FORM OR
220= ANOTHER, SUMMARIZE THE OTHER TESTIMONY THAT YOU WILL HEAR 221= SANDWICHED IN BETWEEN THE EXPERT TESTIMONY THAT WILL, IN
222= ESSENCE, BEGIN AND END OUR CASE. 223= MR. JACKSON AND MR. ROSS, WHO WILL REPRESENT SOME OF
224= THE DIVERSITY AMONG THE INDEPENDENT BOOKSELLERS THAT WE
225= REPRESENT, WILL ESTABLISH THROUGH THEIR TESTIMONY THE FOLLOWING 226= PRIMARY THINGS:
227= FIRST, THAT EACH OF THE PLAINTIFFS COMPETES WITH THE 228= DEFENDANTS. THEY WILL DO THIS IN PART BY TALKING ABOUT THE
229= GEOGRAPHIC PROXIMITY OF THEIR STORES TO THE DEFENDANTS' STORES. 230= THEY WILL TALK ABOUT THE EFFECT ON THEIR SALES WHEN THE
231= DEFENDANT STORES OPENED UP NEARBY TO THEM, AND THEY WILL TALK 232= ABOUT THE EFFECT ON THEIR SALES AS THEY OBSERVE IT, AS THEY
233= EXPERIENCE IT, BASED UPON THEIR YEARS OF EXPERIENCE IN THE 234= BOOKSELLING INDUSTRY.
235= THESE PLAINTIFFS WILL ALSO ESTABLISH THAT THEY BUY 236= THE SAME BOOKS AS THE DEFENDANTS BUY, THAT THEY BUY THEM AT THE
237= SAME TIME AS THE DEFENDANTS BUY THEM, ON AN ONGOING BASIS 238= THROUGHOUT THE YEAR, AS NEW TITLES ARE ISSUED AND OLD STOCK IS
239= REPLACED; AND THEY WILL ESTABLISH THAT THEY PURCHASE THEIR 240= BOOKS ACCORDING TO ESTABLISHED INDUSTRY TERMS IN A BOOK
241= COMMONLY CALLED, AS YOUR HONOR KNOWS, "THE RED BOOK," AND YOU 242= WILL HEAR MUCH ABOUT THE RED BOOK IN THIS CASE.
243= NOW, THIS IS NOT TO STATE THAT EVERY PLAINTIFF 244= RECEIVES ONLY RED BOOK TERMS AND IT'S NOT TO SAY THAT EVERY
245= INVOICE WILL BE THE SAME AS EVERY PUBLISHED PRICE. YOU WILL 246= SEE EVIDENCE THAT THERE ARE SUCH THINGS AS SPECIAL SALES OR
247= STOCK OFFERS THAT ARE OFFERED TO THE PLAINTIFFS, BUT YOU WILL 248= HEAR THAT THESE SPECIAL DEALS AND STOCK OFFERS THAT ARE OUTSIDE
249= OF THE RED BOOK THAT THE PLAINTIFFS RECEIVE ARE DEALS THAT ARE
250= ALSO OFFERED TO OTHER PEOPLE. 251= WHAT YOU WILL ALSO HEAR FROM THESE PEOPLE, HOWEVER,
252= IS THAT THE PLAINTIFFS, EXCEPT IN VERY RARE INSTANCES SUCH AS 253= THE UNIVERSALLY OFFERED STOCK OFFERS AND SPECIAL DEALS, ONLY
254= RECEIVE PURCHASES THROUGH WHAT IS AVAILABLE IN THE RED BOOK AND 255= NOT IN ANY OTHER WAY.
256= NOW, THIS TESTIMONY WILL BE CORROBORATED IN AT LEAST 257= FOUR OTHERS WAYS, YOUR HONOR. AT SOME POINT IN THIS CASE WE
258= EXPECT TO OFFER APPROXIMATELY FOUR OTHER PLAINTIFF WITNESSES 259= LIVE. THEY WILL TESTIFY AS MR. JACKSON AND MR. ROSS WILL
260= TESTIFY. WE WILL ALSO PROFFER THE WRITTEN TESTIMONY OF OTHER 261= PLAINTIFFS AND WILL MAKE THEM AVAILABLE HERE IN COURT AT THE
262= DEFENDANTS' REQUEST FOR CROSS-EXAMINATION AND REDIRECT 263= EXAMINATION, IF APPROPRIATE.
264= YOU WILL ALSO HEAR FROM A WITNESS NAMED LINDA 265= MILLER. LINDA MILLER IS A FORMER EMPLOYEE OF THE AMERICAN
266= BOOKSELLERS ASSOCIATION. SHE IS FAMILIAR WITH THE MANNER IN 267= WHICH PUBLISHERS PROVIDE INFORMATION REGARDING TERMS FOR
268= PUBLICATION IN THE ABA BUYERS HANDBOOK, AND SHE WILL BE THE ONE 269= WHO WILL EXPLAIN THAT PROCESS TO YOUR HONOR IN SOME DETAIL.
270= AND FINALLY, AND PERHAPS MOST IMPORTANTLY, DURING 271= THE CASE IS THAT YOU WILL HEAR FROM THE DEFENDANTS THEMSELVES,
272= AND THE PLAINTIFFS WILL EMPLOY THE TESTIMCould not acquire words on page 6 ONY OF THE DEFENDANTS 273= THEMSELVES TO ESTABLISH OUR CASE.
274= NOW, IN OUR CASE IN CHIEF, MUCH OF THIS TESTIMONY
275= WILL COME IN BY WAY OF DEPOSITION, BECAUSE, AS YOUR HONOR HAS 276= RECALLED, COUNSEL FOR THE DEFENDANTS HAS REPRESENTED THAT THEY
277= WILL BE BRINGING EACH OF THEIR REPRESENTATIVES THAT WE HAVE 278= DEPOSED TO THE COURT IN THEIR CASE, AND WE WILL HAVE AN
279= OPPORTUNITY TO EXAMINE THEM LIVE THEN. BUT IN OUR CASE IN
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280= CHIEF, WE WILL PRESENT DEPOSITION TESTIMONY THAT WILL HELP TO 281= ESTABLISH THE FOLLOWING THINGS, AND WHICH WILL CORROBORATE BY
282= WHAT THE PLAINTIFFS WITNESSES WILL ALREADY HAVE SAID: 283= FIRST, THAT BOOKS ARE SOLD BY PUBLISHERS AND
284= WHOLESALERS ACCORDING TO ESTABLISHED SCHEDULES, AGAIN, THROUGH 285= THE RED BOOK, AND AS AN EXAMPLE, YOU WILL HEAR FROM MR. LEONARD
286= RIGGIO, WHO IS ONE OF THE PRINCIPALS AT BARNES & NOBLE, AND HE 287= WILL TESTIFY, AS HE TESTIFIED IN HIS DEPOSITION, THAT, QUOTE,
288= "SUBSTANTIALLY ALL OF THE BUYING, TO MY 289= KNOWLEDGE, IS DONE ACCORDING TO SCHEDULES THAT ARE
290= WIDELY PUBLICIZED." 291= AND FURTHER QUOTING, HE WILL SAY THAT,
292= "OVER THE LIFETIME IN WHICH I'VE BEEN IN THE 293= BUSINESS, THERE IS ALMOST NO DISCUSSION WITH
294= PUBLISHERS ABOUT ANYTHING, BECAUSE THE PUBLISHERS 295= BASICALLY SAY, THERE'S NOTHING TO DISCUSS, IT'S IN
296= THE BOOK." 297= THE DEFENDANTS WILL ALSO ESTABLISH, THROUGH THEIR
298= OWN WORDS, THAT THEY OBTAINED CERTAIN TERMS THAT ARE DIFFERENT 299= FROM AND BETTER THAN THOSE THAT ARE OFFERED TO THE PLAINTIFFS,

300= AND PERHAPS MOST SIGNIFICANT OF ALL, THE DEFENDANTS WILL 301= ESTABLISH THAT THEY ARE AWARE OF THE DIFFERENCES, AND THEY ARE
302= AWARE OF THEM SUCH THAT IN SOME INSTANCES THEY HAVE ACTUALLY 303= TAKEN PRECAUTIONS TO ENSURE THAT THE WORLD AT LARGE, AND
304= PARTICULARLY THESE PLAINTIFFS THAT WE REPRESENT, ARE NOT AWARE 305= OF THEM.
306= WE NOTED SOME OF THESE AT PAGES 2 AND 3 OF OUR TRIAL 307= BRIEF, BUT BY WAY OF EXAMPLE, IN THE CASE OF BARNES & NOBLE,
308= YOUR HONOR WILL SEE INTERNAL E-MAILS THAT DISCUSS NON-PUBLIC 309= INCENTIVE PAYMENTS, SPECIAL ADD-ONS, AND OTHER NON-PUBLIC TERMS
310= THAT BARNES & NOBLE EXECUTIVES RECOGNIZE COULD NOT AND SHOULD 311= NOT BE DOCUMENTED. YOU WILL SEE THAT THEY WENT SO FAR AS TO
312= INSTRUCT THAT THE TERMS NOT BE PUT IN WRITING, AND THAT IN AT 313= LEAST ONE INSTANCE, IT WAS NOTED THAT THE TERMS, QUOTE, "CANNOT
314= BE PUT IN WRITING FOR LEGAL REASONS." 315= IN THE CASE OF BORDERS, YOUR HONOR WILL SEE AN
316= INTERNAL E-MAIL NOTING THAT A DEAL OFFERED BY INGRAM WAS BETTER 317= AS IT WAS OFFERED TO BORDERS THAN WHAT WAS OFFERED TO EVERYONE
318= ELSE, AND YOU WILL SEE AN E-MAIL IN WHICH A SENIOR BORDERS 319= OFFICIAL WARNED, WITH REFERENCE TO A CHANGE IN POLICY BY ONE OF
320= THE BOOK PUBLISHERS THAT WAS OTHERWISE GOING TO CHANGE THE 321= PLAYING FIELD AND MAKE IT MORE COMPETITIVE, THAT, QUOTE,
322= "WHAT THEY DON'T REALIZE IS THAT IN A COUPLE OF 323= YEARS THERE MAY ONLY BE A COUPLE OF PLAYERS WHO WILL
324= DICTATE THE GAME ON THEIR TERMS." END OF QUOTE.
325= THIS EVIDENCE OF AWARENESS, THIS EVIDENCE OF A 326= POSSIBILITY THAT THIS INDUSTRY WILL BECOME SO CONSOLIDATED IS,
327= WE WILL SUBMIT, AT THE END OF THE DAY, A PERFECT EXAMPLE OF WHY 328= THIS CASE IS SO IMPORTANT, AND WHY THE ROBINSON-PATMAN ACT IS
329= SO APPLICABLE HERE. 330= NOW, I SAID A FEW MOMENTS AGO THAT THIS WOULD BE A
331= BATTLE OF THE EXPERTS, AND IT WILL BE. THE THIRD WITNESS YOU 332= WILL SEE IS AN INDUSTRY EXPERT NAMED GAIL SEE. MS. SEE HAS
333= OVER 30 YEARS OF EXPERIENCE AS A BOOKSELLER AND SOME 10 YEARS 334= OF EXPERIENCE AS A PUBLISHER. SHE WILL PROVIDE YOUR HONOR WITH
335= AN OVERVIEW OF THE BOOKSELLING INDUSTRY, HOW IT WORKS, BOTH 336= UNDER THE ORDINARY RULES THAT ARE IMPOSED UPON THESE PLAINTIFFS
337= AND UNDER THE VERY DIFFERENT RULES THAT ARE APPLIED TO THE 338= DEFENDANTS.
339= YOU WILL ALSO HEAR FROM DR. GARY FRAZIER. 340= DR. FRAZIER, AS YOU KNOW, IS A PROFESSOR AT THE UNIVERSITY OF
341= SOUTHERN CALIFORNIA, AND HE WILL BE TENDERED AS AN EXPERT IN 342= RETAIL DISTRIBUTION SYSTEMS. DR. FRAZIER WILL PROVIDE
343= TESTIMONY ABOUT THE COSTS THAT ARE ASSOCIATED WITH THE 344= DEFENDANTS' INTERNAL DISTRIBUTION SYSTEMS. WE SOMETIMES REFER
345= TO THEM, AND IT'S ON THE EXHIBIT THAT I HANDED UP A MOMENT AGO, 346= AS A RETAIL DISTRIBUTION CENTER. AND HE WILL TESTIFY ABOUT THE
347= COSTS THAT ARE ASSOCIATED WITH THAT, AND WILL ALSO OFFER 348= TESTIMONY ABOUT THE DEFENDANTS' NEGOTIATING POWER AS COMPARED
349= TO OTHER PLAYERS IN THIS INDUSTRY.
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421= IN SHORT, THE EVIDENCE WILL SHOW, AND WILL SHOW IT 422= THROUGH MR. CHANDLER AND OTHERS, THAT THE DEFENDANTS RECEIVED
423= FAVORABLE AND DISCRIMINATORY TERMS FROM INGRAM THAT ARE 424= DIFFERENT THAN THOSE THAT ARE OFFERED TO THE PLAINTIFFS AND FOR

425= WHICH THERE IS NO JUSTIFICATION AND NO DEFENSE. 426= THE LAST THING I WANT TO REFERENCE ON EXHIBIT 2590,
427= THE EXAMPLES OF DISCRIMINATION, THAT YOU HAVE IN FRONT OF YOU, 428= IS THE RDC DISCOUNTS, THE FOURTH BULLET POINT DOWN ON THAT
429= EXHIBIT, YOUR HONOR. YOU WILL HEAR THAT EACH OF THE DEFENDANTS 430= HAS MADE A SECRET ARRANGEMENT WITH THE PUBLISHERS, OR SOME OF
431= THEM, AT LEAST, TO OBTAIN EXCESSIVE AND UNJUSTIFIED DISCOUNTS 432= ASSOCIATED WITH PURCHASES MADE THROUGH THESE RDC CENTERS.
433= FIRST, YOU WILL HEAR THAT THE DEFENDANTS HAVE 434= OBTAINED PREFERENTIAL DISCOUNTS OF 2 PERCENT ON TRADE BOOKS AND
435= 4 PERCENT ON WHAT ARE CALLED MASS MARKET BOOKS; AND WE WILL 436= CONTEND, AND THE EVIDENCE WILL SHOW, THAT THESE INITIAL
437= DISCOUNTS, 2 PERCENT AND 4 PERCENT, ARE NOT COST-JUSTIFIED. 438= BUT IN ADDITION TO THAT, THE EVIDENCE WILL SHOW THAT
439= THE COST SAVINGS AND DISCOUNTS THAT ARE MADE AVAILABLE TO THE 440= DEFENDANTS ARE MAGNIFIED BY ADDITIONAL SECRET DISCOUNTS THAT
441= ARE ACTUALLY IN EXCESS OF THE PREFERENTIAL 2 PERCENT AND 442= 4 PERCENT; AND YOU WILL FIND DIFFERENT EVIDENCE AS TO EACH OF
443= THE DEFENDANTS ON THIS ISSUE, BUT THESE ADDITIONAL DISCOUNTS 444= WILL BE SHOWN TO MAGNIFY AND EXACERBATE THE PREFERENTIAL
445= TREATMENT THAT IS NOT OFFERED TO THE PLAINTIFFS. 446= SO THAT AT THE END OF THE DAY, THE EVIDENCE WILL
447= SHOW THAT WHAT IS REALLY UNDISPUTED DIFFERENTIAL AT THE RETAIL 448= CENTER LEVEL IS AVAILABLE TO THE DEFENDANTS AS OPPOSED TO THE
449= PLAINTIFFS, AND THAT THESE DISCOUNTS DO NOT AND CANNOT FALL
450= WITHIN THE RIGOROUS COST JUSTIFICATION OR FUNCTIONALITY 451= DEFENSES THAT SOMETIMES ARE AVAILABLE UNDER THE ROBINSON-PATMAN
452= ACT. 453= AT THE END, YOUR HONOR, THE PLAINTIFFS WILL HAVE
454= ESTABLISHED ALL OF THE ELEMENTS FOR THEIR CLAIMS UNDER THE 455= ROBINSON-PATMAN ACT AND ALSO UNDER THE CALIFORNIA UNFAIR
456= PRACTICES ACT, AND THEY WILL HAVE SHOWN THAT THERE IS AT LEAST 457= A REASONABLE POSSIBILITY THAT THE PRICE DISCRIMINATION AT ISSUE
458= MAY HARM COMPETITION. THAT IS THE STANDARD AGAINST WHICH WE 459= ARE WORKING IN THIS COURTROOM AT THIS TIME.
460= THE EVIDENCE WILL SHOW THAT THIS SHOULD NOT BE AN 461= INDUSTRY WHERE ONLY A COUPLE OF PLAYERS ULTIMATELY ARE ALLOWED
462= TO DICTATE THE GAME ON THEIR TERMS. IT SHOULD NOT BE AN 463= INDUSTRY WHERE SECRET DEALS HAVE BECOME THE LAW OF COMMERCE,
464= AND IT'S FOR THAT REASON THAT WE WILL ASK, AT THE END OF THE 465= DAY, THAT YOUR HONOR ENTER A FORM OF INJUNCTIVE RELIEF SUCH AS
466= WHAT WE'VE HANDED UP THIS MORNING, AND THAT THAT INJUNCTIVE 467= RELIEF COME INTO PLAY ALONG WITH ANY OTHER APPROPRIATE RELIEF
468= THAT YOU MAY CHOOSE TO OFFER, IN ORDER TO ENSURE THAT THIS IS 469= AND REMAINS A LEVEL, COMPETITIVE PLAYING FIELD IN THIS MOST
470= VITAL AMERICAN INDUSTRY. 471= THANK YOU.
472= THE COURT: HOW LONG DO YOU ESTIMATE IT WILL TAKE 473= YOU TO PUT IN YOUR CASE?
474= MR. YOUNG: I BELIEVE WE ESTIMATED EARLIER THREE
475= WEEKS, YOUR HONOR. WE HOPE TO DO IT IN LESS THAN THAT. 476= THE COURT: ALL RIGHT, THANK YOU.
477= MR. PETROCELLI? 478= OPENING STATEMENT BY MR. PETROCELLI:
479= MR. PETROCELLI: YOUR HONOR, THE BOOK BUSINESS HAS 480= UNDERGONE A REVOLUTION IN THE PAST DECADE AND IT'S STILL GOING
481= ON. COMPANIES LIKE BARNES & NOBLE AND BORDERS HAVE ROLLED OUT 482= THEIR SUPERSTORES ACROSS THE COUNTRY. I DON'T WANT TO PRESUME
483= ONE WAY OR THE OTHER WHETHER YOUR HONOR HAS BEEN IN ANY OF THEM 484= OR WHOSE YOU'VE BEEN INTO, BUT AS YOU'LL HEAR, THEY HOUSE
485= HUNDREDS OF THOUSANDS OF BOOKS. THEY WERE DESIGNED TO RESEMBLE 486= OLD WORLD LIBRARIES. THEY HAVE CAFES, LARGE CHILDREN'S
487= SECTIONS. THEY'RE OPEN LONG HOURS. PEOPLE CAN COME IN, SIT 488= AND BROWSE, READ ALL DAY WITHOUT EVEN BUYING A BOOK.
489= THE SHORT OF IT IS, YOUR HONOR, PEOPLE ARE FLOCKING 490= TO THESE STORES. NATURALLY, THE PLAINTIFFS ARE NOT HAPPY ABOUT
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491= THIS. ALTHOUGH SURPRISINGLY, YOUR HONOR, SOME WHO HAVE 492= EMULATED THE SUPERSTORE CONCEPT ARE ACTUALLY DOING WELL.
493= RATHER THAN ADAPT TO CHANGE, THE PLAINTIFFS HAVE ELECTED TO 494= FILE THIS LAWSUIT.
495= NOW, IN ITS INITIAL INCARNATION, THE PLAINTIFFS' 496= THEORY WAS THAT THE SUPERSTORE PHENOMENON WAS FUELED BY ILLEGAL
497= DEALS WITH THE PUBLISHERS, CLAIMING THAT THE PUBLISHERS GAVE 498= AWAY THE BOOKS TO BARNES & NOBLE AND BORDERS AT LOW
499= DISCRIMINATORY PRICES, SO THAT THE DEFENDANTS COULD BUILD THEIR
500= SUPERSTORES. BUT THE FACTS DID NOT FIT THAT THEORY, AND 501= CERTAINLY THE NUMBERS DID NOT WORK.
502= EVEN USING UNSUPPORTABLE ASSUMPTIONS THAT YIELDED 503= INFLATED BEST CASE FIGURES, PLAINTIFFS CAME UP WITH
504= INCONSEQUENTIAL PRICE DIFFERENCES THAT COULD NOT CONCEIVABLY 505= ACCOUNT FOR THE VAST SUMS OF MONEY THAT BARNES & NOBLE AND
506= BORDERS SPENT TO DEVELOP, FINANCE, BUILD OUT, AND OPERATE THESE 507= SUPERSTORES, INCLUDING NATIONAL RETAIL DISTRIBUTION CENTERS AND
508= A SUPPORTING INFRASTRUCTURE. AND SO THE SUPERSTORE THEORY WAS 509= ABANDONED, AND FOR GOOD REASON.
510= THEN THE PLAINTIFFS PRESSED AHEAD WITH THEIR DAMAGE 511= CLAIM, BUT AS YOUR HONOR HAS SEEN, AND HAS EXPLAINED, THEY
512= COULD NOT MAKE THAT STICK, EITHER. AND SO NOW THE PLAINTIFFS 513= ARE DOWN TO THEIR LAST STAND. THEY NOW WANT INJUNCTIONS, 22 OF
514= THEM BY MY COUNT, INJUNCTIONS THAT ARE NOT ONLY COMPLETELY 515= UNJUSTIFIED BASED ON THE FACTS AND LAW, BUT THAT WOULD HAVE
516= ENTIRELY ANTI-COMPETITIVE EFFECTS. 517= IF I COULD BRIEFLY QUOTE FROM FREDERICK ROWE'S
518= TREATISE, YOUR HONOR, 519= "ALTHOUGH INJUNCTIVE RELIEF FOR ROBINSON-PATMAN
520= VIOLATIONS IS ALSO AUTHORIZED BY THE CLAYTON ACT, 521= COURTS ARE LOATH TO CONSTRAIN A DEFENDANT'S PRICING
522= FREEDOM FOR THE FUTURE AS AN OUTGROWTH OF A PRIVATE 523= ANTITRUST CONTROVERSY."
524= NOW, IN TRYING TO CRAFT A BASIS FOR THEIR
525= INJUNCTIONS, PLAINTIFFS HAVE ASSEMBLED A LAUNDRY LIST OF 526= ALLEGED DISCOUNTS. MR. YOUNG HANDED YOU UP A SUMMARY OF THAT.
527= THAT LIST, YOUR HONOR, IS INFLATED, IT'S INACCURATE, AND IT'S 528= OUTMODED. IT ATTEMPTS TO DISTORT WHAT IS REALLY AT ISSUE IN
529= THIS CASE. 530= AS YOU WILL SEE, THE PLAINTIFFS' CASE BOILS DOWN,
531= AND ULTIMATELY HINGES ON TWO ISSUES: THE DEFENDANTS' RETAIL 532= DISTRIBUTION CENTERS AND THE RELATIONSHIPS WITH THE INGRAM BOOK
533= COMPANY. AND AS YOU WILL SEE, THE PLAINTIFFS CANNOT POSSIBLY 534= PREVAIL ON EITHER ISSUE.
535= THE RDC, YOUR HONOR, AND INGRAM, GO HAND-IN-HAND 536= WITH THE CREATION AND OPERATION OF A NATIONAL VERTICALLY
537= INTEGRATED SUPERSTORE BOOKSELLING BUSINESS. THEY ARE PART OF 538= THE PROCESS THAT HAS BROUGHT TO THE BOOK BUSINESS THE SAME
539= ECONOMIES, EFFICIENCIES AND SUCCESSES THAT WE HAVE SEEN IN 540= NUMEROUS OTHER RETAIL BUSINESSES IN THE PAST DECADE, COSTCO,
541= PETCO, HOME DEPOT, PRICE CLUB, CIRCUIT CITY, AND SO ON. 542= LET ME BRIEFLY OUTLINE WHY THE PLAINTIFFS CANNOT
543= POSSIBLY MEET THEIR BURDEN OF PROOF IN THIS CASE, WHICH, AS 544= YOUR HONOR KNOWS, IN A 2( F) CASE, IS A HEAVY ONE.
545= THE CORE OF A ROBINSON-PATMAN ACTION IS THE 546= DIFFERENCE IN THE PRICE ACTUALLY PAID FOR GOODS BY TWO
547= COMPETING BUYERS. THE PRICE DIFFERENCE MUST BE IDENTIFIABLE 548= AND QUANTIFIABLE. THIS IS REQUIRED FOR A NUMBER OF REASONS.
549= WITHOUT THE PLAINTIFFS, YOUR HONOR, HAVING IDENTIFIED AND
550= QUANTIFIED A DIFFERENTIAL, THE COURT CANNOT APPLY THE 551= SUBSTANTIAL PRICE DIFFERENCE TEST UNDERLYING THE MORTON SALT
552= PRESUMPTION. WITHOUT A DIFFERENTIAL, THE COURT CANNOT MEASURE 553= WHETHER THE DIFFERENTIAL REFLECTS A LEGITIMATE FUNCTIONAL
554= DISCOUNT. THE COURT CANNOT DETERMINE WHETHER IT IS 555= COST-JUSTIFIED. THE COURT CANNOT KNOW WHETHER IT IS OF SUCH A
556= MAGNITUDE TO DEMONSTRATE THAT A DEFENDANT KNEW OR MUST HAVE 557= KNOWN THAT THE DISCOUNTS IT WAS RECEIVING WERE UNLAWFUL.
558= THAT'S WHY THE CASE LAW MAKES CLEAR THAT, AND IF I 559= MAY QUOTE FROM A CENTRAL DISTRICT CASE, YOUR HONOR,
560= "SECTION 2( A) CAN BE TESTED ONLY AGAINST SPECIFIC
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561= SALES, AND NOT A SHOWING OF A GENERAL PRICING 562= SYSTEM."
563= NOW, PLAINTIFFS KNOW THIS FULL WELL. THE CITE TO 564= THAT, YOUR HONOR, WAS RUTLEDGE V. ELECTRIC HOSE.
565= PLAINTIFFS KNOW THIS PROPOSITION, YOUR HONOR. IN 566= THEIR TRIAL BRIEF, WHEN TALKING ABOUT OUR AFFIRMATIVE DEFENSE
567= OF COST JUSTIFICATION, HERE IS WHAT THEY SAID, AT PAGE 17: 568=" COSTS MUST BE JUSTIFIED BASED ON ACTUAL TRANSACTIONS," AND
569= THEY EMPHASIZED THE WORD "ACTUAL." BUT NOW, IN SEEKING TO PUT 570= ON THEIR CASE, AS YOU HEARD, THE PLAINTIFFS WILL COMPLETELY
571= DEPART FROM THIS STANDARD. THEY WANT TO TRY A TERMS CASE, NOT 572= A TRANSACTIONAL CASE.
573= THEY WANT TO TAKE SOME OF OUR TERMS PROFILES AND 574= COMPARE THEM TO THEIR RED BOOK. BUT YOU CAN'T MAKE OUT A

575= VIOLATION OF THE ROBINSON-PATMAN ACT, I SUBMIT, BY COMPARING 576= TWO PIECES OF PAPER. THE LAW REQUIRES ACTUAL TRANSACTIONS, NOT
577= PROPOSED TERMS. OTHERWISE YOU'RE GIVING AN ADVISORY OPINION. 578= LOOKING AT TERMS PROFILES OR THEIR RED BOOK, YOUR
579= HONOR, TELLS YOU NOTHING. AS YOU WILL SEE, NONE OF THESE 580= DOCUMENTS IS AN ACCURATE OR COMPLETE STATEMENT OF THE ACTUAL
581= TERMS UNDER WHICH THE PLAINTIFFS AND DEFENDANTS BUY THEIR 582= BOOKS. ON THE FACE OF THESE DOCUMENTS THERE ARE SO MANY
583= VARIABLES THAT THERE IS NO MEANINGFUL WAY TO COMPARE THE TERMS 584= WITHOUT KNOWING THE ACTUAL TRANSACTIONS, IN ORDER TO SHOW THE
585= RESULTING PRICE DIFFERENCE. 586= FOR EXAMPLE, WHEN WE SEE THE RED BOOK SHORTLY,
587= YOU'LL SEE, FOR INGRAM, THEY OFFER A 40 PERCENT DISCOUNT ON 588= ORDERS UP TO FOUR COPIES OF A SINGLE TITLE, 41 PERCENT UP TO
589= 10, AND 42 ON ORDERS BEYOND. THEY OFFER AN ADDITIONAL 590= 2 PERCENT FOR TIMELY PAYMENT, THEY PROVIDE FREE FREIGHT FOR
591= LARGE ORDERS, AND SO ON. 592= SO EVEN IF YOU LOOK AT THESE BARE TERMS, HOW DO YOU
593= CALCULATE A PRICE DIFFERENCE FROM THIS? LOOKING AT THE BARE 594= TERMS DOES NOT TELL YOU WHAT WAS PURCHASED, IT DOES NOT TELL
595= YOU HOW MUCH WAS PURCHASED, IT DOES NOT TELL YOU THE DISCOUNT 596= APPLIED TO THE PURCHASE, AND INDEED, IT DOES NOT TELL YOU IF
597= THERE EVEN WAS A PURCHASE. WITHOUT EVIDENCE OF WHAT THE 598= PLAINTIFFS ACTUALLY PURCHASED AND WHAT DEFENDANTS ACTUALLY
599= PURCHASED, YOU CANNOT TELL THAT THERE WAS AN ACTUAL PRICE
600= DIFFERENCE, AND EVEN IF YOU COULD, YOU COULD NOT TELL WHAT THAT 601= PRICE DIFFERENCE ACTUALLY WAS.
602= THAT'S WHY THE LAW REQUIRES PLAINTIFFS TO, QUOTE, 603=" PRESENT EVIDENCE OF THE AMOUNT AND PERCENTAGE OF THE
604= DISCRIMINATION," END OF QUOTE, AND THAT'S THE RICHARD SHORT OIL 605= V. TEXACO CASE.
606= THE COURT: NOW, MR. PETROCELLI, THE ARGUMENT COMES 607= AT THE END OF THE CASE.
608= MR. PETROCELLI: FAIR ENOUGH. 609= THE COURT: AND THE OPENING STATEMENT IS TO GIVE THE
610= COURT SOME IDEA OF WHAT YOUR CASE IS GOING TO CONSIST OF, HOW 611= MANY WITNESSES YOU'RE GOING TO HAVE, WHAT THEY'RE GOING TO
612= TESTIFY TO, THAT KIND OF THING. ARGUMENT WE HAVE HAD AMPLY AT 613= THE SUMMARY JUDGMENT HEARING AND YOUR BRIEFS, AND NOW WE HAVE
614= AN OPENING STATEMENT AT A TRIAL. 615= MR. PETROCELLI: WHAT WE INTEND TO SHOW, YOUR HONOR,
616= THROUGH CROSS-EXAMINING THE WITNESSES, IS THAT THE PLAINTIFFS 617= WILL HAVE NO EVIDENCE OF ANY ACTUAL TRANSACTIONS. THEY WILL BE
618= ABLE TO SHOW NO ACTUAL PRICE DIFFERENCES. WE WILL NOT SEE ANY 619= INVOICES, WE WILL NOT SEE ANY PURCHASE ORDERS, WE WILL NOT SEE
620= ANY SUMMARIES OF THOSE DOCUMENTS. 621= IF I MAY ILLUSTRATE, YOUR HONOR --I HOPE YOU CAN
622= SEE THIS, BUT THIS IS A CHART OF THE PLAINTIFFS' THAT INDICATES 623= FOR 1998 WHAT THE RED BOOK SAID FOR INGRAM, AND THIS IS WHAT
624= THE PLAINTIFFS SAY OUR ARRANGEMENT WITH INGRAM WAS IN OUR
625= MEMORANDUM OF UNDERSTANDING, AND THE IDEA HERE IS TO SHOW THE 626= BIG DIFFERENCES BETWEEN THE SO-CALLED PUBLISHED TERMS AND THE
627= TERMS THAT WE ACTUALLY GOT. AND THIS IS TAKEN STRICTLY FROM 628= THE RED BOOK, YOUR HONOR.
629= NOW, WHAT WE WILL SHOW, YOUR HONOR, IS, FIRST OF 630= ALL, THE PLAINTIFFS USE THE 1998 DOCUMENT. SINCE WE'RE TALKING
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9 Page 10 11
631= ABOUT TODAY, THEY'RE SEEKING AN INJUNCTION TODAY, WE UPDATED IT 632= TO 1999 AND 2000. WE USE OUR MEMORANDUM OF AGREEMENT FOR THE
633= YEAR 1999, AND AS YOU SEE, YOUR HONOR, THE TERMS ARE DIFFERENT. 634= THIS IS WHAT'S HAPPENING TODAY.
635= AND HERE, YOUR HONOR, WE PUT OUT NOT WHAT THE RED 636= BOOK SAID, WHICH IS JUST LOOKING IN THE BOOK, BUT WE PUT OUT
637= WHAT THE EVIDENCE WILL SHOW IS AVAILABLE TO THE BOOKSELLING 638= COMMUNITY AT LARGE FROM INGRAM, NOT CONTAINED IN THE RED BOOK,
639= BUT ESTABLISHED BY CALLING THEM UP AND FINDING OUT WHAT 640= PROGRAMS THEY HAVE AVAILABLE.
641= AND THIS UNDERSCORES, YOUR HONOR, WHY IT IS 642= ESSENTIAL THAT WE SEE EVIDENCE OF ACTUAL TRANSACTIONS AND NOT
643= MERELY LOOKING IN THE RED BOOK AND COMPARING TERMS TO OUR 644= TERMS.
645= WE WILL DEMONSTRATE, YOUR HONOR, THAT THE RED BOOK 646= IS A DOCUMENT THAT'S NOT AN INDUSTRY BENCHMARK PUT OUT BY
647= PUBLISHERS, IT'S NOT A DEFINITIVE REPOSITORY OF THEIR TERMS. 648= THE RED BOOK, AS WE WILL SHOW, IS A DOCUMENT THAT THE PLAINTIFF
649= ASSEMBLED. THEY PUT THIS DOCUMENT TOGETHER, AND THEY ONLY MAKE
650= IT AVAILABLE TO THEIR MEMBERSHIP. IT'S NOT AVAILABLE TO 651= PUBLISHERS, IT'S NOT AVAILABLE TO BARNES & NOBLE OR BORDERS.
652= SURE, THEY GET THEM. THEY'RE NOT SUPPOSED TO HAVE THEM. AND 653= IN FACT, IN THE VERY BEGINNING OF THE RED BOOK PAGE, IT SAYS,
654= "FOR ABA MEMBERS ONLY. THE ABA BUYERS HANDBOOK 655= IS FOR ABA MEMBERS ONLY. WE DO NOT SELL, LEND OR
656= GIVE IT TO NON-MEMBERS UNDER ANY CIRCUMSTANCES, NOR 657= MAY ANYONE ELSE DO SO."
658= SO IT IS NOT A DOCUMENT FROM --THAT IS --THAT 659= ESTABLISHES PUBLISHED PRICES OF ALL THE PUBLISHERS. WE WILL
660= SHOW THAT IT IS INCOMPLETE AND THAT IT IS INACCURATE. 661= THE POINT IS, IT IS A MULTIPLE HEARSAY DOCUMENT,
662= YOUR HONOR, COBBLED TOGETHER BY THE ABA, THAT CAN'T POSSIBLY 663= REPRESENT IN A COURT OF LAW PROOF OF WHAT PLAINTIFFS ACTUALLY
664= PAID FOR THEIR BOOKS. 665= NOW, MOVING BEYOND THE INITIAL BURDEN, WHETHER
666= PLAINTIFFS CAN EVEN SHOW A PRICE DIFFERENCE, YOUR HONOR, THE 667= NEXT THING THAT PLAINTIFFS HAVE TO DO IS, THEY HAVE TO SHOW
668= THAT ANY ACTUAL PRICE DIFFERENCE IS NOT THE PRODUCT OF A 669= LEGITIMATE FUNCTIONAL DISCOUNT.
670= THEY CANNOT MEET THAT BURDEN OF PERSUASION, WHICH 671= YOUR HONOR HAS INDICATED THEY BEAR. YOUR HONOR SAID WE HAD THE
672= INITIAL BURDEN OF PRODUCING EVIDENCE ON OUR FUNCTIONAL DISCOUNT 673= DEFENSE, AND THAT EVIDENCE IS ALREADY CONTAINED IN THE RECORD,
674= YOUR HONOR, THROUGH THE DEPOSITION TESTIMONY THAT HAS BEEN
675= DESIGNATED, AND IN ADDITIONALLY, WHEN WE CALL OUR WITNESSES, IF 676= WE GET THAT FAR IN THE CASE, YOUR HONOR, YOU'LL HEAR THE EXPERT
677= TESTIMONY OF BILL O'CONNELL OF DELOITTE & TOUCHE, AND HE WILL 678= SHOW THAT THE RDC DISCOUNTS ARE FULLY LEGITIMATE AND FUNCTIONAL
679= DISCOUNTS, AND THE PLAINTIFFS WILL HAVE NO EVIDENCE, YOUR 680= HONOR, NONE WHATSOEVER, TO REBUT THAT.
681= (CONTINUED ON FOLLOWING PAGE. NOTHING OMITTED.) 682=
683= 684=
685= 686=
687= 688=
689= 690=
691= 692=
693= 694=
695= 696=
697= 698=
699=
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10 Page 11 12
700= OPENING STATEMENT \ PETROCELLI 1 MR. PETROCELLI: THE ONLY EXPERT THAT THEY HAVE
701= 2 ARGUABLY QUALIFIED TO RENDER AN OPINION ON THIS SUBJECT, THEIR 3 MARKETING AND DISTRIBUTION EXPERT, GARY FRA
702= 4 THAT HE HAS NO OPINION AT ALL REGARDING BILL O'CONNELL'S --703= 5 THAT'S OUR EXPERT --FUNCTIONAL DISCOUNT ANALYSIS.
704= 6 THAT BRINGS ME TO THE THIRD AREA WHERE PLAINTIFF'S 705= 7 CASE WILL FAIL, AND THAT IS THE MORTON SALT PRESUMPTION, WHICH
706= 8 THEY RELY ENTIRELY ON TO PROVE COMPETITIVE HARM. THEY WILL NOT 707= 9 INTRODUCE ANY EVIDENCE OF ACTUAL LOSS SALES. THEY WILL NOT HAVE
708= 10 EXPERT TESTIMONY ABOUT HARM TO THE MARKET OR HARM TO CONSUMERS. 709= 11 THEY WILL RELY ENTIRELY ON THE MORTON SALT PRESUMPTION.
710= 12 AND TO TRIGGER THE MORTON SALT PRESUMPTION, YOUR 711= 13 HONOR, THEY WILL HAVE TO PROVE A SUBSTANTIAL PRICE DIFFERENCE
712= 14 OVER TIME. BUT AS EVIDENCE WILL MAKE CLEAR, WHEN YOU GET RIGHT 713= 15 DOWN TO IT, THE PLAINTIFFS ARE TALKING ABOUT DISCOUNTS MEASURED
714= 16 IN PENNIES PER BOOK SOLD. 715= 17 IF YOU SUBTRACT OUT INGRAM AND THE RDC FROM THE
716= 18 PLAINTIFFS' CASE, YOUR HONOR, WE'RE THEN TALKING ABOUT FRACTIONS 717= 19 OF PENNIES. AND AS YOUR HONOR KNOWS UNDER ROBINSON-PACTMAN ACT
718= 20 CASES, YOU CANNOT SUSTAIN A CLAIM WHERE THE PRICE DIFFERENTIALS 719= 21 ARE MORE THAN DE MINIMIS.
720= 22 AND EVEN IF THE PLAINTIFFS CAN TRIGGER THE MORTON 721= 23 SALT PRESUMPTION, YOUR HONOR, YOU WILL HEAR EXTENSIVE EVIDENCE
722= 24 DURING OUR CROSS-EXAMINATION OF THE PLAINTIFFS BREAKING THE 723= 25 CAUSAL CONNECTION BETWEEN THE PRICE DIFFERENTIALS AND ANY LOST
724= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
725= OPENING STATEMENT \ PETROCELLI 1 SALES OR PROFITS. 726= 2 YOU WILL SEE, FOR EXAMPLE, THAT ANY DECLINE IN THE 3 PLAINTIFFS'
BUSINESSES RESULTED FROM COMPETI 727= 4 PARTICIPANTS IN WHAT IS A HEATED AND HEALTHY MARKET.
728= 5 THESE COMPETITORS INCLUDE ON-LINE RETAILERS SUCH AS 729= 6 AMAZON, DISCOUNT BOOKSELLERS SUCH AS WAL-MART AND COSTCO. THEY
730= 7 INCLUDE CHAIN AND MALL STORES, AND THEY ALSO INCLUDE OTHER 731= 8 INDEPENDENT STORES. AND YOU WILL SEE THAT SOME OF THE
732= 9 PLAINTIFFS HAVE SUFFERED NO DECLINE AT ALL. 733= 10 AND FINALLY, AND PERHAPS THE MOST DIFFICULT BURDEN
734= 11 PLAINTIFFS WILL HAVE TO BEAR, IS TO ESTABLISH THAT THE 735= 12 DEFENDANTS HAD SOME TYPE OF GUILTY KNOWLEDGE.
736= 13 AS WE POINTED OUT IN OUR TRIAL BRIEF YOUR HONOR, A 737= 14 GREAT NUMBER OF SECTION 2F CASES GET RESOLVED IN DEFENDANTS'
738= 15 FAVOR BECAUSE PLAINTIFFS CAN'T MEET THE 2F KNOWLEDGE CASE. AND 739= 16 THIS CASE IS NO EXCEPTION. THEY WILL NOT BE ABLE TO MEET THE
740= 17 NINTH CIRCUIT'S TEST IN THE SIMPLOT CASE. YOU WILL HEAR NO 741= 18 EVIDENCE AND THERE IS NO EVIDENCE, FOR EXAMPLE, THAT DEFENDANTS
742= 19 MADE DISCOUNT ARRANGEMENTS OR OBTAINED DEALS ON THE CONDITION 743= 20 THAT THESE ARRANGEMENTS NOT BE MADE AVAILABLE TO ANYONE ELSE OR
744= 21 THAT THEY WERE EXCLUSIVE TO EITHER ONE OF THE DEFENDANTS. YOU 745= 22 WILL HEAR NONE OF THAT EVIDENCE.
746= 23 AND, INDEED, WHAT THE PLAINTIFFS ARE ESSENTIALLY 747= 24 ACCUSING THE DEFENDANTS OF RECEIVING UNLAWFULLY ARE DISCOUNTS
748= 25 AND PRICING PRACTICES THAT HAVE BEEN AROUND THE BOOK BUSINESS 749= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

750= OPENING STATEMENT \ PETROCELLI 1 AND BUSINESS IN GENERAL, YOUR HONOR, FOR QUITE A LONG TIME.
751= 2 BUT WHAT THE PLAINTIFFS ARE REALLY COMPLAINING ABOUT 3 IS NOT A QUALITATIVE DIFFERENCE IN THE WAY
752= 4 TREATED BUT SMALL QUANTITATIVE DIFFERENCES AT THE MARGIN. 753= 5 IN SUMMARY, YOUR HONOR, THE PLAINTIFFS CANNOT CARRY
754= 6 THEIR BURDEN OF MEETING THEIR PRIMA FASCIA CASE, PARTICULARLY 755= 7 GIVEN THAT THEY INTEND TO TRY THIS ON A TERMS BASIS AND NOT A
756= 8 TRANSACTION BASIS. 757= 9 THE COURT: ALL RIGHT. WELL, THAT'S ALL ARGUMENT,
758= 10 AND AS I'VE SUGGESTED TO YOU QUITE CLEARLY, WE'VE HAD THAT, AND 759= 11 IT WILL COME AT THE END OF THE TRIAL.
760= 12 I WANT TO KNOW IF YOU HAVE A CASE. I EXPECT YOU TO 761= 13 CONDUCT VIGOROUS CROSS-EXAMINATION AND NOT TOO LENGTHY OF THE
762= 14 PLAINTIFF'S CASE, AND I'LL LEARN ALL ABOUT THAT --YOUR 763= 15 OPPOSITION.
764= 16 ALL I WANT TO KNOW IN OPENING STATEMENT IS DO YOU 765= 17 HAVE A CASE; WHAT ARE YOU GOING TO PUT ON.
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766= 18 MR. PETROCELLI: WELL, YOUR HONOR, WE'RE GOING TO 767= 19 CROSS-EXAMINE THE PLAINTIFFS. WE'RE GOING TO PUT ON OUR
768= 20 EXPERTS. WE'RE GOING TO PUT ON OUR CLIENTS. YOU'RE GOING TO 769= 21 HEAR FROM MR. CHANDLER'S DEPOSITION TESTIMONY.
770= 22 YOU'RE GOING TO HEAR THAT ANY OF THESE DIFFERENCES, 771= 23 TO THE EXTENT THAT THEY CAN ESTABLISH THEM, ARE PROTECTED BY THE
772= 24 FUNCTIONAL DISCOUNT DEFENSE. YOU'RE GOING TO HEAR THAT THEY'RE 773= 25 COST JUSTIFIED.
774= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
775= OPENING STATEMENT \ PETROCELLI 1 YOU'RE GOING TO HEAR THAT MANY OF THE TERMS AND
776= 2 CONDITIONS THAT THEY'RE COMPLAINING ABOUT OR THE DISCOUNT 3 ACTIVITIES ARE GENERALLY AVAILABLE, JUST LIKE IN
777= 4 I SHOWED. 778= 5 YOU'LL HEAR MR. CHANDLER SAY THAT THE RED BOOK IS
779= 6 ESSENTIALLY THE YELLOW PAGES. IT'S A DIRECTORY. PEOPLE CALL UP 780= 7 ALL THE TIME AND GET ALL KIND OF ARRANGEMENTS. YOU DON'T JUST
781= 8 PICK UP THE PHONE AND ORDER OFF THE RED BOOK. YOU'RE GOING TO 782= 9 HEAR THAT PLAINTIFFS ARE TAKING ADVANTAGE OF THESE PROGRAMS.
783= 10 YOU ARE GOING TO HEAR THAT PLAINTIFFS CAN TAKE ADVANTAGE OF MANY 784= 11 OTHER PROGRAMS, AND THEY SIMPLY DO NOT.
785= 12 YOU'RE GOING TO HEAR ABOUT PROGRAMS THAT THE 786= 13 PLAINTIFFS GET THAT THE DEFENDANTS DON'T GET. AND WE WILL BE
787= 14 ABLE TO ESTABLISH THAT THE VAST MAJORITY OF WHAT PLAINTIFFS ARE 788= 15 COMPLAINING ABOUT IS GENERALLY AVAILABLE TO THE TRADE AT LARGE,
789= 16 YOUR HONOR. 790= 17 AND FINALLY, YOU'RE GOING TO HEAR ABOUT THE FACT THAT
791= 18 A NUMBER OF THESE ISSUES THAT THEY WANT YOUR HONOR TO ENJOIN THE 792= 19 DEFENDANTS FROM DOING ARE OUTMODED, OUTDATED PRACTICES THAT HAD
793= 20 TO DO WITH THE RAMP-UP OF THE RETAIL DISTRIBUTION CENTER 794= 21 FACILITIES AND THAT THEY'RE NOT CURRENTLY GOING ON AND THAT
795= 22 THERE IS NO BASIS WHATSOEVER FOR AN INJUNCTION. 796= 23 THANK YOU, YOUR HONOR.
797= 24 THE COURT: ALL RIGHT. AND YOUR CASE WILL TAKE ABOUT 798= 25 THREE WEEKS, TOO, I TAKE IT.
799= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
800= OPENING STATEMENT \ PETROCELLI 1 MR. PETROCELLI: ON THE BARNES & NOBLE SIDE,
801= 2 HOPEFULLY A LITTLE LESS THAN THAT, YOUR HONOR. 3 THE COURT: ALL RIGHT. MR. STEER?
802= 4 MR. STEER: THANK YOU, YOUR HONOR. IF I MAY HAVE ONE 803= 5 MOMENT, PLEASE. GET A LITTLE BIT OF WATER ALSO.
804= 6 (PAUSE IN THE PROCEEDINGS.) 805= 7 OPENING STATEMENT
806= 8 MR. STEER: GOOD MORNING, YOUR HONOR. 807= 9 I WON'T REPEAT WHAT MR. PETROCELLI HAD TO SAY EXCEPT
808= 10 TO AGREE THAT OUR CLIENT, MY CLIENT, THE BORDERS GROUP, WHICH 809= 11 INCLUDES BORDERS BOOKS AND MUSIC AND WALDENBOOKS, TWO COMPANIES
810= 12 THAT HAVE OPERATED SEPARATELY AND HAVE SOMEWHAT DIFFERENTLY 811= 13 HISTORIES --I'LL EXPLAIN WHAT THE EVIDENCE WILL SHOW ABOUT
812= 14 THOSE HISTORIES IN A MOMENT --AGREE THAT THE RED BOOK IS NOT A 813= 15 RELIABLE REFLECTION OF THE PLAINTIFFS' ACTUAL PAYMENTS FOR
814= 16 BOOKS. 815= 17 WE WILL PRESENT SPECIFIC EVIDENCE ON THAT, IN
816= 18 ADDITION TO THE CROSS-EXAMINATION OF A NUMBER OF THE PLAINTIFFS 817= 19 WHO HAD MADE ADMISSIONS TO THAT IN EFFECT THEIR DEPOSITIONS.
818= 20 WE'LL PRESENT THE TESTIMONY OF DR. ALAN COX, AN 819= 21 ECONOMIST WITH MIRA (PHONETIC), WHO HAS DONE SOME STUDIES ON THE
820= 22 ACTUAL PRICES PAID BY PLAINTIFFS. 821= 23 WE'LL PRESENT THE TESTIMONY OF PHILIP PFEFFER.
822= 24 MR. PFEFFER HAS UNIQUELY BROAD VIEW OF THE BOOK INDUSTRY. HE 823= 25 WAS WITH INGRAM, THE BOOK WHOLESALER ABOUT WHICH YOU'VE HEARD SO
824= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
825= OPENING STATEMENT \ STEER 1 MUCH, STARTING BACK IN THE 1960S, AND I'LL EXPLAIN A LITTLE M
826= 2 ABOUT HIS ROLE IN A FEW MINUTES. 3 HE THEN LATER WAS PRESIDENT OF RANDOM HOUSE AND FOR A
827= 4 SHORT TIME THE C. E. O. OF THE BORDERS GROUP. HE WILL TESTIFY 828= 5 EITHER LIVE OR THROUGH HIS DEPOSITION ABOUT THE INADEQUACY OF
829= 6 THE ABA'S RED BOOK WHICH LED RANDOM HOUSE TO PUBLISH ITS OWN
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830= 7 BROCHURES SETTING FORTH TERMS EXPLICITLY. 831= 8 AND ALSO AS MR. PETROCELLI AND OTHERS HAVE SAID,
832= 9 YOU'LL HEAR THE TESTIMONY OF MR. CHANDLER OF INGRAM BOOK COMPANY 833= 10 ON THIS POINT.
834= 11 NOW, BEFORE I GET INTO WHAT I BELIEVE THE EVIDENCE 835= 12 WILL SHOW ON BEHALF OF OUR CLIENTS, I WANT TO RESPOND TO
836= 13 MR. YOUNG'S STATEMENT OR CHARACTERIZATION OF THIS CASE OF A 837= 14 BATTLE --AS A BATTLE OF THE EXPERTS. WE DO NOT AGREE WITH THAT
838= 15 CHARACTERIZATION, YOUR HONOR. 839= 16 WE BELIEVE THAT THE FACTS FROM THE PERCIPIENT
840= 17 WITNESSES WILL SPEAK FOR THEMSELVES AND THAT NO MATTER HOW BIG A 841= 18 PARADE OF EXPERTS THE PLAINTIFFS PRESENT, THAT WILL NOT ELEVATE
842= 19 THE LACK OF SUBSTANCE OF THE PLAINTIFFS' OWN TESTIMONY AND THE 843= 20 TESTIMONY OF THE DEFENDANTS TO PROVE PLAINTIFFS' CLAIMS INTO
844= 21 SOMETHING THAT IT IS NOT. WE THINK THAT THE COURT WILL CONCLUDE 845= 22 THAT IT NEEDS LIMITED EXPERT ASSISTANCE.
846= 23 NOW, WE ANTICIPATE THAT IF IT IS NECESSARY TO DO SO, 847= 24 WE'LL HAVE APPROXIMATELY TEN WITNESSES FROM THE BORDERS
848= 25 COMPANIES, YOUR HONOR, IN ADDITION TO TWO OR THREE EXPERTS, 849= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

850= OPENING STATEMENT \ STEER 1 WHOSE TESTIMONY WILL BE BRIEF. 851= 2 YOU'LL HEAR FROM BORDERS CHAIRMAN, MR. ROBERT 3 DIROMUALDO, AT LEAST
ONE OF ITS VICE CHAIRMAN, AN 852= 4 TOP EXECUTIVES, AS WELL AS THE KEY EMPLOYEES WHO HAVE DEALT
853= 5 FIRSTHAND WITH PUBLISHERS AND DISTRIBUTORS. I DON'T EXPECT THAT 854= 6 ANY OF THE EXAMINATIONS WILL BE UNDULY LENGTHY, HOWEVER, AND, OF
855= 7 COURSE, WE HAVE NO DESIRE TO PROLONG THIS TRIAL. 856= 8 FROM OUR PERSPECTIVE, THIS IS CASE IS ABOUT WHETHER
857= 9 THE ROBINSON-PATMAN ACT PROHIBITS BUYERS FROM NEGOTIATING WITH 858= 10 THEIR SUPPLIERS. WE NEGOTIATE WITH OUR SUPPLIERS, NO QUESTION
859= 11 ABOUT THAT. THE BORDERS PEOPLE DO TRY TO IMPROVE THE TERMS ON 860= 12 WHICH BOOKS ARE PURCHASED.
861= 13 THERE WILL, HOWEVER, BE NO EVIDENCE, THAT BORDERS HAS 862= 14 EVER REQUESTED THAT OTHER SIMILARLY SITUATED BUYERS NOT HAVE THE
863= 15 ADVANTAGE OR BENEFIT OF THE SAME TERMS THAT BORDERS IS ABLE TO 864= 16 NEGOTIATE.
865= 17 NOR WILL THERE BE PROOF, AS PLAINTIFFS SUGGEST, THAT 866= 18 THE PEOPLE AT BORDERS HAD KNOWLEDGE THAT OTHERS WERE NOT ABLE TO
867= 19 GET PROPORTIONATELY SIMILAR TERMS. 868= 20 THE EVIDENCE WILL SHOW THAT WHERE THE BORDERS
869= 21 COMPANIES GET TERMS THAT ARE DIFFERENT FROM WHAT SOME OF THE 870= 22 PLAINTIFFS OBTAINED, THEY DO SO BY VIRTUE OF THE FACT THAT THE
871= 23 WAY THEY DO BUSINESS IS DIFFERENT THAN THE PLAINTIFFS' WAYS OF 872= 24 DOING BUSINESS. THEY ARE FUNDAMENTALLY DIFFERENT BUSINESSES.
873= 25 YOU'VE HEARD A LOT OF TALK ABOUT THE RETAIL 874= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

875= OPENING STATEMENT \ STEER 1 DISTRIBUTION CENTERS. LET'S CONSIDER WHAT --WHAT THEY ARE,
876= 2 WHAT THE EVIDENCE WILL SHOW THAT THEY ARE. 3 WE WILL PRESENT A VIDEO OF ONE OF OUR RETAIL
877= 4 DISTRIBUTION CENTERS, YOUR HONOR, SO THAT THE COURT CAN 878= 5 UNDERSTAND BETTER THE DIFFERENT CLASS OF TRADE THAT WE REPRESENT
879= 6 THAT WE PARTICIPATE IN AS OPERATORS OF RETAIL DISTRIBUTION 880= 7 CENTERS AND CAN FULLY UNDERSTAND WHY THOSE RETAIL DISTRIBUTION
881= 8 CENTERS WE BELIEVE SAVE PUBLISHERS GREAT DEALS OF EXPENSE IN 882= 9 DEALING WITH US, GREAT DEAL OF COST, INCLUDING SAVING THEM
883= 10 INVESTMENT AND OTHER OVERHEAD. 884= 11 THE RETAIL DISTRIBUTION CENTERS, AS YOU KNOW, ARE
885= 12 LARGE WAREHOUSES. THEY RECEIVE NUMEROUS SHIPMENTS EVERY DAY 886= 13 FROM ABOUT A THOUSAND PUBLISHERS. THEY BREAK DOWN THE
887= 14 SHIPMENTS, PACK THEM IN INDIVIDUAL SUBSHIPMENTS, AND THEN SEND 888= 15 THEM DOWN OUT TO THE BORDERS AND WALDEN STORES, OF WHICH THERE
889= 16 ARE ABOUT 1200. 890= 17 BECAUSE THEY DO THAT, THE PUBLISHERS DO NOT HAVE TO
891= 18 HAVE THE INFRASTRUCTURE AND THE PERSONNEL THAT THEY WOULD 892= 19 OTHERWISE NEED TO MAKE THOSE SHIPMENTS TO 1200 STORES EACH DAY.
893= 20 INSTEAD, THE PUBLISHERS CAN SHIP CONSOLIDATED SHIPMENTS TO A 894= 21 SMALL NUMBER OF DISTRIBUTION CENTERS OPERATED BY BORDERS, FIVE
895= 22 OF THEM AT THE MOMENT, THAT DEAL WITH BOOKS. 896= 23 BUT THEY DON'T JUST SAVE ON THE SHIPPING, YOUR HONOR.
897= 24 THERE ARE CONCOMITANT WITH THIS EFFICIENT DISTRIBUTION SYSTEM
13
13 Page 14 15
898= 25 SAVINGS THAT EXIST BECAUSE OF THE SIMPLIFICATION OF THE 899= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
900= OPENING STATEMENT \ STEER 1 PAPERWORK, THE REDUCTION IN THE NUMBER OF DOCUMENTS THAT THE
901= 2 PUBLISHERS NEED TO DEAL WITH EACH DAY. AND THE FACT THAT 3 BECAUSE THERE ARE FEWER INVOICES, FEWER PURCHASE
902= 4 PEOPLE INVOLVED IN THE --IN THE TRANSACTIONS BETWEEN BORDERS 903= 5 GROUP AND PUBLISHERS, IT IS ACTUALLY EASIER TO TRACE ANY
904= 6 SHORTAGES OR DAMAGES OR OTHER PROBLEMS THAT ARISE DAY IN AND DAY 905= 7 OUT AMONG THE PARTIES.
906= 8 MUCH OF WHAT IS ON THE EXAMPLES OF DISCRIMINATION, 907= 9 THE GRAPH --THE DEMONSTRATIVE THAT MR. YOUNG HANDED YOU EARLIER
908= 10 HAS TO DO WITH PRACTICAL SOLUTIONS TO SERIOUS DAY-TO-DAY 909= 11 LOGISTICAL PROBLEMS, YOUR HONOR, NOT WITH DIFFERENCES IN TERMS.
910= 12 IT HAS TO DO WITH INNOVATION AND EFFORT BY THE 911= 13 BORDERS PEOPLE TO FIND EFFICIENT WAYS FOR BORDERS AND THE
912= 14 PUBLISHERS TO RESOLVE THOSE PROBLEMS. 913= 15 ONE EXAMPLE OF THIS IS THE SHORTAGE ALLOWANCES. AND
914= 16 THE TESTIMONY FROM THE BORDERS PEOPLE WILL BE THAT THE SHORTAGE 915= 17 ALLOWANCES --THAT THE STATISTICAL SHORTAGE ALLOWANCES ARE NOT
916= 18 INTENDED TO GAIN ANY ADVANTAGE IN ACTUAL AMOUNTS RECEIVED FOR 917= 19 SHORTAGES BUT MERELY TO SIMPLIFY THE PROCESS WHILE ASSURING BOTH
918= 20 THE PUBLISHERS WHO PARTICIPATE AND THE WALDEN BOOK COMPANY THAT 919= 21 THERE IS A FAIR CALCULATION OF THE AMOUNTS. AND THAT'S JUST ONE
920= 22 EXAMPLE OF WHAT I'M SAYING THE EVIDENCE WILL SHOW. AS I SAY, 921= 23 THE EVIDENCE WILL SHOW EFFORTS AT EFFICIENCY.
922= 24 RETURNING TO THE DISTRIBUTION CENTERS. THOSE CENTERS 923= 25 RECEIVE A 2 PERCENT MORE FAVORABLE DISCOUNT FOR TRADE BOOKS,
924= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
925= OPENING STATEMENT \ STEER 1 THAT IS, HARDCOVER AND QUALITY PAPERBACK BOOKS. ON A 20-DOLL
926= 2 BOOK, THAT MEANS THAT THE BORDERS GROUP RECEIVES AN ADDITIONAL 3 DISCOUNT OF 40 CENTS.
927= 4 YOUR HONOR, THE EVIDENCE WILL SHOW THAT THAT 40 CENTS 928= 5 IS NOT ENOUGH TO EVEN COME CLOSE TO PAYING FOR THE OPERATION OF
929= 6 THE DISTRIBUTION CENTERS. THE BORDERS PEOPLE BELIEVED THAT 930= 7 THEIR --THAT COST JUSTIFICATION SUPPORTED THE DISCOUNT IN ANY
931= 8 EVENT. 932= 9 LET ME TELL YOU THE FOUR PROBLEMS THAT WE BELIEVE THE
933= 10 EVIDENCE SHOW --WILL SHOW WITH RESPECT TO THE PLAINTIFFS' 934= 11 ARGUMENTS ABOUT THE RDC DISCOUNTS.
935= 12 FIRST, PLAINTIFFS ALLEGE THAT THE PEOPLE AT BORDERS 936= 13 SHOULD HAVE KNOWN THAT THE PRICES AND TERMS THEY WERE GETTING
937= 14 WERE NOT GENERALLY AVAILABLE AND WERE UNLAWFUL. THE EVIDENCE 938= 15 WILL BE TO THE CONTRARY.
939= 16 THE HISTORY OF THE RETAIL DISTRIBUTION CENTERS IS AS 940= 17 FOLLOWS: WAY BACK IN THE 1960S, WHEN A BOOK STORE WANTED TO GET
941= 18 A SPECIAL ORDER, A BOOK, FOR A CUSTOMER, AN ORDER FROM --THE 942= 19 BOOK STORE WOULD HAVE TO GO TO THE PUBLISHER DIRECTLY TO GET
943= 20 THAT BOOK. THAT PROCESS COULD TAKE MANY WEEKS. 944= 21 TESTIMONY FROM THE PLAINTIFFS --SOME OF THE
945= 22 PLAINTIFFS THEMSELVES WILL CONFIRM THAT. THE PEOPLE AT INGRAM 946= 23 BOOK COMPANY SAW AN OPPORTUNITY. THEY DEVELOPED A SYSTEM FOR
947= 24 WAREHOUSING BOOKS THAT THEY PURCHASED FROM THE PUBLISHERS AND 948= 25 PROVIDING MUCH MORE RAPID REPLENISHMENT TO BOOK STORE CUSTOMERS.
949= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
950= OPENING STATEMENT \ STEER 1 INGRAM WAS ABLE TO REDUCE THE TIME BETWEEN A BOOK
951= 2 STORE'S ORDER OF A BOOK AND ITS ACTUAL RECEIPT OF IT FOR ITS 3 CUSTOMER DOWN TO ABOUT A WEEK OR SO INITIALLY
952= 4 THAT TIME EVEN FURTHER. 953= 5 BY 1980, THE WALDEN BOOK COMPANY, ONE OF MY CLIENTS
954= 6 HERE, HAD GROWN TO A CHAIN OF HUNDREDS OF STORES, AND IT WAS 955= 7 NATIONWIDE. AND AT THAT TIME, ONE OF THE EXECUTIVES OF INGRAM
956= 8 MOVED OVER TO WALDEN AND CONCLUDED THAT THE WAY TO MAKE THAT 957= 9 OPERATION EFFICIENT AND TO FACILITATE FURTHER GROWTH WOULD BE
958= 10 FOR WALDEN TO HAVE ITS OWN RETAIL DISTRIBUTION CENTER. 959= 11 THE FOLKS AT WALDEN DID A COST STUDY. THEY DID COST
960= 12 STUDIES. WE'LL PRESENT THE TESTIMONY OF MR. CHARLES CUMELLO, AN 961= 13 EXECUTIVE AT WALDEN, C. F. O. AT THE TIME, WHO PARTICIPATED IN
14
14 Page 15 16
962= 14 THOSE STUDIES. HE IS NOW THE HEAD OF CROWN BOOKS AND MAY NOT BE 963= 15 AVAILABLE TO TESTIFY LIVE, SO WE MAY HAVE TO PRESENT HIS
964= 16 TESTIMONY BY A DEPOSITION. 965= 17 WALDEN PRESENTED ITS COST STUDIES TO PUBLISHERS BACK
966= 18 IN 1981 OR SO AND SAID TO THEM, "WE BELIEVE THAT IF WE BUILD 967= 19 THIS RETAIL DISTRIBUTION CENTER, WE WILL SAVE YOU MONEY, BUT YOU
968= 20 PUBLISHERS GO AND DO YOUR OWN CONFIRMATION, DO YOUR OWN COST 969= 21 STUDIES AND TELL US IF YOU AGREE WITH US. WE THINK IT'S WORTH A
970= 22 2 PERCENT EXTRA DISCOUNT IF YOU WANT TO SHIP INTO THE 971= 23 DISTRIBUTION CENTER."
972= 24 THE GREAT MAJORITY OF PUBLISHERS CAME BACK TO 973= 25 WALDENBOOKS AND SAID, "WE AGREE WITH YOU. WE THINK THIS IS COST
974= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
975= OPENING STATEMENT \ STEER 1 JUSTIFIED SO WE ARE GOING TO GIVE YOU A 2 PERCENT EXTRA DISCO
976= 2 ON TRADE BOOKS SHIPPED INTO THE DISTRIBUTION CENTER." 3 THE COURT: I HATE TO HARP ON THIS, BUT W
977= 4 BACK IN THE ARGUMENT PHASE. AND I UNDERSTAND YOU'VE GOT A 978= 5 WITNESS WHO CAN TESTIFY TO THAT.
979= 6 WHAT OTHERS WITNESSES DO YOU HAVE? 980= 7 MR. STEER: WELL, YOUR HONOR, WE'LL HAVE PEOPLE WHO
981= 8 WILL ADDRESS EACH OF THE ISSUES THAT THE PLAINTIFFS HAVE 982= 9 IDENTIFIED. AND I DON'T MEAN TO ARGUE. I --I REALLY THOUGHT
983= 10 THAT I WAS STATING FACTS. 984= 11 THE COURT: I APPRECIATE THAT.
985= 12 MR. STEER: I UNDERSTAND. BUT I UNDERSTAND THE 986= 13 COURT'S CONCERN ABOUT TIME AS WELL, AND I WON'T DWELL FOR LONG.
987= 14 THE ABA'S RED BOOK, WE'LL PRESENT EVIDENCE THAT THE 988= 15 ABA'S RED BOOK HAS INCLUDED TERMS FOR PUBLISHERS GOING BACK TO
989= 16 AT LEAST TO 1992, AND THAT THERE WAS OTHER PUBLIC INFORMATION IN 990= 17 PUBLISHERS' WEEKLY AT LEAST IN 1990. THEREFORE, WE'LL PRESENT
991= 18 EVIDENCE THAT'S CONTRADICTORY TO WHAT MR. YOUNG SAID EARLIER 992= 19 ABOUT SUPPOSEDLY SECRET RDC TERMS.
993= 20 I THINK A KEY POINT, YOUR HONOR, IS THE EVIDENCE WILL 994= 21 SHOW THAT NOBODY EVER AT BORDERS HAS EVER ASKED FOR ANY
995= 22 EXCLUSIVE TERM. EACH PRICE DIFFERENCE THAT THE PLAINTIFFS WILL 996= 23 ATTEMPT TO IDENTIFY --AND, AGAIN, THE DIFFERENCES ARE MERELY TO
997= 24 THE RED BOOK --WILL BE EXPLAINED ON THE BASIS OF EITHER MEETING 998= 25 COMPETITION OR COST JUSTIFICATION.
999= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
1000= OPENING STATEMENT \ STEER 1 THERE WILL BE EVIDENCE THAT THE PEOPLE AT BORDERS
1001= 2 WERE AWARE OF THEIR OBLIGATIONS UNDER THE ROBINSON-PATMAN ACT 3 AND THAT, IN FACT, IN MOST INSTANCES, AND --
1002= 4 IS DOCUMENTATION OF MEETING COMPETITION. 1003= 5 WITH RESPECT TO INGRAM, YOUR HONOR, WE'LL PRESENT THE
1004= 6 TESTIMONY OF THE EXECUTIVES WHO HAVE NEGOTIATED WITH INGRAM, WHO 1005= 7 WILL TESTIFY TO THEIR BELIEF AND UNDERSTANDING THAT, IN FACT,
1006= 8 INGRAM HAD OFFERED TERMS TO BORDERS IN ORDER TO MEET COMPETITION 1007= 9 FROM PUBLISHERS.
1008= 10 BECAUSE AS BORDERS AND WALDEN GREW THEIR RETAIL 1009= 11 DISTRIBUTION CENTERS, THOSE CENTERS COULD PERFORM THE SAME
1010= 12 FUNCTIONS FOR THE BORDERS STORES AND WALDEN STORES AS INGRAM HAD 1011= 13 PREVIOUSLY BEEN PERFORMING AND AS INGRAM PERFORMS FOR OTHER
1012= 14 BOOKSELLERS. AND AS A CONSEQUENCE, YOUR HONOR, INGRAM IS FORCED 1013= 15 TO MEET THE PRICING OF PUBLISHERS IN ORDER TO OBTAIN BUSINESS
1014= 16 FROM BORDERS OR TO GROW THAT BUSINESS. SO WE'LL PRESENT THE 1015= 17 TESTIMONY OF PEOPLE DIRECTLY INVOLVED IN THE NEGOTIATIONS.
1016= 18 THE FUNDAMENTAL POINT OF THE TESTIMONY WILL BE THAT 1017= 19 BORDERS AND WALDEN, YOUR HONOR, ARE A DIFFERENT CLASS OF TRADE
1018= 20 THAN MOST OF THE PLAINTIFFS. SOME OF THE PLAINTIFFS HAVE 1019= 21 DEVELOPED OR DO CLAIM --I'M SORRY --HAVE DEVELOPED RETAIL
1020= 22 DISTRIBUTION CENTERS AND ARE ABLE TO OBTAIN THE RETAIL 1021= 23 DISTRIBUTION CENTER DISCOUNT. OTHERS ARE NOT.
1022= 24 TO CARRY FORWARD ON THE TESTIMONY WITH RESPECT TO THE 1023= 25 DEVELOPMENT OF THE BUSINESS, I'D LIKE TO PROVIDE YOU WITH A
1024= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
1025= OPENING STATEMENT \ STEER 1 DEMONSTRATIVE TIME LINE, YOUR HONOR, AND I'LL PROVIDE TWO
15
15 Page 16 17
1026= 2 COPIES. THIS HAS BEEN PROVIDED TO COUNSEL. 3 AS IS REFLECTED ON THE TIME LINE, YOUR HONOR, WHAT
1027= 4 WILL SHOW IS THAT THE BORDERS GROUP STARTED OFF AS A SINGLE 1028= 5 BOOKSTORE IN THE EARLY 1970S. THERE WILL BE TESTIMONY FROM ONE
1029= 6 OF THE ORIGINAL EMPLOYEES ABOUT THE HISTORY OF BORDERS. 1030= 7 BORDERS CREATED A SOPHISTICATED COMPUTERIZED
1031= 8 INVENTORY MANAGEMENT SYSTEM FOR ITS OWN STORE, AND WHICH IT ALSO 1032= 9 USED AS A WHOLESALER FOR OTHER SO-CALLED INDEPENDENT STORES, FOR
1033= 10 CUSTOMER STORES. IN FACT, THE NAME OF MY CLIENT, BORDERS BOOKS, 1034= 11 ORIGINALLY WAS BOOK INVENTORY SYSTEMS.
1035= 12 BORDERS DEVELOPED A WHOLESALE BUSINESS IN THE 1970S 1036= 13 AND 1980S, AND AS A WHOLESALER, IT RECEIVED WHOLESALER
1037= 14 DISCOUNTS. IN THE MID-1980S, THE PEOPLE FROM BORDERS WILL 1038= 15 TESTIFY THEY REALIZED THAT THEY COULD APPLY THE COMPUTER SKILLS
1039= 16 THEY HAD AND THE MANAGEMENT SKILLS THEY HAD TO DEVELOPING MORE 1040= 17 STORES OF THEIR OWN, AND SO THEY DID THAT. THEY SET IT OUT TO
1041= 18 CREATE MORE BORDERS STORES. 1042= 19 AS THEY --AS THE NUMBER OF BORDERS STORES WHO THEY
1043= 20 SUPPLIED GREW, THE PUBLISHERS BEGAN TO TAKE THE POSITION THAT 1044= 21 BORDERS WAS NO LONGER A WHOLESALER AND WANTED TO REDUCE THE
1045= 22 DISCOUNTS AVAILABLE TO BORDERS. THIS WAS SOMETHING THAT THE 1046= 23 PEOPLE AT BORDERS NEGOTIATED ABOUT.
1047= 24 THEY WILL TESTIFY THAT IN THEIR VIEW, THE FUNCTION 1048= 25 THEY FULFILLED FOR PUBLISHERS REMAINED THE SAME, EVEN THOUGH
1049= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
1050= OPENING STATEMENT \ STEER 1 THEY WERE NOT SUPPLYING THEIR OWN STORES IN ADDITION TO CUSTO
1051= 2 STORES. THE EVIDENCE WILL BE THAT TODAY, BORDERS STILL ACTS AS 3 A WHOLESALER FOR THREE CUSTOMER STORES.
1052= 4 THE EVIDENCE ALSO WILL SHOW, YOUR HONOR, THAT WITH 1053= 5 RESPECT TO THE VARIOUS INNOVATIONS HAVING TO DO WITH RETURN
1054= 6 CENTER, DISTRIBUTION CENTER, SHORTAGE ALLOWANCES BASED ON 1055= 7 STATISTICS AND SO ON AND SO FORTH, THE WALDEN BOOK COMPANY
1056= 8 PARTICIPATED IN THOSE INNOVATIONS EARLY ON. MANY OF THEM WERE 1057= 9 LATER ADOPTED BY BORDERS BOOKS AND MUSIC. AND TODAY, THEY'RE
1058= 10 USED BY THE ENTIRE ORGANIZATION. 1059= 11 BUT AS SUPERSTORES DEVELOPED, AND THE TESTIMONY WILL
1060= 12 BE THAT SUPERSTORES, WHICH WE REFER TO AS --BY WHICH WE MEAN 1061= 13 STORES THAT HAVE LARGE AMOUNTS OF SPACE, MANY VOLUMES OF BOOKS,
1062= 14 ASSOCIATED COFFEE SHOPS, AND IN THE CASE OF BORDERS, ALSO OFFER 1063= 15 MUSIC AND VIDEO, WHICH WE BELIEVE DRAWS CUSTOMERS INTO THE
1064= 16 STORES, THOSE STORES DID HAVE AN IMPACT ON THE WALDEN BUSINESS. 1065= 17 SOME OF THE WALDEN BOOK STORES DID LOSE SALES AT
1066= 18 LEAST FOR A TIME WHEN SUPERSTORES OPENED NEAR THEM. AND THIS, 1067= 19 YOUR HONOR, UNDERSCORES THE FUNDAMENTAL PROBLEM THAT WE'LL POINT
1068= 20 OUT WITH THE PLAINTIFF'S CASE. 1069= 21 YOU'VE HEARD MR. YOUNG SAY THAT PLAINTIFFS WILL SHOW
1070= 22 THAT THEY LOST SALES TO SUPERSTORE COMPETITION. 1071= 23 MY POINT HERE IS THAT THE EVIDENCE WILL SHOW THAT IN
1072= 24 FACT, WALDEN BOOK COMPANY, WHICH BENEFITED, IF YOU BELIEVE THE 1073= 25 PLAINTIFFS THEORY, FROM ALL OF THE DIFFERENCES THAT THEY ATTACK
1074= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
1075= OPENING STATEMENT \ STEER 1 AS UNLAWFUL, ALSO LOST SALES TO SUPERSTORE COMPETITION. THOS
1076= 2 SALES USUALLY REBOUNDED AFTER A TIME BUT NOT ALWAYS. 3 THE POINT IS SIMPLY THAT WE WILL SHOW THAT
1077= 4 IT IS THAT THE PLAINTIFFS ARE COMPLAINING OF, IT IS A MARKET 1078= 5 CHANGE, IT IS THE RESULT OF CONSUMERS' PREFERENCE FOR
1079= 6 SUPERSTORES FOR LARGE SELECTION, FOR COMFORTABLE SURROUNDINGS 1080= 7 AND SO ON AND SO FORTH, RATHER THAN THE DIFFERENCES, IF ANY, IN
1081= 8 TERMS THAT OUR CLIENTS HAVE RECEIVED. 1082= 9 AND WE'LL PRESENT THE TESTIMONY OF A MAN NAMED
1083= 10 PHILLIP JOHNSON, WHO'S AN EXPERT ON THAT PARTICULAR POINT. 1084= 11 SO TO SUMMARIZE, YOUR HONOR, AND CONCLUDE, IT IS OUR
1085= 12 VIEW, AND WE BELIEVE THAT THE TESTIMONY WILL SHOW THAT THERE IS 1086= 13 NO ADVERSE EFFECT ON COMPETITION FROM THE CONDUCT OF THE BORDERS
1087= 14 GROUP COMPANIES; THAT, IN FACT, WHAT THEY HAVE DONE IS 1088= 15 INNOVATIVE AND PRO-COMPETITIVE AND HAS BROUGHT THE CONSUMERS THE
1089= 16 KINDS OF SELECTION AND SURROUNDINGS THAT THEY WANT AND THAT THAT 1090= 17 IS THE REASON FOR BORDERS' SUCCESS AND THAT STRATEGY HAS BEEN
1091= 18 USED SUCCESSFULLY BY A NUMBER OF THE PLAINTIFFS THEMSELVES.
16
16 Page 17 18
1092= 19 OTHERS HAVE CHOSEN NOT TO PURSUE IT. 1093= 20 THANK YOU VERY MUCH.
1094= 21 THE COURT: ALL RIGHT. 1095= 22 MR. YOUNG, JUST TO REFRESH MY RECOLLECTION, DIDN'T --
1096= 23 MY UNDERSTANDING AND THIS --THE PLAINTIFFS' DAILY MEMO WOULD BE 1097= 24 ACCOMPANIED BY THE EXHIBITS, AND I PRESUME YOU HAVE THOSE
1098= 25 AVAILABLE. I JUST DON'T WANT TO HOLD UP --1099= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

1100= OPENING STATEMENT \ STEER 1 MR. YOUNG: WE DO HAVE THE EXHIBITS, YOUR HONOR.
1101= 2 THEY ARE IN BINDERS AS YOUR HONOR REQUESTED BY DAY BY WITNESS, 3 AND THEY HAVE BEEN SUPPLIED TO THE DEFENDAN
1102= 4 THE COURT: THANK YOU. 1103= 5 MR. YOUNG: THANK YOU.
1104= 6 THE CLERK: YES, YOUR HONOR. THEY'RE RIGHT BEHIND 1105= 7 YOU IN YOUR BOOK.
1106= 8 THE COURT: I THOUGHT WE WERE GOING TO HAVE THE ONES 1107= 9 FOR EACH DAY.
1108= 10 THE CLERK: THEY ARE, YOUR HONOR. THOSE ARE FOR EACH 1109= 11 DAY. THIS IS FOR TODAY. THOSE ARE ALL FOR TODAY, YOUR HONOR.
1110= 12 MR. DE BRUIN: YOUR HONOR, IF I MAY ADDRESS --1111= 13 THE COURT: THERE ARE ONLY THREE LISTED ON THE MEMO
1112= 14 FOR TODAY. 1113= 15 MR. DE BRUIN: YOUR HONOR, IF I COULD, THE PROBLEM,
1114= 16 YOUR HONOR, IS THE FIRST SEVEN EXHIBITS ARE COPIES OF THE RED 1115= 17 BOOK THAT THE COURT HAS HEARD TESTIMONY ABOUT FOR 1994 TO THE
1116= 18 PRESENT. EACH RED BOOK --THIS --THIS IS THE ACTUAL BOOK, YOUR 1117= 19 HONOR (INDICATING).
1118= 20 THE COURT: YES. 1119= 21 MR. DE BRUIN: IT'S QUITE THICK, AND THAT'S WHY --
1120= 22 THERE ARE MANY VOLUMES FOR TODAY. THE ACTUAL EXHIBITS OTHER 1121= 23 THAN THE RED BOOK ARE VERY FEW, AND THEY ALSO SHOULD BE BEHIND
1122= 24 YOU. 1123= 25 THE COURT: THE COURT WILL BE IN RECESS UNTIL FIVE
1124= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
1125= OPENING STATEMENT \ STEER 1 MINUTES PAST 10: 00. 1126= 2 THE CLERK: ALL RISE. 3 (RECESS TAKEN AT 9: 47 A. M.)
1127= 4 (CONTINUED NEXT PAGE; NOTHING OMITTED.) 1128= 5
1129= 6 1130= 7
1131= 8 1132= 9
1133= 10 1134= 11
1135= 12 1136= 13
1137= 14 1138= 15
1139= 16 1140= 17
1141= 18 1142= 19
1143= 20 1144= 21
1145= 22 1146= 23
1147= 24 1148= 25
1149=Could not acquire words on page 19 RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
1150= (PROCEEDINGS RESUME AT 10: 07 A. M.) 1151= THE COURT: PLEASE BE SEATED. CALL YOUR FIRST
1152= WITNESS, MR. YOUNG. 1153= MR. DEBRUIN: THANK YOU, YOUR HONOR.
1154= THE COURT: MR. DEBRUIN. 1155= MR. DEBRUIN: MR. RHETT JACKSON.
1156= THE CLERK: PLEASE RAISE YOUR RIGHT HAND. 1157= JAMES RHETT JACKSON,
1158= CALLED AS A WITNESS FOR THE PLAINTIFFS, HAVING BEEN DULY SWORN, 1159= TESTIFIED AS FOLLOWS:
17
17 Page 18 19
1160= THE CLERK: THANK YOU. PLEASE BE SEATED. 1161= THE WITNESS: THANK YOU.
1162= THE CLERK: PLEASE STATE YOUR FULL NAME AND SPELL 1163= YOUR LAST NAME FOR THE RECORD.
1164= THE WITNESS: MY FULL NAME IS JAMES RHETT JACKSON, 1165= SENIOR. LAST NAME IS SPELLED J-A-C-K-S-O-N.
1166= DIRECT EXAMINATION 1167= BY MR. DEBRUIN:
1168= Q. MR. JACKSON, WHAT IS YOUR ADDRESS? 1169= A. MY HOME ADDRESS IS 4848 LANDROM DRIVE, COLUMBIA, SOUTH
1170= CAROLINA, 29206. 1171= Q. WHAT IS YOUR CURRENT OCCUPATION, SIR?
1172= A. I'M NOW EMPLOYED BY THE HAPPY BOOKSELLER, IN COLUMBIA. 1173= Q. HOW LONG HAVE YOU BEEN ASSOCIATED WITH THE HAPPY BOOKSELLER
1174= IN COLUMBIA, SOUTH CAROLINA?
1175= A. ALMOST 30 YEARS. 1176= Q. BRIEFLY, WHAT ARE YOUR RESPONSIBILITIES WITH THE HAPPY
1177= BOOKSELLER? 1178= A. AT THIS TIME MY RESPONSIBILITIES ARE MOSTLY FINANCIAL
1179= MATTERS. I HANDLE ALL THE FINANCIAL MATTERS OF ACCOUNTS 1180= PAYABLE, ACCOUNTS RECEIVABLE, PAY ALL THE INVOICES, PROJECT
1181= CASH FLOW. I THINK THAT ABOUT COVERS IT. BUT I ALSO SELL 1182= BOOKS. LOVE TO SELL BOOKS.
1183= Q. HAVE YOU HAD OTHER RESPONSIBILITIES WITH THE STORE DURING 1184= THE 30 YEARS YOU'VE BEEN ASSOCIATED WITH IT?
1185= A. WELL, I FOUNDED THE BOOKSTORE IN 1974, AND I HAD ALL 1186= RESPONSIBILITIES UP UNTIL I SOLD THE PARTNERSHIP TO THE PRESENT
1187= OWNER ABOUT THREE YEARS AGO, AND HE BOUGHT IT ON JANUARY THE 1188= 1ST, 1999.
1189= Q. THANK YOU. MR. JACKSON, VERY BRIEFLY, I'D LIKE TO REVIEW 1190= AND ASK YOU A FEW QUESTIONS ABOUT YOUR BACKGROUND. WHERE DID
1191= YOU GO TO SCHOOL? 1192= A. I STARTED OUT AT CLEMSON COLLEGE. AT THAT TIME IT WAS
1193= CLEMSON COLLEGE, NOT CLEMSON UNIVERSITY. IT WAS DURING WORLD 1194= WAR II. I GOT DRAFTED, WENT INTO THE NAVY, AND THEN I WAS SENT
1195= TO THE UNIVERSITY OF SOUTH CAROLINA AND THE NAVAL OFFICERS 1196= TRAINING PROGRAM, CALLED NAVAL V12, AND I GOT AN ACCELERATED
1197= COURSE AND GOT A DEGREE IN ELECTRICAL ENGINEERING BEFORE I WENT 1198= TO MIDSHIPMAN SCHOOL.
1199= Q. AND THEN DID YOU SERVE IN THE WAR?
1200= A. WELL, I SERVED IN THE PACIFIC. NOBODY EVER SHOT AT ME, BUT 1201= I WAS OUT THERE, YES.
1202= Q. WHAT DID YOU DO, SIR, AFTER YOU FINISHED YOUR MILITARY 1203= SERVICE?
1204= A. I OPENED A FURNITURE BUSINESS. 1205= Q. AND HOW LONG WERE YOU IN THE FURNITURE BUSINESS?
1206= A. ABOUT 25 YEARS. 1207= Q. HAVE YOU BEEN INVOLVED, SIR, IN ANY COMMUNITY
1208= ORGANIZATIONS, IN COLUMBIA, SOUTH CAROLINA, OR IN SOUTH 1209= CAROLINA?
1210= A. YES, QUITE A FEW. I DID A LOT OF CIVIL RIGHTS WORK. I WAS 1211= A MEMBER OF THE STATE PROBATION, PARDON AND PAROLE BOARD FOR 20
1212= YEARS. I'M ACTIVE IN MY CHURCH. I'M ACTIVE IN AN ORGANIZATION 1213= CALLED THE COMMUNITY RELATIONS COUNCIL, WHICH WAS FORMED IN THE
1214= 60'S TO BRING THE RACES TOGETHER IN AN INCLUSIVE COMMUNITY. 1215= Q. APART FROM YOUR DEGREE IN ELECTRICAL ENGINEERING FROM THE
1216= UNIVERSITY OF SOUTH CAROLINA, DO YOU HAVE ANY OTHER FORMAL 1217= EDUCATION OR TRAINING?
1218= A. NO, I DO NOT. 1219= Q. HAVE YOU RECEIVED ANY HONORARY DEGREES?
1220= A. I HAVE RECEIVED THREE DOCTORS OF HUMANITIES FROM --TWO 1221= FROM BLACK COLLEGES AND ONE FROM A METHODIST COLLEGE IN SOUTH
1222= CAROLINA; AND THEY WERE MOSTLY BECAUSE OF MY WORK IN RACE 1223= RELATIONS.
1224= Q. ALL RIGHT. MR. JACKSON, YOU STATED THAT YOU OPENED THE
1225= HAPPY BOOKSELLER IN 1974. WHY DID YOU GO INTO THE BOOKSELLING 1226= BUSINESS?
1227= A. BECAUSE I LOVE BOOKS AND I DREAMED OF OPENING A BOOKSTORE 1228= FOR YEARS. I HAVE A TWIN BROTHER, AND WE DREAMED FOR YEARS OF
1229= OPENING A BOOKSTORE, AND HE BECAME PRESIDENT OF ONE OF OUR
18
18 Page 19 20

19 Page 20 21
1300= Q. NOW, HOW DID THE SIZE OF THE HAPPY BOOKSELLER AT THAT TIME, 1301= 1993, COMPARE TO OTHER BOOKSTORES IN THE STATE OF SOUTH
1302= CAROLINA? 1303= A. IN 1993, WE WERE THE LARGEST BOOKSTORE IN SOUTH CAROLINA.
1304= Q. DO YOU RECALL WHAT YOUR SALES WERE FOR THAT YEAR, 1993? 1305= A. 1993, THEY WERE ABOUT 1,600,000.
1306= Q. AND AT THAT TIME, AGAIN FOCUSED ON 1993, WHO WERE YOUR 1307= PRINCIPAL COMPETITORS FOR THE SALE OF BOOKS?
1308= A. AT THAT TIME THERE WERE THREE OTHER INDEPENDENT BOOKSTORES, 1309= AND I THINK THERE WERE FOUR, MAYBE FIVE WALDENBOOKS, TWO B.
1310= DALTON. THE UNIVERSITY OF SOUTH CAROLINA, WHICH IS A LARGE 1311= UNIVERSITY, HAD A LARGE TRADE BOOKSTORE, AND I THINK THAT WOULD
1312= ABOUT COVER. 1313= Q. NOW, AT THAT TIME, SIR, WHAT WOULD YOU DESCRIBE TO BE THE
1314= BREADTH OF YOUR TRADING AREA? FROM WHERE DID YOUR CUSTOMERS 1315= COME?
1316= A. WELL, WE HAD BUILT A REPUTATION OF HAVING THE BEST 1317= BOOKSTORE IN SOUTH CAROLINA. WE ALWAYS HAD PEOPLE WHO KNEW HOW
1318= TO SELL BOOKS AND LOVED BOOKS, AND WE HAD PEOPLE COMING EASILY 1319= FROM A 20-MILE RADIUS, AND WE HAD OCCASIONALLY CUSTOMERS COME
1320= IN FROM A HUNDRED MILES. 1321= Q. DURING THE PERIOD BETWEEN 1974, WHEN YOU OPENED THE STORE,
1322= AND 1993, WERE YOU INVOLVED AT ALL WITH THE AMERICAN 1323= BOOKSELLERS ASSOCIATION?
1324= A. STARTING AT WHAT DATES?
1325= Q. WELL, JUST DURING THIS TIME WE'VE COVERED, FROM 1974 WHEN 1326= YOU OPENED YOUR BOOKSTORE --
1327= A. YES. 1328= Q. --TO 1993.
1329= A. I WAS ELECTED TO THE BOARD IN 1982, AND 23 YEARS LATER I 1330= BECAME VICE PRESIDENT FOR TWO YEARS, AND THEN I WAS PRESIDENT
1331= OF THE AMERICAN BOOKSELLERS ASSOCIATION, FROM '86 TO '87, 1332= '87-'88.
1333= Q. ALL RIGHT. MOVING FORWARD, SIR, SINCE 1993, HAVE YOU FACED 1334= ANY ADDITIONAL COMPETITORS FOR THE SALE OF BOOKS IN COLUMBIA,
1335= SOUTH CAROLINA? 1336= A. MOVING FORWARD FROM '93?
1337= Q. YES, SIR. 1338= A. YES, WE HAD A BOOKS-A-MILLION OPEN UP IN '93, AND WE HAD A
1339= BARNES & NOBLE OPEN UP IN '95, AND THEN WE HAD ANOTHER 1340= BOOKS-A-MILLION OPEN UP IN '96, I BELIEVE, AND ANOTHER BARNES &
1341= NOBLE IN '97. 1342= Q. DO YOU RECALL WHEN THE FIRST BARNES & NOBLE STORE OPENED?
1343= A. 1995, IN THE FALL. 1344= Q. WHERE IS THAT STORE LOCATED?
1345= A. THAT IS LOCATED ON HARBISON BOULEVARD, IN COLUMBIA. 1346= Q. ABOUT HOW FAR AWAY IS THAT FIRST BARNES & NOBLE STORE FROM
1347= YOUR STORE? 1348= A. EIGHT TO TEN MILES.
1349= Q. LET ME ASK YOU TO LOOK AT AN EXHIBIT WHICH SHOULD BE IN A
1350= BINDER RIGHT IN FRONT OF YOU. IT'S EXHIBIT 2519. IT SHOULD BE 1351= TOWARD THE BACK. 2519.
1352= A. WOULD IT BE --OKAY, I SEE A 2591 --OKAY, I SEE IT, I'M 1353= SORRY. OKAY.
1354= Q. DO YOU HAVE THAT EXHIBIT IN FRONT OF YOU, SIR, 2519? 1355= A. YES, I DO.
1356= Q. CAN YOU IDENTIFY WHAT THAT IS? 1357= A. THAT'S A MAP OF COLUMBIA AND SURROUNDING AREAS.
1358= Q. ALL RIGHT. CAN YOU IDENTIFY ON THAT MAP, SIR, WHERE YOUR 1359= STORE IS LOCATED?
1360= A. YES. MY STORE IS LOCATED --IT'S A GREEN DOT WITH A YELLOW 1361= CIRCLE AROUND IT, ON FOREST DRIVE.
1362= Q. AND IS THERE A BOX INDICATING "HAPPY BOOKSELLER, 4525 1363= FOREST DRIVE," POINTING TO THAT DOT?
1364= A. NO, IT IS NOT ON THIS MAP. 1365= Q. ARE YOU LOOKING AT 2519?
1366= A. NO, I'M NOT. I'M LOOKING AT ONE, IT'S A MAP, BUT IT'S --I 1367= PULLED THE WRONG PAGE. YES, THERE'S A BLOCK THAT SAYS, "THE
1368= HAPPY BOOKSELLER." 1369= Q. OKAY, AND JUST FOR THE RECORD, YOUR STORE IS THE STORE WITH
1370= THE GREEN DOT AND THE YELLOW CIRCLE AROUND IT?
20
20 Page 21 22
1371= A. YES. 1372= Q. NOW, ON THIS MAP, SIR, CAN YOU IDENTIFY, WHERE IS THE FIRST
1373= BARNES & NOBLE THAT OPENED? 1374= A. THE FIRST BARNES & NOBLE IS OVER ON THE LEFT, AND IT'S A

1375= RED DOT, AND IT SAYS "BARNES & NOBLE, 278A HARBISON BOULEVARD." 1376= Q. ALL RIGHT, NOW, WHEN THAT STORE OPENED IN THE FALL OF 1995,
1377= WAS THERE ANY IMPACT YOUR BUSINESS WHEN THAT STORE OPENED? 1378= A. YES.
1379= Q. CAN YOU DESCRIBE THAT IMPACT, SIR? 1380= A. WELL, TWO IMPACTS, REALLY. OF COURSE, OUR SALES DECREASED
1381= SOME, BUT THE BIGGEST IMPACT WE HAD WAS ON OUR GROSS PROFITS. 1382= THAT STORE OPENED WITH A DISCOUNT PROGRAM OF 10 PERCENT ON ALL
1383= HARDBACKS, 40 PERCENT ON NEW YORK TIMES TOP TEN FICTION AND 1384= NON-FICTION, AND 25 PERCENT ON NEW YORK TIMES PAPERBACKS,
1385= FICTION AND NON-FICTION, AND AS I SAID, 10 PERCENT ON ALL 1386= HARDBACKS IN THE STORE, AND WE FELT THAT WE WOULD LOSE A LOT OF
1387= CUSTOMERS IF WE DIDN'T MATCH THAT DISCOUNT, SO WE MATCHED IT 1388= IMMEDIATELY, AND IT REDUCED OUR GROSS PROFIT CONSIDERABLY.
1389= Q. NOW, WHEN YOU REFER TO NEW YORK TIMES HARDBACK AND 1390= TRADEBACK, ARE YOU REFERRING TO THE NEW YORK TIMES BEST-SELLER
1391= LISTS? 1392= A. YES, YES, CORRECT.
1393= Q. YOU TESTIFIED THAT THERE WAS AN IMPACT ON YOUR SALES. LET 1394= ME ASK YOU TO LOOK AT EXHIBIT 192.
1395= A. I WANT TO GET THIS RIGHT, NOW. 192, IT WOULD BE BEHIND THE 1396= NUMBER, INSTEAD OF IN FRONT OF THE NUMBER.
1397= Q. YES, THAT'S CORRECT, RIGHT BEHIND THE TAB. 1398= A. OKAY.
1399= Q. NOW, MR. JACKSON, ARE YOU FAMILIAR WITH THIS DOCUMENT,
1400= EXHIBIT 192? 1401= A. YES.
1402= Q. CAN YOU IDENTIFY FOR THE COURT --WELL, FIRST OF ALL, LET 1403= ME ASK YOU, WHO PREPARED THIS EXHIBIT?
1404= A. I DID. 1405= Q. ALL RIGHT. CAN YOU IDENTIFY FOR THE COURT WHAT THIS
1406= EXHIBIT IS? 1407= A. WELL, I WAS WORKING ON --TO TRAIN ANDY GRAVES, THE NEW
1408= OWNER OF THE BOOKSTORE, I WAS WORKING ON A PROJECTION TO SHOW 1409= HIM HOW THE SALES HISTORY HAD BEEN OVER THE YEARS, AND I WENT
1410= BACK AS FAR AS I COULD FIND, AND ON THAT PARTICULAR DATE, AND 1411= THIS LIST IS SALES PER MONTH BY EACH MONTH, PER YEAR, STARTING
1412= WITH '92 FOR THE FIRST FULL YEAR, BUT OUR FISCAL YEAR AT THAT 1413= TIME RAN FROM OCTOBER 1 TO SEPTEMBER 30, SO YOU WILL SEE UNDER
1414= '91, IT STARTS WITH OCTOBER 1. 1415= Q. ALL RIGHT. NOW, HOW DID YOU PHYSICALLY PREPARE THIS CHART?
1416= WHAT DID YOU DO? 1417= A. WE KEEP A BOOK EVERY DAY OF DAILY SALES, AND THEN WE
1418= ACCUMULATE THAT TO MONTHLY SALES, AND WE STORE THESE BOOKS, AND 1419= I SEARCHED ALL THOSE BOOKS FOR THESE RECORDS.
1420= Q. SO YOU COMPILED THIS DOCUMENT FROM YOUR LEDGERS OF DAILY 1421= AND MONTHLY SALES?
1422= A. YES. 1423= Q. DOES THIS DOCUMENT SHOW, MR. JACKSON, THE IMPACT ON YOUR
1424= SALES AFTER THE FIRST BARNES & NOBLE STORE OPENED IN 1995?
1425= A. YES, IT DOES. IF YOU --WELL, YOU COULD TAKE, FOR 1426= INSTANCE, IF YOU LOOK AT DECEMBER, IT SHOWS A DROP FROM 207 TO
1427= 188. 1428= Q. I'M SORRY, SO IF WE'RE LOOKING AT --WHEN DID THE BARNES &
1429= NOBLE STORE OPEN, SIR? YOU SAID WAS IN THE FALL OF 1995? 1430= A. YES.
1431= Q. SO IF I COMPARE YOUR SALES IN DECEMBER OF 1995 TO YOUR 1432= SALES IN DECEMBER OF 1994 --
1433= A. RIGHT. 1434= Q. --WHAT DOES THAT SHOW, SIR?
1435= A. IT SHOWS A $30,000 DROP, YES. 1436= Q. ALL RIGHT. WHAT ABOUT IF I --
1437= A. IT ALSO SHOWS A NOVEMBER DROP OF ABOUT 20,000. 1438= Q. AND THAT'S COMPARING YOUR SALES IN NOVEMBER OF 1995 TO YOUR
1439= SALES IN NOVEMBER OF 1994? 1440= A. CORRECT.
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21 Page 22 23
1441= Q. LET ME JUST ESTABLISH THIS IN THE RECORD, SIR. WHAT WERE 1442= YOUR SALES IN NOVEMBER OF 1994?
1443= A. NOVEMBER OF 1994 WERE $104,800. 1444= Q. WHAT WERE YOUR SALES IN NOVEMBER OF 1995?
1445= A. $86,100. 1446= Q. ALL RIGHT. WHAT WERE YOUR SALES IN DECEMBER OF 1994?
1447= A. $199,200. 1448= Q. WHAT WERE YOUR SALES IN DECEMBER OF 1995?
1449= A. 172,000.
1450= Q. OKAY. DID THAT PATTERN OF A DECLINE IN SALES OVER THE 1451= PRECEDING YEAR CONTINUE FOR SEVERAL MORE MONTHS?
1452= A. INTO --1453= Q. INTO 1996.
1454= A. ACTUALLY, YES, IT DID. 1455= Q. NOW, APART FROM THIS IMPACT ON YOUR SALES, WERE THERE ANY
1456= OTHER REASONS WHY YOU BELIEVE THAT YOU COMPETE WITH THAT STORE, 1457= THE BARNES & NOBLE STORE ON HARBISON BOULEVARD?
1458= A. WELL, YES. WE HAD A GOOD CUSTOMER BASE IN THAT AREA PRIOR 1459= TO THEIR OPENING. I WENT TO THEIR GRAND OPENING, AND I WAS
1460= INVITED TO COME TO THE GRAND OPENING, AND AS I GOT IN THERE, 1461= THEY HAD A PRETTY PACKED HOUSE AND THE PLACE WAS FULL OF MY
1462= CUSTOMERS. IT WAS KIND OF INTERESTING. IN FACT, TWO OR THREE 1463= OF THEM CAME UP TO ME AND SAID, "RHETT, I DON'T WANT YOU TO SEE
1464= ME IN HERE," BUT YES, THAT WAS A GOOD CUSTOMER BASE FOR US. 1465= Q. AND --
1466= A. AND EVEN BEYOND IT, INTO THE LITTLE TOWNS BEYOND THAT, 1467= IRMO, NEWBERRY, PROSPERITY, THAT WAS ALL A GOOD CUSTOMER BASE
1468= FOR US. 1469= Q. YOU TESTIFIED EARLIER THAT YOUR TRADING AREA BEFORE 1993
1470= WAS AT LEAST 20 MILES AROUND YOUR STORE, AND PERHAPS EVEN 1471= BEYOND THAT TO OTHER AREAS OF THE STATE.
1472= A. YES. 1473= Q. IS THAT BARNES & NOBLE STORE ON HARBISON BOULEVARD LOCATED
1474= WITHIN THAT 20-MILE TRADING AREA?
1475= A. YES, IT'S WELL WITHIN IT, YES. 1476= Q. DO YOU HAVE ANY DOUBT, SIR, WHETHER YOU COMPETE WITH THAT
1477= BARNES & NOBLE STORE? 1478= A. I HAVE NO DOUBT AT ALL.
1479= Q. WHEN YOU WERE IN THE STORE FOR THE OPENING, DID YOU HAPPEN 1480= TO NOTICE THE KINDS OF BOOKS THAT WERE BEING SOLD BY BARNES &
1481= NOBLE? 1482= A. YES. THEY WERE HANDLING MUCH THE SAME BOOKS THAT WE WERE
1483= HANDLING, FROM THE SAME PUBLISHERS. I RECOGNIZED MANY OF THE 1484= TITLES THAT THEY CARRIED. I SAW SOME OF THEIRS THAT WE CARRIED
1485= TITLES IN THAT PARTICULAR CATEGORY THAT THEY DIDN'T CARRY THAT 1486= WE DID CARRY, BUT --AS A MATTER OF FACT, WE HAD SOME FUN, I
1487= WAS WITH A FRIEND, AND SEVERAL BOOKS THAT WE SELL REGULARLY, I 1488= WOULD CHECK TO SEE IF THEY WERE ON THE SHELVES, SOME WERE AND
1489= SOME WEREN'T. 1490= Q. MANY OF THE BOOKS YOU SAW IN THAT STORE WERE THE SAME BOOKS
1491= YOU WERE SELLING IN YOUR STORE? 1492= A. YES, YES.
1493= Q. NOW, YOU TESTIFIED THAT A SECOND BARNES & NOBLE STORE 1494= OPENED, I BELIEVE, IN 1997?
1495= A. 1997, YES. 1496= Q. LET ME GO BACK TO THAT MAP, WHICH IS 2519, THE EXHIBIT
1497= BEHIND TAB 2519. 1498= A. I GOT IT.
1499= Q. WHERE IS THE SECOND BARNES & NOBLE LOCATED?
1500= A. IT'S LOCATED WHERE THE RED DOT IS. 1501= Q. WHICH RED DOT IS THAT, SIR?
1502= A. I'M SORRY, THERE'S AN ARROW THAT SAYS, "BARNES & NOBLE, 1503= 3400 FOREST DRIVE," AND THERE'S AN ARROW TO A RED DOT ON FOREST
1504= DRIVE. 1505= Q. ALL RIGHT, SO IS THAT THE RED DOT THAT'S JUST PRETTY CLOSE,
1506= RIGHT NEXT TO THE GREEN DOT THAT'S YOUR STORE? 1507= A. YES. THAT'S LESS THAN A MILE AWAY.
1508= Q. LESS THAN A MILE AWAY? 1509= A. YES.
1510= Q. DO YOU HAVE ANY DOUBT, SIR, THAT YOU COMPETE WITH THAT
22
22 Page 23 24
1511= STORE? 1512= A. I HAVE NO DOUBT WHATSOEVER.
1513= Q. HAVE YOU BEEN IN THAT STORE, SIR? 1514= A. YES, I HAVE.
1515= Q. HAVE YOU NOTICED THE BOOKS THAT ARE SOLD IN THAT STORE? 1516= A. YES, VERY SIMILAR TO WHAT WE SELL.
1517= Q. NOW, YOU ALSO TESTIFIED THAT IN ADDITION TO AN IMPACT ON 1518= YOUR SALES, THAT THESE BARNES & NOBLE STORES HAVE AN IMPACT
1519= YOUR GROSS PROFIT MARGIN. FIRST OF ALL, CAN YOU DEFINE FOR THE 1520= RECORD, WHAT IS A GROSS PROFIT MARGIN?
1521= A. WELL, I'VE ALWAYS WORKED HARD TO KEEP A GROSS PROFIT OF 1522= ABOUT 38.5, WHICH MEANS THAT FOR EVERY HUNDRED DOLLARS' WORTH
1523= OF SALES, YOU MAKE GROSS 38 AND-A-HALF DOLLARS. AND OUR GROSS 1524= PROFITS WENT DOWN TO 32, 33, 34, AFTER WE HAD TO MATCH THAT

1525= DISCOUNTS. 1526= Q. LET ME JUST MAKE SURE IT'S CLEAR. WHEN --WHAT IS INCLUDED
1527= IN GROSS PROFITS? 1528= A. THAT IS THE PROFIT THAT YOU MADE BEFORE ANY EXPENSES. IN
1529= OTHER WORDS, IF YOU SELL --IF YOU BUY SOMETHING FOR A HUNDRED 1530= DOLLARS, IT COSTS YOU $60, AND YOU HAVE NO DISCOUNTS, YOU HAVE
1531= A 40 PERCENT GROSS PROFIT. 1532= Q. SO IT'S JUST YOUR SALES REVENUE LESS THE COST OF GOODS THAT
1533= YOU SOLD. 1534= A. EXACTLY, YES.
1535= Q. ALL RIGHT. AND YOU SAID THAT YOU TRIED, HISTORICALLY, TO 1536= KEEP YOUR GROSS PROFIT MARGIN AT ABOUT 38 AND-A-HALF PERCENT?
1537= A. CORRECT. 1538= Q. DURING THAT TIME WHEN YOUR GROSS PROFIT WAS APPROXIMATELY
1539= 38.5 PERCENT --YOU SAID THAT WAS BEFORE EXPENSES. WHAT WAS 1540= YOUR PROFIT MARGIN AFTER YOU HAD DEDUCTED ALL OF YOUR EXPENSES?
1541= A. IN, SAY, WHAT YEAR? 1542= Q. ABOUT 1993.
1543= A. NINETY-THREE? SEVEN, EIGHT PERCENT. 1544= Q. AND JUST FOR THE RECORD, CAN YOU DEFINE, WHAT IS THAT
1545= MEASURE CALLED, AFTER YOU'VE DEDUCTED YOUR EXPENSES? 1546= A. THAT'S CALLED THE NET PROFIT.
1547= Q. ALL RIGHT, AND SO WHAT IS NET PROFIT, FOR THE RECORD? 1548= A. THAT'S WHAT YOU MAKE AFTER YOU'VE PAID ALL EXPENSES, AND TO
1549= EXPLAIN IT A LITTLE FURTHER, IF I HAD BEEN INCORPORATED AND I
1550= HAD DRAWN A SALARY, IT WOULD BE THE PROFIT INCLUDING MY SALARY, 1551= BUT I WAS A PROPRIETOR, SO I DREW OUT OF THE PROFITS THAT WERE
1552= LEFT IN THE BUSINESS. I HAD A DRAWING ACCOUNT. 1553= Q. OKAY, SO WHEN YOUR PROFIT MARGIN WAS SEVEN OR
1554= EIGHT PERCENT, NET PROFIT MARGIN, OF SEVEN OR EIGHT PERCENT, 1555= THEN YOU HAD TO TAKE YOUR INCOME, YOUR DRAW, OUT OF THAT SEVEN
1556= OR EIGHT PERCENT. 1557= A. YES.
1558= Q. ALL RIGHT. NOW, YOU TESTIFIED THAT WHEN --AFTER THE 1559= BARNES & NOBLE STORES ENTERED COLUMBIA, THAT YOU MADE SOME
1560= CHANGES IN YOUR PRICING POLICIES TO RESPOND TO THOSE STORES. 1561= A. YES.
1562= Q. AND YOU'VE DESCRIBED THE DISCOUNT SYSTEM THAT YOU ADOPTED. 1563= DID THAT DISCOUNT SYSTEM HAVE AN IMPACT ON YOUR GROSS PROFIT
1564= MARGIN? 1565= A. IT HAD A SEVERE IMPACT. IT WENT FROM 38 AND-A-HALF TO --
1566= DEPENDING ON THE YEAR, BUT IT WENT TO 33, 32, 34. 1567= Q. LET ME ASK YOU TO LOOK AT EXHIBIT NUMBER 185. AND AGAIN,
1568= THIS IS THE DOCUMENT AFTER THE TAB. 1569= A. OKAY.
1570= Q. GIVE YOU A MINUTE TO LOOK AT EXHIBIT 185, AND THEN I'LL ASK 1571= YOU WHETHER YOU RECOGNIZE WHAT THIS EXHIBIT IS.
1572= A. YES, I DO. 1573= Q. CAN YOU IDENTIFY THIS RECORD, PLEASE?
1574= A. THIS IS THE BALANCE SHEET AT THE END OF THE YEAR 1997.
1575= IT'S DATED DECEMBER THE 31ST, 1997, AND THERE'S A BALANCE SHEET 1576= THERE, AND BEHIND IT IS THE P& L STATEMENT, PROFIT AND LOSS
1577= STATEMENT, AND IT SHOWS THE PROFIT AND LOSS FOR THE LAST 1578= QUARTER OF 1997, AND FOR THE COMPLETE YEAR OF 1997.
1579= Q. ALL RIGHT, SIR. NOW, WHEN YOU REFER TO A BALANCE SHEET AND 1580= A PROFIT AND LOSS STATEMENT, WHERE DO THESE RECORDS RELATE TO?
23
23 Page 24 25
1581= A. WELL, THE BALANCE SHEET SHOWS ALL OF MY ASSETS, AND ALL OF 1582= MY LIABILITIES.
1583= Q. OF WHAT BUSINESS, SIR? I JUST WANT, FOR THE RECORD. 1584= A. OH, THE HAPPY BOOKSELLER.
1585= Q. ALL RIGHT, THANK YOU. LET ME ASK YOU, YOU SAID THIS 1586= IDENTIFIES SOME INFORMATION FOR BOTH THE LAST QUARTER OF 1997
1587= AND THE CALENDAR YEAR. FIRST OF ALL, YOU SAID THAT BOTH BARNES 1588=& NOBLE STORES HAD ENTERED BY --
1589= A. YES. 1590= Q. --THE END OF 1997.
1591= A. CORRECT. IN FACT, THEY ENTERED DURING THAT LAST QUARTER. 1592= Q. ALL RIGHT. WHAT WAS YOUR GROSS PROFIT MARGIN, SIR, FOR THE
1593= LAST QUARTER OF 1997? CAN YOU IDENTIFY THAT ON THIS DOCUMENT? 1594= A. YES.
1595= Q. WHAT PAGE, SIR? 1596= A. PAGE TWO.
1597= Q. OKAY, AND WHAT WAS YOUR GROSS PROFIT MARGIN FOR THE LAST 1598= QUARTER OF 1997?
1599= A. WELL, THE DOLLARS EARNED WAS $286.96, AND THE GROSS PROFIT
1600= IN PERCENTAGES WAS .07. 1601= Q. I'M SORRY, GROSS PROFIT MARGIN OR NET PROFIT MARGIN?
1602= A. OH, PARDON ME. 1603= Q. LET'S START WITH THE GROSS PROFIT.
1604= A. THE GROSS PROFIT WAS 28.55. 1605= Q. SO INSTEAD OF A TRADITIONAL 38 PERCENT GROSS PROFIT MARGIN,
1606= YOUR PROFIT MARGIN --1607= A. IT WAS 28.55.
1608= Q. IT CAME DOWN TO 28 PERCENT? 1609= A. YES.
1610= Q. WHAT WAS YOUR NET PROFIT MARGIN FOR THAT QUARTER? 1611= A. NET PROFIT WAS .07, FOR THAT QUARTER.
1612= Q. POSITIVE OR NEGATIVE, SIR? 1613= A. NEGATIVE.
1614= Q. OKAY, AND HOW ABOUT FOR THE ENTIRE YEAR 1997? NOW, AT THAT 1615= POINT IN TIME WAS YOUR FISCAL YEAR A CALENDAR FISCAL YEAR OR
1616= WAS IT STILL A NON-CALENDAR FISCAL YEAR? 1617= A. AT THIS TIME IT WAS A CALENDAR YEAR.
1618= Q. ALL RIGHT. 1619= A. YES.
1620= Q. SO WHAT WAS YOUR GROSS PROFIT MARGIN FOR CALENDAR AND 1621= FISCAL YEAR 1997?
1622= A. 34.8. 1623= Q. AND WHAT WAS YOUR NET PROFIT MARGIN?
1624= A. 3.42.
1625= Q. NOW, WITH RESPECT TO THAT NET PROFIT MARGIN OF 1626= 3.42 PERCENT, AGAIN, DOES YOUR INCOME OR DRAW HAVE TO COME OUT
1627= OF THAT NET PROFIT MARGIN OF 3 PERCENT? 1628= A. YES, IT DOES.
1629= Q. MR. JACKSON, TAKING INTO ACCOUNT YOUR OWN DRAW, WERE YOU 1630= ABLE TO OPERATE YOUR BUSINESS AT A PROFIT, DISCOUNTING BOOKS
1631= THE SAME WAY IN BARNES & NOBLE WAS DISCOUNTING BOOKS? 1632= A. NO.
1633= Q. AND AGAIN, YOU CHOSE TO ADOPT A DISCOUNT POLICY. WAS IT 1634= THE SAME AS BARNES & NOBLE, OR DIFFERENT?
1635= A. AT THAT TIME IT WAS EXACTLY THE SAME, YES, 40, 25 AND 10. 1636= Q. AND WHAT, SIR, ARE --
1637= THE COURT: WHAT ARE THOSE FIGURES, 40, 35 AND 10? 1638= THE WITNESS: 40 PERCENT ON HARDBACK FICTION,
1639= NONFICTION ON THE NEW YORK TIMES BEST-SELLER, AND 25 ON PAPER, 1640= 10 PERCENT ON ALL HARD BOOKS.
1641= THE COURT: THANK YOU. 1642= THE WITNESS: YES, SIR.
1643= BY MR. DEBRUIN: 1644= Q. LET ME JUST MAKE SURE THE RECORD IS CLEAR ON THAT. HOW
1645= MANY NEW YORK TIMES BEST SELLERS ARE THERE? 1646= A. WELL, WE USED THE TOP 10, BUT THEY HAVE ABOUT 20 THAT THEY
1647= LIST ON THE WHOLE LIST. 1648= Q. AND IS THERE BOTH A HARDCOVER LIST AND A --
1649= A. THERE'S --
1650= Q. --PAPERBACK LIST?
24
24 Page 25 26
1651= A. THERE'S A HARDCOVER LIST AND A PAPERBACK LIST, YES. 1652= Q. SO JUST, IF I UNDERSTAND IT, SO FOR THE HARDCOVER BOOKS
1653= THAT WERE NEW YORK TIMES BEST-SELLER, HOW MUCH DID YOU DISCOUNT 1654= THOSE BOOKS AFTER THE BARNES & NOBLE STORES CAME IN?
1655= A. 40 PERCENT. 1656= Q. AND HOW MUCH DID BARNES & NOBLE DISCOUNT THOSE?
1657= A. 40. 40. 1658= Q. FOR THE NEW YORK TIMES BEST-SELLERS THAT WERE PAPERBACKS,
1659= HOW MUCH DID YOU DISCOUNT THOSE BOOKS? 1660= A. 25 PERCENT.
1661= Q. AND HOW MUCH DID BARNES & NOBLE DISCOUNT THOSE BOOKS? 1662= A. 25 PERCENT.
1663= Q. AND FINALLY, FOR ALL HARDCOVER BOOKS, DID YOU HAVE A 1664= DISCOUNT ON ALL HARDCOVER BOOKS?
1665= A. ALL HARDCOVER BOOKS, 10 PERCENT. 1666= Q. AND WHAT WAS BARNES & NOBLE'S DISCOUNT?
1667= A. 10 PERCENT. 1668= Q. NOW, HAD YOU USED THAT PRICING SYSTEM BEFORE THE BARNES &
1669= NOBLE STORES CAME INTO YOUR MARKET? 1670= A. NO, WE HAD NOT.
1671= Q. AND WHY DID YOU ADOPT THAT PRICING SYSTEM ONCE THEY CAME 1672= INTO TOWN?
1673= A. WELL, OF COURSE, THEY'RE QUITE VISIBLE, AND PEOPLE HAVE A 1674= LOT OF CURIOSITY, AND OF COURSE, MANY OF OUR CUSTOMERS WENT TO

1675= THAT STORE, AS THEY HAD GRAND OPENINGS, AND WE FELT IT WOULD 1676= BE --IT WOULD HURT US A GREAT DEAL IF WE DIDN'T MATCH THEM IN
1677= THE BEGINNING, AND WE MATCHED THEM FOR SEVERAL YEARS. 1678= Q. ALL RIGHT. MR. JACKSON, ARE THERE ANY BORDERS STORES IN
1679= COLUMBIA? 1680= A. NO.
1681= Q. HOW ABOUT WALDEN STORES? 1682= A. YES. THERE ARE SOME WALDEN STORES. I THINK PRESENTLY
1683= THERE ARE THREE. 1684= Q. THREE STORES?
1685= A. YES. 1686= Q. LET ME ASK YOU TO TURN AGAIN TO THE MAP, TAB 2519, AND I'D
1687= ASK WHETHER YOU CAN IDENTIFY IN THIS MAP THE WALDEN STORES. 1688= A. YES. NOW, IF I'M CORRECT, IT'S ONLY SHOWING ONE WALDEN
1689= STORE ON THIS MAP. 1690= Q. 2519 --
1691= A. 2519, YES. 1692= Q. YOU KNOW, YOU TELL ME WHERE THE WALDEN STORES ARE LOCATED.
1693= A. WELL, ONE OF THEM IS LOCATED IN THE COLUMBIANA MALL, WHICH 1694= IS VERY CLOSE TO HARBISON BOULEVARD. ONE OF THEM IS OPENED IN
1695= A MALL CALLED THE COLUMBIA MALL, AND THEN THERE'S A MALL CALLED 1696= THE DUTCH SQUARE MALL, AND THAT'S WHERE THEY'RE LOCATED.
1697= Q. ALL RIGHT. MR. JACKSON, IF YOU LOOK AT THIS EXHIBIT 2519, 1698= DO YOU SEE ANY BLUE BOXES?
1699= A. YES. I DO.
1700= Q. DO THOSE BLUE BOXES CORRELATE TO THE LOCATIONS OF THE 1701= WALDEN STORES YOU'VE JUST DESCRIBED IN THE RECORD?
1702= A. YES. 1703= Q. HOW MANY BLUE BOXES DO YOU SEE IN THE MAP?
1704= A. I SEE THREE. 1705= Q. LET ME ASK YOU, THERE'S A BLUE BOX THAT'S VERY CLOSE TO
1706= YOUR STORE, SIR. 1707= A. YES.
1708= Q. IS THAT WALDEN STILL OPEN? 1709= A. THERE'S ONE PRETTY CLOSE THAT'S STILL OPEN, BUT THERE WAS
1710= ONE EVEN CLOSER THAT RECENTLY CLOSED, BUT I DON'T SEE A BLUE 1711= BOX FOR THAT ONE.
1712= Q. ALL RIGHT. THE BLUE BOX THAT'S CLOSE TO YOU, SIR, IT'S, 1713= ACCORDING TO THE BOX, THE WALDENBOOKS IN THE RICHLAND FASHION
1714= MALL? 1715= A. NOW, THAT ONE IS CLOSED.
1716= Q. THAT'S THE ONE THAT'S CLOSED. 1717= A. YES, BUT THE LOCATION ON THIS MAP IS --IS --THAT'S REALLY
1718= COLUMBIA MALL WHERE THAT ONE IS, WHERE IT SAYS RICHLAND MALL, 1719= THAT'S COLUMBIA MALL, BECAUSE THE BARNES & NOBLE IN THE RED
1720= DOT, THAT WAS WHERE THE OTHER WALDEN WAS, AND THEY CLOSED THAT 1721= ONE.
25
25 Page 26 27
1722= Q. I SEE. CAN YOU GIVE ME THE ADDRESS OF THE WALDEN STORE 1723= THAT'S LOCATED CLOSEST TO YOUR STORE?
1724= A. IT WOULD BE IN THE COLUMBIA MALL, AND I DON'T KNOW WHAT
1725= THAT STREET ADDRESS WOULD BE. 1726= Q. BUT HOW FAR AWAY IS THAT FROM YOUR STORE?
1727= A. THREE, FOUR MILES. 1728= Q. OKAY. ARE THE WALDEN STORES THAT ARE STILL OPERATING IN
1729= COLUMBIA, SOUTH CAROLINA WITHIN THE TRADING AREA THAT YOU 1730= DESCRIBED FROM WHICH YOU DRAW YOUR CUSTOMERS?
1731= A. YES. 1732= Q. ALL RIGHT, MR. JACKSON, I'D LIKE TO SWITCH NOW AND ASK YOU
1733= SOME QUESTIONS ABOUT PURCHASING BOOKS AND HOW YOU PURCHASE 1734= BOOKS FOR SALE.
1735= WHAT ROLE HAVE YOU PLAYED WITH RESPECT TO BUYING 1736= BOOKS FOR THE HAPPY BOOKSELLER?
1737= A. WELL, FOR MANY YEARS I DID ALL THE BUYING, AND WHEN ANDY 1738= GRAVES CAME INTO THE BUSINESS I TRAINED HIM TO DO THE BUYING,
1739= AND HE DOES MUCH OF THE BUYING NOW, BUT OUR DESKS JOIN EACH 1740= OTHER AND I USUALLY SIT, EVEN TODAY, THROUGH ALL THE BUYING
1741= SESSIONS, BECAUSE I LIKE TO SEE WHAT'S COMING OUT, AND LOVE 1742= BOOKS.
1743= Q. SO FOR ABOUT HOW MANY YEARS HAVE YOU BEEN BUYING BOOKS? 1744= A. ALMOST 30.
1745= Q. NOW, WHO DOES THE HAPPY BOOKSELLER PURCHASE BOOKS FROM? 1746= A. WE PURCHASE BOOKS FROM ALL OF THE MAJOR PUBLISHERS, AND WE
1747= PURCHASE BOOKS FROM THREE WHOLESALERS, INGRAM, BAKER & TAYLOR, 1748= KOEN, AND OCCASIONALLY SOUTHERN BOOKS; AND FROM MAYBE A HUNDRED
1749= SMALL PUBLISHERS.
1750= Q. ALL RIGHT. HOW MANY PUBLISHERS WOULD YOU SAY YOU PURCHASE 1751= BOOKS FROM ON A REGULAR BASIS?
1752= A. REGULAR BASIS, 130. 1753= Q. NOW, WHEN I SAY, "A REGULAR BASIS," HOW WOULD YOU DEFINE
1754= THAT? WHAT DID YOU UNDERSTAND THAT TO MEAN? 1755= A. INCLUDING IN THAT 130 WOULD BE SOME SMALL PUBLISHERS THAT
1756= WE WOULD BUY FROM FOUR OR FIVE TIMES A YEAR, AND SOME MAJOR 1757= PUBLISHERS THAT WE BUY FROM ALMOST EVERY DAY, AND MEDIUM-SIZE
1758= PUBLISHERS IN BETWEEN. 1759= Q. I'M GOING TO GO THROUGH A LIST WITH YOU IN A MINUTE.
1760= BEFORE I DO THAT, YOU IDENTIFIED THE THREE WHOLESALERS THAT YOU 1761= PRIMARILY PURCHASE FROM.
1762= A. YES. 1763= Q. JUST FOR THE RECORD, CAN YOU IDENTIFY WHAT A WHOLESALER IS
1764= AND HOW IT DIFFERS FROM A PUBLISHER? 1765= A. A WHOLESALER, OF COURSE BUYS BOOKS FROM THE PUBLISHERS, AND
1766= THE BIG ADVANTAGE FROM BUYING FROM WHOLESALERS IS SPEED. THEY 1767= CAN GET THEM TO YOU --WELL, ONE OF THE WHOLESALERS WE CAN GET
1768= THEM THE NEXT DAY AND THE OTHER WHOLESALER WE GET THEM IN TWO 1769= DAYS, WHICH IS A CONVENIENT THING FOR SPECIAL ORDERS AND WHEN
1770= YOU NEED SOMETHING IN A HURRY. 1771= Q. WHICH WHOLESALER DO YOU GET BOOKS FROM THE VERY NEXT DAY?
1772= A. BAKER & TAYLOR. 1773= Q. AND WHICH WHOLESALER DO YOU GET THEM FROM TWO DAYS LATER?
1774= A. INGRAM. AND KOEN, THE THIRD ONE, ALSO TAKES TWO DAYS.
1775= Q. HOW DO THE TERMS OF WHOLESALERS TEND TO COMPARE --STRIKE 1776= THAT. LET ME REPHRASE THAT, AND ASK IT AGAIN. DO WHOLESALERS
1777= VERY OFTEN SELL THE VERY SAME BOOKS IN PUBLISHERS SELL? 1778= A. YES, YES.
1779= Q. AND HOW DO THE TERMS OF A WHOLESALER COMPARE, FOR A 1780= PARTICULAR BOOK, TO THE TERMS YOU CAN GET FROM THE PUBLISHER
1781= WHO SELLS THAT SAME BOOK? 1782= A. WELL, YOU WOULD GET 40, 41 OR 42 FROM BOTH OF THOSE MAJOR
1783= WHOLESALERS, AND YOU WOULD BE GIVING UP SEVERAL POINTS, BECAUSE 1784= YOU WOULD GET 45, 44 FROM THE PUBLISHER.
1785= Q. ALL RIGHT. IN GENERAL, WHAT TYPES OR LINES OF BOOKS DOES 1786= THE HAPPY BOOKSELLER BUY?
1787= A. WE BUY IN ALL CATEGORIES, AND WE BUY HARDBACK BOOKS AND 1788= TRADE PAPER, AND MASS MARKET.
1789= Q. ALL RIGHT, NOW, I THINK WE ALL KNOW WHAT A HARDCOVER BOOK 1790= IS. WHAT IS A TRADE PAPERBACK BOOK?
1791= A. A TRADE PAPERBACK BOOK IS A BETTER QUALITY PAPERBACK BOOK
26
26 Page 27 28
1792= THAN A MASS MARKET. IT'S USUALLY ABOUT THE SIZE OF THE 1793= HARDBACK BOOK, AND IT HAS A --HAS BETTER QUALITY OF PAPER, AND
1794= MOST OF THE TIME IT HAS A BETTER COVER ON IT. IT'S EASY TO 1795= READ, AND IT FEELS MORE LIKE A BOOK THAN A MASS MARKET.
1796= Q. AND WHAT IS A MASS MARKET BOOK? 1797= A. A MASS MARKET ARE THE BOOKS THAT YOU SEE IN DRUGSTORES.
1798= THEY FIT A POCKET, AND THEY'RE ABOUT SO BIG (WITNESS 1799= INDICATING), AND AT ONE TIME --TRADE PAPERS IS RELATIVELY NEW

1800= IN THE INDUSTRY, AND THERE SEEMS TO BE A TENDENCY TO MOVE ALL 1801= THE MASS MARKETS TO TRADE PAPERS NOW, BUT NOT ALL.
1802= Q. ALL RIGHT, LET ME SHOW YOU THREE BOOKS, AND JUST FOR THE 1803= RECORD, PERHAPS YOU CAN DISTINGUISH BETWEEN THE MASS MARKET
1804= PAPERBACKS AND THE TRADE PAPERBACKS. 1805= YOUR HONOR, CAN I HAND THESE TO THE WITNESS?
1806= THE COURT: YES. HAVE THEY BEEN MARKED AS EXHIBITS? 1807= MR. DEBRUIN: THEY HAVE BEEN MARKED, YOUR HONOR,
1808= YES. 1809= THE WITNESS: THIS IS A MASS MARKET BOOK.
1810= BY MR. DEBRUIN: 1811= Q. MR. JACKSON, STOP JUST FOR A MINUTE. IF YOU LOOK ON THE
1812= COVER, BECAUSE THIS IS WHAT THE JUDGE IS REFERRING TO, THERE IS 1813= AN EXHIBIT REFERENCE ON EACH ONE OF THOSE BOOKS. ONE IS
1814= 2572-A, ONE IS 2572-B, AND ONE IS 2572-C. NOW, WHICH ONE HAVE 1815= YOU GOT IN YOUR HAND?
1816= A. I HAVE 2572-A. 1817= Q. ALL RIGHT, AND WHAT TYPE OF BOOK IS THAT?
1818= A. THAT IS A MASS MARKET BOOK. 1819= Q. THAT'S WHAT'S REFERRED TO AS A MASS MARKET PAPERBACK?
1820= A. YES, THAT'S REFERRED TO IN THE INDUSTRY AS A MASS MARKET 1821= PAPERBACK.
1822= Q. JUST FOR THE RECORD, WHAT'S THE PARTICULAR TITLE AND AUTHOR 1823= THAT YOU HAVE THERE?
1824= A. THIS IS THE BRETHREN, BY JOHN GRISHAM.
1825= Q. ALL RIGHT. TAKE A LOOK AT EXHIBIT 2572-B. 1826= A. B?
1827= Q. YES. 1828= A. THIS IS 2272-B.
1829= Q. I'M SORRY, 2572-B. 1830= A. 2572-B, YES.
1831= Q. ALL RIGHT, AND WHAT KIND OF BOOK IS THAT? 1832= A. THIS IS A TRADE PAPERBACK. AS YOU CAN SEE, IT'S A LITTLE
1833= LARGER, HAS A BETTER QUALITY COVER ON IT, AND THE PAPER IS 1834= REALLY A BETTER QUALITY.
1835= Q. AND FOR THE RECORD, WHAT'S THE AUTHOR AND TITLE OF THAT 1836= BOOK?
1837= A. THIS IS THE JOY LUCK CLUB BY AMY TAN. 1838= Q. ALL RIGHT. AND FOR THE RECORD, WHAT IS EXHIBIT 2572-C?
1839= A. 2572-C IS A HARDBACK BOOK. IT'S THE PAINTED HOUSE BY JOHN 1840= GRISHAM.
1841= Q. OKAY, AND WE CAN LEAVE THOSE FOR THE COURT, IF THE COURT 1842= WANTS TO....
1843= NOW, APART FROM THESE CLASSIFICATIONS OF MASS 1844= MARKET, TRADE PAPER AND HARDCOVER, ARE BOOKS ALSO CLASSIFIED
1845= ACCORDING TO HOW LONG IT HAS BEEN SINCE THE BOOK WAS FIRST 1846= RELEASED?
1847= A. WELL, WE REFER TO THE BACK LIST AS ONE CATEGORY, AND THE 1848= FRONT LIST, WHICH IS NEW BOOKS.
1849= Q. ALL RIGHT, SO DEFINE, FOR THE RECORD, WHAT IS WHAT WE CALL
1850= A FRONT LIST BOOK. 1851= A. A FRONT LIST BOOK --MOST ALL PUBLISHERS HAVE TWO OR THREE
1852= SEASONS, THEY WILL HAVE A SPRING SEASON, A SUMMER SEASON, A 1853= FALL SEASON, SOME ONLY HAVE TWO SEASONS, AND THEY WILL HAVE THE
1854= BOOKS THAT WILL BE PUBLISHED DURING THOSE MONTHS, AND THAT IS 1855= WHAT WE CALL THE FRONT LIST, THE NEW BOOKS.
1856= Q. SO IN GENERAL TERMS, THE FRONT LIST BOOKS ARE THE NEW 1857= RELEASES, THE NEW --
1858= A. YES, THEY ARE THE NEW RELEASES. 1859= Q. AND ABOUT HOW LONG WILL A BOOK STAY AS A FRONT LIST BOOK?
1860= A. A FRONT LIST BOOK, IT COULD VARY. SOMETIMES A BOOK WILL 1861= ONLY GO THROUGH ONE PRINTING AND IT DIES AWAY AND THAT BOOK IS
27
27 Page 28 29
1862= GONE. IT MIGHT GO THROUGH SEVERAL PRINTINGS. AT SOME POINT, 1863= AS A NEW BOOK, AND IF IT CONTINUES TO GO THROUGH PRINTINGS, A
1864= PUBLISHER MIGHT DECIDE TO MAKE THAT A BACK LIST BOOK, AND PUT 1865= IT IN HIS BACK LIST, WHICH MEANS THAT HE'S GOING TO KEEP THAT
1866= BOOK FOR A GOOD, LONG TIME, MAYBE FOR YEARS. 1867= Q. ALL RIGHT. I DIDN'T IDENTIFY IT YET FOR THE RECORD. WHAT
1868= IS A BACK LIST BOOK? 1869= A. A BACK LIST BOOK IS A BOOK THAT HAS PROVEN TO SELL YEAR-IN
1870= AND YEAR-OUT, AND MANY PUBLISHERS HAVE BOOKS THAT THEY'VE HAD 1871= AVAILABLE FOR MANY YEARS, AND THAT'S CALLED A BACK LIST BOOK.
1872= Q. SO WOULD IT BE CORRECT TO SAY THAT A BACK LIST BOOK IS A 1873= BOOK THAT IS STILL IN PRINT, BUT IT IS NOT A NEW RELEASE?
1874= A. YES. I'LL GIVE YOU AN ILLUSTRATION. THE GLORY AND THE
1875= DREAM, BY WILLIAM MANCHESTER. WE'VE BEEN SELLING THAT BOOK 1876= SINCE I OPENED THE BOOKSTORE.
1877= Q. AND IS THAT BOOK STILL BEING PRINTED BY THE PUBLISHER? 1878= A. YES.
1879= Q. SO YOU CAN STILL BUY IT IN NEW COPIES? 1880= A. YES.
1881= Q. BUT THAT WOULD BE CONSIDERED A BACK LIST BOOK. IT'S 1882= OBVIOUSLY NOT A NEW RELEASE.
1883= A. CORRECT. 1884= Q. ALL RIGHT. NOW, DOES THE HAPPY BOOKSELLER SELL BOTH FRONT
1885= LIST AND BACK LIST BOOKS? 1886= A. YES, WE DO.
1887= Q. LET ME, BEFORE I TURN TO SOME PARTICULAR PUBLISHERS AND 1888= WHOLESALERS AND ASK ABOUT YOUR PURCHASES FROM THOSE PARTICULAR
1889= PUBLISHERS, IF YOU COULD DESCRIBE FOR THE COURT YOUR GENERAL 1890= ORDERING PROCESS; HOW OFTEN DO YOU BUY BOOKS OR ORDER BOOKS.
1891= A. FROM WHOLESALERS, WE SEND THEM AN ELECTRONIC ORDER EVERY 1892= DAY. FROM PUBLISHERS, MOST OF THE LARGER PUBLISHERS, WE WOULD
1893= SEND AN ORDER AT LEAST ONCE A WEEK. SMALLER PUBLISHERS, WE 1894= MIGHT BUY THEM ONCE OR TWICE A YEAR.
1895= Q. SO THE RANGE GOES FROM EVERY DAY TO, FOR THE BIGGER 1896= PUBLISHERS, EVERY WEEK, SMALLER PUBLISHERS, LESS FREQUENTLY?
1897= A. YES, AND THAT WOULD NOT INCLUDE SPECIAL ORDERS. WE GET 1898= SPECIAL ORDERS EVERY DAY, AND THAT USUALLY GOES TO THE
1899= WHOLESALER, ALTHOUGH IT MIGHT BE A MAJOR PUBLISHER BOOK. BUT
1900= SPEED IS THE REASON FOR THAT. 1901= Q. NOW, HOW DO YOU PLACE YOUR ORDERS?
1902= A. WE PLACE MOST OF THE DAILY ORDERS ELECTRONICALLY. WE PLACE 1903= THE PUBLISHERS' ORDERS ELECTRONICALLY. WE USUALLY ORDER SMALL
1904= PUBLISHERS' BOOKS BY TELEPHONE. 1905= Q. ALL RIGHT, NOW, FOR WHOLESALERS AND FOR THE LARGE
1906= PUBLISHERS, WHAT DO YOU MEAN WHEN YOU SAY YOU PLACE THE ORDERS 1907= ELECTRONICALLY?
1908= A. YOU USE A DISK AND ORDER THEM THROUGH A COMPUTER. 1909= Q. ALL RIGHT. I'D LIKE TO FOCUS NOW ON SOME PARTICULAR
1910= PUBLISHERS, AND ALSO FOCUS ON THE PERIOD FROM 1994 TO THE 1911= PRESENT. I'D ASK YOU TO LOOK AT EXHIBIT 2591.
1912= A. OKAY. 1913= Q. MR. JACKSON, FOR THE RECORD, 2591, THE SECOND PAGE ON THE
1914= EXHIBIT LABEL, IS A LIST OF --IT'S JUST GOT A LIST OF NAMES ON 1915= THERE. CAN YOU IDENTIFY WHAT THIS LIST IS, OR WHO'S ON THIS
1916= LIST? 1917= A. THIS IS A LIST OF PUBLISHERS, AND MOST --IT SEEMS TO ME
1918= THAT MOST OF THEM ARE MAJOR PUBLISHERS. 1919= Q. ALL RIGHT. SO ALL THE NAMES ON THE LEFT-HAND COLUMN AND
1920= ALL THE NAMES ON THE RIGHT-HAND COLUMN, AT LEAST UP TO W. W. 1921= NORTON, ARE THOSE ALL PUBLISHERS?
1922= A. YES. 1923= Q. AND YOU DESCRIBE, THESE ARE ESSENTIALLY ALL THE MAJOR
1924= PUBLISHERS?
1925= A. YES. 1926= Q. NOW, AT THE LOWER RIGHT-HAND CORNER ON THE EXHIBIT, THERE
1927= IS, I BELIEVE, THE THREE WHOLESALERS YOU IDENTIFIED, BAKER & 1928= TAYLOR, INGRAM AND KOEN?
1929= A. YES. 1930= Q. ALL RIGHT. I'D LIKE YOU TO TAKE A MINUTE AND LOOK AT THIS
1931= LIST, AND I'D LIKE YOU TO IDENTIFY THE VENDORS ON THIS LIST
28
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1932= FROM WHOM YOU HAVE PURCHASED BOOKS DURING THE PERIOD 1994 TO 1933= THE PRESENT.
1934= A. WELL, WE HAVE BOUGHT FROM MOST OF THEM. 1935= Q. OKAY, NOW, JUST TALKING ABOUT THE ENTIRE PERIOD FROM '94 TO
1936= 2000 --1937= A. YES.
1938= Q. --HAVE YOU BOUGHT, YOU SAY FROM MOST OF THESE PUBLISHERS? 1939= A. YES, THERE'S A FEW HERE THAT WE HAVEN'T BOUGHT, LIKE IPG.
1940= I'M NOT SURE WE BOUGHT ANYTHING FROM THEM IN THAT PERIOD. 1941= Q. OKAY.
1942= A. BUT IF WE BOUGHT IT, IT WOULD BE JUST VERY RARE, AND LOGAN, 1943= VERY RARE, AND THE TWO MACMILLANS ON THERE WE HAVE NOT
1944= PURCHASED, EXCEPT IF IT WAS A SPECIAL ORDER, WE WENT THROUGH 1945= THE WHOLESALERS.
1946= Q. OKAY. SO THE PUBLISHERS ON THIS LIST, AND THE WHOLESALERS, 1947= FROM WHOM YOU HAVE NOT BOUGHT BOOKS ON A REGULAR BASIS WOULD BE
1948= THE INDEPENDENT PUBLISHERS GROUP, THE LPC GROUP, LOGAN 1949= PUBLISHERS CONSORTIUM, MACMILLAN COMPUTER AND MACMILLAN GENERAL

1950= REFERENCE? 1951= A. AND WESTERN.
1952= Q. OKAY, AND WESTERN. NOW, WITH THE EXCEPTION OF THOSE 1953= VENDORS THAT WE'VE LISTED, THOSE FIVE VENDORS, HAVE YOU
1954= PURCHASED BOOKS FROM EACH OF THE OTHER PUBLISHERS AND 1955= WHOLESALERS EVERY YEAR BETWEEN 1994 TO THE PRESENT?
1956= A. YES. 1957= Q. NOW, DURING THAT PERIOD FROM 1994 TO THE PRESENT, HAVE SOME
1958= OF THE PUBLISHERS ON THIS LIST MERGED? 1959= A. YES, QUITE A FEW OF THEM.
1960= Q. CAN YOU IDENTIFY ANY FOR THE COURT? 1961= A. WELL, AVON IS MERGED WITH BERKELEY, POCKET BOOKS IS MERGED
1962= IN, OF COURSE, VHPS. THEY'RE SEVERAL OF THE MAJOR PURCHASES 1963= THAT WE BOUGHT FROM QUITE A BIT, ALL IN ONE GROUP, FARRAR,
1964= STRAUSS, ST., MARTIN'S AND W. H. FREEMAN. 1965= Q. LET ME SLOW DOWN A LITTLE BIT, SIR. YOU SAID THAT AVON
1966= BOOKS, UP ON THE LIST, HAS NOW BECOME PART OF ANOTHER 1967= PUBLISHER?
1968= A. YES. 1969= Q. AND WHO IS THAT?
1970= A. AVON IS NOW IN --GOSH, WHERE IS AVON NOW? 1971= Q. IS THAT PART OF HARPER COLLINS?
1972= A. IT IS HARPER COLLINS, YES, RIGHT. 1973= Q. AND YOU MENTIONED BERKELEY, I BELIEVE. IS BERKELEY NOW
1974= OWNED BY SOMEBODY ELSE?
1975= A. YES, THEY'RE IN PUTNAM. 1976= Q. THEY'RE OWNED BY PUTNAM, AND HOW ABOUT PUTNAM? IS PUTNAM
1977= OWNED BY SOMEBODY ELSE? 1978= A. PUTNAM IS IN A GROUP THAT'S BERKELEY. PUTNAM IS THE WAY WE
1979= WRITE THE CHECKS TO. 1980= Q. IS THAT OWNED BY PENGUIN TODAY?
1981= A. IS IT OWNED BY PENGUIN? YES, I THINK IT IS. 1982= Q. SO THERE'S BEEN A LOT OF MOVEMENT AS TO WHO'S OWNING THESE
1983= VARIOUS HOUSES. 1984= A. YES, POCKETBOOKS COMES FROM SIMON & SCHUSTER. SCARLET,
1985= SCHOLASTIC COMES FROM PENGUIN. 1986= Q. BUT LAYING ASIDE WHO HAPPENS TO OWN THESE DIFFERENT
1987= PUBLISHING HOUSES AT DIFFERENT TIMES, APART FROM THE FIVE THAT 1988= YOU'VE MENTIONED, YOU'VE PURCHASED BOOKS FROM ALL OF THE OTHER
1989= VENDORS ON A REGULAR BASIS EVERY YEAR BETWEEN 1994 AND 2000. 1990= IS THAT AN ACCURATE STATEMENT?
1991= A. YES. AND PART OF THAT TIME THESE, LIKE AVON, WE GOT 1992= INVOICES STRAIGHT FROM AVON UP UNTIL '99, AND SOME OF THE REST,
1993= IT'S TRUE FOR SOME OF THE REST OF THEM, TOO, BUT WE HAD 1994= PURCHASED FROM ALL OF THEM.
1995= (CONTINUED ON FOLLOWING PAGE. NOTHING OMITTED.) 1996=
1997= 1998=
1999=
2000= JACKSON -DIRECT / DE BRUIN 1 BY MR. DE BRUIN:
29
29 Page 30 31
2001= 2 Q. SO IN OTHER WORDS, EVEN THOUGH AVON MAY BE OWNED BY SOMEBODY 3 ELSE, YOU STILL PURCHASE BOOKS FROM AVON
2002= 4 FROM AVON? 2003= 5 A. IT'S NOT UNDER THE AVON NAME ANYMORE, BUT --
2004= 6 Q. SO OFTENTIMES --2005= 7 A. COMES FROM --YEAH.
2006= 8 Q. OKAY. NOW, WITH RESPECT TO THE VENDORS ON THIS LIST, OTHER 2007= 9 THAN THE FIVE THAT YOU HAVE IDENTIFIED, DO YOU PURCHASE BOTH
2008= 10 FRONT LIST AND BACK LIST BOOKS? 2009= 11 A. YES.
2010= 12 Q. AND THE VENDORS ON THIS LIST, OTHER THAN THE ONES YOU HAVE 2011= 13 IDENTIFIED, CAN YOU DESCRIBE JUST GENERALLY HOW FREQUENTLY YOU
2012= 14 TYPICALLY WOULD PURCHASE BOOKS FROM THOSE VENDORS? 2013= 15 A. MOST ALL OF THOSE PUBLISHERS WE WOULD BUY VERY REGULARLY.
2014= 16 Q. AND WHAT DO YOU MEAN BY "VERY REGULARLY"? 2015= 17 A. MOSTLY WEEKLY. IN SOME CASES, TWO, THREE TIMES A WEEK, SOME
2016= 18 CASES TWO, THREE TIMES A MONTH, DEPENDING ON OUR INVENTORY. 2017= 19 Q. DO ALL OF THE PUBLISHERS ON THIS LIST OTHER THAN THE FIVE
2018= 20 YOU'VE MENTIONED HAVE FRONT LIST BOOKS? 2019= 21 A. YES.
2020= 22 Q. AND DID YOU ALWAYS BUY SOME OF THE FRONT LIST BOOKS OF EACH 2021= 23 OF THESE PUBLISHERS EVERY SEASON?
2022= 24 A. YES. 2023= 25 Q. AND DO THESE PUBLISHERS ALSO HAVE BACK LIST BOOKS?
2024= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2025= JACKSON -DIRECT / DE BRUIN 1 A. YEAH, SOME OF THEM HAVE A MUCH BETTER BACK LIST THAN OTH
2026= 2 BUT THEY ALL HAVE A BACK LIST, YES. 3 Q. ALL RIGHT. WHICH OF THE PUBLISHERS ON THIS LIST OTHER THAN
2027= 4 THE FIVE THAT WE'VE EXCLUDED SELL TRADE BOOKS, EITHER TRADE 2028= 5 HARDBACK OR TRADE PAPERBACK BOOKS?
2029= 6 A. I THINK ALL OF THEM. 2030= 7 Q. AND DID THE HAPPY BOOKSELLER PURCHASE TRADE HARDCOVER AND
2031= 8 TRADE PAPERBACK BOOKS FROM ALL THE PUBLISHERS ON THIS OTHER THAN 2032= 9 THE FIVE YOU'VE MENTIONED?
2033= 10 A. YES. 2034= 11 Q. HOW ABOUT MASS MARKET BOOKS? WHICH OF THE VENDORS ON THIS
2035= 12 LIST OTHER THAN THE FIVE THAT YOU'VE EXCLUDED SELL MASS MARKET 2036= 13 BOOKS?
2037= 14 A. I THINK I CAN LIST THEM. AVON, BALLANTINE, BANTAM, 2038= 15 HARPERCOLLINS. LITTLE BROWN HAS A FEW MASS MARKET. PENGUIN,
2039= 16 POCKET BOOKS. OF COURSE, RANDOM HAS --UNDER THE SOME OF THE --2040= 17 THAT MERGED WITH THEM, LIKE DELL AND BANTAM. SIMON & SCHUSTER
2041= 18 HAS SOME POCKETBOOKS. WARNER, POCKET BOOK. AND I BELIEVE THAT 2042= 19 COVERS IT.
2043= 20 Q. NOW, FOR ALL THOSE VENDORS THAT YOU'VE IDENTIFIED THAT SELL 2044= 21 MASS MARKET BOOKS, DOES THE HAPPY BOOKSELLER PURCHASE MASS
2045= 22 MARKET BOOKS FROM THOSE VENDORS? 2046= 23 A. YES.
2047= 24 Q. AND HAS THE HAPPY BOOKSELLER PURCHASED MASS MARKET BOOKS 2048= 25 FROM THOSE VENDORS FOR EVERY YEARS FROM 1994 TO THE PRESENT?
2049= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2050= JACKSON -DIRECT / DE BRUIN 1 A. YES. 2051= 2 Q. WITH RESPECT TO THE TRADE BOOKS THAT I ASKED A MINUTE AGO 3 ABOUT, HAVE YOU
PURCHASED TRADE BOOKS FROM E 2052= 4 VENDORS OTHER THAN THE FIVE THAT YOU'VE CIRCLED EVERY YEAR FROM
2053= 5 1994 TO THE PRESENT? 2054= 6 A. YES.
2055= 7 Q. HOW ABOUT AUDIO BOOKS? DO ANY OF THE VENDORS ON THIS LIST 2056= 8 AGAIN, EXCLUDING THE FIVE THAT YOU'VE MENTIONED, SELL AUDIO
2057= 9 BOOKS? WHAT IS AN AUDIO BOOK FIRST OF ALL? 2058= 10 A. AN AUDIO BOOK IS A BOOK YOU PLAY IN A TAPE RECORDER, AND
2059= 11 THEY MAKE THEM TWO, THREE WAYS. THEY MAKE THEM UNABRIDGED, 2060= 12 ABRIDGED. AND THEY'RE VERY POPULAR FOR PEOPLE WHO TRAVEL A LOT
2061= 13 WHERE THEY CAN LISTEN TO THE BOOK AS THEY TRAVEL. 2062= 14 Q. SO IT'S BASICALLY A BOOK ON TAPE?
2063= 15 A. BOOK ON TAPE. 2064= 16 Q. AND DO YOU SELL BOOKS ON TAPE?
2065= 17 A. YES, WE DO. 2066= 18 Q. WHICH OF THE PUBLISHERS ON THIS LIST AGAIN, APART FROM THE
2067= 19 FIVE WE'VE EXCLUDED, SELL AUDIO BOOKS?
30
30 Page 31 32
2068= 20 A. I THINK I CAN PICK MOST OF THEM OUT. BANTAM DOUBLEDAY DELL 2069= 21 HAS AUDIO BOOKS. HARPERCOLLINS HAS AUDIO BOOKS. PENGUIN HAS
2070= 22 AUDIO BOOKS. PUBLISHERS GROUP WEST, WHICH IS --THEY HAVE SOME 2071= 23 AUDIO BOOKS FROM SOME OF THEIR PUBLISHERS. RANDOM HOUSE HAS
2072= 24 AUDIO BOOKS. SIMON & SCHUSTER. UM, AND I BELIEVE THAT'S ALL OF 2073= 25 THEM.
2074= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2075= JACKSON -DIRECT / DE BRUIN 1 Q. DOES THE HAPPY BOOKSELLER PURCHASE AUDIO BOOKS FROM ALL
2076= 2 THOSE VENDORS YOU'VE JUST LISTED? 3 A. YES, WE DO. 2077= 4 Q. DID YOU PURCHASE AUDIO BOOKS FROM ALL OF THOSE VENDORS FOR
2078= 5 EACH OF THE YEARS FROM 1994 TO THE PRESENT? 2079= 6 A. I WOULD THINK SO. I MEAN, WE MIGHT HAVE MISSED A YEAR, BUT
2080= 7 I DOUBT IT. I THINK WE PROBABLY PURCHASED EVERY YEAR. 2081= 8 Q. MR. JACKSON, LOOKING AT THE PUBLISHERS ON THIS LIST AND THE
2082= 9 THREE WHOLESALERS AND EXCLUDING THE FIVE THAT WE'VE EXCLUDED, 2083= 10 APPROXIMATELY WHAT PERCENTAGE OF ALL OF YOUR BOOK PURCHASES DO
2084= 11 YOU MAKE FROM THE VENDORS ON THIS LIST? 2085= 12 A. AND YOU SAID EXCLUDING THE WHOLESALERS?
2086= 13 Q. NO, INCLUDING THE WHOLESALERS, BAKER & TAYLOR, INGRAM AND 2087= 14 KOEN AND INCLUDING THE PUBLISHERS HERE, ABOUT WHAT PERCENTAGE OF
2088= 15 ALL YOUR BOOKS DO YOU BUY FROM THESE --THESE VENDORS? 2089= 16 A. THIS IS KIND OF INTELLIGENT GUESS, I HOPE. BUT I WOULD
2090= 17 PROBABLY SAY 80 PERCENT. 2091= 18 Q. OKAY. NOW, DO YOU KNOW WHERE THE BOOKS THAT COME FROM THESE
2092= 19 VENDORS ARE SHIPPED FROM? 2093= 20 A. THEY SHIP FROM SEVERAL PLACES, MOST FROM THE EAST COAST.
2094= 21 NONE OF THEM --NONE OF THESE PUBLISHERS ARE LOCATED IN MY 2095= 22 STATE, SOUTH CAROLINA.
2096= 23 Q. SO ALL OF THE BOOKS YOU RECEIVE FROM THESE PUBLISHERS COME 2097= 24 OUTSIDE THE STATE OF SOUTH CAROLINA?
2098= 25 A. YES. 2099= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

2100= JACKSON -DIRECT / DE BRUIN 1 Q. HOW ABOUT THE BOOKS FROM THE WHOLESALERS, BAKER & TAYLOR
2101= 2 INGRAM AND KOEN, WHERE DO THEY COME FROM? 3 A. BAKER & TAYLOR COMES FROM GEORGIA. INGRAM HAS TWO
2102= 4 WAREHOUSES, ONE IN NASHVILLE, AND --WE GET MOST OF OUR BOOKS 2103= 5 FROM EITHER NASHVILLE. I THINK THE OTHER WAREHOUSE IS IN
2104= 6 VIRGINIA. KOEN COMES FROM NEW JERSEY. 2105= 7 Q. ALL RIGHT. SO ALL THE BOOKS THAT YOU BUY FROM WHOLESALERS
2106= 8 DO THEY ALSO COME FROM OUTSIDE THE STATE? 2107= 9 A. YES.
2108= 10 Q. LET ME ASK YOU SOME QUESTIONS REGARDING THE PRICES THAT THE 2109= 11 HAPPY BOOKSELLER PAYS FOR BOOKS. ARE YOU FAMILIAR WITH THE
2110= 12 PRICES THAT THE HAPPY BOOKSELLER PAYS TO PUBLISHERS AND 2111= 13 WHOLESALERS ON THE BOOKS THAT THEY BUY?
2112= 14 A. YES, I'M VERY FAMILIAR BECAUSE MY JOB IS TO PAY ALL THE 2113= 15 INVOICES, AND I'M --I CHECK EVERY INVOICE. I CHECK EVERY
2114= 16 SHORTAGE THAT THE PEOPLE IN THE RECEIVING ROOM HAVE MARKED, AND 2115= 17 I CHECK THE DISCOUNTS TO MAKE SURE THEY FIT THE RED BOOK.
2116= 18 Q. ALL RIGHT. LET ME FIRST ASK YOU, HOW ARE THE PRICES THAT 2117= 19 THE HAPPY BOOKSELLER PAYS FOR BOOKS ESTABLISHED?
2118= 20 A. UM, WHAT WE DO IS WE GET --WELL, WE USE THE RED BOOK TO 2119= 21 MAKE SURE THAT THE PUBLISHERS IS PRICING US ACCORDING TO THE RED
2120= 22 BOOK. AND THOSE PRICES IN THE RED BOOK COME FROM THE 2121= 23 PUBLISHERS. THEY SEND THEM TO THE ABA, AND THEY PUT THEM IN THE
2122= 24 BOOK. 2123= 25 SO THOSE PRICES COME FROM THE RED BOOK, WHICH COMES
2124= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2125= JACKSON -DIRECT / DE BRUIN 1 FROM THE PUBLISHERS. THAT IS SUPPOSED TO BE THEIR POLICIES
2126= 2 THEIR DISCOUNT SCHEDULES, AND THAT'S WHERE WE GET OUR PRICES, 3 OUR DISCOUNTS. 2127= 4 Q. LET ME GO BACK A LITTLE BIT. YOU'VE REFERRED TO THE RED
2128= 5 BOOK. CAN YOU IDENTIFY FOR THE RECORD WHAT THE RED BOOK IS? 2129= 6 A. THE RED BOOK IS THE ABA BUYERS HANDBOOK. OFTEN REFERRED TO
2130= 7 AS THE "RED BOOK." IT'S PUT TOGETHER BY THE AMERICAN 2131= 8 BOOKSELLERS ASSOCIATION FROM INFORMATION SENT TO THEM BY THE
2132= 9 PUBLISHER, AND THAT IS SUPPOSED TO BE THE PUBLISHER'S PRINTED 2133= 10 SCHEDULE. THAT'S WHAT WE GO BY.
31
31 Page 32 33
2134= 11 Q. ALL RIGHT. I'M GOING TO ASK YOU TO TAKE A LOOK AT A COPY OF 2135= 12 WHAT WE'VE MARKED AS EXHIBIT 7.
2136= 13 AND, JUDGE, YOU HAVE BEHIND YOU A COPY OF EXHIBIT 7. 2137= 14 IT MAY BE ON THE SECOND SHELF, JUDCould not acquire words on page 33 GE, I --
2138= 15 THE COURT: THIS IS --2139= 16 (PAUSE IN THE PROCEEDINGS.)
2140= 17 THE COURT: ALL RIGHT. 2141= 18 BY MR. DE BRUIN:
2142= 19 Q. NOW, MR. JACKSON, I'VE ACTUALLY HANDED YOU AN ACTUAL BOOK, 2143= 20 BUT IT'S MARKED EXHIBIT 7. IT'S THE SAME EXHIBIT 7 AS THE JUDGE
2144= 21 HAS IN HIS BINDER, WHICH IS JUST A PHOTOCOPY OF THE BOOK. WE'LL 2145= 22 SUBMIT THE ORIGINAL BOOK FOR THE RECORD.
2146= 23 THE COURT: YEAH. 2147= 24 BY MR. DE BRUIN:
2148= 25 Q. CAN YOU FORMALLY FOR THE RECORD, SIR, PLEASE IDENTIFY 2149= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

2150= JACKSON -DIRECT / DE BRUIN 1 EXACTLY WHAT EXHIBIT 7 IS. 2151= 2 A. EXHIBIT 7 IS THE ABA BOOK BUYERS HANDBOOK, AND THIS IS FOR 3 THE YEAR 2000.
2152= 4 Q. HOW FREQUENTLY DOES THE ABA BOOK BUYERS HANDBOOK COME OUT? 2153= 5 A. ONCE A YEAR.
2154= 6 Q. IS THE ABA BOOK BUYER'S HANDBOOK THAT YOU REFERRED TO, IS 2155= 7 THAT A COMPILATION OF DATA OR FACTS THAT IS USED BY PERSONS IN
2156= 8 THE BOOK-SELLING BUSINESS? 2157= 9 A. YES. I WAS ACTUALLY ON THE COMMITTEE ONE TIME, WORKED WITH
2158= 10 THE PUBLISHERS TO SEND THIS INFORMATION. THEY SEND --WHAT THEY 2159= 11 SEND TO US IS THEIR ESTABLISHED PRICES AND DISCOUNTS.
2160= 12 Q. AND DO YOU RELY UPON THIS BOOK, SIR, FOR THE PURPOSE OF 2161= 13 CARRYING OUT YOUR BUSINESS?
2162= 14 A. I DO. 2163= 15 Q. ALL RIGHT. NOW, BEFORE WE TALK A LITTLE BIT MORE ABOUT
2164= 16 PURCHASE TERMS, I WONDER IF WE CAN IDENTIFY FOR THE RECORD 2165= 17 EXACTLY HOW BOOKS ARE PRICED AND SOLD BY PUBLISHERS.
2166= 18 CAN YOU DESCRIBE HOW IT IS THAT BOOKS ARE PRICED BY 2167= 19 PUBLISHERS?
2168= 20 A. A PUBLISHER WILL DECIDE ON THE RETAIL PRICE OF THE BOOK. 2169= 21 AND AFTER THEY HAVE ESTABLISHED THE RETAIL PRICE, THEN THEY
2170= 22 ESTABLISH DISCOUNTS FROM THOSE RETAIL PRICES. AND THOSE 2171= 23 DISCOUNTS ARE THE ONES THAT ARE PUBLISHED IN THE ABA BUYERS
2172= 24 HANDBOOK. 2173= 25 Q. ALL RIGHT. IS THERE A WORD THAT IS USED TO OR A PHRASE
2174= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2175= JACKSON -DIRECT / DE BRUIN 1 THAT'S USED TO REFER TO THE RETAIL PRICE THAT THE PUBLISHER
2176= 2 ON A BOOK? 3 A. WELL, RETAIL PRICE, LIST PRICE. 2177= 4 Q. ALL RIGHT. AND YOU REFERRED TO A DISCOUNT. WHAT DO YOU
2178= 5 MEAN BY A DISCOUNT? 2179= 6 A. THAT WOULD BE A DISCOUNT FROM THAT LIST PRICE.
2180= 7 Q. ALL RIGHT. SO CAN YOU GIVE ME A TYPICAL DISCOUNT THAT A 2181= 8 PUBLISHER MIGHT SELL A BOOK?
2182= 9 A. FORTY-FOUR PERCENT. FORTY-THREE. 2183= 10 Q. ALL RIGHT. AND WHAT DOES IT MEAN TO YOU AS A BOOKSELLER IF
2184= 11 A PUBLISHER IS SELLING A BOOK AT A 44 PERCENT DISCOUNT? 2185= 12 A. I'M NOT SURE I UNDERSTAND THE QUESTION.
2186= 13 Q. HOW MUCH --LET'S SAY 10-DOLLAR BOOK --2187= 14 A. 10-DOLLAR BOOK, THE GROSS PROFIT ON THAT WOULD BE $4.40.
2188= 15 Q. IF IT'S --2189= 16 A. WHICH IS THE DISCOUNT.
2190= 17 Q. ALL RIGHT. LET ME --LET ME TAKE THIS SLOWLY. IF IT'S A 2191= 18 10-DOLLAR BOOK AND YOU'VE GOT A 44 PERCENT DISCOUNT --
2192= 19 A. YES. 2193= 20 Q. --WHAT DO YOU PAY THE PUBLISHER FOR THAT BOOK?
2194= 21 A. UM, $5.60 CENTS, I BELIEVE. 2195= 22 Q. ALL RIGHT.
2196= 23 A. YES. 2197= 24 Q. SO IN OTHER WORDS, THE --
2198= 25 A. 44 PERCENT OFF THAT --40 WOULD BE $6, SO IT WOULD BE $5.60. 2199= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

2200= JACKSON -DIRECT / DE BRUIN 1 Q. THE DISCOUNT IS THE AMOUNT OFF THE BOOK, AND THEN YOU'RE
2201= 2 PAYING --3 A. YES.
32
32 Page 33 34

33 Page 34 35
2270= 22 RETURN THEM IN GOOD CONDITION AND IF YOU RETURN THEM BEFORE 2271= 23 THEY'RE OUT OF PRINT. IN SOME --IN SOME CASES, THERE'S A TIME
2272= 24 LIMIT ON IT. AND YOU CAN RETURN IT FOR CREDIT, AND THE 2273= 25 DIFFERENT PUBLISHERS HAVE DIFFERENT KIND OF WAYS TO --TO FIGURE
2274= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2275= JACKSON -DIRECT / DE BRUIN 1 THAT CREDIT. SOME OF THEM CREDIT ON AVERAGE DISCOUNT THAT
2276= 2 YOU'VE BOUGHT OVER THE PREVIOUS YEAR. AND SOME OF THEM HAVE 3 A --SOMEWHAT OF A PENALTY. BUT THAT'S WHAT
2277= 4 CAN RETURN THEM FOR CREDIT. 2278= 5 Q. ALL RIGHT. IS THERE AN OPTION TO BUY BOOKS ON A
2279= 6 NON-RETURNABLE BASIS? 2280= 7 A. IN NOT EVERY CASE, BUT IN SOME CASES, YOU CAN BUY
2281= 8 NON-RETURNABLE OR RETURNABLE. BUT YOU --IF YOU --IF YOU OPT 2282= 9 FOR ONE OR THE OTHER, YOU HAVE TO STAY ON IT AT LEAST 12 MONTHS.
2283= 10 YOU CAN'T BUY BOTH WAYS. 2284= 11 Q. AND WHAT DO YOU MEAN WHEN YOU SAY YOU CAN'T BUY THEM BOTH
2285= 12 WAYS? 2286= 13 A. YOU CAN'T BUY ONE MONTH RETURNABLE AND ONE MONTH
2287= 14 NON-RETURNABLE. YOU HAVE TO --YOU HAVE TO AGREE WHICH WAY 2288= 15 YOU'RE GOING TO BUY THEM IN MOST CASES.
2289= 16 Q. SO YOU HAVE TO MAKE AN ELECTION AS TO EITHER BUY ALL OF YOUR 2290= 17 BOOKS FROM THE PUBLISHERS ON A RETURNABLE BASIS OR BUY ALL OF
2291= 18 YOUR BOOKS ON A NON-RETURNABLE BASIS? 2292= 19 A. I THINK THAT'S TRUE FOR MOST OF THEM, YES. THERE ARE A FEW
2293= 20 EXCEPTIONS. 2294= 21 Q. LOOKING AT THE PUBLISHERS ON THE LIST AGAIN, DOCUMENT NUMBER
2295= 22 2591, IS YOUR NOTEBOOK STILL OPEN TO THE LIST OF PUBLISHERS? 2296= 23 A. YES.
2297= 24 Q. DO YOU KNOW WHETHER THE PUBLISHERS ON THIS LIST THAT YOU BUY 2298= 25 FROM, DO THEY REQUIRE YOU TO MAKE A --AN ELECTION AS TO WHETHER
2299= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2300= JACKSON -DIRECT / DE BRUIN 1 YOU BUY ALL OF YOUR BOOKS ON A RETURNABLE BASIS OR ALL OF YO
2301= 2 BOOKS ON A NON-RETURNABLE BASIS? 3 A. I THINK THEY DO. ACTUALLY WE BUY THEM ALL RETURNABLE. SO
2302= 4 WE'VE NEVER HAD TO MAKE THAT ELECTION, BUT I THINK THEY DO 2303= 5 GIVE --MOST OF THEM GIVE YOU THAT OPTION.
2304= 6 Q. NOW, WHEN YOU HAVE TO MAKE AN ELECTION, HOW LONG --DO YOU 2305= 7 KNOW HOW LONG YOU ARE REQUIRED TO DESIGNATE?
2306= 8 A. WELL, I'VE LOOKED THROUGH THIS BOOK BEFORE, AND MOST OF THEM 2307= 9 SAY THAT YOU CAN DO IT ON A ANNUAL BASIS, BUT YOU HAVE TO STICK
2308= 10 WITH WHAT YOU DECIDED TO DO FOR 12 MONTHS. 2309= 11 Q. HAS THE HAPPY BOOKSELLER EVER BEEN ABLE TO PURCHASE BOOKS
2310= 12 FROM ANY OF THE PUBLISHERS ON THE LIST, EXHIBIT 2591, WHERE 2311= 13 DURING THE COURSE OF A YEAR, YOU WERE ABLE TO BUY BOTH ON A
2312= 14 RETURNABLE BASIS AND ON A NON-RETURNABLE BASIS? 2313= 15 A. NO.
2314= 16 Q. AND IS THAT TRUE FOR ALL OF THESE PUBLISHERS FOR ALL OF THE 2315= 17 YEARS FROM 1994 TO THE PRESENT?
2316= 18 A. YES. 2317= 19 Q. NOW, MR. JACKSON, YOU MAY HAVE DESCRIBED THIS ALREADY, BUT I
2318= 20 WANT TO MAKE SURE THAT IT IS CLEAR. YOU'VE DESCRIBED THE ABA 2319= 21 RED BOOK. HOW DO YOU KNOW WHAT PUBLISHERS PRICES ARE? HOW ARE
2320= 22 THEY COMMUNICATED TO YOU? 2321= 23 A. WELL, OF COURSE --THEY'RE COMMUNICATED BY THIS RED BOOK,
2322= 24 AND I WANT TO EMPHASIZE THE INFORMATION IN THIS BOOK COMES FROM 2323= 25 THE PUBLISHER. IT'S NOT SOMETHING THE ABA MAKES UP FOR THE
2324= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2325= JACKSON -DIRECT / DE BRUIN 1 YELLOW PAGES. THIS IS SUPPOSED TO BE THEIR TERMS. AND I
2326= 2 CHECKED MY INVOICES, 'CAUSE MOST OF THEM I KNOW BY HEART, BUT 3 I --IF I'M IN DOUBT, I CHECK. AND I DON'T
2327= 4 I ALMOST KNOW WE'VE NEVER BOUGHT ANY BOOKS THAT DIDN'T FIT THE 2328= 5 SCHEDULES IN THE BOOK.
2329= 6 Q. NOW, DO PUBLISHER TERMS EVER CHANGE? 2330= 7 A. YES, THEY DO CHANGE.
2331= 8 Q. HOW FREQUENTLY DO THEY CHANGE, SIR? 2332= 9 A. WELL, NOT THAT FREQUENTLY, BUT THEY DO CHANGE. SOMETIMES IN
2333= 10 THE MIDDLE OF A YEAR, IN THE MIDDLE OF THE PUBLICATION OF THIS
34
34 Page 35 36
2334= 11 BOOK. 2335= 12 Q. AND HOW DO YOU KNOW WHETHER A PUBLISHER'S TERMS HAVE
2336= 13 CHANGED? 2337= 14 A. WE CAN --WE USUALLY GET A LETTER STATING THAT THEY'VE
2338= 15 CHANGED THE TERMS. SOMETIMES WE GET A FAX OR --OFTENTIMES, THE 2339= 16 REP WILL COME IN WITH THE LETTER AND SAY, "I'VE GOT A NEW
2340= 17 DISCOUNT SCHEDULE FOR YOU." AND WE WILL TAKE THAT LETTER OR 2341= 18 THAT COMMUNICATION AND PUT IT IN THIS BOOK ON THE PAGES THAT
2342= 19 FITS THAT PUBLISHER. 2343= 20 Q. SO YOU KEEP YOUR COPY OF THE RED BOOK IN ESSENCE UP TO DATE
2344= 21 IF THERE'S ANY CHANGES IN TERMS? 2345= 22 A. YES, WE DO.
2346= 23 Q. MR. JACKSON, HOW DO YOU KNOW PERSONALLY WHAT THE HAPPY 2347= 24 BOOKSELLER PAYS FOR THE BOOKS IT PURCHASES?
2348= 25 A. BECAUSE I PAY EVERY INVOICE AND CHECK EVERY INVOICE, AND I 2349= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

2350= JACKSON -DIRECT / DE BRUIN 1 DO ALL THIS BY HAND. I'M NOT A COMPUTER PERSON. DON'T PAY
2351= 2 COMPUTER. AND AFTER I CHECK IT, THEN I MATCH THAT INVOICE WITH 3 THE STATEMENT. AND THEN WHEN I'VE GOT THE
2352= 4 INVOICES ALL MATCHED UP, THEN I PAY IT. 2353= 5 Q. NOW, YOU SAY THAT YOU CHECK EVERY INVOICE. CAN YOU DESCRIBE
2354= 6 TO THE COURT WHAT YOU MEAN WHEN YOU SAY YOU CHECK EVERY INVOICE? 2355= 7 A. WELL, I FIRST LOOK TO SEE THE PEOPLE WHO CHECKED IT IN HAVE
2356= 8 MARKED ANY SHORTAGES, AND THEN IF THEY MARK SHORTAGES, I SEE 2357= 9 IF --ACTUALLY MY WIFE EITHER WRITES OR CALLS ABOUT SHORTAGES.
2358= 10 SEE IF THAT'S BEEN DONE, THEN I CHECK THE DISCOUNT, THEN I PAY 2359= 11 IT.
2360= 12 Q. AND HOW DO YOU CHECK THE DISCOUNT? 2361= 13 A. WELL, YOU KNOW, AFTER --IT ONLY TAKES ABOUT A MONTH AFTER A
2362= 14 NEW DISCOUNT SCHEDULE FOR ME TO KNOW IN MY HEAD, AND I CAN JUST 2363= 15 LOOK AT IT AND SEE, AND I'LL KNOW WHETHER IT'S CORRECT DISCOUNT.
2364= 16 Q. DO YOU SOMETIMES LOOK BACK TO THE BOOK TO VERIFY DISCOUNTS? 2365= 17 A. WELL, ESPECIALLY WITH SMALL PUBLISHERS, I DO. LARGE
2366= 18 PUBLISHERS, I USUALLY KNOW WHAT THE DISCOUNT SHOULD BE. 2367= 19 Q. WHAT RECORDS EXIST OF THE PRICE THAT THE HAPPY BOOKSELLER
2368= 20 PAYS FOR BOOKS? 2369= 21 A. WELL, WITH PAID INVOICES.
2370= 22 Q. ALL RIGHT. APPROXIMATELY HOW MANY INVOICES DO YOU RECEIVE 2371= 23 IN A MONTH?
2372= 24 A. WE WRITE ABOUT 130 CHECKS A MONTH AND GOES --LIKE A 2373= 25 STATEMENT FROM RANDOM HOUSE, IT MIGHT BE 30 OR 40 INVOICES
2374= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2375= JACKSON -DIRECT / DE BRUIN 1 ATTACHED TO THAT STATEMENT. SO WE MIGHT PAY 2-OR 300 AS A
2376= 2 GUESS. SOME MONTHS WOULD BE MORE THAN OTHERS. THAT WOULDN'T 3 MEAN WE'D HAVE TO WRITE THAT MANY CHECKS BEC
2377= 4 INVOICES BE ATTACHED TO STATEMENTS, BE MULTIPLE INVOICES. 2378= 5 Q. SO FROM SEVERAL OF THESE LARGER PUBLISHERS YOU'LL ACTUALLY
2379= 6 RECEIVE MULTIPLE INVOICES EVEN WITHIN A PARTICULAR MONTH? 2380= 7 A. OH, YES.
2381= 8 Q. BUT THEN YOU PAY ALL THOSE TOGETHER IN ONE CHECK? 2382= 9 A. AND MATCH IT WITH A STATEMENT, YES.
2383= 10 Q. SO JUST ROUGHLY OVER THE COURSE OFFICE A YEAR HOW MANY 2384= 11 INVOICES IN TOTAL MIGHT YOUR BOOK STORE RECEIVE?
2385= 12 A. WELL, BE SEVERAL THOUSAND. 2386= 13 Q. DO YOU KEEP THOSE INVOICES, SIR?
2387= 14 A. WE DO. 2388= 15 Q. HOW FAR BACK DO THEY GO?
2389= 16 A. WELL, I THINK THE TAX PEOPLE REQUIRE YOU TO KEEP IT NOW FIVE 2390= 17 YEARS, BUT WE PROBABLY GOT THEM FOR SEVEN OR EIGHT, NINE YEARS.
2391= 18 WHEN THEY'RE THAT OLD, THEN WE CLEAN OUT THE WAREHOUSE AND THROW 2392= 19 SOME OF THEM AWAY.
2393= 20 Q. ALL RIGHT. CAN YOU DESCRIBE FOR THE COURT WHAT, IF 2394= 21 ANYTHING, YOU DID WITH RESPECT TO THOSE INVOICE RECORDS IN
2395= 22 CONNECTION WITH THIS LITIGATION? 2396= 23 A. YES, I MADE ALL THOSE INVOICES AVAILABLE TO BOTH SIDES OF
2397= 24 THIS LITIGATION. 2398= 25 Q. DID LAWYERS COME TO YOUR BOOK STORE, SIR, TO LOOK AT THOSE
2399= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
35
35 Page 36 37
2400= JACKSON -DIRECT / DE BRUIN 1 RECORDS? 2401= 2 A. YES, THEY DID. 3 Q. DID LAWYERS FOR BOTH SIDES COME TO YOUR BOOK STORE TO
LOOK 2402= 4 AT THOSE RECORDS?
2403= 5 A. YES, THEY DID. 2404= 6 Q. TO YOUR KNOWLEDGE, SIR, DID ANYONE MAKE ANY COPIES OF ANY OF
2405= 7 THOSE INVOICES? 2406= 8 A. YES. I THINK BOTH SIDES MADE COPIES.
2407= 9 Q. WERE THERE ANY INVOICES, SIR, THAT YOU HELD BACK THAT YOU 2408= 10 DID NOT MAKE AVAILABLE FOR INSPECTION?
2409= 11 A. NO, I GAVE THEM THE KEY, TOLD THEM WHERE THEY WERE. AND WE 2410= 12 HAD THEM IN TWO, THREE LOCATIONS. IF THEY WERE IN THE
2411= 13 WAREHOUSE, WE HAD A STORAGE SPACE BEHIND THE STORE. I JUST LET 2412= 14 THEM GO.
2413= 15 Q. MR. JACKSON, HAVE YOU EVER NEGOTIATED PRICES WITH ANY 2414= 16 PUBLISHER?
2415= 17 A. NO. 2416= 18 Q. WHY NOT?
2417= 19 A. BECAUSE I ASSUMED THAT THE PUBLISHERS HAVE INTEGRITY AND I 2418= 20 THINK I HAVE INTEGRITY, AND I'VE BEEN TOLD THAT THIS IS THE WAY
2419= 21 YOU BOUGHT BOOKS AND THAT WAS THE LAW. AND SO I NEVER 2420= 22 NEGOTIATED.
2421= 23 Q. HAVE YOU EVER NEGOTIATED PRICE WITH ANY WHOLESALER? 2422= 24 A. NO.
2423= 25 Q. MR. JACKSON, HAVE YOU EVER RECEIVED A PRICE FROM A PUBLISHER 2424= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

2425= JACKSON -DIRECT / DE BRUIN 1 OTHER THAN THE PRICE THAT IS IN THEIR ESTABLISHED DISCOUNT
2426= 2 SCHEDULE? 3 A. NO. 2427= 4 Q. DO PUBLISHERS EVER OFFER SPECIALS?
2428= 5 A. THERE ARE STOCK OFFERS --2429= 6 THE REPORTER: I'M SORRY, SIR. THERE ARE...?
2430= 7 THE WITNESS: STOCK OFFERS. YOU DIDN'T UNDERSTAND 2431= 8 THAT? THIS OLD SOUTHERN ACCENT. YOU DIDN'T HEAR THAT? STOCK
2432= 9 OFFERS. 2433= 10 AND ALSO THEY HAVE CONVENTION SPECIALS. AND THE
2434= 11 CONVENTION SPECIALS OCCURRED DURING --DURING THE BIG CONVENTION 2435= 12 ONCE A YEAR, AND THE STOCK OFFERS USUALLY OCCUR IN THE FALL.
2436= 13 OCCASIONALLY, I THINK THERE MIGHT BE A SPRING STOCK OFFER. 2437= 14 BY MR. DE BRUIN:
2438= 15 Q. NOW, LET ME JUST START WITH THE CONVENTION SPECIAL. CAN YOU 2439= 16 IDENTIFY EXACTLY WHAT THIS CONVENTION IS?
2440= 17 A. THE CONVENTION IS WHAT WE USED TO REFER TO AS THE ABA 2441= 18 CONVENTION. NOW IT'S THE BEA CONVENTION. AND PUBLISHERS FROM
2442= 19 ALL OVER THE WORLD, REALLY, HAVE A DISPLAY THERE, AND THEY HAVE 2443= 20 MOST OF THEIR NEW TITLES COMING OUT FOR THE FALL DISPLAYED, AND
2444= 21 THEY HAVE CATALOGS AVAILABLE FOR YOU TO TAKE HOME. AND THEY 2445= 22 USUALLY HAVE A DISCOUNT SCHEDULE INSERTED IN THE CATALOG, WHICH,
2446= 23 IN MOST CASES, MATCHES THE RED BOOK UNLESS THEY'VE CHANGED THE 2447= 24 DISCOUNT SCHEDULE.
2448= 25 AND THEY WILL --MOST OF THE TIME, THEY PUBLISH THE 2449= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

2450= JACKSON -DIRECT / DE BRUIN 1 CONVENTION SPECIALS IN PUBLISHERS WEEKLY. THEY WILL USUALLY
2451= 2 WRITE YOU BEFORE THE CONVENTION AND SAY, "WE WANT TO TELL YOU 3 THAT WE HAVE THCould not acquire words on page 38 E FOLLOWING CONVENTION SPECIA
2452= 4 THEY'RE JUST ON PART OF THEIR LINE, AND SOMETIME IT'S --THEY 2453= 5 HAVE A CONVENTION --THEY HAVE A FLAT EXTRA DISCOUNT ON THE
2454= 6 WHOLE LINE. IT VARIES WITH THE PUBLISHER. 2455= 7 Q. DO THE CONVENTION SPECIALS PERTAIN TO THE BOOKS THAT ARE
2456= 8 DISPLAYED AT THE CONVENTION? 2457= 9 A. NOT NECESSARILY. MIGHT CONTAIN --SOMETIME HAS TO DO WITH
2458= 10 PART OF THEIR BACK LIST OR ALL OF THE BACK LIST OR MAYBE 2459= 11 SOMETIMES COOKBOOKS. EACH PUBLISHER DECIDES WHAT KIND OF
2460= 12 CONVENTION OFFER THEY WILL MAKE. 2461= 13 Q. NOW, ARE THESE CONVENTION SPECIALS, SIR, ARE THESE OFFERS
2462= 14 THAT ARE MADE JUST TO THE HAPPY BOOKSELLERS, OR ARE THESE OFFERS 2463= 15 THAT ARE AVAILABLE TO ANY RETAIL BOOK STORE?
2464= 16 A. THEY'RE AVAILABLE TO THE ENTIRE TRADE. 2465= 17 Q. NOW, WHEN YOU SAY THAT THEY'RE PUBLISHED IN PUBLISHERS
2466= 18 WEEKLY, WHAT IS PUBLISHERS WEEKLY?
36
36 Page 37 38
2467= 19 A. PUBLISHERS WEEKLY IS A WEEKLY MAGAZINE THAT HAS NEWS 2468= 20 ARTICLES ABOUT PUBLICATIONS. IT HAS NEWS ARTICLES SOMETIMES
2469= 21 ABOUT AUTHORS AND HAS ADVERTISEMENTS FROM PUBLISHERS. VARIOUS 2470= 22 ARTICLES OF INTEREST.
2471= 23 Q. WOULD IT BE FAIR TO DESCRIBE PUBLISHERS WEEKLY AS A TRADE 2472= 24 MAGAZINE?
2473= 25 A. YES. 2474= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

2475= JACKSON -DIRECT / DE BRUIN 1 Q. NOW, YOU'VE ALSO TESTIFIED THAT SOME PUBLISHERS HAVE STO
2476= 2 OFFERS. WHAT EXACTLY IS A STOCK OFFER? 3 A. A STOCK OFFER IS USUALLY OFFERED --I'M SORRY. THAT WENT
2477= 4 DOWN THE WRONG THROAT. 2478= 5 A STOCK OFFER IS USUALLY OFFERED IN THE FALL, AND IT
2479= 6 VARIES WITH THE PUBLISHER. IT MIGHT BE AN EXTRA 2 PERCENT ON 2480= 7 EVERYTHING PUBLISHED --EVERYTHING PURCHASED AT THAT --ON THAT
2481= 8 PARTICULAR OFFER. THEY USUALLY WILL OFFER YOU A CHOICE OF 2482= 9 EITHER AN EXTRA DISCOUNT OR A LONGER TERMS OR FREE FREIGHT IF
2483= 10 IT'S NOT A FREE FREIGHT PUBLISHER. BUT YOU, IN MOST CASES, HAVE 2484= 11 A CHOICE OF THOSE THREE THINGS.
2485= 12 Q. HAVE YOU EVER PURCHASED BOOKS PURSUANT TO A PUBLISHER'S 2486= 13 STOCK OFFER?
2487= 14 A. YES, OFTEN. 2488= 15 Q. HOW DO YOU KNOW THE TERMS OF A STOCK OFFER?
2489= 16 A. IT'S PRESENTED TO YOU BY THE --BY THE REP IN MOST CASES, 2490= 17 BUT HE ALWAYS HAS IT IN PRINT.
2491= 18 Q. NOW, YOU SAY IT'S PRESENTED BY THE REP, WHAT DO YOU MEAN BY 2492= 19 "THE REP"?
2493= 20 A. THE SALES REP THAT CALLS ON US FROM MAJOR PUBLISHERS. IT'S 2494= 21 ALSO --IN MOST CASES, WE GET --I THINK IN EVERY CASE, WE ALSO
2495= 22 GET SOME NOTIFICATION IN THE MAIL OR EITHER BY FAX THAT THE 2496= 23 STOCK OFFER'S COMING UP. YOU CAN SEE IT IN PRINT IN EVERY CASE.
2497= 24 SUPPOSED TO BE THE SAME THING FOR EVERYONE. 2498= 25 Q. SO ARE THE TERMS OF A STOCK OFFER ALWAYS SET FORTH ON SOME
2499= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2500= JACKSON -DIRECT / DE BRUIN 1 KIND OF WRITING? 2501= 2 A. YES. 3 Q. AND HAVE YOU EVER RECEIVED A STOCK OFFER THAT WAS JUST
2502= 4 PROVIDED TO THE HAPPY BOOKSELLER? 2503= 5 A. NO.
2504= 6 Q. APPROXIMATELY WHAT PERCENTAGES OF YOUR PURCHASES ARE MADE 2505= 7 PURSUANT TO STOCK OFFERS?
2506= 8 A. IN TERMS OF ENTIRE YEAR'S PURCHASES, THEY WOULDN'T BE THAT 2507= 9 LARGE. WE MIGHT HAVE ONE PUBLISHER --LARGE PUBLISHER LIKE
2508= 10 RANDOM HOUSE, IT MIGHT BE A 2,000-DOLLAR ORDER, OR OTHER CASES, 2509= 11 BE LESS. I DON'T KNOW HOW TO GUESS WHAT THE PERCENTAGE WOULD
2510= 12 BE, BUT BE SMALL. 2511= 13 Q. NOW, WHEN YOU PURCHASE BOOKS PURSUANT TO A STOCK OFFER AND
2512= 14 YOU THEN RECEIVE AN INVOICE FOR THOSE BOOKS, WOULD THE INVOICE 2513= 15 IDENTIFY THE FACT THAT THAT WAS A PURCHASE MADE PURSUANT TO A
2514= 16 STOCK OFFER? 2515= 17 A. I DON'T THINK SO. WELL, I USUALLY RECOGNIZE IT BY THE
2516= 18 TITLES ON IT AND BY THE NUMBER OF TITLES WE BOUGHT AND WHAT 2517= 19 THOSE TITLES ARE. I USUALLY RECOGNIZE IT AS A STOCK OFFER, BUT
2518= 20 I DON'T THINK INVOICE DESIGNATES IT --AND SOMETIMES, IT --THE 2519= 21 STOCK OFFERS ARE NOT SHIPPED ON ONE INVOICE. IT MIGHT BE MIXED
2520= 22 WITH OTHER INVOICES. 2521= 23 Q. LET ME ASK YOU TO LOOK BACK ON THE LIST OF PUBLISHERS ON
2522= 24 EXHIBIT 2591. 2523= 25 THE COURT: BEFORE WE GO BACK TO THAT, WE'LL TAKE THE
2524= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
2525= JACKSON -DIRECT / DE BRUIN 1 SECOND RECESS. 2526= 2 MR. DE BRUIN: THANK YOU, YOUR HONOR. I THINK WE'RE 3 NEARING --
2527= 4 THE COURT: BE IN RECESS TILL 11: 45. 2528= 5 THE CLERK: ALL RISE.
2529= 6 (RECESS TAKEN AT 11: 29 A. M.) 2530= 7 (CONTINUED NEXT PAGE; NOTHING OMITTED.)
2531= 8 2532= 9
2533= 10 2534= 11
37
37 Page 38 39

38 Page 39 40
2605= AND A DISCOUNT, BUT OTHER THAN THAT, NO, I'VE NEVER RECEIVED 2606= IT.
2607= Q. HAVE YOU EVER RECEIVED SPECIAL FREIGHT TERMS FROM A 2608= PUBLISHER PURSUANT TO A STOCK OFFER THAT WAS NOT GENERALLY
2609= AVAILABLE TO ALL OTHER RETAIL BOOKSTORES? 2610= A. NO.
2611= Q. LET ME ASK YOU A FEW QUESTIONS ABOUT SOMETHING CALLED A 2612= CASH DISCOUNT. ARE YOU FAMILIAR WITH CASH DISCOUNTS IN THE
2613= BOOKSELLING BUSINESS? 2614= A. YES.
2615= Q. WHAT IS A CASH DISCOUNT? 2616= A. A CASH DISCOUNT IS SOMETHING FOR PROMPT PAYMENT, OVER AND
2617= ABOVE THE INVOICE. 2618= Q. ARE CASH DISCOUNTS SOMETIMES REFERRED TO AS "EARLY PAYMENT
2619= DISCOUNTS"? 2620= A. YES.
2621= Q. JUST IN GENERAL, HOW DID THEY WORK? CAN YOU DESCRIBE FOR 2622= THE COURT?
2623= A. MOST OF TIME THEY WORK, IF YOU PAY WITHIN 10 DAYS OF THE 2624= STATEMENT, YOU GET 2 PERCENT. MOST OF IT IS 2 PERCENT. IF YOU

2625= PAY BEYOND 10 DAYS, THEN YOU HAVE TILL THE END OF THE MONTH TO 2626= PAY AT THE INVOICE PRICE.
2627= Q. DOES EVERY VENDOR PROVIDE A CASH DISCOUNT IN THE BOOK 2628= BUSINESS?
2629= A. NO. 2630= Q. WHICH VENDORS, TO YOUR KNOWLEDGE, PROVIDE A CASH DISCOUNT?
2631= A. WELL, INGRAM PROVIDES A CASH DISCOUNT FOR EARLY PAYMENT. 2632= BAKER & TAYLOR DOES, KOEN DOES, SOUTHERN BOOK DOES. A FEW
2633= SMALL PUBLISHERS HAVE AN EARLY PAYMENT IF YOU PAY WITHIN 10 2634= DAYS. FOR INSTANCE, RANDOM HOUSE YEARS AGO HAD A 1 PERCENT
2635= DISCOUNT FOR EARLY PAYMENT, BUT THEY DON'T --THEY NO LONGER 2636= HAVE THAT. IN FACT, THOSE ARE THE ONLY ONES I'M FAMILIAR WITH
2637= AT THIS TIME. 2638= Q. ALL RIGHT, SO THE PRINCIPAL CASH DISCOUNTS ARE AVAILABLE
2639= FROM THE WHOLESALERS THAT YOU MENTIONED, INGRAM, BAKER & 2640= TAYLOR, KOEN?
2641= A. YES. 2642= Q. LET'S JUST TAKE INGRAM. DESCRIBE YOUR PAYMENT CYCLE WITH
2643= INGRAM. WHEN DO INVOICES COME IN? WHEN DO YOU PAY THEM? HOW 2644= DOES IT WORK WITH INGRAM?
2645= A. THE INVOICES COME IN, I CHECK THEM, DURING THE MONTH, AND 2646= AROUND THE FIRST OF THE MONTH YOU GET A STATEMENT FROM THE
2647= PREVIOUS MONTH'S BILLING, AND YOU MATCH THAT STATEMENT WITH 2648= THOSE INVOICES, AND THEN IF YOU PAY THAT INVOICE BY THE 10TH OF
2649= THE MONTH, YOU GET THE EARLY PAYMENT DISCOUNT. IF YOU HAVE A
2650= TIGHT CASH FLOW AND YOU MISS THAT, YOU PAY THE FULL INVOICE 2651= PRICES AT THE END OF THE MONTH.
2652= Q. SO THE INVOICES THAT COME IN THE PRECEDING MONTH THAT ARE 2653= INCLUDED ON THIS STATEMENT THAT YOU RECEIVE AT THE BEGINNING OF
2654= THE MONTH --2655= A. YES.
2656= Q. --WHEN IS THAT STATEMENT DUE? 2657= A. IT'S DUE AT THE END OF THAT MONTH, UNLESS YOU CHOOSE EARLY
2658= PAYMENT. 2659= Q. ALL RIGHT. SO THE STATEMENT IS DUE 30 DAYS LATER, AND --
2660= A. YES. 2661= Q. --AND HOW DO YOU GET THE CASH DISCOUNT?
2662= A. BY PAYING IT 10 DAYS LATER, BY THE 10TH OF THE MONTH. 2663= Q. AND --
2664= A. IN ANY CASE, IT'S BY THE 10TH OF THE MONTH. SOMETIMES THE 2665= STATEMENT MIGHT NOT COME TILL THE 2ND OR 3RD.
2666= Q. BUT YOU STILL HAVE TO PAY BY THE 10TH DAY TO GET THE CASH 2667= DISCOUNT?
2668= A. YES. 2669= Q. AND WHAT IS THE CASH DISCOUNT AMOUNT?
2670= A. TWO PERCENT. 2671= Q. SO WHAT DOES THAT MEAN, THAT 2 PERCENT?
2672= A. THAT MEANS IF YOU OWE $10,000, YOU GET $200 OFF, BY EARLY 2673= PAYMENT.
2674= Q. DOES THE HAPPY BOOKSELLER ATTEMPT TO TAKE ADVANTAGE OF CASH
39
39 Page 40 41
2675= DISCOUNT PROVISIONS? 2676= A. YES, WE TAKE IT MOST OF THE TIME.
2677= Q. HOW DO YOU KNOW WHETHER A VENDOR OFFERS A CASH DISCOUNT FOR 2678= EARLY PAYMENT?
2679= A. IT'S IN THE RED BOOK, EARLY PAYMENT DISCOUNT. 2680= Q. IS IT ALSO INDICATED AT ALL ON THE INVOICE OR STATEMENT
2681= THAT YOU RECEIVE? 2682= A. YES, IT IS. IN FACT, INGRAM EVEN FIGURES IT OUT FOR YOU.
2683= THEY SAY, THIS STATEMENT IS, YOU'RE ENTITLED TO $382 DISCOUNT 2684= IF PAID BY THE 10TH.
2685= Q. MR. JACKSON, DO YOU KNOW WHETHER PENGUIN BOOKS OFFERS 2686= RETAIL BOOKSTORES A CASH DISCOUNT FOR EARLY PAYMENT?
2687= A. UM, I DO NOT. 2688= Q. HAVE YOU EVER RECEIVED A CASH DISCOUNT FOR EARLY PAYMENT
2689= FROM PENGUIN BOOKS? 2690= A. NOT IN THIS PERIOD. IT MIGHT HAVE BEEN BACK IN THE
2691= SEVENTIES THEY HAD ONE. I CAN'T REMEMBER, BUT IN THE PERIOD 2692= WE'RE TALKING ABOUT, NO, AND I THINK --NO, IF IT WASN'T
2693= PUBLISHED, I DIDN'T GET IT, AND I DIDN'T THINK I REMEMBER THAT 2694= THEY EVER HAD ONE. I REMEMBER RANDOM HOUSE HAD ONE.
2695= Q. SO DURING THE PERIOD FROM 1994 TO THE PRESENT, TO YOUR 2696= KNOWLEDGE, PENGUIN BOOKS DID NOT OFFER CASH DISCOUNTS FOR
2697= RETAIL BOOKSTORES. 2698= A. CORRECT.
2699= Q. HAVE YOU EVER NEGOTIATED CASH DISCOUNT TERMS WITH ANY
2700= VENDOR? 2701= A. NO.
2702= Q. HAVE YOU EVER ASKED TO RECEIVE A CASH DISCOUNT BEYOND THE 2703= STATED TERMS OF ANY VENDOR?
2704= A. ONE TIME. 2705= Q. ONE TIME? LET ME ASK YOU --WELL, DESCRIBE THAT ONE TIME
2706= FOR ME, SIR. 2707= A. ONE TIME. WELL, I ALWAYS PAY BAKER & TAYLOR JUST PROMPTLY,
2708= AND ONE WEEK I GOT REAL BUSY AND I HAD SOME FAMILY PROBLEMS, 2709= THIS, THAT AND THE OTHER, AND I WAS A FEW DAYS LATE, FOUR OR
2710= FIVE, I CAN'T REMEMBER EXACTLY WHICH, AND I INCLUDED IN MY 2711= CHECK WITH A NOTE THAT, BECAUSE I'VE ALWAYS RETAINED THIS
2712= DISCOUNT, WOULD YOU MIND THIS PARTICULAR INSTANCE, AND I WILL 2713= NOT TAKE ADVANTAGE OF THIS, AND THEY DID ALLOW IT.
2714= Q. NOW, WHEN YOU SAY YOU ALWAYS PAY BAKER & TAYLOR PROMPTLY, 2715= WHAT ARE BAKER & TAYLOR'S STANDARD PAYMENT TERMS?
2716= A. TWO PERCENT FOR EARLY PAYMENT AND PAYING 30 DAYS THE 2717= STATEMENT.
2718= Q. SO THE STATEMENT IS DUE 30 DAYS AT THE END OF THE MONTH. 2719= A. YES.
2720= Q. BUT IF YOU PAY IT ONLY 10 DAYS, YOU GET TO DEDUCT 2721= 2 PERCENT?
2722= A. YES. AND I PAID THAT EARLIER, BUT I MISSED THE 10 DAYS 2723= THERE, TWO, THREE DAYS, FOUR, I FORGOT WHICH IT WAS, SEVEN,
2724= FIVE, BUT I MISSED A FEW DAYS.
2725= Q. WHEN DO YOU NORMALLY PAY YOUR INVOICES TO BAKER & TAYLOR? 2726= A. ON THE 10TH OF EACH MONTH.
2727= Q. SO YOU ATTEMPT TO TAKE ADVANTAGE OF THE CASH DISCOUNT EVERY 2728= TIME WITH BAKER & TAYLOR?
2729= A. YES, I DO. 2730= Q. IS THAT YOUR NORMAL PRACTICE?
2731= A. YES. 2732= Q. LET ME ASK YOU TO TAKE A LOOK THE AT EXHIBIT 5666.
2733= A. 5666. 2734= Q. IT SHOULD BE THE LAST --OR CLOSE TO THE LAST EXHIBIT IN
2735= YOUR BINDER. 2736= A. SIXTY-SIX, YOU SAID?
2737= Q. I'M SORRY, 5666 IS WHAT I HAVE. 2738= THE COURT: I DON'T HAVE IT.
2739= THE WITNESS: I DON'T HAVE A 5666. 2740= MR. DEBRUIN: WELL, YOUR HONOR, WE MAY HAVE OUR
2741= FIRST BINDER.... 2742= Q. ALL RIGHT, SIR, WELL, WE'LL JUST --WE'LL MOVE ON.
2743= A. I'M SORRY, I DON'T HAVE IT, EITHER. 2744= Q. ALL RIGHT, WELL, LET ME ASK YOU, MR. JACKSON, IN YOUR 27
2745= YEARS AS A BOOKSELLER, CAN YOU IDENTIFY ANY OTHER INSTANCE,
40
40 Page 41 42
2746= OTHER THAN THE INSTANCE YOU'VE JUST DESCRIBED INVOLVING BAKER & 2747= TAYLOR, WHERE YOU ASKED THEM THREE OR FOUR DAYS LATER TO STILL
2748= GIVE YOU THE 2 PERCENT CASH DISCOUNT, APART FROM THAT ONE 2749= INSTANCE, HAVE YOU EVER RECEIVED A CASH DISCOUNT OR ANY OTHER

2750= DISCOUNT TERM THAT WAS DIFFERENT FROM THE VENDORS' PUBLISHED 2751= GENERALLY AVAILABLE DISCOUNT TERMS?
2752= A. NO. 2753= Q. LET ME ASK YOU SOME ADDITIONAL QUESTIONS ABOUT INGRAM BOOK
2754= COMPANY IN PARTICULAR. YOU TESTIFIED THAT YOU PURCHASE BOOKS 2755= FROM INGRAM?
2756= A. YES. 2757= Q. HOW OFTEN?
2758= A. ALMOST EVERY WEEKDAY. 2759= Q. HAS THAT BEEN TRUE FOR THE ENTIRE PERIOD 1994 TO THE
2760= PRESENT? 2761= A. YES.
2762= Q. HOW IMPORTANT, SIR, IS INGRAM TO YOUR BUSINESS? 2763= A. IT'S VERY IMPORTANT.
2764= Q. AND WHY? 2765= A. WELL, IT'S IMPORTANT BECAUSE IN TODAY'S MARKET, IT'S VERY
2766= IMPORTANT TO BE VERY FAST ON SPECIAL ORDERS. PEOPLE ORDER A 2767= BOOK, THEY LIKE TO GET IT AS SOON AS POSSIBLE, AND IF YOU DO
2768= BUSINESS WITH THOSE TWO MAJOR WHOLESALERS, YOU GET --MOST OF 2769= THE TIME YOU CAN GET THAT BOOK FOR THEM. IT'S ALSO IMPORTANT
2770= SOMETIMES TO FILL IN BACK STOCK, FILL YOUR SHELVES IN BACK 2771= STOCK QUICKER THAN YOU CAN GET IT IN FROM THE PUBLISHERS. SO
2772= IT'S A VERY IMPORTANT SOURCE OF BOOKS. 2773= Q. CAN YOU TELL ME APPROXIMATELY HOW MUCH BUSINESS YOU DO WITH
2774= INGRAM IN A YEAR?
2775= A. OKAY, BUT LET ME EXPLAIN, WE HAVE A ROTATING SYSTEM ON OUR 2776= ELECTRONIC ORDERING, AND WE SEND ALL OF OUR ORDERS TO INGRAM
2777= FIRST --I MEAN, EXCUSE ME --TO BAKER & TAYLOR FIRST, AND THEN 2778= THEY PROCESS THAT ORDER, AND WHAT THEY CAN'T SHIP, IT ROTATES
2779= OVER TO INGRAM, AND THEN WHAT INGRAM CAN'T SHIP, IT ROTATES 2780= OVER TO KOEN. SO I WILL BUY IT FROM --BAKER & TAYLOR'S MUCH
2781= LARGER THAN INGRAM, BUT I WOULD SAY THIS YEAR WE PROBABLY BUY A 2782= HUNDRED OR MORE, HUNDRED THOUSAND OR MORE FROM INGRAM.
2783= Q. HUNDRED THOUSAND DOLLARS OF BOOKS FROM INGRAM? 2784= A. YES.
2785= Q. AND WHAT WERE YOUR SALES THIS MOST RECENT YEAR? 2786= A. NINETEEN --19 --2000 --YOU MEAN MY TOTAL SALES?
2787= Q. YES. 2788= A. MY TOTALS.
2789= Q. APPROXIMATELY. 2790= A. ABOUT ONE, FOUR.
2791= Q. AND DO YOU HAVE ANY IDEA ABOUT HOW MUCH YOU SPENT IN TOTAL 2792= IN BOOK PURCHASES LAST YEAR?
2793= A. WELL, WE BOUGHT --WE TRY TO DO IT WITH THE JUST-IN-TIME 2794= PURCHASING. WE TRY TO PURCHASE ABOUT THE SAME AMOUNT THAT
2795= 60 PERCENT OF THE TOTAL SALES WOULD BE. SO 60 PERCENT OF A 2796= MILLION WOULD BE 600,000, AND SIX AND FOUR IS SIX, SEVEN --
2797= 800,000. 2798= Q. SO YOUR TOTAL PURCHASES --
2799= A. APPROXIMATELY.
2800= Q. I'M SORRY --LAST YEAR WOULD HAVE BEEN ABOUT 800,000? 2801= A. YES, YES.
2802= Q. AND LAST YEAR IN BUSINESS, YOU WOULD HAVE PURCHASED ABOUT A 2803= HUNDRED THOUSAND DOLLARS?
2804= A. FROM INGRAM? 2805= Q. FROM INGRAM.
2806= A. MAYBE NOT QUITE THAT MUCH LAST YEAR, BUT WE'RE BEGINNING TO 2807= DO MORE WITH THEM, BUT PROBABLY. BE CLOSE TO A HUNDRED
2808= THOUSAND. 2809= Q. SO IT'S A VERY MAJOR PORTION OF YOUR TOTAL PURCHASES --
2810= A. YES. 2811= Q. --ARE COMING FROM INGRAM.
2812= A. IT WOULD BE ALMOST 20 PERCENT, YES. 2813= Q. ARE YOU FAMILIAR WITH YOUR PURCHASE TERMS WITH INGRAM?
2814= A. YES. VERY. 2815= Q. WHAT ARE THEY, SIR?
41
41 Page 42 43
2816= A. THEY ARE 30 DAYS AFTER THE STATEMENT, IF YOU GO --IF 2817= YOU'RE NOT GOING TO TAKE ADVANTAGE OF EARLY PAYMENT, YOU GET
2818= 2 PERCENT ON THE 10TH OF THE MONTH, IF YOU TAKE IT, AND YOU GET 2819= FREE FREIGHT.
2820= Q. HOW ABOUT THE DISCOUNT, SIR? WHAT DISCOUNT DO YOU PAY 2821= NORMALLY WHEN YOU BUY BOOKS?
2822= A. ONE BOOK, 40 PERCENT. FIVE BOOKS, 41 PERCENT. AND I 2823= BELIEVE OVER 10 BOOKS, 42.
2824= Q. LET'S LOOK AT THE RED BOOK THAT WE MARKED AS EXHIBIT 11.
2825= DO YOU STILL ARE HAVE THAT IN FRONT OF YOU? 2826= A. YES.
2827= Q. ARE THOSE TERMS FROM INGRAM SET FORTH IN THE RED BOOK? 2828= A. YES.
2829= Q. CAN YOU IDENTIFY THE PAGE? 2830= A. YES, I HAVE IT.
2831= Q. AND WHAT PAGE DOES THAT APPEAR? 2832= A. IT APPEARS ON 384.
2833= MR. DEBRUIN: JUDGE, THAT MAY BE IN THE SECOND.... 2834= WE HAD TO BREAK THESE BOOKS INTO TWO BINDERS. DO YOU HAVE THAT
2835= PAGE, JUDGE? YOU MAY NOT. IT MAY BE IN THE SECOND BINDER. 2836= Q. MR. JACKSON, THAT WAS PAGE 384?
2837= A. YES. THREE, EIGHT, FOUR. 2838= THE CLERK: JUDGE, WE'LL JUST HAND THIS BINDER UP TO
2839= YOU, FOR YOUR CONVENIENCE. 2840= THE COURT: OKAY.
2841= MR. DEBRUIN: MY APOLOGIES, YOUR HONOR, FOR THE 2842= UNWIELDY NATURE OF THESE BINDERS. SEE IF WE CAN IMPROVE THAT.
2843= Q. MR. JACKSON, YOU HAVE FOUND THE PAGE FOR INGRAM ON PAGE 384 2844= OF THE CURRENT 2000 RED BOOK. WHAT ARE THE TERMS THAT ARE
2845= IDENTIFIED THERE FOR INGRAM BOOK COMPANY, DISCOUNT TERMS? 2846= A. ONE COPY, 40 PERCENT, FIVE COPIES 41, 10 COPIES 42.
2847= Q. AND ARE THOSE THE DISCOUNTS THAT YOU RECEIVE FROM INGRAM? 2848= A. YES.
2849= Q. NOW, WHEN YOU SAY ONE COPY, FROM INGRAM, SIR, IS THAT --
2850= WELL, WHEN YOU SAY FIVE COPIES, FOR INGRAM, DOES THAT JUST MEAN 2851= FIVE BOOKS, OR WHAT DOES IT MEAN, FIVE COPIES FROM INGRAM?
2852= A. THAT MEANS FIVE TITLES --I MEAN, FIVE COPIES OF THE SAME 2853= TITLE.
2854= Q. SO TO GET A 41 PERCENT --FOR THE HAPPY BOOKSELLER TO GET A 2855= 40 PERCENT DISCOUNT FROM INGRAM, YOU HAVE TO BUY FIVE COPIES OF
2856= THE SAME TITLE? 2857= A. YES.
2858= Q. WHAT DO YOU HAVE TO DO TO GET THE 42? 2859= A. TEN COPIES OF THE SAME TITLE, MIXED WITH THE ORDER, YES.
2860= Q. AND ARE THESE THE TERMS, SIR, THAT HAVE APPLIED TO ALL OF 2861= YOUR ORDERS FROM INGRAM FROM 1994 TO THE PRESENT?
2862= A. YES, AND THAT INCLUDES FREE FREIGHT. I THINK --WELL, LET 2863= ME SEE WHAT IT SAYS. ORDERS OF A HUNDRED OR MORE UNITS FROM
2864= PRIMARY SHIPPING SOURCE IS FREE FREIGHT. 2865= Q. AND ARE THOSE THE TERMS THAT APPLY TO YOUR ORDERS, SIR?
2866= A. YES. 2867= Q. SO IF YOU ORDER A HUNDRED OR MORE UNITS, AND I TAKE IT
2868= THAT'S DIFFERENT THAN TITLES, IS THAT CORRECT? 2869= A. YEAH, THAT'S JUST TOTAL, HUNDRED BOOKS, YES.
2870= Q. IF YOU ORDER MORE THAN A HUNDRED BOOKS, OF WHATEVER TITLES, 2871= THEN YOU GET FREE FREIGHT FROM INGRAM?
2872= A. YES, YES. 2873= Q. HAVE YOU EVER GOTTEN FREE FREIGHT FROM INGRAM ON ORDERS
2874= LESS THAN A HUNDRED --
2875= A. NO. 2876= Q. --COPIES?
2877= A. SOMETIMES WE HAVE BOUGHT A FEW BOOKS BUT WE PAID FREIGHT. 2878= THE COURT: WHAT IS THE DIFFERENCE IN THE REFERENCE
2879= TO PRIMARY AND SECONDARY WAREHOUSES? 2880= THE WITNESS: "FREE FREIGHT APPLIES TO ORDERS
2881= SHIPPED FROM PRIMARY WAREHOUSE FOR ORDERS OF A 2882= HUNDRED OR MORE UNITS, FROM PRIMARY AND SECONDARY
2883= WAREHOUSES COMBINED FOR ORDERS OF 150 MORE UNITS." 2884= THE COURT: WHAT'S A PRIMARY WAREHOUSE, AS
2885= DISTINGUISHED FROM A SECONDARY WAREHOUSE?
42
42 Page 43 44
2886= THE WITNESS: I'M NOT CLEAR ABOUT THAT. IT SAYS, 2887=" 100 OR MORE UNITS, FROM PRIMARY AND SECONDARY WAREHOUSES
2888= COMBINED FOR ORDERS OF 150...." 2889= YOU KNOW, WE ALWAYS MAKE SURE WE GOT THE MINIMUM,
2890= BUT I DON'T UNDERSTAND WHAT THAT MEANS MYSELF. YOUR HONOR, I 2891= DON'T KNOW.
2892= THE COURT: THAT'S THE ANSWER TO MY QUESTION. 2893= THE WITNESS: I CAN FIND OUT FOR YOU, THOUGH. THE
2894= WAY IT'S WRITTEN IS CONFUSING. PAST AUGUST SHIPMENT, PRIMARY 2895= WAREHOUSE ORDERS FOR A HUNDRED OR MORE UNITS, OR PRIMARY AND
2896= SECONDARY.... OKAY, I UNDERSTAND WHAT IT MEANS, NOW. 2897= THEY SHIP US FROM A PRIMARY WAREHOUSE AND OURS IS IN
2898= VIRGINIA. IF THEY DON'T HAVE QUITE ALL THOSE BOOKS, IT ROLLS 2899= OVER TO THE SECONDARY WAREHOUSE, AND YOU GOT TO HAVE A

2900= COMBINATION OF 150 OR MORE UNITS IF IT'S GOING TO COME FROM THE 2901= TWO WAREHOUSES. DOES THAT MAKE SENSE?
2902= THE COURT: YOU TELL ME. 2903= MR. DEBRUIN: MR. JACKSON, YOU DON'T GET TO ASK THE
2904= JUDGE QUESTIONS. 2905= THE WITNESS: I'M SORRY, JUDGE.
2906= BY MR. DEBRUIN: 2907= Q. MR. JACKSON, DO YOU KNOW HOW MANY WAREHOUSES INGRAM HAS
2908= ACROSS THE COUNTRY? 2909= A. I'M NOT REALLY SURE. THEY HAVE SEVERAL.
2910= Q. ALL RIGHT. 2911= A. YES.
2912= Q. NOW, THE BASIC DISCOUNT TERMS THAT YOU DESCRIBE, ONE COPY 2913= 40 PERCENT, FIVE COPIES OF THE SAME TITLE 41 PERCENT, 10 COPIES
2914= OF THE SAME TITLE 42 PERCENT, HAVE THOSE TERMS BEEN THE SAME 2915= FROM INGRAM FOR YOUR BOOKSTORE FROM 1994 RIGHT UP TO THE
2916= PRESENT? 2917= A. I THINK SO.
2918= Q. HOW OFTEN DO YOU ORDER FIVE COPIES OF THE SAME TITLE FROM 2919= INGRAM?
2920= A. FAIRLY OFTEN. 2921= Q. HOW OFTEN DO YOU ORDER 10 COPIES OF THE SAME TITLE FROM
2922= INGRAM? 2923= A. NOT THAT OFTEN, BUT SOMETIMES.
2924= Q. WHY IS THAT?
2925= A. WELL, WE WOULD BE ORDERING FIVE COPIES IF WE WERE ORDERING, 2926= SAY, FROM --WE WOULD GET A LOT OF ORDERS FROM SCHOOL
2927= DISTRICTS, AND MANY TIMES IT WILL BE 50 COPIES OF THE SAME 2928= BOOK. MANY TIMES IT WILL BE FIVE, SOMETIMES TEN. BUT WITH
2929= THOSE KIND OF ORDERS, WE COULD FREQUENTLY COULD MEET THE 2930= 42 PERCENT.
2931= Q. AND THOSE ARE ORDERS FROM THE SCHOOL DISTRICT. WHAT KIND 2932= OF ORDERS ARE THOSE? CAN YOU DESCRIBE THOSE?
2933= A. THEY ARE ORDERS --A LOT OF CHILDREN'S BOOKS WILL BE MIXED 2934= IN THERE, A LOT OF MID-AGE READERS, MIDDLE READERS, AND A LOT
2935= OF THE CLASSICS WILL BE IN THERE. 2936= Q. AND DO YOU PLACE THOSE ORDERS THROUGH INGRAM?
2937= A. YES. 2938= Q. AND WHY DO YOU PLACE THOSE ORDERS THROUGH INGRAM?
2939= A. INGRAM HAS THE BEST STOCK ON THOSE KIND OF THINGS. 2940= Q. OKAY. NOW, DURING THE PERIOD FROM 1994 TO THE PRESENT,
2941= HAVE YOU EVER RECEIVED ANY SPECIAL INCENTIVE PAYMENTS OR 2942= REBATES FROM INGRAM?
2943= A. NO. 2944= Q. CAN YOU DESCRIBE, SIR, THE TERMS THAT APPLY WHEN YOU RETURN
2945= BOOKS TO INGRAM? 2946= A. YOU GET A PENALTY, AND THAT PROBABLY SHOULD BE IN THERE,
2947= BUT MOST OF THE TIME --MOST OF OUR RETURNS FROM INGRAM, THEY 2948= CREDIT THEM 50 PERCENT, THE MAJORITY OF THEM.
2949= Q. SO THEY CREDIT IT 50 PERCENT. SO THAT MEANS IF YOU BOUGHT
2950= A BOOK AT 40 --2951= A. TWO.
2952= Q. --OR 41 OR 42 PERCENT --2953= A. IT LOST 8 PERCENT.
2954= Q. --THEY'RE NOT GIVING YOU AS MUCH BACK WHEN YOU RETURN THE 2955= BOOK AS WHEN YOU PAID FOR IT.
43
43 Page 44 45
2956= A. CORRECT. 2957= Q. NOW, HAS THAT --AND DO YOU KNOW, ARE THERE LIMITS ON HOW
2958= MANY BOOKS YOU CAN RETURN TO INGRAM OR THE TOTAL AMOUNT OF 2959= BOOKS?
2960= A. YES, I THINK IT'S LIMITED --AND IT'S PROBABLY RIGHT 2961= HERE --I THINK IT'S LIMITED TO 10 PERCENT OF YOUR PURCHASES.
2962= WE ARE VERY CAREFUL ON --TO NOT BUY BOOKS FROM INGRAM THAT WE 2963= MIGHT PROBABLY HAVE TO RETURN.
2964= Q. HAS INGRAM EVER WAIVED THAT RETURNS PENALTY FOR THE HAPPY 2965= BOOKSELLER --
2966= A. NO. 2967= Q. --AT ANY TIME DURING THE PERIOD 1994 TO THE PRESENT?
2968= A. NO. 2969= Q. DOES INGRAM PROVIDE A CASH DISCOUNT, SIR? I BELIEVE YOU
2970= TESTIFIED EARLIER IT DOES. 2971= A. YES, THEY DO, AND IT'S IN THE BOOK.
2972= Q. IT'S IN THE BOOK? 2973= A. YES.
2974= Q. AND WHAT'S THE CASH DISCOUNT IN THE BOOK?
2975= A. TWO PERCENT 10 DAYS, NET 30 E. O. M., EVERY OTHER MONTH. 2976= Q. HAS THE HAPPY BOOKSELLER EVER RECEIVED A CASH DISCOUNT OF
2977= 2 PERCENT FROM INGRAM FOR PAYING 25 DAYS AFTER THE ENTER OF THE 2978= MONTH?
2979= A. NO. 2980= Q. AND IN FACT, EVEN WITHOUT THE CASH DISCOUNT, YOU HAVE TO
2981= PAY YOUR BILL TO INGRAM 30 DAYS THE END OF THE MONTH, CORRECT? 2982= A. YES, BUT I MISSPOKE JUST NOW. E. O. M., END OF THE MONTH. I
2983= THINK I SAID, "EVERY OTHER MONTH." IT'S END OF MONTH. 2984= Q. SO YOUR BILLS ARE DUE TO INGRAM 30 DAYS, END OF MONTH?
2985= A. YES. WE USED TO GET FURNITURE TERMS LIKE THAT, BUT WE 2986= DON'T GET THEM IN THE BOOK BUSINESS.
2987= Q. DO YOU PAY YOUR INVOICES FROM INGRAM BY THE END OF THE 2988= MONTH?
2989= A. YES, WE PAY THEM BY --WE PAY, IN MOST EVERY CASE, WE PAY 2990= BY THE 10TH.
2991= Q. MR. JACKSON, ARE YOU FAMILIAR WITH INGRAM'S VENDOR OF 2992= RECORD PROGRAM?
2993= A. YES. 2994= Q. CAN YOU DESCRIBE FOR THE COURT WHAT THE VENDOR OF RECORD
2995= PROGRAM IS? 2996= A. THE VENDOR OF RECORD, SIMPLY PUT, YOU GET A LOT OF SPECIAL
2997= ORDERS IN THIS BUSINESS FROM SMALL PUBLISHERS, AND IT WOULD BE 2998= A MATTER OF ORDERING ONE BOOK, AND IF YOU ORDER ONE BOOK,
2999= YOU'RE GOING TO PAY AN EXCESSIVE AMOUNT OF FREIGHT
3000= PERCENTAGE-WISE, AND INGRAM DEVELOPED THIS VENDOR OF RECORD, 3001= WHERE THE BOOKSELLER THAT SIGNS UP FOR IT, HE GIVES HIM A
3002= LITTLE OF THE BOOKS FROM VERY SMALL PUBLISHERS THAT HE MIGHT BE 3003= ORDERING, AND THEN STOCK THOSE BOOKS, AND THEN IT COMES IN WITH
3004= YOUR REGULAR INGRAM SHIPMENTS, AND I'M NOT AS FAMILIAR WITH 3005= WHAT THEY DISCOUNT ON IT. I'M NOT A MEMBER OF THAT, BUT
3006= BASICALLY, THAT'S WHAT IT IS, IT'S THE WAY TO SAVE FREIGHT AND 3007= GET FAST SHIPMENTS ON SMALL PUBLISHERS' BOOKS.
3008= Q. DOES THE VENDOR OF RECORD PROGRAM APPLY TO LARGE 3009= PUBLISHERS?
3010= A. I DON'T THINK SO. 3011= Q. IN ORDER TO QUALIFY FOR VENDOR OF RECORD, DO YOU HAVE TO
3012= AGREE TO PURCHASE ALL OF YOUR BOOKS FROM THAT PUBLISHER THROUGH 3013= INGRAM?
3014= A. I DON'T KNOW. I TELL YOU, WE --CAN I TELL YOU WHY WE 3015= DON'T USE IT?
3016= Q. SURE. 3017= A. WE DON'T USE IT BECAUSE WE'VE GOT LOYALTY WITH A LOT OF
3018= REPS, AND COMMISSION REPS, AND THEY HAVE SOMETIMES 30 OR 40 3019= PUBLISHERS AND THEY WORK HARD TO DESCRIBE THOSE BOOKS TO US, TO
3020= PRESENT THOSE BOOKS TO US, THEY TRAVEL AND SEE US THREE TIMES A 3021= YEAR, AND THEY GET A LARGER DISCOUNT FROM THE PUBLISHER BY
3022= SELLING US THOSE BOOKS THAN THEY WOULD GET IF WE BUY THEM FROM 3023= INGRAM, ALTHOUGH THEY'VE DONE THE WORK TO PRESENT THAT BOOK AND
3024= SHOW US THAT BOOK, AND WE FEEL LIKE WE OWE THAT LOYALTY, YOU
3025= KNOW, TO THOSE REPS.
44
44 Page 45 46
3026= Q. NOW, WHEN THOSE SALES REPS COME TO YOUR STORE, DO THEY 3027= PROVIDE INFORMATION ABOUT THE BOOKS THAT ARE AVAILABLE FROM
3028= THOSE SMALL PUBLISHERS? 3029= A. OH, YES, THEY STAY ALL DAY.
3030= Q. IF YOU PARTICIPATE IN INGRAM'S VENDOR OF RECORD PROGRAM, 3031= WOULD YOU STILL HAVE THAT SAME INFORMATION FROM THOSE SALES
3032= REPS? 3033= A. WELL, IF THEY GOING TO GET ONE AND-A-HALF PERCENT
3034= COMMISSION VERSUS A 10 PERCENT COMMISSION, I DOUBT THEY WOULD 3035= BE THAT ENTHUSIASTIC ABOUT BRINGING THEM TO US.
3036= Q. MR. JACKSON, ARE YOU FAMILIAR WITH AN INGRAM PROGRAM --3037= HAVE YOU EVER HEARD OF A PROGRAM FROM INGRAM CALLED THE
3038= SCHEDULED DELIVERY PROGRAM? 3039= A. NEVER HEARD OF IT.
3040= Q. HAS INGRAM EVER PROVIDED ANY INFORMATION TO YOU ABOUT SUCH 3041= A PROGRAM, THE SCHEDULED DELIVERY PROGRAM?
3042= A. NO. 3043= Q. HOW ABOUT A PROGRAM FROM INGRAM CALLED THE SUMMARY BILLING
3044= PROGRAM? HAS INGRAM EVER GIVEN YOU ANY INFORMATION ABOUT 3045= SOMETHING CALLED A SUMMARY BILLING PROGRAM?
3046= A. NO. 3047= Q. ARE YOU FAMILIAR WITH A PROGRAM FROM INGRAM CALLED A BACK
3048= LIST PLUS PROGRAM? HAS ANYONE EVER TOLD YOU ABOUT A BACK LIST 3049= PLUS PROGRAM?

3050= A. NO. 3051= Q. HOW ABOUT A PROGRAM FROM INGRAM CALLED A VISITING AUTHOR
3052= PROGRAM? HAS ANYONE EVER TOLD YOU ABOUT A VISITING AUTHOR 3053= PROGRAM?
3054= A. NO. 3055= Q. LET ME ASK YOU A FEW QUESTIONS ABOUT SHORTAGES. DO YOU
3056= EVER RECEIVE SHIPMENTS THAT ARE MISSING BOOKS, WHERE THEY --OR 3057= THEY CONTAIN DAMAGED BOOKS?
3058= A. YES, WE DO. 3059= Q. AND WHAT HAPPENS WHEN YOU RECEIVE A SHIPMENT THAT'S MISSING
3060= BOOKS OR HAS DAMAGED BOOKS? 3061= A. WE HAVE SOMEONE IN THE RECEIVING AREA, AND THEY OPEN EVERY
3062= BOX, AND THEY TAKE OUT THE PACKING LIST OR THE INVOICE, 3063= WHICHEVER THEY PACK IN THE BOX, AND THEY CHECK THE AMOUNT THAT
3064= THE PUBLISHER SAID WAS SHIPPED WAS WHAT THE PACKING LIST SHOWS, 3065= AND IF ONE IS DAMAGED, THEY WILL MARK, DAMAGED BOOK, PAGES
3066= TORN, JACKET TORN, OR WHATEVER THE PROBLEM IS. 3067= Q. CAN YOU RECEIVE ANY KIND OF A CREDIT FOR THOSE DAMAGED
3068= BOOKS OR THE MISSING BOOKS? 3069= A. YES. IT'S A HASSLE, BECAUSE YOU HAVE TO EITHER WRITE THEM
3070= OR CALL THEM AND DESCRIBE WHAT THE PROBLEM IS, AND EITHER ASK 3071= FOR REPLACEMENT FOR THAT BOOK OR THAT WE CAN DEDUCT IT FROM THE
3072= INVOICE. 3073= Q. SO WHAT EXACTLY DO YOU HAVE TO DO IN ORDER TO OBTAIN A
3074= CREDIT FOR A MISSING OR A DAMAGED BOOK?
3075= A. IT VARIES WITH DIFFERENT PUBLISHERS. MOST OF THE TIME YOU 3076= HAVE TO WRITE THEM AND DESCRIBE IT AND GIVE THEM THE INVOICE
3077= NUMBER AND GIVE THEM THE PACKING LIST NUMBER, AND ASK FOR A 3078= REPLACEMENT. A FEW PUBLISHERS HAVE A CUSTOMER SERVICE PERSON.
3079= IF THE CLAIM IS LESS THAN $25, YOU CAN CALL THEM UP AND EXPLAIN 3080= THE DAMAGE AND EXPLAIN WHAT IT IS, AND THEY WILL SAY YOU CAN
3081= DEDUCT $11.80 AND PUT ON THERE, FOR MARY JONES, AND THE DATE 3082= AND THEY WILL ALLOW YOU TO --THE ONLY THINGS --I ONLY THINK
3083= TWO OR THREE PUBLISHERS HAVE THAT SYSTEM. 3084= Q. YOU DESCRIBE THIS IN YOUR WORDS AS A "HASSLE." DOES THIS
3085= INVOLVE A COST TO YOUR STORE OF GOING THROUGH THESE STEPS TO 3086= SUBMIT A CLAIM FOR A CREDIT FOR A MISSING BOOK, OR A DAMAGED
3087= BCould not acquire words on page 46 OOK? 3088= A. WELL, IT'S A COST IN TIME, MOSTLY, AND OF COURSE, TIME TO
3089= CONTACT THEM, TIME TO WRITE THE LETTER, TIME TO RESEARCH IT. 3090= YES, IT'S COST INVOLVED.
3091= Q. LOOKING AT THE PUBLISHERS ON THAT LIST AGAIN, EXHIBIT 2591, 3092= I SHOULD HAVE YOU JUST PULL THAT OUT.
3093= A. OKAY. 3094= Q. IS THE PROCESS THAT YOU'VE JUST DESCRIBED FOR THE COURT THE
3095= PROCESS THAT YOU NEED TO GO THROUGH WITH THESE PUBLISHERS AND 3096= WHOLESALERS TO TAKE A --
45
45 Page 46 47

46 Page 47 48
3167= ALLOW THE HAPPY BOOKSELLER TO RECEIVE MORE FOR A MEDIA AD, A 3168= NEWSPAPER AD, MORE THAN THE COST OF THE AD ITSELF?
3169= A. NO. 3170= Q. HAS THAT EVER --HAVE YOU EVER RECEIVED FROM ANY OF THESE
3171= PUBLISHERS, AT ANY POINT IN THE PERIOD FROM 1994 TO THE 3172= PRESENT, MORE MONEY IN A COOPERATIVE ADVERTISING ALLOWANCE THAN
3173= YOU ACTUALLY PAID FOR A MEDIA AD? 3174= A. NO.

3175= Q. ALL RIGHT. NOW, YOU ALSO IDENTIFIED FOR THE COURT THIS 3176= NOTION OF A POOL. WHAT'S THE POOL?
3177= A. DIFFERENT PUBLISHERS HAVE DIFFERENT WAYS OF DOING IT, BUT 3178= THEY ACCUMULATE A CERTAIN PERCENTAGE OF YOUR PURCHASES INTO AN
3179= ADVERTISING POOL FOR CO-OP. 3180= Q. WHAT DOES THE POOL THEN REPRESENT? IS THAT THE MAXIMUM YOU
3181= CAN GET FOR A GIVEN PERIOD? 3182= A. YES.
3183= Q. AND WHAT IS THAT PERIOD, TYPICALLY? 3184= A. I THINK IT'S DIFFERENT FOR ALL PUBLISHERS. THAT'S ONE
3185= THING I DON'T DO AT THE STORE NOW. WE'VE GOT A WOMAN THAT DOES 3186= THAT, AND THOSE THINGS CHANGE, BUT THAT'S THE BASIC --THAT'S
3187= THE BASIC PRINCIPLE OF IT. 3188= Q. DO PUBLISHERS HAVE DIFFERENT AMOUNTS OF WHAT THEIR
3189= PERCENTAGE IS THAT DEFINES THEIR POOL? 3190= A. YES, AND SOME OF US ARE SMALLER THAN OTHERS, SOME OF THEM
3191= ARE SMALLER THAN OTHERS, AND SOME OF THEM EVEN STARTED GIVING 3192= YOU CO-OP ON DISPLAYS, PARTICULAR DISPLAYS WHICH WOULDN'T
3193= COME --I THINK THAT DOES NOT COME OUT OF YOUR POOL. 3194= Q. NOW THE QUESTION I WANT TO ASK YOU IS, HAS THE HAPPY
3195= BOOKSELLER EVER RECEIVED MORE CO-OP FROM A PUBLISHER AT A GIVEN 3196= TIME THAN WAS AVAILABLE IN YOUR CO-OP POOL?
3197= A. NO. 3198= Q. DO YOU KNOW, LOOKING AGAIN AT THE PUBLISHERS ON THIS LIST,
3199= 2591, HAVE YOU EVER RECEIVED FROM ANY OF THESE PUBLISHERS MORE
3200= CO-OP THAN WAS AVAILABLE IN YOUR CO-OP POOL? 3201= A. NO.
3202= Q. IS THAT TRUE IN EVERY YEAR FROM 1994 TO THE PRESENT? 3203= A. YES.
3204= Q. MR. JACKSON, DOES THE HAPPY BOOKSELLER HAVE AN RDC, OR A 3205= RETAIL DISTRIBUTION CENTER?
3206= A. WE DO NOT. 3207= Q. DO YOU KNOW WHAT A RETAIL DISTRIBUTION CENTER IS?
3208= A. YES. 3209= Q. DEFINE IT FOR THE RECORD, PLEASE, AS YOU UNDERSTAND IT TO
3210= BE. 3211= A. I UNDERSTAND IT TO BE A CENTRAL WAREHOUSE, AND IT HAS TO
3212= HAVE A LOADING DOCK. IT HAS CERTAIN RULES ABOUT HOW HIGH THE 3213= LOADING DOCK'S GOT TO BE, SO AN 18-WHEELER CAN BACK UP THERE
3214= WITHOUT HAVING TO USE TRUCKS AND GO AROUND, AND BASICALLY 3215= THAT'S WHAT IT IS, AND THEN WHOEVER HAD THAT WAREHOUSE WOULD
3216= DISTRIBUTE TO HIS OR HER STORE, OR HIS OR HER GROUP OF STORES, 3217= FROM THAT WAREHOUSE.
3218= Q. HAS THE HAPPY BOOKSELLER EVER RECEIVED AN RDC DISCOUNT FROM 3219= ANY PUBLISHER?
3220= A. NO. 3221= Q. TO YOUR KNOWLEDGE, HAS THE HAPPY BOOKSELLER EVER QUALIFIED
3222= TO RECEIVE AN RDC DISCOUNT FROM ANY PUBLISHER? 3223= A. WE HAVE NOT EVER QUALIFIED.
3224= Q. SO TO YOUR KNOWLEDGE, IS THERE ANY WAY YOU COULD RECEIVE AN
3225= RDC DISCOUNT? 3226= A. NOT LEGALLY.
3227= Q. ALL RIGHT. LET ME ASK YOU A FEW QUESTIONS ABOUT INCENTIVE 3228= PAYMENTS GENERALLY. I KNOW WE TALKED ABOUT THIS WITH INGRAM.
3229= ARE YOU AWARE OF ANY INCENTIVE PROGRAMS OR REBATES 3230= THAT ARE OFFERED BY ANY OF THE PUBLISHERS OR WHOLESALERS ON
3231= THIS LIST, EXHIBIT 2591? 3232= A. WITH THE EXCEPTION THAT I THINK ONE OR TWO OF THEM STILL
3233= GIVE YOU SOME CREDIT, THE LOWER YOUR RETURNS ARE. I DON'T KNOW 3234= WHETHER YOU CALL THAT A REBATE OR NOT.
3235= Q. SO THERE'S SOME INCENTIVES RELATED TO LOWERING YOUR 3236= RETURNS?
47
47 Page 48 49
3237= A. YES, RIGHT. 3238= Q. DO YOU KNOW WHAT PUBLISHERS?
3239= A. AS FAR AS I KNOW, PENGUIN IS THE ONLY ONE THAT STILL HAS 3240= IT, AND I'M NOT EVEN SURE THAT THEY HAVEN'T DROPPED IT, BUT IF
3241= YOU HAD RETURNS LESS THAN 15 PERCENT, YOU GOT A REBATE, AND 3242= THEN I THINK IT BROKE AT 28 PERCENT.
3243= Q. HAVE YOU EVER RECEIVED FROM ANY OF THE PUBLISHERS OR 3244= WHOLESALERS ON THIS LIST ANY SPECIAL INCENTIVE PAYMENTS OR
3245= REBATES BASED ON THE AMOUNT OF THE PURCHASES? 3246= A. NO.
3247= Q. OR JUST EVEN NOT BASED ON THE AMOUNT OF YOUR PURCHASES, 3248= JUST AN ADDITIONAL INCENTIVE CHECK OR REBATE CHECK, OR...?
3249= A. NO.
3250= Q. IS THAT TRUE FOR EVERY YEAR FROM 1994 TO THE PRESENT, 3251= INVOLVING ALL OF THESE PUBLISHERS AND WHOLESALERS ON THIS LIST?
3252= A. YES. 3253= Q. MR. JACKSON, FINAL AREA. DO YOU EVER HAVE DISPUTES WITH
3254= PUBLISHERS OR WHOLESALERS REGARDING THE AMOUNTS THAT YOU OWE 3255= THEM?
3256= A. WE HAVE SOME MINOR DISPUTES. SOMETIMES I HAVE A DEDUCTION 3257= IF THE RETURN DIFFERS FROM THE WAY THEY COMPUTED IT, AND
3258= SOMETIMES THEY WILL DISALLOW ONE BOOK OUT OF FIVE BOXES, AND 3259= DEDUCT THAT --I MEAN, PUT THAT BACK ON THE INVOICE, AND NOT
3260= ALLOW THAT DEDUCTION ON OUR RETURNS. 3261= Q. ARE THERE ANY OTHER ISSUES THAT HAVE COME UP BETWEEN YOU
3262= AND PUBLISHERS OR WHOLESALERS INVOLVING BILLINGS? 3263= A. ABOUT BILLINGS? I THINK, AS WELL AS I REMEMBER, THE ONLY
3264= DIFFERENCES WE WOULD HAVE, ABOUT THE DIFFERENCE IN THE CREDIT 3265= AND RETURNS.
3266= Q. AND HOW ARE THOSE DISPUTES THAT YOU'VE DESCRIBED, IN 3267= GENERAL, HOW DO THEY GET RESOLVED?
3268= A. USUALLY ON THE TELEPHONE, WITH A CREDIT MANAGER. 3269= Q. AND WHEN THERE IS A DISPUTE ABOUT A PARTICULAR RETURN, LIKE
3270= YOU DESCRIBED, HOW DO YOU GO ABOUT DETERMINING WHETHER YOU OWE 3271= THAT AMOUNT OR NOT OWE THAT AMOUNT?
3272= A. WE CAN USUALLY TELL THAT --THEY TELL US WHICH BOOKS THEY 3273= DIDN'T ALLOW, AND IN SOME CASES THEY RETURN THE BOOK TO YOU AND
3274= YOU GOT PHYSICAL EVIDENCE OF WHICH ONE THEY DIDN'T ALLOW.
3275= SOMETIMES THEY WRITE YOU AND SAY, WE HAVE DISALLOWED THESE FIVE 3276= BOOKS, IF YOU WANT THEM BACK, YOU HAVE TO PAY THE FREIGHT. SO
3277= THERE'S VARIOUS WAYS YOU RESOLVE IT. 3278= Q. YOU SAY SOMETIMES YOU HAVE TO SUBMIT PHYSICAL EVIDENCE.
3279= WHAT DO YOU MEAN BY THAT? 3280= A. WELL, DID I SAY THAT? I MEANT TO SAY THAT PHYSICALLY THEY
3281= WILL SEND THE BOOKS THAT ARE NOT ALLOWED. IN MOST CASES 3282= THEY'LL RETURN IT TO YOU: THIS WE DID NOT ALLOW, AND THAT
3283= WOULD GIVE US PHYSICAL EVIDENCE WHY THEY DIDN'T ACCEPT OUR FULL 3284= RETURN AMOUNT.
3285= Q. SIR, WHEN YOU HAVE DISPUTES WITH PUBLISHERS, IS IT FAIR TO 3286= SAY YOU RESOLVE THEM AND WORK THEM THROUGH SORT OF
3287= ITEM-BY-ITEM? 3288= A. YES.
3289= Q. IS THAT TRUE FOR ALL THE PUBLISHERS ON THAT LIST, 2591? 3290= A. YES.
3291= Q. IS THAT THE WAY YOU'VE DONE IT THROUGHOUT THE PERIOD 1994 3292= TO THE PRESENT?
3293= A. THAT'S THE WAY WE'VE ALWAYS DONE IT, YES. 3294= MR. DEBRUIN: YOUR HONOR, I HAVE NO FURTHER
3295= QUESTIONS AT THIS TIME. BEFORE I SIT DOWN, THOUGH, LET ME JUST 3296= SAY THAT I THINK, IN TERMS OF THE INTRODUCTION OF EXHIBITS,
3297= THAT IS GOING TO BE HANDLED THROUGH A STIPULATION, SO I'M NOT 3298= GOING TO MOVE PARTICULAR EXHIBITS INTO EVIDENCE NOW.
3299= THE COURT: YES.
3300= MR. DEBRUIN: THAT WILL BE DONE THROUGH STIPULATION. 3301= THE COURT: YES, YES.
3302= MR. DEBRUIN: THANK YOU. 3303= THANK YOU, MR. JACKSON.
3304= THE COURT: OKAY. CROSS-EXAMINATION, 3305= MR. PETROCELLI.
3306= MR. PETROCELLI: YOUR HONOR, TO KIND OF MAKE THINGS
48
48 Page 49 50
3307= A LITTLE EASIER, WE HAVE A BINDER OF THE EXHIBITS THAT WE MAY 3308= USE DURING CROSS. SO I WILL JUST BE REFERRING TO THAT BINDER.
3309= THE COURT: YES. 3310= MR. PETROCELLI: OKAY, AND HERE IS A COPY OF THE TWO
3311= VOLUMES OF THE WITNESS' DEPOSITION, IF I NEED TO REFER TO THEM. 3312= THE COURT: THANK YOU.
3313= MR. PETROCELLI: AND I HAVE PROVIDED THE SAME TO THE 3314= OTHER SIDE.
3315= THE COURT: YOU REMEMBER SELLING FURNITURE? CAN YOU 3316= PUT SOMETHING IN HERE?
3317= THE WITNESS: YES, I CAN SHOW YOU A NICE PIECE. 3318= THE COURT: ALL RIGHT.
3319= MR. PETROCELLI: THANK YOU, YOUR HONOR. 3320= CROSS-EXAMINATION
3321= Q. HELLO, MR. JACKSON. 3322= A. HELLO.
3323= Q. MY NAME IS DANIEL PETROCELLI AND I'M ONE OF THE LAWYERS FOR 3324= BARNES & NOBLE.

3325= MR. ANDREW GRAVES IS THE OWNER OF THE STORE, THE 3326= HAPPY BOOKSELLER, CORRECT?
3327= A. YES. 3328= Q. AND IT'S TRUE THAT SINCE ABOUT 1997, MR. GRAVES HAS HAD THE
3329= PRINCIPAL RESPONSIBILITY FOR PURCHASING BOOKS, CORRECT? 3330= A. YES.
3331= Q. AND YOU'VE HELPED OUT WHEN HE HASN'T BEEN AVAILABLE SINCE 3332= 1997 IN CONNECTION WITH BUYING BOOKS, CORRECT?
3333= A. YES, AND I USUALLY SIT WITH HIM WHEN HE BUYS THEM, BECAUSE 3334= I HAVE A --OUR DESKS RUN INTO EACH OTHER, ADJACENT.
3335= Q. NOW, NOT ALL PUBLISHERS' TERMS OF SALE ARE IN THE RED BOOK, 3336= CORRECT?
3337= A. AS FAR AS I KNOW, THEY'RE ALL IN THE RED BOOK. 3338= Q. WELL, FOR EXAMPLE, SIR, I BELIEVE YOU EVEN REFERRED TO, IN
3339= YOUR ANSWER TO MR. DEBRUIN'S QUESTIONS, THAT YOU MAY GET OTHER 3340= PRINTED MATTERS OR PRINTED MATERIALS SUCH AS LETTERS --
3341= A. STOCK OFFERS. 3342= Q. --STOCK OFFERS AND THINGS LIKE THAT. YOU REMEMBER THAT?
3343= A. THEY ALL IN THE RED BOOK EXCEPT STOCK OFFERS AND CONVENTION 3344= OFFERS.
3345= Q. OKAY, SO STOCK OFFERS, FOR EXAMPLE, THEY MAY COME IN THE 3346= FORM OF A FAX OR A FLYER OR SOME KIND OF DOCUMENT, CORRECT?
3347= A. YES. 3348= Q. AND YOU MIGHT EVEN GET A LETTER FROM A PUBLISHER TO
3349= BOOKSELLERS ADVISING PUBLISHERS OF DISCOUNT PROGRAMS, CORRECT?
3350= A. ADVISING BOOKSTORES, NOT PUBLISHERS. 3351= Q. WHERE PUBLISHERS WOULD INFORM BOOKSELLERS OF OPPORTUNITIES
3352= TO BUY BOOKS AT OTHER THAN STANDARD DISCOUNT TERMS. 3353= A. YES.
3354= Q. OKAY. AND OF COURSE, THERE ARE OTHER PUBLICATIONS BESIDES 3355= THE RED BOOK, LIKE BOOKSELLING THIS WEEK, THAT CONTAIN
3356= INFORMATION ABOUT PUBLISHER TERMS? 3357= A. YES.
3358= Q. AND PUBLISHERS WEEKLY? 3359= A. YES.
3360= Q. AND THE RED BOOK ITSELF, I THINK, IN THE FRONT, HAS A 3361= STATEMENT THAT IT'S UPDATED FROM TIME TO TIME IN THE COURSE OF
3362= A YEAR, CORRECT? 3363= A. YES.
3364= Q. AND THE RED BOOK COMES OUT ONCE A YEAR, AS YOU INDICATED, 3365= RIGHT?
3366= A. YES. 3367= Q. AND THAT'S ONLY TRUE SINCE 1997. BEFORE 1997, IT CAME OUT
3368= ONCE EVERY TWO YEARS, CORRECT? 3369= A. I'M NOT SURE ABOUT THAT, BUT THAT MAY BE CORRECT.
3370= Q. AND IN ADDITION TO SOME OF THESE OTHER MATERIALS THAT 3371= CONTAIN PUBLISHER TERMS, YOU CAN ALWAYS CALL THE PUBLISHER
3372= DIRECT AND ASK THEM TO SEND YOU THEIR PRICE SCHEDULES OR 3373= INFORMATION ABOUT THEIR PRICE TERMS, CORRECT?
3374= A. YES.
3375= Q. AND YOU KEEP TRACK OF THESE VARIOUS MATERIALS THAT CONTAIN 3376= VARIOUS PUBLISHER OFFERINGS, DO YOU NOT?
49
49 Page 50 51
3377= A. YES, WE SLIP THEM IN THE RED BOOK. 3378= Q. AND SO IF I WANTED TO KNOW ALL OF THE OPERATIVE TERMS OF A
3379= PUBLISHER IN A GIVEN YEAR, I'D HAVE TO GO BEYOND THE RED BOOK 3380= AND LOOK AT ALL THESE OTHER MATERIALS IN ADDITION TO THE RED
3381= BOOK, CORRECT? 3382= A. YES.
3383= Q. NOW, I HEARD YOU SAY THAT YOU NEVER NEGOTIATE. YOU MIGHT 3384= BE THE FIRST PERSON I MET WHO NEVER NEGOTIATES, BUT YOU DO TRY
3385= TO GET, MR. JACKSON, THE BEST TERMS AVAILABLE IN YOUR DEALINGS 3386= WITH PUBLISHERS, DO YOU NOT?
3387= A. WELL, I DO, BUT I ASSUME THAT THE INTEGRITY OF THE 3388= PUBLISHER IS SUCH THAT WHAT IS PRINTED IS WHAT I GET. I DON'T
3389= ASK FOR ANY BETTER DEAL. 3390= Q. YOU'RE NOT ASKING FOR ANY BETTER, BUT YOU TRY TO GET THE
3391= BEST TERMS THAT ARE AVAILABLE TO YOU, RIGHT? 3392= A. I DON'T REALLY UNDERSTAND YOUR QUESTION, BECAUSE THE BEST
3393= TERMS ARE PRINTED ON --THERE'S NO WAY TO NEGOTIATE. 3394= (CONTINUED ON FOLLOWING PAGE. NOTHING OMITTED.)
3395= 3396=
3397= 3398=
3399=
3400= JACKSON -CROSS / PETROCELLI 1 BY MR. PETROCELLI: 3401= 2 Q. WELL --3 A. SO I DON'T HAVE TO TRY TO GET THE BEST TERMS. I KNOW THE
3402= 4 BEST TERMS ARE PRINTED IN THIS BOOK. 3403= 5 Q. SO YOU NEVER ASK THE PUBLISHERS AT ANY TIME FOR ANY TERMS
3404= 6 THEY MIGHT HAVE TO OFFER YOU OTHER THAN WHAT'S IN THE RED BOOK? 3405= 7 A. NO, I ACCEPTED THE OFFERS THAT ARE MADE TO EVERYONE.
3406= 8 Q. DO YOU REMEMBER TESTIFYING AT YOUR DEPOSITION --SIR, DO YOU 3407= 9 HAVE A COPY OF YOUR DEPOSITION IN FRONT OF YOU?
3408= 10 A. I DO. 3409= 11 Q. CAN YOU TURN TO PAGE 85, LINES 23 TO 25.
3410= 12 A. (REVIEWING DOCUMENT.) 3411= 13 Q. YOU REMEMBER GIVING A DEPOSITION OF LAST YEAR, SIR, DO YOU
3412= 14 NOT? 3413= 15 A. I DO.
3414= 16 Q. THE LAWYERS ASKING YOU QUESTIONS AND SO FORTH? 3415= 17 A. YES.
3416= 18 Q. AND I JUST WANT TO SEE IF YOUR MEMORY'S REFRESHED BY 3417= 19 REFERENCE TO PAGE 85, LINES 23 TO 25, WHERE YOU STATED, QUOTE,
3418= 20 "WE TRY OUR BEST TO GET THE BEST TERMS AVAILABLE AS LONG AS 3419= 21 THEY'RE" --
3420= 22 MR. DE BRUIN: I'M SORRY. PAGE 85? WE DON'T HAVE 3421= 23 THAT.
3422= 24 THE WITNESS: WE DON'T HAVE AN 85. 3423= 25 MR. PETROCELLI: DID I MISSTATE THE QUOTE?
3424= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3425= 2 MR. PETROCELLI: PAGE 85, LINES 23 TO 25, YOUR HONOR. 3426= 3 THE COURT: YES.
3427= 4 MR. DE BRUIN: WHICH --3428= 5 MR. PETROCELLI: DO YOU HAVE THAT, MR. DEBRUIN?
3429= 6 MR. DE BRUIN: IT'S NOT ON MY PAGE 85. 3430= 7 THE COURT: VOLUME 1?
3431= 8 MS. LIPPMAN: YES. 3432= 9 MR. PETROCELLI: READY.
3433= 10 MR. DE BRUIN: SORRY, PAGE 85, LINE 23? 3434= 11 MR. PETROCELLI: TO 25. VOLUME 1 OF MR. JACKSON'S
3435= 12 DEPOSITION. 3436= 13 THE WITNESS: I DON'T HAVE A PAGE 85.
3437= 14 MR. DE BRUIN: I SEE IT. 3438= 15 THE WITNESS: IT'S WHAT? AT THE BOTTOM?
3439= 16 BY MR. PETROCELLI: 3440= 17 Q. YEAH, I JUST WANTED TO --POINT YOU TO WHERE YOU TESTIFIED
3441= 18 ON LINE 23, SIR. 3442= 19 A. ON PAGE 85?
3443= 20 Q. YEAH. 3444= 21 A. I DO NOT HAVE A PAGE 85.
3445= 22 MR. PETROCELLI: YOUR HONOR, MAY I APPROACH? 3446= 23 Q. SIR, THIS IS NOT YOUR DEPOSITION. THAT'S OKAY. MY
3447= 24 APOLOGIES FOR NOT PUTTING IT IN FRONT OF YOU. YOU SHOULD HAVE A
50
50 Page 51 52
3448= 25 COPY THERE. BUT RIGHT HERE, SIR (INDICATING). I WANTED TO JUST 3449= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3450= JACKSON -CROSS / PETROCELLI 1 REFER YOU TO THAT. YOU MIGHT --3451= 2 A. (REVIEWING DOCUMENT.) 3 Q. DO YOU SEE THAT?
3452= 4 A. YEAH. 3453= 5 Q. OKAY.
3454= 6 A. YES. 3455= 7 Q. AND THAT WAS AN ACCURATE STATEMENT WHEN YOU SAID YOU TRY
3456= 8 YOUR BEST TO GET THE BEST TERMS AVAILABLE AS LONG AS THEY'RE 3457= 9 OFFERED TO EVERY OTHER BOOKSELLER IN THE COUNTRY, RIGHT?
3458= 10 A. TRUE. 3459= 11 Q. AND YOU ASSUME THAT THE PUBLISHER WHEN HE GIVES YOU HIS BEST
3460= 12 TERMS AVAILABLE WILL BE MAKING THOSE AVAILABLE TO EVERYBODY 3461= 13 ELSE, CORRECT?
3462= 14 A. YES, CORRECT. 3463= 15 Q. NOW, I'D LIKE TO GO OVER A COUPLE OF DISCOUNTS THAT YOU
3464= 16 TALKED ABOUT IN YOUR DEPOSITION. ONE OF THEM IS A VOLUME 3465= 17 REDUCTION DISCOUNT. IS IT NOT TRUE THAT HAPPY SELLER (SIC)
3466= 18 SOMETIMES GETS BACK LIST OFFERS WITH GREATER THAN STANDARD 3467= 19 DISCOUNTS FROM TIME TO TIME?
3468= 20 A. YES, WITH STOCK OFFERS, YES. 3469= 21 Q. OKAY. AND THAT'S AN EXAMPLE OF SOMETHING THAT IS NOT IN THE
3470= 22 RED BOOK, CORRECT? 3471= 23 A. NO, BUT IT'S GIVEN TO YOU PRINTED.
3472= 24 Q. PRINTED IN THE FORM OF ONE OF THOSE OTHER DOCUMENTS WE 3473= 25 REFERRED TO?
3474= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3475= JACKSON -CROSS / PETROCELLI 1 A. YEAH. SHEET, YES. 3476= 2 Q. OKAY. AND IS IT NOT ALSO TRUE, SIR, THAT WHEN YOU OPENED UP 3 YOUR STORE,
YOU PARTICIPATED IN WHAT WAS 3477= 4 STORE ALLOWANCE WHERE YOU GOT A DISCOUNT OFF OF THE PRICE OF THE
3478= 5 INITIAL BOOKS PUT INTO YOUR STORE? 3479= 6 A. NO, THEY HAD A POCKET ALLOWANCE, BUT THEY GAVE YOU SO MUCH
3480= 7 OF POCKET. THAT WAS IN THE MASS MARKETS DAYS. AND THEY GAVE 3481= 8 YOU --I BELIEVE IT WAS 60 CENTS A POCKET.
3482= 9 Q. AND YOU TOOK ADVANTAGE OF THAT WHEN YOU OPENED YOUR STORE, 3483= 10 RIGHT?
3484= 11 A. AND EVERY STORE THAT OPENED COULD TAKE ADVANTAGE OF THAT. 3485= 12 Q. AND THAT'S NOT IN THE RED BOOK EITHER AT THE TIME, CORRECT?
3486= 13 A. IT'S NOT IN THERE --I DON'T THINK IT EXISTS ANYMORE, BUT IT 3487= 14 DID IN 1974.
3488= 15 Q. LET'S GO TO THE SUBJECT OF RETURNS. YOU'VE PARTICIPATED IN 3489= 16 INCENTIVE PROGRAMS PROVIDING ADDITIONAL DISCOUNTS FROM
3490= 17 PUBLISHERS FOR LOW RATES OF RETURNS, CORRECT? 3491= 18 A. YES.
3492= 19 Q. SOMETHING CALLED A --FOR EXAMPLE, A RETAIL INCENTIVE PLAN. 3493= 20 YOU RECALL THAT?
3494= 21 A. I DID NOT RECALL WHAT IT WAS CALLED, BUT I KNEW THEY HAD A 3495= 22 PLAN FOR LOWERING YOUR RETURNS.
3496= 23 Q. BERKELEY PUBLISHING GROUP WAS ONE SUCH --3497= 24 A. YES.
3498= 25 Q. --PLAN. AND THAT WAS A PLAN WHERE YOU GOT REBATES, AND 3499= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3500= JACKSON -CROSS / PETROCELLI 1 THAT WAS NOT IN THE RED BOOK, CORRECT?
3501= 2 A. WELL, THAT WAS --HAD TO DEAL WITH RETURNS, AND I'M NOT 3 SURE --I BELIEVE IT WAS IN THE RED BOOK IN TH
3502= 4 Q. OKAY. WELL, LET'S --LET'S TAKE A LOOK AT THAT ONE IF 3503= 5 WOULDN'T MIND, SIR.
3504= 6 A. I THINK IF YOU GO BACK TO THE --IT'S BEEN YEARS SINCE THAT 3505= 7 WAS AVAILABLE, BUT I THINK IT WOULD HAVE BEEN IN THE RED BOOK.
3506= 8 Q. LET'S LOOK AT EXHIBIT 5652 THAT YOU HAVE IN FRONT OF YOU IN 3507= 9 THE NOTEBOOK THAT WE --
3508= 10 MAY I APPROACH, YOUR HONOR? 3509= 11 THE WITNESS: YES, I GOT --
3510= 12 THE COURT: YES. 3511= 13 BY MR. PETROCELLI:
3512= 14 Q. DO YOU HAVE THAT? LET'S MAKE SURE WE HAVE THE SAME THING. 3513= 15 A. (REVIEWING DOCUMENT.)
3514= 16 Q. YOU SEE TRIAL --OR EXHIBIT NUMBER 5652, THE BERKELEY RETAIL
51
51 Page 52 53
3515= 17 PUBLISHING INCENTIVE PLAN? 3516= 18 A. YES.
3517= 19 Q. AND THE DATE OF THAT IS? 3518= 20 A. OCTOBER '96.
3519= 21 Q. OKAY. NOW, IF YOU WOULD LOOK AT EXHIBIT 3, THAT WOULD BE 3520= 22 THE 1996 EDITION OF THE RED BOOK. YOU ALSO HAVE THAT UP THERE,
3521= 23 SIR? 3522= 24 YOUR HONOR, THAT WOULD BE IN EXHIBIT 3 OF THIS SAME
3523= 25 NOTEBOOK THAT YOU'RE IN. WE HAVE THE PAGE FROM BERKELEY FROM 3524= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3525= JACKSON -CROSS / PETROCELLI 1 THE RED BOOK. 3526= 2 A. (REVIEWING DOCUMENTS.) 3 THE COURT: 5653?
3527= 4 MR. PETROCELLI: 5652 WAS THE BERKELEY PUBLISHING 3528= 5 RETAIL INCENTIVE PLAN. AND THEN EXHIBIT 3 IS THE RED BOOK FOR
3529= 6 THE SAME PERIOD OF TIME. 3530= 7 THE COURT: WELL, NOW, I'M --AS DELIGHTED TO RECEIVE
3531= 8 YOUR BINDER, BUT --YOUR SPLENDID PRESENTATION OF ALL THESE 3532= 9 EXHIBITS, AND I TURN TO 5652, AND I --WHICH IS A LETTER TO
3533= 10 HAPPY BOOKSELLER TITLED "DEAR BOOKSELLER" FROM THE BERKELEY 3534= 11 PUBLISHING GROUP. IS THAT IT?
3535= 12 MR. PETROCELLI: YES, YOUR HONOR. THAT'S THE RETAIL 3536= 13 INCENTIVE PLAN THAT I JUST MENTIONED. AND NOW I'M ASKING THE
3537= 14 WITNESS TO TURN TO EXHIBIT 3, WHICH WOULD ALSO BE IN YOUR SAME 3538= 15 NOTEBOOK WHICH CONTAINS THE RELEVANT PAGE FROM THE 1996 RED BOOK
3539= 16 FOR THE SAME PERIOD OF TIME. 3540= 17 Q. AND MY QUESTION TO YOU, IF YOU CAN PUT THAT IN FRONT OF YOU,
3541= 18 IS WHETHER YOU SEE WHETHER THAT INCENTIVE PLAN IS CONTAINED IN 3542= 19 THE RED BOOK.
3543= 20 A. (REVIEWING DOCUMENTS.) 3544= 21 I DON'T --I DON'T FIND BERKELEY ON HERE. WHERE
3545= 22 IS --YOU HAD POINTED OUT? 3546= 23 MR. PETROCELLI: MAY I APPROACH, YOUR HONOR?
3547= 24 THE COURT: YEAH. 3548= 25 THE WITNESS: I FIND THIS PAGE, BUT I DON'T SEE
3549= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3550= JACKSON -CROSS / PETROCELLI 1 BERKELEY LISTED HERE. 3551= 2 MR. PETROCELLI: (INDICATING.) 3 THE WITNESS: THAT'S A
DIFFERENT BERKELEY. THAT'S 3552= 4 SCIENTIFIC PUBLICATION.
3553= 5 BY MR. PETROCELLI: 3554= 6 Q. BERKELEY PUBLISHING.
3555= 7 A. OKAY. I'M WITH YOU. 3556= 8 Q. YEAH, I'M SIMPLY ASKING YOU TO CONFIRM THAT THAT IS NOT
3557= 9 CONTAINED IN THE RED BOOK, SIR. 3558= 10 A. THAT APPEARS TO BE TRUE.
3559= 11 Q. NOW, YOU REMEMBER RECEIVING AT SOMETIME SOMETHING CALLED THE 3560= 12 SHARED MARKDOWN FROM SOME OF THE PUBLISHERS OR, I THINK, AS YOU
3561= 13 PUT IT, A REMAINDERING IN PLACE PROGRAM? 3562= 14 A. REPEAT YOUR QUESTION.
3563= 15 Q. YEAH, DO YOU REMEMBER PARTICIPATING IN SOMETHING CALLED THE 3564= 16 SHARED MARKDOWN FROM THE PUBLISHER?
3565= 17 A. I REMEMBER SOME OF THEM HAD THAT PROGRAM. I'M NOT SURE WE 3566= 18 EVER --WELL, WE MIGHT HAVE --WE MIGHT HAVE PARTICIPATED ONCE
3567= 19 OR TWICE, YES. 3568= 20 Q. I THINK YOU CALLED IT A REMAINDERING IN PLACE --
3569= 21 A. YES. 3570= 22 Q. --PROGRAM. AND THAT'S SOMETHING, FOR EXAMPLE, THAT WOULD
3571= 23 NOT BE FOUND IN THE RED BOOK, CORRECT? 3572= 24 A. THAT WOULD NOT BE FOUND, BUT YOU WOULD GET A PRINTED
3573= 25 EXPLANATION OF IT. IT SHOULD HAVE GONE TO EVERY BOOKSELLER. 3574= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3575= JACKSON -CROSS / PETROCELLI 1 Q. NOW, REGIONAL TRADE SHOWS OR BOOK SHOWS, I THINK YOU
3576= 2 TESTIFIED THIS --ABOUT THIS A LITTLE BIT ON DIRECT. THEY --AT 3 THEIR CONVENTIONS OR SHOWS, THEY HAVE PUB
3577= 4 HIGHER DISCOUNTS THAN NORMAL, CORRECT? 3578= 5 A. STOCK OFFERS?
3579= 6 Q. YES. AT TRADE SHOWS FOR ABA MEMBERS ONLY. 3580= 7 A. WELL, I DON'T THINK IT'S ONLY ABA MEMBERS NOW. IF YOU DON'T
3581= 8 EVEN GO TO THE TRADE SHOW, YOU CAN TAKE ADVANTAGE OF THOSE.
52
52 Page 53 54
3582= 9 Q. BUT THOSE TRADE SHOW OFFERINGS WOULD NOT BE FOUND IN THE RED 3583= 10 BOOK EITHER, CORRECT?
3584= 11 A. NO, YOU GET THEM IN PRINT, AND EVERY BOOKSELLER WOULD GET 3585= 12 THEM, BUT IT'S AVAILABLE TO ALL BOOKSELLERS, NOT JUST ABA
3586= 13 MEMBERS. 3587= 14 Q. SO IF I WANTED TO KNOW WHAT ALL OF THE PRICE TERMS WERE THAT
3588= 15 HAPPY BOOKSELLER PARTICIPATED IN, LET'S SAY, FOR A GIVEN YEAR 3589= 16 AND A GIVEN PUBLISHER, WHAT WOULD YOU SHOW TO ME?
3590= 17 LET'S TAKE 1996 AND LET'S SAY RANDOM HOUSE OR 3591= 18 MACMILLAN --
3592= 19 A. IF YOU WANT --3593= 20 Q. --WHAT IF --
3594= 21 A. --WANTED TO SEE THEM TODAY, I COULDN'T SHOW THEM TO YOU. 3595= 22 BUT IF YOU WANTED TO TAKE 1996, THEY'D BE IN MY RED BOOK.
3596= 23 Q. AND IN YOUR RED BOOK, YOU'D HAVE ADDITIONAL PAPERS THAT 3597= 24 WOULD BE FILED, RIGHT?
3598= 25 A. YES. 3599= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3600= JACKSON -CROSS / PETROCELLI 1 Q. AND THE TOTALITY OF THOSE PAPERS WOULD SET FORTH ALL OF
3601= 2 TERMS THAT YOU BOUGHT FROM FROM THAT PARTICULAR PUBLISHER, 3 CORRECT? 3602= 4 A. YES.
3603= 5 Q. AND YOU ALSO HAVE FILES THAT YOU KEEP WHERE YOU --PUBLISHER 3604= 6 BY PUBLISHER?
3605= 7 A. YES, WE HAVE THAT, TOO. 3606= 8 Q. WHERE YOU PUT THESE MATERIALS, CORRECT?
3607= 9 A. RIGHT. YES. 3608= 10 Q. AND IF YOU WANTED TO KNOW, SIR, THE ACTUAL PURCHASES THAT
3609= 11 YOU MADE IN A GIVEN YEAR FROM A PARTICULAR PUBLISHER, YOU'D HAVE 3610= 12 TO TAKE ME TO THE INVOICES, RIGHT?
3611= 13 A. CORRECT. 3612= 14 Q. AND THE INVOICES WOULD TELL ME THE ACTUAL PRICES THAT YOU
3613= 15 PAID, RIGHT? 3614= 16 A. YES. IT WOULD SHOW --
3615= 17 Q. NOT --3616= 18 A. --DISCOUNTS, YES.
3617= 19 Q. NOT JUST THE --NOT JUST THE DISCOUNTS THAT ARE IN THE RED 3618= 20 BOOK BUT THE DISCOUNTS THAT ARE IN THESE OTHER OFFERINGS AS
3619= 21 WELL. THAT WOULD BE REFLECTED ON THE INVOICE, CORRECT? 3620= 22 A. YES. YES.
3621= 23 Q. AND THE INVOICES WOULD ALSO TELL US WHAT QUANTITIES YOU 3622= 24 PURCHASED AT ANY GIVEN DISCOUNT LEVEL, CORRECT?
3623= 25 A. YES. 3624= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3625= JACKSON -CROSS / PETROCELLI 1 Q. SO FOR EXAMPLE, WHEN YOU WERE ANSWERING MR. DEBRUIN'S
3626= 2 QUESTIONS AND YOU WERE TALKING ABOUT INGRAM, PURCHASING AT 3 40 PERCENT UP TO 4 COPIES, 5 TO 9 AT 41, AND 10
3627= 4 42 --3628= 5 A. YES.
3629= 6 Q. --THE ONLY WAY WE WOULD KNOW WHAT YOU ACTUALLY PURCHASED AT 3630= 7 WHAT LEVEL WOULD BE TO LOOK AT THE INVOICES, RIGHT?
3631= 8 A. CORRECT. 3632= 9 Q. BY THE WAY, ON THE SUBJECT OF THE INGRAM, YOU SAID THAT THE
3633= 10 PROGRAMS MR. DEBRUIN ASKED YOU ABOUT, THE BACK LIST PLUS, THE 3634= 11 SUMMARY BILLING, SCHEDULED DELIVERING, AND VISITING AUTHOR
3635= 12 PROGRAMS, YOU'D NEVER HEARD OF, RIGHT? 3636= 13 A. THAT IS TRUE.
3637= 14 Q. I TAKE IT, THEN, THAT YOU DON'T KNOW WHETHER OR NOT THOSE 3638= 15 PROGRAMS ARE IN WRITING.
3639= 16 A. I DON'T KNOW THAT THEY --THEY EXIST. 3640= 17 Q. HAVE YOU EVER HAD ANY INQUIRIES TO INGRAM TO FURNISH YOU
3641= 18 WITH A LIST OF ALL OF THEIR PRINTED PROGRAMS? 3642= 19 A. NO, I WOULD ASSUME THAT ANYBODY --ANY OF THE PUBLISHERS
3643= 20 WITH INTEGRITY WOULD SEND YOU WHAT'S AVAILABLE IF IT WAS 3644= 21 AVAILABLE TO YOU.
3645= 22 Q. JUST SO I'M CLEAR ON THIS, YOU HAVE NOT IN THE TIME THAT 3646= 23 YOU'VE WORKED FOR HAPPY BOOKSELLER CONTACTED REPRESENTATIVES OF
3647= 24 INGRAM TO HAVE THEM SUBMIT TO YOU OR EXPLAIN TO YOU ALL THE 3648= 25 AVAILABLE PROGRAMS THAT EXIST?
3649= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
53
53 Page 54 55
3650= JACKSON -CROSS / PETROCELLI 1 A. NO. 3651= 2 Q. OKAY. 3 THE VOR PROGRAM YOU DO KNOW ABOUT, CORRECT?
3652= 4 A. THE VENDOR OF RECORD, YES. 3653= 5 Q. AND THAT'S --AND THAT'S A PROGRAM THAT'S IN WRITING, ISN'T
3654= 6 IT? 3655= 7 A. YES, THEY WROTE US ALL A LETTER ABOUT IT. THEY WERE VERY
3656= 8 EXCITED ABOUT IT. 3657= 9 Q. BUT IT'S NOT IN THE RED BOOK, IS IT?
3658= 10 A. I DON'T KNOW. I CAN LOOK. 3659= 11 Q. WELL, TO SAVE THE TIME, I WILL REPRESENT --
3660= 12 A. IT'S NOT IN THERE? 3661= 13 Q. --THAT IT'S NOT IN THE RED BOOK.
3662= 14 A. THANK YOU. 3663= 15 Q. AND I THINK AS YOU TESTIFIED, IN FACT, THE WAY --THE WAY
3664= 16 YOU DETERMINED THE --THE --THE CORRECTNESS OF THE DISCOUNTS 3665= 17 WHEN THEY COME IN IS YOU ACTUALLY LOOK AT ALL OF THE INVOICES
3666= 18 WHEN THEY'RE RECEIVED, CORRECT? 3667= 19 A. YES.
3668= 20 Q. IF I WANTED TO --WITHDRAWN. 3669= 21 I ASSUME THAT WITHOUT THE INVOICES OR SOME SUMMARY OF
3670= 22 THEM, YOU'RE NOT ABLE TO TELL ME WITH ANY DEGREE OF ACCURACY THE 3671= 23 AVERAGE PRICE OF BOOKS THAT YOU PAID AND PURCHASED FOR ANY GIVEN
3672= 24 PUBLISHER IN A GIVEN YEAR. 3673= 25 A. NO.
3674= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3675= JACKSON -CROSS / PETROCELLI 1 Q. OKAY. AND WITHOUT THE INVOICES, YOU COULDN'T TELL ME WI
3676= 2 ANY DEGREE OF ACCURACY WHAT THE AVERAGE DISCOUNT EARNED IN ANY 3 GIVEN YEAR IS, CORRECT?
3677= 4 A. NO. I COULD NOT. 3678= 5 Q. OKAY. AND IF I WANTED TO COMPARE --IF I WANTED TO COMPARE
3679= 6 THE ACTUAL PRICES THAT THE HAPPY BOOKSELLER PAID FOR PURCHASES 3680= 7 THAT IT MADE WITH THE ACTUAL PRICES THAT BARNES & NOBLE PAID FOR
3681= 8 THE PURCHASES THAT IT MADE, THE BEST WAY OF DOING THAT WOULD BE 3682= 9 TO COMPARE THE INVOICES, CORRECT?
3683= 10 A. CORRECT. 3684= 11 Q. LET ME TURN TO A DIFFERENT SUBJECT. NOW, LET'S GO BACK TO
3685= 12 1993, OKAY? 3686= 13 A. '93, OKAY.
3687= 14 Q. AND WE'RE IN COLUMBIA, SOUTH CAROLINA, AND THE FIRST 3688= 15 SIGNIFICANT COMPETITOR THAT ARRIVES IS NOT BARNES & NOBLE BUT A
3689= 16 COMPANY CALLED BOOKS-A-MILLION, CORRECT? 3690= 17 A. CORRECT.
3691= 18 Q. AND BOOKS-A-MILLION OPENED UP A STORE AT THE CORNER OF 3692= 19 FOREST DRIVE AND TRENHOLM ROAD ABOUT A MILE FROM YOUR STORE,
3693= 20 CORRECT? 3694= 21 A. THAT IS CORRECT.
3695= 22 Q. AND THAT IS ON THE SAME SIDE OF THE RIVER THAT SPLITS THE 3696= 23 TOWN, RIGHT?
3697= 24 A. YES, THAT'S TRUE. 3698= 25 Q. BY THE WAY, WHAT IS THE NAME OF THE RIVER?
3699= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3700= JACKSON -CROSS / PETROCELLI 1 A. WELL, IT'S THE --3701= 2 THE REPORTER: I'M SORRY, SIR. I DIDN'T UNDERSTAND 3 THAT. "WELL,
IT'S A..." 3702= 4 THE WITNESS: I CAN UNDERSTAND WHY 'CAUSE THOSE ARE
3703= 5 INDIAN NAMES. 3704= 6 WELL, LET'S JUST MAKE IT SIMPLE. IT'S THE CONGAREE
3705= 7 RIVER AND, IT'S C-O-N-G-A-R DOUBLE E, I BELIEVE. 3706= 8 BY MR. PETROCELLI:
3707= 9 Q. NOW, AFTER THE FIRST BOOKS-A-MILLION STORE OPENED UP IN 3708= 10 1993, I WANT TO JUST TRACE THE SEQUENCE OF THESE EVENTS FOR A
3709= 11 MOMENT. A SECOND BOOKS-A-MILLION STORE OPENED UP ACROSS THE 3710= 12 RIVER ON HARBISON ROAD, CORRECT?
3711= 13 A. CORRECT. 3712= 14 Q. AND THAT'S ABOUT 12 OR 13 MILES FROM YOUR STORE, RIGHT?
3713= 15 A. LITTLE LESS THAN THAT, BUT --3714= 16 Q. OKAY.
3715= 17 A. YES. 3716= 18 Q. AND AFTER THE TWO BOOKS-A-MCould not acquire words on page 55 Could not acquire words on page 56 ILLION STORES OPENED UP, IN 1995,
54
54 Page 55 56

55 Page 56 57

56 Page 57 58
3850= JACKSON -CROSS / PETROCELLI 1 ACCORDING TO THIS DRAFT, IT SHOWS THAT.
3851= 2 Q. OKAY. AND THE SECOND BARNES & NOBLE STORE OPENED IN 1997, 3 THIS TIME NEXT TO YOUR STORE ABOUT A MILE A
3852= 4 A. YES. 3853= 5 Q. AND YOUR --YOUR SALES DID NOT DECREASE BUT CONTINUED TO
3854= 6 INCREASE, CORRECT? 3855= 7 A. YES. UM, DID YOU ALSO DO A DRAFT ON PROFIT AND GROSS
3856= 8 PROFIT? THAT TELL YOU --3857= 9 Q. SIR, I GET TO ASK THE QUESTIONS.
3858= 10 A. OH, I JUST WANT TO KNOW IF YOU DID THAT. 3859= 11 Q. NO, I'M JUST ASKING YOU ABOUT THIS.
3860= 12 A. OKAY. 3861= 13 Q. AND I THINK YOUR LAWYER ACTUALLY SHOWED YOU A --I THINK
3862= 14 IT'S EXHIBIT 192. THE MONTHLY --3863= 15 A. YES.
3864= 16 Q. --HANDWRITTEN --3865= 17 A. HE DID, YES.
3866= 18 Q. --PRINTOUT THAT YOU PREPARED. DO YOU HAVE COPY OF THAT? 3867= 19 A. YES, BUT I --
3868= 20 MR. PETROCELLI: MAY I APPROACH, YOUR HONOR? 3869= 21 THE WITNESS: I DON'T THINK I CAN PUT MY FINGER ON
3870= 22 IT. 3871= 23 BY MR. PETROCELLI:
3872= 24 Q. AND THESE ARE YOUR MONTHLY TABULATIONS OF SALES AGAIN, 3873= 25 RIGHT?
3874= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3875= JACKSON -CROSS / PETROCELLI 1 A. CORRECT. 3876= 2 Q. AND THAT IS CONSISTENT WITH THE CHART THAT I JUST SHOWED 3 YOU. YOU DON'T
SEE ANY DECREASE IN SALES AFT 3877= 4 OR THE SECOND BARNES & NOBLE OPENING, CORRECT?
3878= 5 A. (REVIEWING DOCUMENT.) 3879= 6 WELL, IN DECEMBER, I SEE A PRETTY GOOD DECREASE
3880= 7 THERE. YOU OPEN IN --IN --YOU OPENED IN THE FALL OF '95, AND 3881= 8 THE SALES WENT DOWN $30,000. AND THIS WENT DOWN 20.
3882= 9 Q. AND THEN NEXT YEAR WE'RE UP TO OVER 200? 3883= 10 A. JUST FOLLOWING YOU.
3884= 11 Q. BY THE WAY, THE HOLIDAY SEASON IS THE BUSIEST TIME OF THE 3885= 12 YEAR, CORRECT, FOR BOOKSELLERS?
3886= 13 A. WHICH HOLIDAY SEASON? 3887= 14 Q. FALL THROUGH CHRISTMAS.
3888= 15 A. YES. 3889= 16 MR. PETROCELLI: YOUR HONOR, I HAVE NOTHING FURTHER
3890= 17 RIGHT NOW. 3891= 18 THE COURT: ALL RIGHT. REDIRECT?
3892= 19 OH, MR. STEER. 3893= 20 MR. STEER: YES.
3894= 21 CROSS-EXAMINATION 3895= 22 BY MR. STEER:
3896= 23 Q. AFTERNOON, MR. JACKSON. I'M REG STEER. 3897= 24 A. HELLO.
3898= 25 Q. WE HAVEN'T MET BEFORE. JUST HAVE A FEW QUESTIONS FOR YOU. 3899= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3900= JACKSON -CROSS / STEER 1 I REPRESENT BORDERS GROUP, INCLUDING WALDEN BOOK. WANTED TO A
3901= 2 YOU A LITTLE BIT ABOUT HISTORY. 3 YOUR --YOUR ATTORNEY SHOWED YOU A MAP, EXHIBIT 2519,
3902= 4 I BELIEVE IT WAS? 3903= 5 A. YES.
3904= 6 Q. AND DO YOU HAVE THAT IN FRONT OF YOU? 3905= 7 A. I WILL IN A MOMENT.
3906= 8 Q. GREAT. 3907= 9 A. 2591?
3908= 10 Q. NO, IT'S 2519. IT'S THE COLORED MAP WITH --3909= 11 IF I MAY, YOUR HONOR?
3910= 12 THE COURT: YES. 3911= 13 THE WITNESS: YEAH, OKAY. I GOT IT.
3912= 14 MR. STEER: OKAY. 3913= 15 THE WITNESS: THANK YOU.
3914= 16 BY MR. STEER: 3915= 17 Q. AND I HAVE TO SAY I GOT A LITTLE CONFUSED WHEN YOU WERE
57
57 Page 58 59
3916= 18 TALKING ABOUT WHICH WALDENBOOK STORE THAT'S SHOWN ON THERE HAS 3917= 19 CLOSED AND WHICH IS STILL IN EXISTENCE. CAN YOU TELL ME --
3918= 20 THERE'S AN INDICATION OF A BLUE SQUARE --3919= 21 A. YES.
3920= 22 Q. --WHICH IS SUPPOSED TO STAND FOR WALDENBOOKS? 3921= 23 A. YES.
3922= 24 Q. IN RICHLAND FASHION MALL. NOW, IS THAT --3923= 25 A. THAT ONE IS CLOSED TO MY UNDERSTANDING.
3924= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
3925= JACKSON -CROSS / STEER 1 Q. OKAY. AND WHEN DID IT CLOSE? 3926= 2 A. IT CLOSED SHORTLY AFTER THAT BARNES & NOBLE --IT WAS RIGHT 3 UPSTAIRS OVER
THE BARNES & NOBLE IN THE SA 3927= 4 Q. SO THIS IS WHEN THE SECOND BARNES & NOBLE OPENED, OR WAS IT
3928= 5 THE FIRST? 3929= 6 A. YES.
3930= 7 Q. THE SECOND. 3931= 8 A. YES.
3932= 9 Q. SO AROUND 1997, HUH? 3933= 10 A. COME IN OUT OF --THAT IS SOMETHING CONFUSING ABOUT THIS.
3934= 11 CAN I SHOW IT TO YOU? 3935= 12 Q. I'LL BE HAPPY TO LOOK AT IT. THANKS.
3936= 13 A. SEE, THIS IS --THIS RED DOT IS TRENHOLM MALL, 3937= 14 T-R-E-N-H-O-L-M IN FASHION MALL, AND THAT'S WHERE YOUR BOOKSTORE
3938= 15 WAS. THIS BLUE DOT HERE IS ACTUALLY IN A PLACE CALLED COLUMBIA 3939= 16 MALL, AND THAT IS STILL OPEN.
3940= 17 Q. OKAY. AND LET ME --LET ME FOLLOW-UP. THANK YOU VERY MUCH. 3941= 18 BECAUSE WHAT I WANTED TO ASK IS DURING THE TIME THAT
3942= 19 THE HAPPY BOOKSELLER HAS BEEN IN OPERATION, WERE THERE OTHER 3943= 20 WALDENBOOK STORES THAT --THAT AREN'T SHOWN ON THIS MAP THAT
3944= 21 WERE IN OPERATION FOR SOME PERIOD OF TIME? 3945= 22 A. I THINK THERE WAS ONE IN A MALL ON THE HIGHWAY WE CALL
3946= 23 SUMTER HIGHWAY. SO THERE WAS --THERE WERE PROBABLY ONE, TWO --3947= 24 THERE WERE PROBABLY FOUR.
3948= 25 Q. OKAY. AND NOW WE'RE DOWN TO --YOU SAY THERE WAS ANOTHER, 3949= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3950= JACKSON -CROSS / STEER 1 BUT THERE ARE THREE IN EXISTENCE IN THE COLUMBIA AREA TODAY?
3951= 2 A. YES. 3 Q. ARE THERE NOT? 3952= 4 A. YES.
3953= 5 Q. SO THERE WOULD HAVE BEEN FIVE IN TOTAL OVER THE YEARS? 3954= 6 A. YES.
3955= 7 Q. IS THERE NOT? 3956= 8 A. YES.
3957= 9 Q. AND TWO OF THEM ARE CLOSED, RIGHT? 3958= 10 A. YES.
3959= 11 Q. ALL THOSE STORES ARE LOCATED IN MALLS; IS THAT CORRECT? 3960= 12 A. YES.
3961= 13 Q. WERE ANY OF THEM IN EXISTENCE WHEN YOU BEGAN OPERATING THE 3962= 14 HAPPY BOOKSELLER?
3963= 15 A. YES. 3964= 16 Q. HOW MANY?
3965= 17 A. WHEN I OPENED, THERE WAS ONE, AND SHORTLY THEREAFTER, MAYBE 3966= 18 A YEAR OR TWO, THERE WAS --THE ONE THAT WAS AT --OPEN AT THAT
3967= 19 TIME WAS IN DUTCH SQUARE. AND TWO YEARS LATER, I THINK, 3968= 20 COLUMBIA MALL OPENED. AND THERE WAS ONE IN --VERY CONFUSING.
3969= 21 THERE'S A COLUMBIA MALL AND A COLUMBIANA MALL. 3970= 22 Q. AND WHEN DID THE COLUMBIANA MALL STORE OPEN SO FAR AS YOU
3971= 23 CAN RECALL? 3972= 24 A. IT OPENED ABOUT THE SAME TIME THAT THE BOOKS-A-MILLION
3973= 25 OPENED OVER THERE. MUST HAVE BEEN '94. 3974= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

3975= JACKSON -CROSS / STEER 1 Q. AND EARLIER THAN THAT, WERE THERE --HOW MANY --IN THE
3976= 2 1980S, HOW MANY WALDENBOOK STORES WERE THERE IN YOUR VICINITY, 3 THEN? 3977= 4 A. '80S?
3978= 5 Q. YES. 3979= 6 A. I THINK FIVE.
3980= 7 Q. FIVE? 3981= 8 A. NO, THAT'S NOT TRUE. COLUMBIANA MALL WASN'T BUILT THEN. IN
3982= 9 THE EARLY '80S? IN THE EARLY '80S, IT WOULD HAVE BEEN THREE.
58
58 Page 59 60
3983= 10 Q. AND THEN AN ADDITIONAL ONE WAS ADDED IN THE EARLY '90S AND 3984= 11 SO ON AND SO FORTH, RIGHT?
3985= 12 A. YES, RIGHT. 3986= 13 Q. NOW, WERE THESE WALDENBOOK STORES --YOU MENTIONED THESE
3987= 14 MALLS. HOW MANY OF THE MALLS EXISTED WHEN YOU WENT INTO THE 3988= 15 LOCATION THAT THE HAPPY BOOKSELLER OCCUPIES TODAY?
3989= 16 A. THERE WAS ONLY ONE MALL AND THAT WAS THE ONE I WAS LOCATED 3990= 17 IN. THERE WERE --NONE OF THOSE OTHER MALLS EXISTED.
3991= 18 Q. SO HOW MANY MALLS HAVE OPENED IN THE VICINITY, THEN, SINCE 3992= 19 YOU WENT INTO BUSINESS?
3993= 20 A. ONE, TWO, THREE, FOUR MAJOR MALLS. 3994= 21 Q. AND WHEN EACH OF THOSE MALLS OPENED, DID YOU CONSIDER
3995= 22 WHETHER YOU OUGHT TO EITHER BRANCH INTO THE MALL OR PERHAPS MOVE 3996= 23 YOUR OPERATION YOUR BUSINESS TO THAT MALL?
3997= 24 A. NO. 3998= 25 Q. AND THAT'S BECAUSE OF WHAT? WHY?
3999= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
4000= JACKSON -CROSS / STEER 1 A. WELL, I WAS OPERATING IN --IN THE ORIGINAL MALL, AND I WA
4001= 2 IN THE BUSINESS BECAUSE I LOVED IT AND I WANTED TO MAKE A LIVING 3 OUT OF IT, AND I WASN'T INTERESTED IN OTH
4002= 4 Q. NOW, YOU SAY YOU WERE OPERATING IN A MALL. TODAY, YOUR 4003= 5 STORE --THE HAPPY BOOKSELLER STORE IS NOT IN A MALL, IS IT?
4004= 6 A. NO, IT IS NOT. 4005= 7 Q. WHEN DID IT LEAVE --WHEN DID IT GO TO ITS PRESENT LOCATION?
4006= 8 A. IT --1988. 4007= 9 Q. DO YOU CONSIDER YOUR STORE DIFFERENT THAN THE --THE MALL
4008= 10 BOOK STORES? 4009= 11 A. YEAH. I CONSIDER A LOT DIFFERENT.
4010= 12 Q. IN WHAT RESPECT? 4011= 13 A. WELL, IT HAS A BETTER SELECTION OF BOOKS. IT HAS A
4012= 14 SELECTION OF BOOKS MORE GEARED TO THE STATE OF SOUTH CAROLINA 4013= 15 AND COLUMBIA. WE HAVE PEOPLE WHO LOVE BOOKS AND KNOW BOOKS CAN
4014= 16 TALK ABOUT BOOKS, ACTUALLY READ BOOKS. AND ALL THOSE COMBINED 4015= 17 MAKE US THE BEST BOOK STORE IN TOWN EVEN TODAY.
4016= 18 Q. AND YOU DON'T CONSIDER THE MALL BOOK STORES TO BE COMPETING 4017= 19 WITH YOU ON THE SAME LEVEL THEN; IS THAT CORRECT?
4018= 20 A. I THINK WE HAVE A BETTER BOOK STORE. ANY TIME THEY SELL A 4019= 21 BOOK, THEY SELL ONE THAT WE MIGHT HAVE HAD THE POTENTIAL TO
4020= 22 SELL. 4021= 23 Q. AND THAT'S TRUE OF ANYBODY WHO'S SELLING BOOKS; ISN'T THAT
4022= 24 CORRECT? 4023= 25 A. ABSOLUTELY, YES.
4024= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
4025= JACKSON -CROSS / STEER 1 Q. NOW, YOU TESTIFIED UNDER EXAMINATION OF YOUR OWN COUNSEL
4026= 2 THAT AFTER THE BARNES & NOBLE STORES MOVED IN, YOU INSTITUTED A 3 DISCOUNTING PROGRAM AT THE HAPPY BOOKSELLE
4027= 4 DESCRIBED IT. YOU BASICALLY I BELIEVE YOU SAID MATCHED BARNES & 4028= 5 NOBLE DISCOUNTS?
4029= 6 A. YES. 4030= 7 Q. IS THAT CORRECT?
4031= 8 A. CORRECT. 4032= 9 Q. AND I THINK --LET ME MAKE SURE THAT I HAVE YOUR TESTIMONY
4033= 10 CORRECT. IS IT ACCURATE THAT YOU DIDN'T HAVE A DISCOUNTING 4034= 11 STRUCTURE LIKE THAT UNTIL THE BARNES & NOBLE STORES OPENED?
4035= 12 A. WE DIDN'T HAVE ONE EXACTLY LIKE THAT. WE HAD A DISCOUNT 4036= 13 SCHEDULE AFTER BOOKS-A-MILLION OPENED, BUT IT WASN'T 40, 25, 10.
4037= 14 Q. SO AFTER BOOKS-A-MILLION OPENED, YOU IMPLEMENTED A 4038= 15 DISCOUNTING SCHEDULE?
4039= 16 A. WHICH WAS OUR FIRST EVER. 4040= 17 Q. OKAY. THAT'S WHAT I WAS GOING TO ASK YOU. BEFORE
4041= 18 BOOKS-A-MILLION OPENED, YOU DIDN'T DISCOUNT, RIGHT? 4042= 19 A. CORRECT.
4043= 20 Q. AND BACK IN THE 1980S AND EARLY '90S, YOUR STORE'S SALES 4044= 21 GREW EVERY YEAR; ISN'T THAT TRUE?
4045= 22 A. WE GREW EVERY YEAR FROM THE DAY WE OPENED UNTIL THE 4046= 23 SUPERSTORES.
4047= 24 Q. AND BY THE SUPERSTORES, YOU REFER FIRST TO BOOKS-A-MILLION 4048= 25 AND THEN LATER TO BARNES & NOBLE, CORRECT?
4049= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
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4050= JACKSON -CROSS / STEER 1 A. YEAH. ALTHOUGH I THINK BORDERS RUNS A BETTER SUPERSTORE
4051= 2 THAN BOOKS-A-MILLION, SO THE DEFINITION'S VAGUE. BUT YES, I'LL 3 SAY YES. 4052= 4 Q. YOU'RE REFERRING TO BORDERS. I'LL STIPULATE TO THAT, SIR.
4053= 5 BUT THERE IS NO BORDERS IN SOUTH CAROLINA, IS THERE? 4054= 6 A. NO, THERE ISN'T.
4055= 7 Q. THANKS. 4056= 8 A. ACTUALLY I THINK THERE IS A BORDERS IN CHARLESTON, SOUTH
4057= 9 CAROLINA, BUT --4058= 10 Q. THAT WOULD BE VERY RECENT, RIGHT?
4059= 11 A. YES. 4060= 12 Q. NOW, LOOKING BACK AT THE EXHIBIT THAT MR. PETROCELLI WAS
4061= 13 JUST TALKING TO YOU ABOUT, EXHIBIT NUMBER 192, THAT'S THE ONE --4062= 14 THAT'S YOUR HANDWRITTEN TABULATION --
4063= 15 A. YES. 4064= 16 Q. --OF SALES?
4065= 17 A. YES. 4066= 18 Q. COULD YOU FLIP BACK TO THAT, PLEASE. I HAVE ONE QUESTION I
4067= 19 WANT TO ASK YOU. 4068= 20 A. I NEED TO KNOW WHAT PAGE IT IS ON.
4069= 21 Q. OH, NO, IT'S JUST ONE --IT'S THE ONE-PAGE HANDWRITTEN --4070= 22 A. I KNOW WHAT IT IS, BUT I DON'T KNOW WHERE IT IS IN THIS
4071= 23 BOOK. 4072= 24 Q. WELL, IT'S GOT A TAB THAT SAYS 192.
4073= 25 A. OKAY. 4074= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

4075= JACKSON -CROSS / STEER 1 Q. I KNOW THE BOOKS ARE CUMBERSOME. IT'S ACTUALLY IN THE WHI
4076= 2 VOLUME. 3 A. OKAY. 4077= 4 Q. OKAY? THE SMALLER OF THE TWO.
4078= 5 A. (REVIEWING DOCUMENTS.) 4079= 6 ALL RIGHT. I'M ON IT. YES, I HAVE IT.
4080= 7 Q. IF --IF I LOOK AT THAT --I WANT TO MAKE SURE I READ IT 4081= 8 CORRECTLY. IF YOU LOOK AT THE DECEMBER SALES FOR 1998 AND THEN
4082= 9 FOR 1999 AND COMPARE THEM TO THE DECEMBER SALES FOR THE EARLIER 4083= 10 YEARS, ISN'T IT ACCURATE THAT YOUR DECEMBER SALES IN 1998 AND
4084= 11 '99 WERE HIGHER THAN THEY'D BEEN IN ANY YEARS SINCE 1992? 4085= 12 A. (REVIEWING DOCUMENT.)
4086= 13 YES. 4087= 14 Q. AND YOU TESTIFIED, I BELIEVE, UNDER THE QUESTIONING OF YOUR
4088= 15 OWN COUNSEL THAT YOUR SALES IN THE YEAR 2000 WERE ABOUT $1.4 4089= 16 MILLION TOTAL?
4090= 17 A. YES. 4091= 18 Q. OKAY. DO YOU RECALL WHAT THEY WERE IN 1999?
4092= 19 A. I THINK THEY WERE ABOUT ONE TWO AND A HALF, OR THREE. 4093= 20 Q. I THINK THAT'S ABOUT RIGHT. AND JUST TO HELP YOU REFRESH
4094= 21 YOUR RECOLLECTION TO REMEMBER THIS, IF YOU LOOK AT EXHIBIT 4095= 22 NUMBER 183 IN THE SAME NOTEBOOK --
4096= 23 A. (REVIEWING DOCUMENTS.) 4097= 24 Q. --THAT'S THE FINANCIAL STATEMENT FOR THE YEAR 1999.
4098= 25 A. YES. 4099= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

4100= JACKSON -CROSS / STEER 1 Q. AND IF YOU LOOK AT TOTAL SALES FOR THAT YEAR, THEY'RE
4101= 2 APPROXIMATELY 1.2 MILLION. DO YOU WANT TO READ THE EXACT 3 NUMBER? 4102= 4 A. (REVIEWING DOCUMENT.)
4103= 5 YES. 4104= 6 Q. ALL RIGHT. RIGHT ABOUT --APPROXIMATELY 1.2 MILLION, HUH?
4105= 7 A. (REVIEWING DOCUMENT.) 4106= 8 YES.
4107= 9 Q. SO YOU ENJOYED A SALES INCREASE IN THE YEAR 2000 OVER THE 4108= 10 YEAR 1999; IS THAT CORRECT?
4109= 11 A. THAT'S CORRECT. 4110= 12 Q. NOW, YOU TESTIFIED EARLIER ABOUT THE WAY BOOKS ARE PRICED.
4111= 13 AND I WANT TO GET INTO THAT A LITTLE BIT WITH YOU. I THINK YOU 4112= 14 TESTIFIED THAT THE PUBLISHERS SET THE RETAIL PRICES OF THE
4113= 15 BOOKS? 4114= 16 A. YES.
4115= 17 Q. AND --DO YOU HAVE AN OPINION AS TO WHETHER IT WOULDN'T BE 4116= 18 BETTER FOR BOOKSELLERS IN GENERAL IF THE PUBLISHERS DID NOT SET
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4117= 19 RETAIL PRICES OF THE BOOKS? 4118= 20 A. WELL, I HAVE TO SAY I'VE BEEN A LONG ADVOCATE OF NET PRICING
4119= 21 IN THE BOOK INDUSTRY. 4120= 22 Q. WHAT DO YOU --WHAT IS NET PRICING? CAN YOU DEFINE THAT
4121= 23 TERM FOR THE BENEFIT OF EVERYONE PRESENT, PLEASE. 4122= 24 A. THAT WOULD MEAN THAT A PUBLISHER WOULD GET A BOOK TOGETHER,
4123= 25 HE SAID, "I'M GOING TO SELL THIS TO BOOKSELLERS FOR $5." 4124= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

4125= JACKSON -CROSS / STEER 1 Q. FLAT PRICE FOR EVERYONE WHO BUYS THE SAME PRODUCT; IS THAT
4126= 2 RIGHT? 3 A. YES, RIGHT. 4127= 4 Q. OKAY. AND THAT WOULD LEAVE YOU, YOU THE BOOKSELLER, THE
4128= 5 HAPPY BOOKSELLER, FREE TO DECIDE WHAT RETAIL PRICE TO CHARGE? 4129= 6 A. YES.
4130= 7 Q. CORRECT? AND THAT WOULD --WHY WOULD THAT BE A GOOD THING 4131= 8 FOR YOU?
4132= 9 A. WELL, I OPERATE A FURNITURE BUSINESS FOR 25 YEARS, AND 4133= 10 THAT'S THE WAY THE FURNITURE BUSINESS OPERATES, AND YOU --YOU
4134= 11 MERCHANDISE WHAT YOU THINK THAT'S WORTH IN YOUR COMMUNITY. AND 4135= 12 EVERYBODY PAYS THE SAME PRICE, AND EVERYBODY'S OUT THERE TRYING
4136= 13 TO GET AS MUCH BUSINESS AS POSSIBLE. 4137= 14 Q. OKAY. SO THAT WOULD YOU LEAVE YOU AS A BOOKSELLER --IF NET
4138= 15 PRICING WERE ADOPTED, THAT WOULD LEAVE BOOKSELLERS FREE TO 4139= 16 COMPETE ON HOW THEY PRICE THEIR BOOKS WHEN THEY SELL THEM TO
4140= 17 CUSTOMERS, THE ULTIMATE READERS OF THE BOOKS, RIGHT? 4141= 18 A. YEAH, EXCEPT, YOU KNOW, WHAT WOULD HAPPEN WITH NET PRICING,
4142= 19 THEN THEY WOULD SAY, "WELL, THIS COST YOU $5, BUT IF YOU BUY A 4143= 20 HUNDRED COPIES, YOU CAN GET 10 PERCENT OFF," AND ET CETERA AND
4144= 21 ET CETERA. THAT WOULD ERODE MUCH OF WHAT WOULD BE BENEFICIAL TO 4145= 22 NET PRICING. BUT AS --IF IT WAS A PURE ONE PRICING TO
4146= 23 EVERYBODY, IT WOULD BE --WHAT YOU SAID WOULD BE TRUE. 4147= 24 Q. MY POINT WAS THAT ISN'T --IT'S TRUE, ISN'T IT, THAT YOUR
4148= 25 BELIEF IN THE VALUE, THE POSITIVE VALUE OF NET PRICING IS BASED 4149= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

4150= JACKSON -CROSS / STEER 1 PARTLY ON THE FACT THAT IT WOULD BE GOOD FOR CONSUMERS TO HAVE
4151= 2 BOOK RETAILERS COMPETING ON THE PRICES THAT THEY SELL TO 3 CONSUMERS; ISN'T THAT RIGHT?
4152= 4 A. I SUPPOSE YOU COULD SAY THAT WOULD BE RIGHT. 4153= 5 MR. STEER: I HAVE NO OTHER QUESTIONS. THANK YOU.
4154= 6 THE COURT: ALL RIGHT. HAVE WE GOT MORE THAN 15 4155= 7 MINUTES OF DIRECT --REDIRECT?
4156= 8 MR. DE BRUIN: NOT MORE THAN 15 MINUTES, NO. 4157= 9 THE COURT: ALL RIGHT. REDIRECT.
4158= 10 REDIRECT EXAMINATION 4159= 11 BY MR. DE BRUIN:
4160= 12 Q. MR. JACKSON, YOU TESTIFIED IN RESPONSE TO A QUESTION FROM 4161= 13 MR. PETROCELLI THAT MR. GRAVES IS NOW THE PRINCIPAL BUYER FOR
4162= 14 THE HAPPY BOOKSELLER. DO YOU RECALL THAT? 4163= 15 A. YES.
4164= 16 Q. NOW, WHO PAYS THE BILLS? 4165= 17 A. I DO.
4166= 18 Q. IS THAT STILL TRUE TODAY? 4167= 19 A. YES.
4168= 20 Q. AND WHO CHECKS THE INVOICES? 4169= 21 A. I DO.
4170= 22 Q. IS THAT STILL TRUE TODAY? 4171= 23 A. YES.
4172= 24 Q. NOW, HE ALSO SHOWED YOU SOMETHING FROM YOUR DEPOSITION WHERE 4173= 25 YOU TESTIFIED THAT YOU ATTEMPT TO GET THE BEST TERMS AVAILABLE.
4174= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
4175= JACKSON -REDIRECT / DE BRUIN 1 DO YOU RECALL THAT? 4176= 2 A. YES. 3 Q. AND WHAT ELSE DID YOU SAY IN CONNECTION WITH YOUR STATEMENT
4177= 4 THAT YOU ATTEMPT TO GET THE BEST TERMS AVAILABLE? DO YOU 4178= 5 REMEMBER THAT PART OF IT?
4179= 6 A. I THINK I SAID THAT I WANTED TO MAKE SURE THAT I WAS BEING 4180= 7 INVOICED AND --AND ACCORDING TO THE RED BOOK, WHICH WOULD BE
4181= 8 THE BEST PRICE AVAILABLE. 4182= 9 Q. AND DO YOU RECALL SAYING THAT YOU ATTEMPT TO GET THE BEST
4183= 10 TERMS AVAILABLE, QUOTE, AS LONG AS THEY'RE OFFERED TO EVERY
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4184= 11 OTHER BOOKSELLER IN THE COUNTRY? 4185= 12 A. YES, I DID SAY THAT.
4186= 13 Q. NOW, MR. PETROCELLI ALSO ASKED YOU SOME QUESTIONS ABOUT 4187= 14 POCKET ALLOWANCES.
4188= 15 A. YES. 4189= 16 Q. LET ME JUST GO BACK AND CLARIFY FOR THE RECORD. CAN YOU
4190= 17 PLEASE EXPLAIN TO THE COURT EXACTLY WHAT A POCKET ALLOWANCE IS. 4191= 18 A. I THINK IT'S NOT BEEN IN EXISTENCE FOR YEARS. BUT IN THE
4192= 19 BEGINNING, FIXTURES IN THIS BUSINESS WERE MOSTLY WIRE, AND THEY 4193= 20 HAD A POCKET. IT WAS EXACTLY THE SIZE OF MASS MARKET, AND --
4194= 21 AND TRADE PAPERBACKS DIDN'T EXIST. 4195= 22 AND IF YOU HAD A PAPERBACK BOOK IN YOUR STORE, MORE
4196= 23 LIKELY IT WAS THIS SIZE. AND MOST BOOKSTORES HAD HUGE DISPLAYS 4197= 24 OF MASS MARKETS, MUCH MORE THAN THEY DO TODAY. AND THIS POCKET
4198= 25 IT WOULD FIT FIVE BOOKS. AND IF YOU WERE OPENING A NEW STORE, 4199= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404

4200= JACKSON -REDIRECT / DE BRUIN 1 BANTAM DOUBLEDAY DELL, FOR INSTANCE, WOULD SAY HOW MANY POC
4201= 2 ARE YOU GOING TO DEVOTE TO BANTAM DOUBLEDAY BOOKS? AND YOU 3 WOULD CHECK YOUR INITIAL ORDERS, AND YOU WOULD
4202= 4 THEY WOULD GIVE YOU 60 CENTS PER POCKET. 4203= 5 (CONTINUED NEXT PAGE; NOTHING OMITTED.)
4204= 6 4205= 7
4206= 8 4207= 9
4208= 10 4209= 11
4210= 12 4211= 13
4212= 14 4213= 15
4214= 16 4215= 17
4216= 18 4217= 19
4218= 20 4219= 21
4220= 22 4221= 23
4222= 24 4223= 25
4224= RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR (415) 626-8404
4225= BY MR. DEBRUIN: 4226= Q. SO THESE, SEE IF I CAN UNDERSTAND CORRECTLY, ARE
4227= ESSENTIALLY THE RACKS THE PAPERBACKS WOULD SOMETIMES SIT IN? 4228= A. YES, IT WOULD BE THE RACKS.
4229= Q. AND ESSENTIALLY THE PUBLISHERS THAT SOLD THESE PAPERBACK 4230= BOOKS WOULD HELP PAY THE BOOKSTORES TO PUT THOSE RACKS IN THE
4231= STORE? 4232= A. YES.
4233= Q. NOW, WERE THESE TERMS FOR POCKET ALLOWANCES PUBLISHED IN 4234= THE RED BOOK, SIR?
4235= A. YOU KNOW, IT'S BEEN ALMOST 30 YEARS SINCE I USED THEM, AND 4236= I DON'T KNOW.
4237= Q. ALL RIGHT, WELL, WE CAN LOOK THAT UP. 4238= A. YES.
4239= Q. DID YOU EVER RECEIVE A POCKET ALLOWANCE, MR. JACKSON, FROM 4240= ANY PUBLISHER THAT DID NOT MAKE THOSE POCKET ALLOWANCES
4241= AVAILABLE TO ANY RETAIL BOOKSELLER? 4242= A. NO.
4243= Q. MR. JACKSON, DID YOU EVER RECEIVE A POCKET ALLOWANCE THAT 4244= WAS GREATER THAN THE AMOUNT OF THE POCKET ALLOWANCE THAT THAT
4245= PUBLISHER OFFERED TO EVERY OTHER RETAIL BOOKSTORE? 4246= A. NO.
4247= Q. NOW, MR. PETROCELLI ALSO ASKED YOU ABOUT SHARED MARKDOWNS, 4248= AND I DON'T THINK WE'VE DEFINED THAT FOR COURT. COULD YOU
4249= PLEASE EXPLAIN WHAT A SHARED MARKDOWN IS?
4250= A. A PUBLISHER PUBLISHES A BOOK, AND THE SALES ARE 4251= DISAPPOINTING, AND THEY WILL CALL YOU UP AND ASK YOU HOW MANY
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4252= YOU HAVE LEFT, AND I'D SAY, WE'VE GOT 20 LEFT, AND THEY SAY, 4253= WELL, WE WANT TO REDUCE THE PRICE OF THAT BOOK, AND WE WILL
4254= GIVE YOU --AND IT'S KIND OF A REMAIN-IN-PLACE THING. IF IT'S 4255= A 20-DOLLAR BOOK, THEY MIGHT SAY, WE'LL GIVE YOU $3 OFF FOR YOU
4256= TO RE-MARK THAT BOOK. AND IT DOESN'T HAPPEN OFTEN IN THIS 4257= INDUSTRY. IN FACT, IT'S BEEN YEARS SINCE I'VE BEEN OFFERED
4258= THAT, BUT THAT'S BASICALLY WHAT THAT IS. 4259= Q. ALL RIGHT, SO THE CONCEPT IS THAT A PUBLISHER HAS PUT A LOT
4260= OF BOOKS OUT THERE, AND THEY'RE NOT SELLING, SO A LOT OF 4261= BOOKSTORES HAVE EXCESS INVENTORY.
4262= A. YES. 4263= Q. AND IF I UNDERSTAND YOUR TESTIMONY, THE PUBLISHER WILL
4264= OFFER AN INCENTIVE TO HELP YOU SELL THOSE BOOKS BY HELPING YOU 4265= PAY TO MARK DOWN THE PRICE OF THE BOOK, IS THAT CORRECT?
4266= A. YES, AND IT, SOMETIME AGO, MAYBE EIGHT OR TEN YEARS AGO, IT 4267= WAS THOUGHT THAT THAT MIGHT BE A REALLY GOOD IDEA, BUT IT NEVER
4268= WORKED VERY WELL, AND I HAVEN'T SEEN IT AROUND IN A LONG TIME. 4269= Q. NOW, MR. JACKSON, HAVE YOU EVER RECEIVED A SHARED MARKDOWN
4270= FROM A PUBLISHER THAT WAS NOT MADE AVAILABLE TO ALL RETAIL 4271= BOOKSTORES?
4272= A. NOT TO MY KNOWLEDGE. I THINK THEY OFFERED IT TO EVERYBODY. 4273= Q. HOW DO YOU KNOW, WHEN YOU RECEIVE THESE SHARED MARKDOWNS,
4274= THAT THEY WERE, IN FACT, MADE AVAILABLE TO OTHER RETAIL
4275= BOOKSTORES? 4276= A. I DON'T KNOW THAT FOR A FACT, BUT I'M PRETTY CERTAIN THAT
4277= WAS TRUE. 4278= Q. WELL, YOU MENTIONED IN YOUR CROSS --THE CROSS-EXAMINATION
4279= FROM MR. PETROCELLI THAT YOU'D RECEIVED SOMETHING IN WRITING. 4280= DO YOU RECALL THAT, SIR?
4281= A. WE DO GET SOMETHING IN WRITING, YES, AND I ASSUME THEY SEND 4282= IT TO ALL BOOKSTORES.
4283= Q. AND DESCRIBE WHAT YOU WOULD RECEIVE IN WRITING, OR HOW YOU 4284= WOULD LEARN ABOUT THE SHARED MARKDOWN.
4285= A. WELL, THEY WOULD SEND IT TO YOU AND YOU WOULD --IT WAS 4286= USUALLY ON MAYBE ONLY ONE TIME, SOMETIMES IT WAS ON TWO TITLES
4287= BUT MOSTLY ONE TITLE, AND IT WOULD DESCRIBE WHAT THEY WOULD GET 4288= YOU OFF, AND YOU HAD SOME PAPERWORK YOU HAD TO SEND BACK HOW
4289= MANY YOU HAD. 4290= Q. SO AGAIN, YOU'D RECEIVE A LETTER OR A FLYER OR --
4291= A. YES, RIGHT. 4292= Q. --FROM THE PUBLISHER?
4293= A. YES. 4294= Q. ALL RIGHT. NOW, YOU TESTIFIED ON CROSS-EXAMINATION THAT
4295= THE ONLY WAY TO KNOW WHAT THE HAPPY BOOKSELLER ACTUAL PAYS FOR 4296= BOOKS IS BY LOOKING AT THE INVOICE, RIGHT?
4297= A. YES. 4298= Q. BEFORE YOU PAY, SIR, DO YOU LOOK AT THE INVOICE?
4299= A. YES, VERY CAREFULLY.
4300= Q. HAVE YOU EVER COME ACROSS AN INVOICE IN WHICH THE HAPPY 4301= BOOKSELLER WAS CHARGED A DISCOUNT THAT WAS DIFFERENT THAN
4302= EITHER THE DISCOUNT IN THE RED BOOK OR THE DISCOUNT IN A 4303= PRINTED, PUBLISHED STOCK OFFER OR CONVENTION SPECIAL THAT WAS
4304= OFFERED TO THE ENTIRE BOOK INDUSTRY? 4305= A. NO.
4306= Q. DO YOU NEED TO DO ANYTHING ELSE TO DETERMINE WHETHER OR NOT 4307= THE HAPPY BOOKSELLER HAS EVER RECEIVED ANY EXTRA DISCOUNTS?
4308= A. I'M SURE WE NEVER RECEIVED ANY EXTRA DISCOUNTS, OTHER THAN 4309= WHAT'S AVAILABLE TO EVERYONE.
4310= Q. WHY IS IT YOU'RE SO SURE? 4311= A. I'VE BEEN PAYING THOSE INVOICES 30 YEARS, AND I CHECK THEM
4312= THOROUGHLY. 4313= Q. LAST QUESTION. YOU'VE BEEN ASKED SOME QUESTIONS ABOUT YOUR
4314= SALES AND WHAT'S HAPPENED TO YOUR SALES. LOOK BACK IN THE 4315= WHITE BINDER --
4316= A. YES. 4317= Q. --EXHIBIT 192 --
4318= A. YES. 4319= Q. --WHICH IS YOUR RECORDING FROM THE LEDGER, MONTH BY MONTH,
4320= OF YOUR SALES. I BELIEVE THERE WAS SOME TESTIMONY ABOUT WHAT 4321= HAPPENED AFTER THE BARNES & NOBLE OPENED IN LATE 1997, ABOUT A
4322= MILE FROM YOUR STORE. DO YOU RECALL THAT TESTIMONY ON CROSS?
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4323= A. YES. 4324= Q. LET ME ASK YOU TO LOOK AT.... WHAT WAS YOUR SALES IN
4325= DECEMBER OF 1996? 4326= A. 207,000.
4327= Q. AND WHAT WERE YOUR SALES IN DECEMBER OF 1997, AFTER THAT 4328= SECOND BARNES & NOBLE HAD COME IN?
4329= A. 188. 4330= Q. ALL RIGHT. NOW, LET ME LOOK --IN JANUARY, 1997, BEFORE
4331= THE BARNES & NOBLE CAME IN, WHAT WERE YOUR SALES? 4332= A. ROUND FIGURES, 134,000.
4333= Q. AND IN JANUARY OF 1998, AFTER THE BARNES & NOBLE CAME IN, 4334= WHAT WERE YOUR SALES?
4335= A. 118,000, IN ROUGH --4336= Q. LASTLY, IN FEBRUARY OF 1997, BEFORE THE BARNES & NOBLE CAME
4337= IN, WHAT WERE YOUR SALES? 4338= A. ROUND FIGURES, 85,000.
4339= Q. AND IN FEBRUARY OF 1998, AFTER THE BARNES & NOBLE CAME IN, 4340= WHAT WERE YOUR SALES?
4341= A. 79,000. 4342= Q. NOW, MR. JACKSON, YOU ALSO TESTIFIED ON CROSS THAT YOU'VE
4343= BEEN ABLE, AFTER THESE STORES HAVE COME IN, TO HAVE SOME 4344= INCREASE IN YOUR SALES.
4345= A. YES. 4346= Q. HOW HAVE YOU BEEN ABLE TO DO THAT, SIR?
4347= A. DISCOUNTING, WHICH HAS BEEN VERY COSTLY. 4348= Q. SO AS A RESULT OF MEETING THE COMPETITIVE PRESSURES, YOU'VE
4349= BEEN ABLE TO GET YOUR SALES BACK UP?
4350= A. SALES BACK UP, PROFITS VERY LOW. 4351= Q. AND DO YOUR PROFITS REMAIN LOW AS A RESULT OF THE
4352= DISCOUNTING PRACTICES? 4353= A. THEY DO, YES.
4354= Q. AND IS THAT TRUE STILL TO TODAY? 4355= A. YES.
4356= MR. DEBRUIN: THANK YOU, SIR. I HAVE NO FURTHER 4357= QUESTIONS.
4358= THE COURT: YOU MAY RECROSS. 4359= RECROSS-EXAMINATION
4360= BY MR. PETROCELLI: 4361= Q. JUST VERY QUICKLY. MR. JACKSON, DO YOU KNOW, PRIOR TO THE
4362= TIME THAT BARNES & NOBLE ARRIVED, IN TIME, WHAT PERCENTAGE OF 4363= YOUR BOOK SALES WERE NEW YORK TIMES BEST-SELLER BOOKS?
4364= A. THEY WERE --THEY'VE ALWAYS BEEN HIGH, BUT I CAN'T GIVE YOU 4365= A PERCENTAGE.
4366= Q. CAN YOU BALLPARK IT? 4367= A. ACTUALLY, I CAN'T.
4368= Q. IS IT --HAS THE PERCENTAGE REMAINED CONSTANT OVER TIME TO 4369= THIS DAY?
4370= A. I CAN'T ANSWER THAT. I DON'T KNOW. 4371= MR. PETROCELLI: THANK YOU.
4372= THE COURT: MR. STEER? 4373= MR. STEER: NO ADDITIONAL QUESTIONS.
4374= THE COURT: ALL RIGHT, YOU MAY STEP DOWN, AND WE'LL
4375= RECESS NOW UNTIL 8: 30 TOMORROW MORNING. AND MR. DEBRUIN, IF 4376= YOU'VE GOT LOTS AND LOTS OF EXHIBITS, JUST STAY UP ALL NIGHT
4377= AND PUT THEM IN ONE BINDER. COURT'S IN RECESS. 4378= THE CLERK: ALL RISE.
4379= (PROCEEDINGS ADJOURNED FOR THE DAY AT 1: 23 P. M.) 4380=
4381= 4382=
4383= 4384=
4385= 4386=
4387= 4388=
4389= 4390=
4391= 4392=
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4393= 4394=
4395= 4396=
4397= 4398=
4399=
4400= 4401= APPEARANCES: (CONTINUED)
4402= FOR DEFENDANTS: BORDERS GROUP, INC. 4403=( BORDERS GROUP) 100 PHOENIX DRIVE
4404= ANN ARBOR, MICHIGAN 48108-2202 4405= BY: THOMAS D. CARNEY, GENERAL COUNSEL
4406= 4407=
4408= 4409=
4410= 4411=
4412= 4413=
4414= 4415=
4416= 4417=
4418= 4419=
4420= 4421=
4422= 4423=
4424=
end= Text
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