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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. 1
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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 2
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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 3
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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 4
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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. 5
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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 7
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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 8
8 Page 9 10
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 9
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= 10
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. 11
11 Page 12 13
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 12
12 Page 13 14
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. 21
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
28 Page 29 30
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 INTE