Could not acquire words on page 1 Pages 1--73 from Document Body Page Navigation Panel

Pages 1--73 from


Page 1 2

1 Page 2 3
70= TESTIFIED AS FOLLOWS: 71= THE CLERK: THANK YOU. PLEASE BE SEATED.
72= THE WITNESS: THANK YOU. 73=
74=
75= THE CLERK: PLEASE STATE YOUR FULL NAME AND SPELL 76= YOUR LAST NAME FOR THE RECORD.
77= THE WITNESS: MY NAME IS ANDREW HARWOOD ROSS. MY 78= LAST NAME IS SPELLED R-O-S-S.
79= DIRECT EXAMINATION 80= BY MR. DAWSON:
81= Q. GOOD MORNING, MR. ROSS. 82= A. GOOD MORNING, MR. DAWSON.
83= Q. COULD YOU TELL ME WHAT YOUR CURRENT OCCUPATION IS, PLEASE. 84= A. I OWN A BOOKSTORE.
85= Q. AND WHICH BOOKSTORE IS IT? 86= A. CODY'S BOOKS IN BERKELEY, CALIFORNIA.
87= Q. AND DOES CODY'S BOOKSTORE IN BERKELEY, CALIFORNIA, HAVE MORE 88= THAN ONE STORE?
89= A. YES. WE HAVE TWO STORES, BOTH IN BERKELEY. 90= Q. WHERE ARE THOSE LOCATED?
91= A. THE FIRST STORE IS ON TELEGRAPH AVENUE ABOUT THREE BLOCKS 92= FROM THE UNIVERSITY OF CALIFORNIA, AND THE SECOND STORE IS ON
93= FOURTH STREET, WHICH IS NEAR THE BAY. 94= Q. AS THE OWNER OF CODY'S BOOKSTORE, ARE YOU FAMILIAR WITH THE
95= GENERAL OPERATION OF THOSE STORES? 96= A. YES, I AM.
97= Q. AND ARE YOU FAMILIAR WITH TERMS OF SALE AND DISCOUNTS WHICH 98= YOU'VE BEEN ABLE TO OBTAIN SINCE THE STORE WAS OPENED?
99= A. YES.
100= Q. AND WHEN DID CODY'S ON TELEGRAPH OPEN? 101= A. IT WAS OPENED --THE BUSINESS BEGAN IN 1956. I WAS NOT THE
102= OWNER THEN. THEY MOVED TO TELEGRAPH AVENUE, THE CURRENT 103= LOCATION, AROUND 1963.
104= Q. AND WHEN DID YOU BECOME THE OWNER OF CODY'S? 105= A. I PURCHASED THE BUSINESS IN 1977.
106= Q. AND WHEN WAS YOUR FOURTH STREET STORE OPENED? 107= A. WE OPENED THE SECOND STORE ON FOURTH STREET IN 1997.
108= Q. HOW MANY SQUARE FEET OF RETAIL SPACE DO YOU HAVE AT YOUR 109= TELEGRAPH STORE?
110= A. TELEGRAPH STORES HAS ABOUT 13-OR 14,000 SQUARE FEET OF 111= RETAIL, ABOUT 20,000 SQUARE FEET TOTAL.
112= Q. AND HAS THAT REMAINED CONSTANT SINCE 1994 TO THE PRESENT? 113= A. YES.
114= Q. AND SIMILARLY, HOW MANY SQUARE FEET OF RETAIL SPACE DOES 115= YOUR FOURTH STREET STORE HAVE?
116= A. ABOUT 9,000 SQUARE FEET RETAIL, ABOUT 12,700 SQUARE FEET 117= TOTAL.
118= Q. AND HAS THAT MAINTAINED CONSTANT SINCE 1997? 119= A. YES.
120= Q. DOES EITHER OF YOUR STORES HAVE A LOADING DOCK? 121= A. YES. WE HAVE A LOADING DOCK ON FOURTH STREET.
122= Q. DO YOU NOT HAVE A LOADING DOCK AT THE TELEGRAPH AVENUE 123= STORE?
124= A. NO.
125= Q. OKAY. DOES THAT LACK OF A LOADING DOCK AT THE TELEGRAPH 126= STORE PRECLUDE FROM YOU RECEIVING ANY TYPES OF DELIVERY?
127= A. NO, WE CAN PRETTY MUCH RECEIVE WHATEVER COMES TO US. 128= Q. AND HOW MANY EMPLOYEES DO YOU HAVE IN TOTAL TO COMBINE OF
129= THE TWO STORES CURRENTLY? 130= A. I THINK RIGHT NOW WE HAVE ABOUT A HUNDRED EMPLOYEES.
131= Q. AND HAS THAT NUMBER FLUCTUATED SINCE THE OPENING OF THE 132= FOURTH STREET STORE?
133= A. WELL, IT INCREASED WHEN WE OPENED THE FOURTH STREET STORE. 134= BUT AFTER THAT IT'S BEEN RELATIVELY STABLE.
135= Q. PREVIOUS TO OPENING THE FOURTH STREET STORE, HAD THE NUMBER 136= FLUCTUATED IN THE TELEGRAPH STORE?
137= A. IT --IT DECLINED AFTER 1992, BUT IT --YOU KNOW, BETWEEN 138= 1993 OR -4 AND THE OPENING OF THE NEW STORE, IT WAS PRETTY
139= STABLE.
2
2 Page 3 4
140= Q. AND WHAT PERCENTAGE OF EMPLOYEES THAT YOU'VE MENTIONED WERE 141= WORKING AT THE TELEGRAPH STORE?
142= A. I THINK ABOUT 75 PERCENT WORK AT THE TELEGRAPH STORE, BUT 143= THAT INCLUDES OUR CENTRAL OFFICES AND THAT SORT OF THING.
144= Q. CAN YOU TELL THE COURT WHAT TYPES OF BOOKS, WHAT CATEGORIES 145= OF BOOKS YOU'VE BEEN SELLING AT THE TELEGRAPH STORE FROM 1994 TO
146= THE PRESENT? 147= A. WE SELL ALL TYPES OF BOOKS. SPECIFICALLY WE SELL HARDBACKS,
148= TRADE PAPERBACKS, MASS MARKET BOOKS, BOOKS ON TAPE, TECHNICAL 149= BOOKS, THAT SORT OF THING.

150= Q. DO THOSE INCLUDE BOTH FRONT LIST AND BACK LIST? 151= A. YES.
152= Q. AND HOW ABOUT AT YOUR FOURTH STREET STORE, WHAT TYPES OF 153= BOOKS DO YOU SELL THERE?
154= A. SAME KINDS OF BOOKS, HARDBACKS, TRADE PAPERBACKS, MASS 155= MARKET BOOKS, BOOKS ON TAPE, TECHNICAL BOOKS.
156= Q. HAVE THE CATEGORIES OF BOOKS THAT YOU SELL AT YOUR TELEGRAPH 157= STORE CHANGED SINCE 1994?
158= A. NO. 159= Q. HAVE THE CATEGORIES OF BOOKS THAT YOU SELL AT YOUR FOURTH
160= STREET STORE CHANGED SINCE 1997? 161= A. NO.
162= Q. AND CAN YOU GIVE ME A ROUGH ESTIMATE OF THE NUMBER OF TITLES 163= THAT YOU CURRENTLY HAVE AT THE TELEGRAPH STORE?
164= A. ABOUT 150,000. THAT'S ROUGH ESTIMATE. 165= Q. AND SINCE 1994, HAS THAT NUMBER RISEN, FALLEN OR REMAINED
166= CONSTANT? 167= A. IT TENDS TO CREEP UP A LITTLE BIT EVERY YEAR, SO IT'S GROWN.
168= Q. AND HOW MANY TITLES DO YOU HAVE AT YOUR FOURTH STREET STORE? 169= A. PROBABLY NINETY TO A HUNDRED THOUSAND TITLES.
170= Q. AND HAS THAT NUMBER CHANGED SINCE THE OPENING OF THAT STORE? 171= A. IT ALSO HAS CREEPED UP A LITTLE BIT. IT'S GROWN A BIT.
172= Q. ARE THERE ANY BARNES & NOBLE STORES CLOSE TO YOUR TELEGRAPH 173= STORE?
174= A. THE CLOSEST BARNES & NOBLE IS ON SHATTUCK. IT'S ABOUT FIVE
175= BLOCKS AWAY FROM OUR TELEGRAPH STORE. 176= Q. AND ARE THERE ANY BORDERS STORES CLOSE TO YOUR STORE ON
177= TELEGRAPH? 178= A. THE CLOSEST ONE WOULD BE IN EMERYVILLE, WHICH IS ABOUT
179= THREE MILES AWAY. 180= Q. WHEN DID THE BARNES & NOBLE ON SHATTUCK OPEN?
181= A. I BELIEVE IT OPENED IN 1992. 182= Q. AND WHEN DID THE BORDERS STORE OPEN?
183= A. I THINK IT WAS IN 1995. 184= Q. AND, AGAIN, THE BORDERS STORE IS THREE MILES AWAY FROM YOUR
185= TELEGRAPH AVENUE STORE? 186= A. YES.
187= Q. HOW FAR AWAY ARE THE TWO STORES THAT YOU HAVE FROM EACH 188= OTHER?
189= A. ABOUT THREE AND A HALF MILES FROM EACH OTHER. 190= Q. OKAY.
191= YOUR HONOR, IF I COULD APPROACH THE WITNESS WITH HIS 192= WITNESS BINDER.
193= THE COURT: YES. 194= MR. DAWSON: I'VE PREVIOUSLY GIVEN ONE FOR THE
195= COURT'S --THINK IT'S SITTING RIGHT BEHIND YOU. NO, IT'S --196= EXCUSE ME. IT'S TO YOUR RIGHT. RIGHT ON THE --SITTING RIGHT
197= THERE. 198= THE CLERK: OKAY.
199= MR. PETROCELLI: IS THERE A BINDER FOR US, COUNSEL?
200= MAY WE HAVE A BINDER ALSO? 201= MR. DAWSON: YOU WERE GIVEN THEM YESTERDAY.
202= MR. PETROCELLI: DO YOU HAVE AN EXTRA ONE? 203= MR. DAWSON: I DON'T.
204= MR. STEER: I HAVE ONE. MR. PETROCELLI, SINCE YOU'RE 205= GOING TO PROCEED FIRST, I'LL --
206= MR. PETROCELLI: THANK YOU. 207= BY MR. DAWSON:
208= Q. I'D LIKE TO SHOW YOU, MR. ROSS, WHAT'S BEEN PREVIOUSLY 209= MARKED AS DEMONSTRATIVE EXHIBIT 2490, WHICH IS IN THE FIRST TAB
3
3 Page 4 5
210= OF YOUR BINDER AND ASK YOU TO REVIEW THAT. 211= A. YES.
212= Q. DOES THIS MAP ACCURATELY REPRESENT THE AREA WHERE YOUR STORE 213= IS LOCATED?
214= A. YES, IT DOES. 215= Q. AND DOES THE --DOES IT ACCURATELY REPRESENT THE LOCATION OF
216= THE BARNES & NOBLE AND BORDERS STORES THAT YOU'VE JUST REFERRED 217= TO?
218= A. YES. 219= Q. NOW, THIS OBVIOUSLY DOES NOT SHOW ALL STORES IN YOUR AREA
220= THAT SELL BOOKS; IS THAT CORRECT? 221= A. THAT'S CORRECT.
222= Q. OKAY. IN FACT, THERE ARE OTHER BOOKSTORES IN YOUR AREA 223= THAT --THAT YOU COMPETE WITH, WOULDN'T YOU SAY?
224= A. YES, THERE ARE.
225= Q. ARE THERE ANY WALDENBOOKS THAT ARE CLOSE TO YOU? 226= A. THERE WERE BACK IN '95, I BELIEVE. THERE WERE TWO WALDENS
227= IN BERKELEY. THERE'S ONE ON TELEGRAPH, WHICH IS NO LONGER 228= THERE, AND I --I THINK THE ONE ON SHATTUCK IS ALSO NO LONGER
229= THERE. 230= Q. ARE THERE ANY B. DALTONS THAT ARE ANYWHERE NEAR TO YOU?
231= A. THEY'RE NOT IN BERKELEY, BUT THEY ARE IN THE EAST BAY. 232= Q. DO YOU HAVE A GENERAL SENSE ABOUT THE LOCATION OF ANY
233= EXISTING WALDENBOOKS? 234= A. THERE'S A LOT OF THEM IN SHOPPING CENTERS IN THE BAY AREA,
235= BUT I DON'T KNOW EXACTLY WHERE THEY'RE LOCATED NOW. 236= Q. RETURNING NOW TO THE BARNES & NOBLE THAT YOU'VE DISCUSSED
237= THAT IS LOCATED ON SHATTUCK, HAVE YOU EVER BEEN TO THAT STORE? 238= A. YES, I HAVE.
239= Q. AND HAVE YOU BEEN TO THE BORDERS IN EMERYVILLE THAT YOU 240= MENTIONED?
241= A. YES. 242= Q. WHEN HAVE YOU VISITED THOSE TWO STORES?
243= A. BOTH OF THEM I VISITED WITHIN THE LAST MONTH. 244= Q. PRIOR TO VISITING THEM WITHIN THE LAST MONTH, HAVE YOU
245= VISITED THEM PREVIOUS TO THAT POINT? 246= A. YES, I TRY TO GO IN THERE ONCE EVERY SIX MONTHS TO A YEAR TO
247= SEE WHAT'S GOING ON. 248= Q. HAVE YOU HAD AN OPPORTUNITY TO REVIEW OR TO SEE WHAT KIND OF
249= BOOKS THOSE STORES ARE SELLING?
250= A. YES, I HAVE. 251= Q. AND IN COMPARISON TO THE TYPES OF BOOKS THAT YOU'VE TOLD US
252= YOU SELL AT THE CODY'S STORES, WHAT KIND OF BOOKS DOES THE 253= BARNES & NOBLE ON SHATTUCK SELL?
254= A. THE SAME KINDS OF BOOKS THAT WE SELL. THEY SELL HARDBACKS, 255= TRADE PAPERBACKS, MASS MARKET BOOKS, AUDIO. THEY SELL SOME
256= TECHNICAL BOOKS. 257= Q. AND IN COMPARISON TO THE BOOKS THAT YOU SELL AT CODY'S, WHAT
258= KIND OF BOOKS DOES THE BORDERS STORE IN EMERYVILLE SELL? 259= A. VERY SIMILAR TO THE BOOKS AT CODY'S, HARDBACKS, TRADE
260= PAPERBACKS, MASS MARKET BOOKS. 261= Q. AND HAS THE --HAS THE TYPES OF BOOKS THAT EITHER OF THOSE
262= BARNES & NOBLE OR BORDERS STORES SELLS CHANGED SINCE YOU FIRST 263= VISITED THEM?
264= A. NOT THAT I'M AWARE OF. 265= Q. DO YOU HAVE A SENSE ABOUT WHAT MAKES A STORE COMPETITIVE, A
266= COMPETITOR WITH CODY'S? 267= A. WELL, THERE'S A FEW DIFFERENT INGREDIENTS THAT AFFECT
268= COMPETITION. THE FIRST WOULD BE PROXIMITY. AND I WOULD SAY 269= THAT THE CLOSER IT IS, THE MORE COMPETITIVE IT IS.
270= SECOND AND EQUALLY IMPORTANT WOULD BE IF THEY'RE 271= CARRYING THE SAME KINDS OF BOOKS THAT WE ARE. AND IF THEY
272= PROMOTE THEMSELVES HEAVILY IN THE AREA AND IF THEY HAVE THE SAME 273= CUSTOMER BASE. THAT'S COMPETITION.
274= Q. DO YOU CONSIDER THE BARNES & NOBLE STORES THAT YOU'VE
275= IDENTIFIED --THE STORE THAT YOU'VE IDENTIFIED AS A COMPETITOR 276= TO CODY'S?
277= A. YES, PRIMARY COMPETITOR. 278= Q. AND DO YOU CONSIDER IT --ARE THERE ANY OTHER BARNES & NOBLE
279= STORES IN THE AREA IN WHICH YOU BELIEVE COMPETITORS EXIST?
4
4 Page 5 6
280= A. YES, THERE ARE BARNES & NOBLE ALL OVER THE EAST BAY AND ALL 281= OVER THE BAY AREA, AND THEY --THEY DO COMPETE WITH US BECAUSE
282= THAT'S WHERE OUR CUSTOMER BASE IS, BUT I THINK THE FURTHER AWAY 283= THEY ARE, THE LESS A FACTOR THEY ARE TO COMPETITION.
284= Q. AND, SIMILARLY, DO YOU BELIEVE THAT THE STORE THAT YOU'VE 285= OUTLINED AS BEING IN EMERYVILLE, THE BORDERS STORE IS A
286= COMPETITOR TO THE CODY'S STORE? 287= A. YES, I DO FOR THE SAME REASONS.
288= Q. AND DO YOU BELIEVE THAT BOTH THAT TELEGRAPH --EXCUSE ME --289= THE SHATTUCK STORE OF BARNES & NOBLE AND THE BORDERS STORE AT
290= EMERYVILLE COMPETE WITH BOTH OF CODY'S TELEGRAPH STORE AND 291= FOURTH STREET STORE?
292= A. YES, THEY DO. 293= Q. ARE THERE ANY OTHER STORES THAT YOU COMPETE --THAT YOU
294= CONSIDER COMPETITORS TO CODY'S? 295= A. YES, THERE ARE NUMEROUS BOOK STORES IN THE EAST BAY ASK AND
296= THE BAY AREA AND TO SOME EXTENT THEY ALL COMPETE WITH CODY'S. 297= Q. YOU'VE MENTIONED THE BAY AREA, WHAT IS THE REGION THAT YOU
298= BELIEVE IS YOUR COMPETITIVE REGION? 299= A. WELL, WE DRAW CUSTOMERS FROM ALL OVER THE BAY AREA BUT MOST

300= OF OUR CUSTOMERS COME FROM THE EAST BAY. PARTICULARLY THE 301= TELEGRAPH STORE. FOURTH STREET STORE DRAWS --DRAWS MORE
302= REGIONAL CUSTOMERS, I BELIEVE. 303= Q. PREVIOUSLY, YOU IDENTIFIED BARNES & NOBLE AND BORDERS AS
304= BEING NOT JUST COMPETITORS BUT PRIMARY COMPETITORS? 305= A. YES.
306= Q. AND I WONDER WHY THAT IS. 307= A. WELL, SOME --IT'S SIMPLY THAT SOME STORES COMPETE MORE THAN
308= OTHER STORES. SOME STORES ARE MORE A FACTOR OF COMPETITION. 309= THE BARNES & NOBLE AND BORDERS ARE HUGE STORES. THEY ONLY SELL
310= NEW BOOKS AND THEY SELL MANY OF THE SAME BOOKS THAT WE DO. THEY 311= PROMOTE THEMSELVES HEAVILY IN ALL SORTS OF MEDIA AND THEY DRAW
312= UPON OUR CUSTOMER BASE, SO THEY ARE A VERY SIGNIFICANT 313= COMPETITORS.
314= Q. ARE THERE ANY DOCUMENTS OR OTHER INDICATIONS THAT YOU HAVE 315= REVIEWED THAT WOULD BOLSTER YOUR POINT OF VIEW THAT BARNES &
316= NOBLE IS A PRIMARY COMPETITOR OF CODY'S? 317= A. WELL, MY FINANCIAL STATEMENTS WOULD INDICATE THAT WHEN
318= BARNES & NOBLE ON SHATTUCK OPENED UP, ACTUALLY THERE WERE A 319= NUMBER OF BARNES & NOBLES THAT OPENED UP IN '92. OUR BUSINESS
320= IN '93 DECLINED SIGNIFICANTLY. 321= Q. I'D LIKE YOU TO LOOK AT WHAT'S BEEN PREVIOUSLY MARKED AS
322= PLAINTIFF'S 121, WHICH IS THE SECOND TAB IN YOUR BINDER. 323= A. YES.
324= Q. COULD YOU TELL THE --COULD YOU IDENTIFY THIS DOCUMENT?
325= A. THIS IS AN INCOME STATEMENT FROM CODY'S BOOKS DATED 326= DECEMBER 1993, AND IT'S COMPARING VARIOUS INDICES FROM THE
327= PREVIOUS YEAR. 328= Q. AND HOW IS IT THAT YOU'RE FAMILIAR WITH THIS DOCUMENT?
329= A. I'M GENERALLY FAMILIAR WITH ALL OF OUR FINANCIAL DOCUMENTS. 330= Q. HAVE YOU HAD AN OPPORTUNITY TO REVIEW THESE AT ANY TIME
331= RECENTLY? 332= A. YES, I'VE BEEN REVIEWING FINANCIAL DOCUMENTS IN PREPARATION
333= FOR THIS TRIAL. 334= Q. DOES THIS DOCUMENT, AS FAR AS YOU KNOW, FAIRLY REPRESENT --
335= FAIRLY AND ACCURATELY REPRESENT THE FINANCIAL HISTORY DURING THE 336= TIME PERIOD THAT'S COVERED?
337= A. YES. 338= Q. CAN YOU TELL THE COURT BASED ON THIS DOCUMENT WHETHER THERE
339= WAS AN INCREASE OR DECREASE IN SALES FROM THE 1992 TO 1993 TIME 340= PERIOD.
341= A. YES, THERE WAS A SIGNIFICANT DECREASE BETWEEN THE TWO YEARS. 342= OUR BUSINESS WENT FROM SLIGHTLY OVER $8 MILLION IN 1992 TO
343=$ 7,298,000 IN 1993. 344= Q. AND FOR OUR BENEFIT, COULD YOU POINT OUT WHERE ON THIS
345= DOCUMENT YOU GET THAT INFORMATION FROM? 346= A. THE --I'M USING THE NET SALES FIGURE, WHICH IS ABOUT FIVE
347= LINES DOWN FROM THE TOP OF THE PAGE. 348= Q. AND IS IT TRUE THAT FROM YOUR MEMORY, THIS COVERS THE TIME
349= WHEN THE SHATTUCK BARNES & NOBLE OPENED UP?
5
5 Page 6 7
350= A. YES. 351= Q. DID YOU EVER --WHEN THIS OCCURRED, DID YOU EVER ATTEMPT TO
352= DETERMINE WHAT WAS LEADING TO THE DECLINE IN SALES? 353= A. MY FEELING IS THAT THE OPENING OF THE BARNES & NOBLE STORES
354= WAS THE --WAS THE FACTOR THAT EXPLAINED IT. THERE WAS NO OTHER 355= FACTOR THAT I CAN COME UP WITH THAT WOULD HAVE CREATED THAT
356= DIAGRAM A CHANGE IN SALES. 357= Q. IT'S TRUE, ISN'T IT, THAT OTHER FACTORS EXIST THAT COULD AT
358= LEAST HAVE AFFECTED YOUR SALES? 359= A. WELL, THERE ARE OTHER FACTORS THAT ALWAYS AFFECT SALES, BUT
360= THERE'S NO FACTOR THAT --THERE WAS NO CHANGE --ANY KIND OF 361= DRAMATIC CHANGE FROM ONE YEAR TO THE OTHER THAT WOULD HAVE
362= AFFECTED SALES. 363= Q. DO YOU RECALL WHETHER IN 1993 YOUR EMPLOYEES UNIONIZED?
364= A. YES, THEY DID. 365= Q. DO YOU BELIEVE THAT THAT HAD AN AFFECT ON YOUR SALES?
366= A. NO, I DO NOT. 367= Q. AND WHY IS THAT?
368= A. THE --WE NEVER GOT TO A POINT OF HAVING A STRIKE OR EVEN A 369= PICKET LINE. THE --THE UNION ORGANIZERS WERE EMPHATIC ABOUT
370= TELLING OUR CUSTOMERS --THANKING THEM FOR SHOPPING AT CODY'S, 371= URGING THEM TO CONTINUE TO SHOP AT CODY'S.
372= Q. HAS THERE BEEN CRIME ON TELEGRAPH AVENUE FROM TIME TO TIME? 373= A. THERE IS CRIME FROM TIME TO TIME.
374= Q. WAS THERE A PARTICULAR AMOUNT OF CRIME IN 1993 OR 1992 THAT
375= YOU BELIEVE WOULD HAVE AFFECTED SALES? 376= A. I DON'T BELIEVE SO. THERE'S --IT'S --CRIME ON TELEGRAPH,
377= KIND OF THESE SORT OF SOCIAL UPHEAVALS OCCUR FROM TIME TO TIME. 378= SOMETIMES IT'S BETTER, SOMETIMES IT'S WORSE. I DON'T BELIEVE
379= ANY OF THEM WOULD HAVE AFFECTED SALES SIGNIFICANTLY. 380= Q. DO YOU BELIEVE THAT YOU HAVE ADEQUATE PARKING AT YOUR --AT
381= BOTH OF YOUR STORES, YOUR TELEGRAPH STORE AND AT YOUR FOURTH 382= STREET STORE?
383= A. OH, I DON'T THINK ANY BUSINESSMAN THINKS HE HAS ADEQUATE 384= PARKING, BUT PARTICULARLY AT TELEGRAPH, WE CERTAINLY HAVE
385= INADEQUATE PARKING. 386= Q. AND HAS THAT CHANGED SINCE THE 1993 TIME PERIOD?
387= A. NO, IT'S THE SAME. 388= Q. AT SOME POINT, DID YOU HAVE A CAFE IN OPERATION AT YOUR
389= TELEGRAPH STORE? 390= A. YES.
391= Q. DO YOU REMEMBER WHEN THAT WAS? 392= A. IT WAS IN THE --IN THE LATE '80S, I BELIEVE WE CLOSED IT
393= DOWN IN 1990. 394= Q. SO, AGAIN, AT THE TIME THAT WE'RE SPEAKING ABOUT NOW, THE
395= 1992 TO 1993 TIME PERIOD WHEN THE BARNES & NOBLE OPENED UP ON 396= SHATTUCK, YOU DID NOT HAVE A CAFE AND YOU HAD NOT HAD ONE FOR
397= SEVERAL YEARS? 398= A. THAT'S RIGHT.
399= Q. ISN'T THAT TRUE?
400= A. YES. 401= Q. GIVEN ALL THESE OTHER --THESE OTHER FACTORS WE'VE JUST BEEN
402= DISCUSSING, WHAT IS IT THAT MAKES YOU BELIEVE THAT IT WAS THE 403= OPENING OF THE BARNES & NOBLE THAT LED TO YOUR DECLINE OF SALES?
404= A. WELL, THE --OUR WALK-IN TRAFFIC DECLINED IN 1993 AND STAYED 405= AT A LOW LEVEL. IT NEVER REALLY CAME BACK. AND THAT'S THE ONLY
406= THING I CAN ACCOUNT FOR THAT WOULD HAVE KEPT IT AT THAT LEVEL. 407= OUR BUSINESS REALLY PEAKED IN 1992, PARTICULARLY OUR WALK-IN
408= TRAFFIC. AND ACTUALLY OUR BUSINESS WENT UP LATER ON, BUT IT WAS 409= NOT AS A RESULT OF WALK-IN TRAFFIC.
410= OUR WALK-IN TRAFFIC NEVER CAME BACK, AND SOME OF 411= THESE OTHER THINGS, CRIME ON TELEGRAPH, THEY --THERE WERE
412= JUST --THERE WERE NO CHANGES REALLY. THERE WERE --THERE WERE 413= JUST KIND OF FLUCTUATIONS.
414= Q. WHEN THE BARNES & NOBLE MOVED IN ON SHATTUCK, DID YOU TAKE 415= ANY BUSINESS STEPS IN REACTION TO THEM MOVING IN?
416= A. WELL, WE THOUGHT VERY CAREFULLY ABOUT THIS. WE WERE 417= CONCERNED ABOUT IT. IT WAS OBVIOUSLY SIGNIFICANT COMPETITION,
418= THREAT TO OUR BUSINESS. WE LOOKED AT OUR DISCOUNT POLICY. WE 419= HAD BEEN DISCOUNTING BESTSELLERS FOR SOME TIME, AND WE FELT THAT
420= WE COULD NOT AFFORD TO INCREASE OUR DISCOUNTING OR TO MATCH
6
6 Page 7 8
421= THEIR DISCOUNT. THAT WAS JUST --WOULD BE RUINOUS TO OUR 422= BUSINESS. SO WE COULDN'T DO THAT.
423= WHAT WE DID DO IS WE TALKED TO OUR EMPLOYEES. WE 424= TRIED TO MAKE SURE THEY WERE GIVING THE BEST POSSIBLE CUSTOMER

425= SERVICE. WE TRIED TO MAKE SURE THAT WE WERE SPECIAL ORDERING 426= EVERY BOOK IN PRINT. HAD THEM AVAILABLE --THE BOOKS THAT WE
427= DIDN'T HAVE, AND WE ALSO MADE SURE THAT WE WERE METICULOUS ABOUT 428= REORDERING BOOKS SO THAT WE WEREN'T OUT OF STOCK AND JUST IN
429= GENERAL KIND OF TIGHTENING UP ON OUR BUSINESS PROCEDURES. THAT 430= WAS ALL WE COULD DO.
431= Q. WAS THE EVENTUAL OPENING OF THE FOURTH STREET STORE 432= SOMETHING THAT YOU DID IN RELATION TO THE COMPETITION THAT YOU
433= FELT FROM BARNES & NOBLE AND BORDERS? 434= A. YES.
435= Q. DID YOU EVER CONSIDER WHETHER YOU OUGHT TO SPEND THE MONEY 436= THAT YOU SPENT OPENING THE FOURTH STREET STORE ON DOING
437= SOMETHING ELSE FOR THE --FOR YOUR EXISTING TELEGRAPH STORE? 438= A. WE THOUGHT ABOUT EVERYTHING THAT WE COULD DO THAT WE THOUGHT
439= WOULD WORK. BUT WE --YOU KNOW, WE GOT --YOU KNOW, IT JUST --440= NUMBERS DIDN'T WORK. WE THOUGHT OF BUILDING A PARKING LOT. WE
441= THOUGHT OF EXPANDING THE STORE, AND WE RAN THE NUMBERS, AND IT 442= JUST DIDN'T MAKE SENSE.
443= THE FOURTH STREET STORE, ON THE OTHER HAND, WE --YOU 444= KNOW, WE WERE CONCERNED ABOUT LOSING SOME OF OUR MIDDLE CLASS
445= CUSTOMERS, AND WE REALLY FELT THAT WOULD HELP, AND IT HAS. 446= Q. DO YOU CONSIDER YOUR --THAT YOUR TELEGRAPH STORE ACTUALLY
447= COMPETES WITH YOUR FOURTH STREET STORE? 448= A. YES. IT CERTAINLY DOES.
449= Q. I'D LIKE TO MOVE ON TO HOW YOUR STORE ACTUALLY BUYS THE
450= BOOKS THAT IT PURCHASES. 451= A. YES.
452= Q. IN YOUR ROLE AS THE OWNER OF CODY'S, WHAT IS YOUR ROLE WITH 453= RESPECT TO PURCHASING BOOKS?
454= A. I AM ONE OF THE TWO PRIMARY BUYERS IN THE STORE. 455= Q. I'D LIKE TO SHOW YOU WHAT'S BEEN PREVIOUSLY MARKED AS
456= PLAINTIFF'S EXHIBIT 2591. IT'S ON THE THIRD TAB OF YOUR BINDER 457= AND IS A LIST OF VENDORS.
458= A. YES. 459= Q. TELL ME WHEN YOU'VE HAD AN OPPORTUNITY TO LOOK AT THAT.
460= A. YES. 461= Q. WHICH OF THOSE VENDORS ON THE LIST DOES YOUR CODY'S STORES
462= BUY FROM? 463= A. WE BUY FROM ALL OF THESE VENDORS.
464= Q. IS THAT TRUE FOR BOTH OF YOUR STORES? 465= A. YES.
466= Q. AND HAVE YOU PURCHASED FROM ALL OF THESE VENDORS SINCE 1994 467= TO THE PRESENT?
468= A. YES. SOME OF THESE PEOPLE HAVE BEEN MERGED WITH OTHER 469= PUBLISHERS BUT THEY --THE LINES STILL EXIST, AND WE DO PURCHASE
470= FROM THESE PUBLISHERS AND THESE LINES. 471= Q. AND DOES YOUR STORE --WHEN I SAY "STORE," I'M GOING TO MEAN
472= FOR THE NEXT FOUR QUESTIONS BOTH OF YOUR STORES. IF IT'S 473= DIFFERENT FOR EITHER ONE, COULD YOU EXPLAIN THAT --
474= A. YES.
475= Q. --AND HOW IT'S DIFFERENT. 476= A. YES.
477= Q. DOES YOUR STORE PURCHASE HARDCOVER BOOKS FROM THESE VENDORS? 478= A. THERE'S --THERE MAY BE ONE OR TWO VENDORS THAT DON'T SELL
479= HARDCOVER BOOKS, BUT IF THEY DO, WE PURCHASE THEM. 480= Q. DO YOU HAVE ONE IN MIND THAT YOU DON'T BELIEVE SELLS
481= HARDCOVER? 482= A. I DON'T BELIEVE AVON SELLS HARDCOVER BOOKS. BERKELEY IS A
483= MASS MARKET LINE, SO IT --IT MAY HAVE SOME SCIENCE FICTION 484= HARDCOVER. HEALTH COMMUNICATIONS MAY NOT HAVE HARDCOVER BOOKS.
485= Q. DOES YOUR STORE PURCHASE TRADE PAPERBACKS FROM THESE 486= VENDORS?
487= A. YES. 488= Q. FROM ALL OF THEM?
489= A. I BELIEVE WE DO, YES. 490= Q. AND DOES YOUR STORE PURCHASE MASS MARKET BOOKS FROM THESE
7
7 Page 8 9
491= VENDORS? 492= A. YES.
493= Q. AND HAS YOUR PURCHASING OF THE VARIOUS CATEGORIES WE'VE JUST 494= GONE THROUGH CHANGED FROM 1994 TO THE PRESENT?
495= A. NO, IT HAS NOT. 496= Q. DO YOU PURCHASE ANY AUDIO BOOKS FROM ANY OF THESE VENDORS?
497= A. YES, WE DO FROM THE VENDORS THAT SELL AUDIO BOOKS. 498= Q. AND DO YOU PURCHASE BOTH FRONT LIST AND BACK LIST FROM --
499= FROM THIS LIST OF VENDORS?
500= A. YES, WE DO. 501= Q. IN LOOKING AT THE LIST, CAN YOU GIVE ME A ROUGH
502= APPROXIMATION OF THE PERCENTAGE OF BOOKS YOU'VE PURCHASED SINCE 503= 1994 FROM ALL OF THESE VENDORS.
504= A. WELL, I CAN'T GIVE YOU A --ANYTHING MORE THAN A BALLPARK 505= FIGURE HERE, BUT THESE ARE OUR MAJOR PUBLISHERS, AND I WOULD SAY
506= 75 PERCENT OF OUR BOOKS ARE PURCHASED FROM THESE VENDORS. 507= Q. AND HOW OFTEN DO YOU ORDER BOOKS FOR YOUR STORES?
508= A. WE ORDER --WE PLACE ORDERS EVERY DAY. 509= Q. AND, SIMILARLY, HOW OFTEN DOES YOUR --DO YOUR STORES ORDER
510= BOOKS FROM THE PEOPLE THAT ARE ON THIS LIST, FROM THE PUBLISHERS 511= AND --AND WHOLESALERS THAT ARE ON THIS LIST?
512= A. PROBABLY ALMOST EVERY DAY. 513= Q. HOW DO YOU, IN GENERAL, PLACE YOUR ORDERS WITH RESPECT TO
514= THE LISTED VENDORS? 515= A. MOST OF THEM, WE --THE NEW TITLES, WE GENERALLY PLACE
516= THROUGH SALES REPS WHO CALL ON US PERIODICALLY. BACK LIST BOOKS 517= ARE MOST OF THEM ARE PLACED ELECTRONICALLY. EITHER THROUGH EDI
518= OR PUBNET. 519= Q. ON THIS LIST, THE VENDOR INGRAM IS LISTED.
520= A. YES. 521= Q. YOU SEE THAT? IS THERE ANY DIFFERENCE BETWEEN THE TERMS OF
522= SALE WHICH YOU RECEIVE FROM INGRAM AND THE TERMS OF SALE WHICH 523= YOU TYPICALLY RECEIVE FROM THE PUBLISHER VENDORS ON THIS LIST?
524= A. WELL, FOR MOST OF THESE PUBLISHERS, WE HAVE MUCH MORE
525= DESIRABLE TERMS FROM THE PUBLISHERS THAN FROM INGRAM. 526= Q. IN WHAT WAY ARE THEY MORE DESIRABLE?
527= A. BETTER DISCOUNTS. WE GENERALLY CAN TAKE A LITTLE BIT LONGER 528= TO PAY. THAT'S MOSTLY IT.
529= Q. DO YOU HAVE ANY --ANY SENSE OF HOW OFTEN YOU ORDER FROM 530= INGRAM?
531= A. THREE OR FOUR TIMES A WEEK. 532= Q. HOW IMPORTANT IS PURCHASING FROM INGRAM TO YOUR STORE'S
533= OPERATION? 534= A. VERY IMPORTANT. INGRAM IS A VERY IMPORTANT VENDOR FOR US.
535= Q. AND HOW DO YOU PLACE YOUR ORDERS TYPICALLY WITH INGRAM? 536= A. WE GIVE THEM ELECTRONIC ORDERS.
537= Q. DO YOU HAVE AN OPPORTUNITY TO COMBINE THE ORDERS FROM YOUR 538= FOURTH STREET STORE AND YOUR TELEGRAPH STORE IN ORDER TO GET
539= ADDITIONAL DISCOUNTS FROM INGRAM Could not acquire words on page 9 FOR A COMBINED ORDER? 540= A. NO, WE DO NOT COMBINE THOSE ORDERS.
541= Q. AND WHY IS THAT? 542= A. THERE'S NO ADVANTAGE IN DOING SO. AND THERE'S A LOT OF WORK
543= SORTING THE ORDERS OUT WHEN THEY COME IN AND THEN SHIPPING THEM 544= DOWN BETWEEN THE TWO STORES, SO IT'S A --IT'S MORE DESIRABLE
545= FOR US TO PLACE SEPARATE ORDERS. 546= Q. HAVE YOU HEARD OF A PROGRAM CALLED INGRAM'S VOR PROGRAM?
547= A. VENDOR OF RECORD, YES, I HAVE HEARD OF THAT. 548= Q. NOW, DO YOU PARTICIPATE IN THAT? HAVE YOU PARTICIPATED IN
549= THAT PROGRAM?
550= A. YES, WE PARTICIPATE IN IT NOW, VERY LIMITED DEGREE. MOSTLY 551= FOR VERY SMALL PUBLISHERS.
552= Q. WHY IS IT THAT YOU PARTICIPATE ONLY IN A LIMITED DEGREE? 553= A. BECAUSE WE GET A MUCH --FROM THE LARGE PUBLISHERS, WE GET
554= MUCH MORE DESIRABLE DISCOUNTS. THEY'RE IN-STOCK CONDITION IS 555= GENERALLY BETTER THAN INGRAM'S IS. IT --IT JUST DOESN'T
556= MAKE --THE NUMBERS DON'T MAKE SENSE. THE ONLY TIME THEY MAKE 557= SENSE IS FROM VERY SMALL PUBLISHERS.
558= Q. DO YOU EVER USE INGRAM AS THE EXCLUSIVE SOURCE OF 559= REPLENISHMENT OF BOOKS AT EITHER OF YOUR STORES?
560= A. WELL, WHEN WE PARTICIPATE IN VENDOR OF RECORDS, THEY REQUIRE
8
8 Page 9 10

9 Page 10 11
631= COME FROM? 632= A. OUR PRIMARY WAREHOUSE WITH INGRAM IS IN OREGON. AND
633= SECONDARILY, IF WE DON'T --IF WE CAN'T GET THEM FROM THE 634= PRIMARY WAREHOUSE, WE WILL GET THEM FROM SOUTHERN CALIFORNIA.
635= Q. AND HOW DO THE BOOKS THAT ARE SHIPPED FROM ANY OF THESE 636= VENDORS ARRIVE AT YOUR STORES?
637= A. THEY ARRIVE IN USUALLY IN BOXES --638= Q. ARE THERE --
639= A. HOPEFULLY IN GOOD CONDITION. 640= Q. I'M SORRY.
641= ARE THE BOOKS DELIVERED TO ONE OF YOUR STORES, AND 642= THEN YOU DELIVER A SECTION OF THOSE BOOKS TO YOUR OTHER STORE,
643= OR DO THEY GO TO EACH --EACH STORE SEPARATELY? 644= A. WE DO IT BOTH WAYS. SOMETIMES WE HAVE THEM SHIPPED
645= SEPARATELY TO THE TWO DIFFERENT STORES, AND SOMETIMES THEY'RE 646= CONSOLIDATED AT ONE STORE AND THEN SPLIT UP AND SHIPPED DOWN TO
647= THE OTHER. 648= Q. AND WHAT DO YOU DO AFTER THE BOOKS ARRIVE IN THE BOXES?
649= WHAT'S THE NEXT STEP?
650= A. WE SORT THE BOXES. WE --THEN WE OPEN THEM. WE CHECK TO 651= SEE IF THERE'S AN INVOICE INSIDE. WE PUT THE BOOKS OUT. WE
652= RECEIVE THEM AGAINST A --AGAINST OUR COMPUTER. WE CHECK TO SEE 653= IF THERE ARE ANY BOOKS THAT WE WERE BILLED FOR THAT WE DIDN'T
654= RECEIVE, IF WE HAD ANY SHORT SHIPMENTS. 655= WE CHECK IF THE BOOKS ARE PRICED. IF THEY AREN'T, WE
656= HAVE TO PRICE THEM. WE CHECK TO SEE IF THERE'S ANY TITLES THAT 657= ARE --THAT ARE SHOP-WORN OR DEFECTIVE. IF THEY'RE SHORT-SHIPS
658= OR DEFECTIVE BOOKS, WE HAVE TO WRITE UP A LITTLE FORMS 659= REQUESTING CREDIT FROM THE PUBLISHER. WE ATTACH THEM TO THE
660= INVOICES AND SEND THEM UPSTAIRS. SEND THE INVOICES UPSTAIRS TO 661= OUR BUSINESS OFFICE.
662= Q. DO YOU HAVE A GENERAL SENSE ABOUT HOW LONG IT TAKES TO GO 663= THROUGH THIS PROCESS WITH RESPECT TO A SINGLE BOX OF BOOKS?
664= A. IT CAN BE PRETTY SLOW. I WOULD SAY IT COULD TAKE A HALF AN 665= HOUR TO AN HOUR PER BOX TO RECEIVE THEM.
666= Q. HOW DO YOU KNOW WHAT THE TRADE TERMS ARE THAT ARE GOING TO 667= BE APPLYING TO THE BOOKS THAT YOU'RE PURCHASING?
668= A. THE PRIMARY WAY WE KNOW IS FROM THE RED BOOK. WE ALSO 669= RECEIVE INFORMATION FROM TIME TO TIME FROM PUBLISHERS. USUALLY
670= IT'S PRINTED OUT. 671= Q. DO YOU UNDERSTAND THE RED BOOK TO BE A PUBLISHED COMPILATION
672= OF TERMS THAT ARE GENERALLY RELIED ON IN THE BOOKSELLING 673= INDUSTRY?
674= A. YES.
675= Q. AND HOW DO YOU USE IT? 676= A. WELL, IF WE DON'T KNOW WHAT THE TERMS ARE, WE LOOK IT UP IN
677= THE RED BOOK. 678= Q. HOW OFTEN DO THE TERMS CHANGE IN THE RED BOOK?
679= A. WELL, THEY PUBLISH --THEY CHANGE THE RED BOOK EVERY YEAR. 680= AND SO --SO THEY VARY FROM YEAR TO YEAR.
681= Q. ARE THERE INTERIM CHANGES BETWEEN ONE YEAR'S RED BOOK AND 682= ANOTHER YEAR'S RED BOOK?
683= A. PUBLISHER'S INTERIM CHANGES? 684= Q. YES.
685= A. YES. I DON'T KNOW IF THEY --IF THEY UPDATE THE RED BOOK IN 686= THE INTERIM, BUT PUBLISHERS DO MAKE CHANGES BETWEEN RED BOOKS
687= FOR SURE. 688= Q. WELL, HAVE YOU EVER RECEIVED SOMETHING THAT YOU BELIEVE WAS
689= A CHANGE FROM THE RED BOOK TERM FROM A PUBLISHER? 690= A. OH, YES, THAT HAPPENS.
691= Q. AND HOW DO YOU RECEIVE THEM? 692= A. THE SALES REP --SOMETIMES THE SALES REP CALLS US UP.
693= USUALLY THEY GIVE US SOME SORT OF PRINTED FORM ANNOUNCING THE 694= CHANGES, THAT SORT OF THING.
695= Q. HAVE YOU EVER ASKED ANY VENDOR FOR TRADE TERMS THAT YOU 696= WOULD --THAT YOU UNDERSTOOD OR WERE SEEKING THAT WOULD APPLY
697= SOLELY TO CODY'S? 698= A. JUST AN AD HOC FOR CODY'S, NO.
699= Q. WHY NOT?
700= A. 'CAUSE THAT ISN'T THE WAY THIS BUSINESS WORKS.
10
10 Page 11 12
701= Q. WHAT DO YOU MEAN BY THAT? 702= A. IT'S --IT'S NOT LIKE KIND OF A BIZARRE WHERE YOU BARGAIN
703= ENDLESSLY. THEY ARE PRETTY CLEAR ABOUT WHAT THEIR TERMS ARE. I 704= SOMETIMES KIND OF PRESS THEM TO TRY TO FIND OUT WHAT THEIR TERMS
705= ARE BECAUSE THAT'S NOT ALWAYS CLEAR TO ME. BUT THEY --YOU 706= KNOW, THEY HAVE TERMS, AND THEY TELL YOU WHAT YOU CAN GET.
707= Q. IN PRESSING THEM TO DETERMINE WHAT TERMS WERE, WERE YOU 708= TRYING TO NEGOTIATE TERMS THAT YOU UNDERSTOOD WOULD APPLY ONLY
709= TO CODY'S, OR WERE YOU SIMPLY TRYING TO DETERMINE WHAT TERMS 710= WERE AVAILABLE TO BOOKSELLERS?
711= A. THE LATTER. I'VE NEVER GOTTEN ANYTHING THAT'S JUST FOR 712= CODY'S.
713= Q. TO WHICH VENDOR DO THE --DO THE RED BOOK TERMS APPLY? TO 714= WHICH VENDORS ON THE LIST DO THE RED BOOK TERMS APPLY?
715= A. I BELIEVE THAT ALL OF THESE PUBLISHERS ON THE LIST HAVE A 716= SECTION IN THE RED BOOK.
717= Q. NOW, IT'S TRUE, IS IT NOT, THAT WITH RESPECT TO ANY GIVEN 718= PURCHASE, YOU WOULD ACTUALLY HAVE TO LOOK AT THE INVOICES FROM A
719= PARTICULAR VENDOR TO DETERMINE THE TERMS THAT APPLY TO THAT 720= PURCHASE?
721= A. WELL, NOT IF I KNOW THE TERMS, BECAUSE IT'S --IT'S USUAL 722= IT'S SAME.
723= Q. I'M SAYING, IN --724= A. YEAH.

725= Q. --PARTICULAR SITUATION FROM 1994, YOU WOULD NOT, AS YOU SIT 726= HERE TODAY, HAVE A MEMORY TO DETERMINE WHAT THE TERMS WERE WITH
727= RESPECT TO A PARTICULAR PURCHASE OF A PARTICULAR BOOK FROM A 728= PARTICULAR VENDOR?
729= A. NO, THAT, I COULDN'T DO. 730= Q. AND THE SOLE SOURCE, IS IT NOT, FOR DETERMINING THE
731= PARTICULAR TERMS FOR THE PARTICULAR PURCHASE FROM A PARTICULAR 732= VENDOR, IN YOUR DOCUMENTS, WOULD BE INVOICES?
733= A. THAT'S CORRECT. 734= THE COURT: WHY DON'T YOU EVER ASK FOR A SPECIAL DEAL
735= FOR CODY'S? 736= THE WITNESS: WELL, I ASK --I HAVE ASKED. I'M
737= PRETTY AGGRESSIVE ABOUT IT. BUT I ASK FOR WHAT DEALS ARE 738= AVAILABLE, WHAT'S THE BEST DEAL I CAN GET. I DON'T ASSUME THAT
739= EVERYTHING'S IN THE RED BOOK. 740= IN FACT, I KNOW THAT PUBLISHERS HAVE BEEN GIVING
741= DEALS TO CHAIN STORES THAT I HAVEN'T BEEN GETTING, SO I'M KIND 742= OF AGGRESSIVE ABOUT THAT. BUT THEY JUST --THEY JUST DON'T DO
743= THAT. THEY SAY THAT --THEY GENERALLY SAY, "THESE ARE OUR 744= TERMS." AND SOMETIMES, I SAY, "HEY, WAIT A MINUTE. I KNOW THAT
745= YOU'RE GIVING THE CHAINS THIS. I KNOW YOU'RE GIVING THE CHAINS 746= THAT."
747= BUT USUALLY THEY --THE SALES REPS SAID, WOULD SAY, 748=" WELL, I DON'T KNOW ABOUT THAT." THEY TEND NOT TO KNOW THAT.
749= BUT I TRY TO GET THE BEST DEAL I CAN GET.
750= BY MR. DAWSON: 751= Q. WITH REFERENCE TO THE INVOICES WE WERE JUST SPEAKING
752= ABOUT --753= A. YES.
754= Q. --HAVE YOU GIVEN THE DEFENDANTS COPIES OF ALL THE STORE'S 755= INVOICES?
756= A. YES, I HAVE. 757= Q. DID YOU HOLD ANY BACK?
758= A. NO. 759= Q. ARE THERE EVER TIMES WHEN CODY'S HAS RECEIVED TRADE TERMS
760= THAT ARE MORE FAVORABLE THAN THE STANDARD RED BOOK TERMS? 761= A. YES, I HAVE.
762= (CONTINUED NEXT PAGE; NOTHING OMITTED) 763=
764= 765=
766= 767=
768= 769=
770= 771=
11
11 Page 12 13
772= 773=
774=
775= BY MR. DAWSON: 776= Q. AND UNDER WHAT CIRCUMSTANCES, FROM 1997 TO THE PRESENT, HAS
777= CODY'S RECEIVED TRADE TERMS THAT ARE MORE FAVORABLE THAN WAS 778= PUBLISHED IN THE RED BOOK AT THAT TIME?
779= A. THE MOST FREQUENT EXAMPLES WOULD HAVE TO BE SEASONAL 780= OFFERS.
781= Q. AGAIN, ARE THESE THINGS, THE STOCK OFFERS, ARE THEY THINGS 782= THAT YOU HAVE AN UNDERSTANDING WERE ONLY AVAILABLE TO CODY'S?
783= A. NO, MY UNDERSTANDING IS THEY WERE --IN ALL THOSE 784= SITUATIONS THEY WERE AVAILABLE TO EVERYBODY.
785= Q. DID YOU --NORMALLY, HOW WERE STOCK OFFERS COMMUNICATED TO 786= YOU?
787= A. ALMOST INVARIABLY THEY'VE BEEN ON SOME SORT OF PRINTED 788= FORM.
789= Q. DID YOU EVER BECOME AWARE OF THE AVAILABILITY OF SOMETHING 790= CALLED THE RDC DISCOUNT?
791= A. YES, I'VE KNOWN ABOUT THAT. 792= Q. AND HOW LONG HAVE YOU KNOWN ABOUT THAT?
793= A. A LONG TIME, SINCE THE 80'S. 794= Q. DID YOU EVER RECEIVE AN RDC DISCOUNT?
795= A. YES, I HAVE, WHEN I OPENED THE NEW STORE I STARTED GETTING 796= SOME RDC DISCOUNTS.
797= Q. DID YOU EVER RECEIVE AN RDC DISCOUNT BEFORE THEN? 798= A. I DON'T BELIEVE I DID, NO.
799= Q. DID YOU EVER ASK FOR ONE?
800= A. YOU KNOW, I WAS CONCERNED ABOUT RDC DISCOUNTS AND WHY THEY 801= WEREN'T BEING MADE AVAILABLE TO ME, AND I MAY VERY WELL HAVE
802= ASKED FOR THEM. 803= Q. DO YOU HAVE AN UNDERSTANDING AS YOU SIT HERE TODAY WHY YOU
804= DID NOT RECEIVE AN RDC DISCOUNT PRIOR TO 1997 WHEN YOU OPENED 805= YOUR FOURTH STREET STORE?
806= A. PROBABLY BECAUSE I COULDN'T --YOU KNOW, I DIDN'T COME UP 807= TO THEIR TERMS.
808= Q. WHAT WERE THE TERMS THAT YOU UNDERSTOOD WERE APPLICABLE TO 809= RDC'S?
810= A. THERE WERE USUALLY THINGS LIKE, YOU HAD TO HAVE A LOADING 811= DOCK, YOU HAD TO HAVE MULTIPLE STORES, YOU HAD TO HAVE A
812= WAREHOUSE THAT WAS SEPARATE FROM THE BOOKSTORE, YOU HAD TO 813= ORDER IN CARTON QUANTITIES, THINGS LIKE THAT; OFTEN MANY OF
814= THOSE CONDITIONS, AND I COULDN'T MEET THOSE CONDITIONS. 815= Q. WHEN YOU STARTED RECEIVING RDC DISCOUNTS, DID YOU RECEIVE
816= THEM FROM ALL OF THE VENDORS ON YOUR LIST? 817= A. NO. I STILL DON'T RECEIVE THEM FROM ALL OF THE VENDORS.
818= Q. DO YOU KNOW WHETHER THE VENDORS, ANY OF THE VENDORS ON THAT 819= LIST THAT YOU DON'T RECEIVE THEM FROM, DO HAVE RDC DISCOUNTS?
820= A. CAN I LOOK AT THE LIST? 821= Q. PLEASE DO. AGAIN, IT'S UNDER TAB 3 OF YOUR BINDER.
822= A. THANK YOU. WELL, I DON'T HAVE AN ENCYCLOPEDIC MEMORY, SO I 823= DON'T KNOW --I KNOW THAT NORTON HAS AN RDC DISCOUNT AND THAT I
824= CAN'T GET IT. I'VE ASKED FOR IT.
825= Q. DO YOU KNOW WHY YOU CAN'T GET IT? 826= A. I BELIEVE THEY SAY THAT YOU HAVE TO HAVE FIVE OR MORE
827= STORES, BUT I'M NOT TOTALLY SURE OF THAT. I KNOW THEY HAVE 828= SOME CONDITIONS THAT I CAN'T MEET.
829= Q. ARE THERE ANY CATEGORIES OF BOOKS WHICH YOU TYPICALLY ORDER 830= THAT ARE SUBJECT TO THE RDC DISCOUNT?
831= A. WELL, I HAVE AN RDC ACCOUNT, AND IF I CAN MEET THE 832= CONDITIONS, I COULD THEORETICALLY GET EVERYTHING, BUT IN
833= GENERAL, AS A PRACTICAL MATTER, IT USUALLY ONLY WORKS ON NEW 834= TITLE ORDERS.
835= Q. WHICH IS WHAT PERCENTAGE OF --LET ME STRIKE THAT. WHAT 836= PERCENTAGE OF THE BOOKS THAT YOU PURCHASE CURRENTLY DO YOU
837= RECEIVE AN RDC DISCOUNT ON, FOR BOTH STORES COMBINED? 838= A. WELL, AGAIN, THIS IS A VERY BALLPARK FIGURE, BUT PROBABLY
839= 10 PERCENT. 840= Q. AND YOU MENTIONED PREVIOUSLY CARTON QUANTITIES. WHAT IS
841= THAT?
12
12 Page 13 14
842= A. CARTON QUANTITIES MEANS THAT THE PUBLISHER SHIPS YOU BOOKS 843= FROM THE CARTONS THAT THEY HAVE THEM PACKED IN COMING FROM THE
844= PRINTER, OR THE BINDER. 845= Q. AND AS FAR AS YOU'RE AWARE, ARE THE VARIOUS REQUIREMENTS OF
846= THE VENDORS RELATING TO CARTON QUANTITIES ENFORCED BY THOSE 847= VENDORS?
848= A. YES. 849= Q. EVER HAD ANYONE WAIVE THAT CARTON QUANTITY REQUIREMENT?

850= A. NO. 851= Q. WE WERE TALKING ABOUT THE WAYS IN WHICH YOU RECEIVED TERMS
852= THAT WERE DIFFERENT FROM THE BASIC RED BOOK TERMS, AND YOU 853= MENTIONED STOCK OFFERS.
854= A. YES. 855= Q. HAS CODY'S EVER RECEIVED STOCK OFFERS?
856= A. OH, YEAH. WE'RE AGGRESSIVE ABOUT STOCK OFFERS. 857= Q. AND WHAT ARE TYPICALLY THE BENEFITS THAT ARE OFFERED
858= THROUGH A STOCK OFFER? 859= A. THEY VARY FROM OFFER TO OFFER, BUT USUALLY THEY GIVE YOU A
860= BETTER DISCOUNT. SOMETIMES THEY GIVE YOU EXTENDED DAYS. THEY 861= LET YOU PAY IN 90 TO 120 DAYS. THAT'S PRETTY TYPICAL OF STOCK
862= OFFERS. 863= Q. SINCE 1994 TO THE PRESENT, CAN YOU ESTIMATE FOR ME THE
864= PERCENTAGE OF BOOKS PURCHASED BY CODY'S THAT WERE SUBJECT TO 865= STOCK OFFERS?
866= A. LESS THAN 10 PERCENT. 867= Q. AND HOW DO YOU DECIDE.... WELL, LET ME ASK YOU THIS: DO
868= YOU TAKE ADVANTAGE OF EVERY SINGLE STOCK OFFER THAT'S PROVIDED 869= TO CODY'S?
870= A. WELL, NOT EVERY SINGLE ONE, BUT MOST OF THEM. WE, AS I 871= SAID, WE'RE QUITE AGGRESSIVE ABOUT THESE STOCK OFFERS.
872= Q. AND ARE --IN SITUATIONS WHERE YOU DECIDE NOT TO TAKE 873= ADVANTAGE OF A STOCK OFFER, WHAT TYPICALLY ARE YOUR REASONS?
874= A. PROBABLY IT'S A PUBLISHER THAT --WITH BOOKS THAT WE DON'T
875= CARRY. SOMETIMES STOCK OFFERS ARE LIMITED TO CERTAIN LINES OF 876= BOOKS, AND WE MAY NOT BE SELLING THOSE LINES VERY WELL. SO
877= IT'S JUST A PRACTICAL MATTER. WE'RE NOT GOING TO ORDER BOOKS 878= THAT WE CAN'T SELL, REGARDLESS OF THE DISCOUNT.
879= Q. HOW ARE THE STOCK OFFERS THAT YOU RECEIVE INVOICED TO 880= CODY'S BOOKS?
881= A. JUST LIKE EVERYTHING ELSE, ON A REGULAR INVOICE. 882= Q. THE INVOICES INDICATE THAT THEY ARE THE SUBJECT OF A STOCK
883= OFFER? 884= A. NO, THEY JUST HAVE --IF THERE'S AN ADDITIONAL DISCOUNT, IT
885= WOULD BE REFLECTED ON THE INVOICE, BUT THEY DON'T USUALLY SAY 886=" STOCK OFFER" ON IT.
887= Q. I'D LIKE TO SHOW YOU WHAT'S BEEN PREVIOUSLY MARKED AS 888= PLAINTIFF'S EXHIBITS 2339, 2340 AND 2341, WHICH ARE THE LAST
889= THREE TABS OF THE BINDER, 6, 7 AND 8. 890= A. YES.
891= Q. WITH RESPECT TO THE FIRST INVOICE IN THAT LIST, IT APPEARS 892= TO ME.... WELL, FIRST OF ALL, DO THESE APPEAR TO BE TRUE AND
893= ACCURATE COPIES OF INVOICES TO CODY'S BOOKS FROM THE RECORDS 894= PUBLISHERS?
895= A. YES. 896= Q. AND ARE YOU FAMILIAR ENOUGH THROUGH YOUR OPERATION OF THE
897= STORES WITH INVOICES TO MAKE THAT STATEMENT? 898= A. YES.
899= Q. LOOKING AT THE FIRST DOCUMENT, 2339, WHICH IS BEHIND TAB 6,
900= IT APPEARS, BASED ON THIS, THAT YOU WERE RECEIVING A DISCOUNT 901= OF 50 PERCENT ON A VARIETY OF BOOKS. DO YOU SEE THAT?
902= A. YES, I SEE THAT. 903= Q. HOW WOULD YOU EXPLAIN THE 50 PERCENT?
904= A. WELL, THIS IS FROM SIMON & SCHUSTER, AND IT IS AT VARIANCE 905= WITH OUR NORMAL TERMS FROM THEM, SO I WOULD ASSUME THAT THIS IS
906= A STOCK OFFER. 907= Q. ANY OTHER REASON THAT IT COULD BE AT VARIANCE, AS FAR AS
908= YOU'RE AWARE? 909= A. NOT THAT I CAN THINK OF.
910= Q. SIMILARLY WITH RESPECT TO EXHIBIT 2340, WHERE IT AGAIN 911= APPEARS AS THOUGH YOU'VE RECEIVED A 50 PERCENT DISCOUNT, IS
13
13 Page 14 15
912= THIS REPRESENTATIVE OF A STOCK OFFER? 913= A. NOT NECESSARILY.
914= Q. AND WHAT WOULD BE THE EXPLANATION WITH RESPECT TO THIS 915= PARTICULAR INVOICE?
916= A. THESE ARE ALL COMPUTER BOOKS, AND FREQUENTLY COMPUTER 917= BOOKS --CERTAIN LINES OF BOOKS HAVE BETTER DISCOUNTS.
918= COMPUTER BOOKS FREQUENTLY GIVE YOU 50 PERCENT DISCOUNT, BUT I 919= CAN'T SAY FOR SURE. IT MIGHT ALSO BE A STOCK OFFER.
920= Q. IT'S EITHER A SPECIAL RELATING TO THAT LINE OF BOOKS OR A 921= STOCK OFFER; IS THAT YOUR TESTIMONY?
922= A. YES, IN ALL PROBABILITY. YOU KNOW, I DON'T REMEMBER THIS 923= INVOICE, THOUGH. I DON'T REMEMBER THE DETAILS OF --FROM BACK
924= THEN, BUT I CAN'T THINK OF ANOTHER REASON --ANOTHER --I CAN'T
925= THINK OF ANYTHING ELSE IT WOULD BE. 926= Q. AGAIN, YOU NEVER, IN YOUR MEMORY, RECEIVED A DISCOUNT WHICH
927= WAS AT VARIANCE WITH TERMS THAT YOU UNDERSTOOD WERE GENERALLY 928= AVAILABLE TO OTHER BOOKSELLERS, IS THAT ACCURATE?
929= A. THAT'S ACCURATE. 930= Q. ON THE FINAL INVOICE, AGAIN, AND THIS IS UNDER TAB 8, IT
931= APPEARS THAT YOU RECEIVED 52 PERCENT DISCOUNT WITH RESPECT TO 932= SOME OF THE LISTED BOOKS. DO YOU SEE THAT?
933= A. I SEE IT. 934= Q. AND DOES THAT, AGAIN, REPRESENT, TO THE BEST OF YOUR
935= UNDERSTANDING, A STOCK OFFER DISCOUNT? 936= A. IT LOOKS TO ME LIKE IT WOULD BE A STOCK OFFER, YES. I JUST
937= CAN'T THINK OF ANOTHER EXPLANATION FOR IT. 938= Q. DO YOU UNDERSTAND THE TERM "INCENTIVE PROGRAM"?
939= A. YES. 940= Q. WHAT DOES THAT MEAN?
941= A. IT GENERALLY MEANS, IF YOU INCREASE YOUR SALES BY A CERTAIN 942= SPECIFIED PERCENTAGE OR YOU REDUCE YOUR RETURNS IN A CERTAIN
943= WAY, YOU WILL BE ENTITLED TO SOME KIND OF REBATE AT THE END OF 944= THE YEAR.
945= Q. HAVE YOU EVER RECEIVED ANY INCENTIVE PAYMENTS FROM ANY OF 946= THE VENDORS THAT ARE LISTED ON EXHIBIT 2591, TAB 3 OF YOUR
947= BINDER? 948= A. WELL, YES, I HAVE.
949= Q. WHICH PARTICULAR VENDOR?
950= A. I MAY HAVE RECEIVED THEM FROM A COUPLE OF VENDORS. I 951= REMEMBER AT ONE TIME GETTING THEM FROM SIMON & SCHUSTER, AND
952= FROM BANTAM, I THINK FROM PENGUIN MASS MARKET. I MIGHT HAVE 953= BEEN GETTING THEM A LONG TIME AGO, BUT I REALLY DON'T REMEMBER
954= THE DETAILS. 955= Q. CAN YOU BALLPARK FOR ME THE PERCENTAGE OF BOOKS THAT THE
956= INCENTIVES HAVE APPLIED TO IN THE LAST SIX YEARS? 957= A. LIKE, ALL INCENTIVES?
958= Q. INCENTIVES THAT WE'VE JUST BEEN DISCUSSING. 959= A. I DON'T EVEN KNOW IF THEY'RE GOING ON NOW. IT WOULD BE
960= VERY HARD TO DO THAT. IT WOULD HAVE TO BE LESS THAN 5 PERCENT. 961= BUT ACTUALLY, I COULDN'T SAY. I JUST DON'T KNOW.
962= Q. HAVE YOU EVER RECEIVED ANY PERCENTAGE INCENTIVE FROM 963= INGRAM?
964= A. NO, I HAVE NOT. 965= Q. ARE YOU FAMILIAR WITH THE TERM "CASH DISCOUNT"?
966= A. YES, I AM. 967= Q. OKAY. CAN YOU GIVE ME AN EXAMPLE OF WHAT A CASH DISCOUNT
968= WOULD CONSIST OF? 969= A. A CASH DISCOUNTS USUALLY CONSISTS OF 1 OR 2 PERCENT, WHICH
970= YOU CAN TAKE OFF YOUR PAYMENT, IF YOU PAY YOUR BILLS QUICKLY, 971= USUALLY 10 DAYS AFTER YOU RECEIVE THE STATEMENT.
972= Q. AND HAS YOUR STORE EVER RECEIVED CASH DISCOUNT PAYMENTS 973= FROM ANY PUBLISHERS OR WHOLESALERS?
974= A. RIGHT NOW I KNOW THAT INGRAM IS THE ONLY PUBLISHER WE'RE
975= TAKING CASH DISCOUNTS FROM. 976= Q. ARE THERE PARTICULAR TERMS FROM INGRAM THAT APPLY TO THE
977= CASH DISCOUNTS THAT YOU'RE RECEIVING? 978= A. WE GET 2 PERCENT 10 E. O. M., WHICH MEANS 10 PERCENT IF WE
979= PAY 10 DAYS AFTER WE RECEIVE A STATEMENT AT THE END OF THE 980= MONTH.
981= Q. AND IS IT YOUR UNDERSTANDING THAT THIS DISCOUNT IS
14
14 Page 15 16
982= SOMETHING THAT IS UNIQUE TO CODY'S, OR IS IT GENERALLY 983= AVAILABLE TO ALL BOOKSELLERS?
984= A. IT'S AVAILABLE TO ALL BOOKSELLERS. IT'S IN THE RED BOOK. 985= Q. DO YOU EVER RECEIVE ANY CASH DISCOUNTS FROM PENGUIN?
986= A. I DON'T REMEMBER. I DON'T THINK SO. 987= Q. HOW ABOUT MACMILLAN?
988= A. I DON'T THINK SO. 989= Q. HOW DO YOU KNOW, AT ANY GIVEN TIME, WHETHER A VENDOR HAS A
990= CASH DISCOUNT AVAILABLE TO YOU? 991= A. I LOOK IT UP IN THE RED BOOK.
992= Q. WE'VE BEEN DISCUSSING TERMS WHICH AFFECT THE EVENTUAL COST 993= OR BENEFITS TO CODY'S, AND ARE THERE ANY OTHER TERMS WHICH
994= AFFECT THOSE COSTS OR BENEFITS? 995= A. SHIPPING HAS A PRETTY BIG IMPACT ON OUR COSTS, YES.
996= Q. ARE YOU TALKING SHIPPING, THE FREIGHT? 997= A. FREIGHT, YES.
998= Q. WHO PAYS FOR FREIGHT? 999= A. SOME PUBLISHERS PAY FOR FREIGHT AND SOME PUBLISHERS SHIP

1000= FREIGHT FREE. 1001= Q. AND HOW, AGAIN --
1002= A. EXCUSE ME. SOME PUBLISHERS PAY FOR FREIGHT AND SOMETIMES 1003= WE PAY FOR FREIGHT.
1004= Q. HOW DO YOU KNOW AT ANY GIVEN TIME WHICH VENDOR IS FREIGHT 1005= FREE AND WHICH ONE CHARGES FREIGHT?
1006= A. IT WOULD BE IN THE RED BOOK. 1007= Q. AND TO YOUR KNOWLEDGE, HAVE YOU EVER RECEIVED FREE FREIGHT
1008= TERMS FROM ANY VENDORS THAT WERE NOT AVAILABLE TO OTHER 1009= BOOKSELLERS?
1010= A. NO, WE HAVE RECEIVED FREE FREIGHT TERMS ON SEASONAL 1011= SPECIALS AND STOCK OFFERS, BUT NOT THAT THEY WEREN'T AVAILABLE
1012= TO OTHER BOOKSELLERS, NO. 1013= Q. AND HAS ANY VENDOR EVER PAID YOU TO SHIP YOUR BOOKS FROM
1014= ONE OF YOUR STORES TO THE OTHER STORE? 1015= A. NEVER.
1016= Q. NOW, ONCE YOU RECEIVE THE BOOKS AT EITHER OF YOUR STORES, 1017= DOES SOMEONE CHECK THE BOOKS TO DETERMINE WHETHER ALL OF THE
1018= BOOKS THAT YOU PURCHASED ARE ACTUALLY CONTAINED WITHIN THE 1019= BOXES YOU'VE RECEIVED?
1020= A. YES. 1021= Q. AND ARE THEIR SHIPMENTS ALWAYS ACCURATE?
1022= A. NO, SHIPMENTS ARE NOT ALWAYS ACCURATE AT ALL. 1023= Q. WHAT PROBLEMS HAVE YOU ENCOUNTERED TYPICALLY WITH RESPECT
1024= TO SHIPMENTS THAT YOU'VE RECEIVED FROM VENDORS?
1025= A. SOMETIMES THEY'RE --THE PRICE IS DIFFERENT ON THE BOOK 1026= THAN ON THE INVOICE. MOST FREQUENT PROBLEM WOULD PROBABLY BE
1027= SHORTAGES. THEY BILL US FOR A BOOK THAT ISN'T IN THE SHIPMENT. 1028= SOMETIMES THE BOOKS ARE SHOPWORN OR DEFECTIVE. THAT SORT OF
1029= THING IS TYPICAL. 1030= Q. WHEN YOU HAVE RECEIVED WHAT I UNDERSTAND ARE CALLED SHORT
1031= SHIPMENTS, DO YOU UNDERSTAND THAT TO MEAN WHEN BOOKS ARE NOT 1032= INCLUDED THAT YOU'VE ORDERED THAT SHOULD BE INCLUDED?
1033= A. UM, WELL, AND THAT GET BILLED TO US, YES, THAT'S A SHORT 1034= SHIPMENT.
1035= Q. AND HAVE THERE BEEN SITUATIONS IN WHICH YOU'VE RECEIVED 1036= SHORT SHIPMENTS?
1037= A. YES. 1038= Q. WHAT DO YOU DO WHEN YOU RECEIVE SHORT SHIPMENTS?
1039= A. WE FILL OUT A SHORT SHIPMENT PERFORM, WE ATTACH IT TO THE 1040= INVOICE, THEY SEND IT UP TO THE BUSINESS OFFICE, THE BUSINESS
1041= OFFICE ENTERS IT IN, THEY DATA ENTER IT IN AND THEY TRY TO 1042= COLLECT FROM THE PUBLISHER.
1043= Q. HAS YOUR STORE EVER RECEIVED A SHORTAGE ALLOWANCE FROM ANY 1044= VENDOR BASED ON AN ESTIMATE OF SHORTAGE RATHER THAN
1045= DOCUMENTATION OF THE ACTUAL SHORTAGES RECEIVED? 1046= A. NO.
1047= Q. ARE ALL OF THE BOOKS THAT YOU PURCHASE RETURNABLE BOOKS? 1048= A. NO, BUT ALMOST ALL OF THEM ARE.
1049= Q. WHAT ARE THE ONES THAT AREN'T?
1050= A. I BELIEVE THERE IS --TRYING TO THINK OF ONE PUBLISHER WE 1051= MAY PURCHASE FROM NON-RETURNABLE, BECAUSE IT'S --THEY GIVE A
15
15 Page 16 17
1052= VERY DESIRABLE DISCOUNT. I BELIEVE IT'S O'REILLY. AND ALSO 1053= PUBLISHERS SELL NEW TITLES FROM TIME TO TIME, VERY RARELY,
1054= USUALLY VERY EXPENSIVE ART BOOKS, ON A NON-RETURNABLE BASIS. 1055= OTHER THAN THAT, WE MOSTLY BUY RETURNABLE.
1056= Q. WHEN YOU'RE PURCHASING THEM, YOU KNOW AT THAT TIME WHETHER 1057= THEY ARE RETURNABLE OR NON-RETURNABLE, IS THAT CORRECT?
1058= A. YES. 1059= Q. WHAT IS TYPICALLY THE DIFFERENCE, IF THERE IS ONE, IN THE
1060= PRICING TO CODY'S FROM A RETURNABLE VERSUS A NON-RETURNABLE 1061= BOOK?
1062= A. WELL, I KNOW THAT MANY PUBLISHERS HAVE NON-RETURNABLE 1063= DISCOUNTS, AND USUALLY THERE'S A 2 OR 3 PERCENT DISCOUNT
1064= ADVANTAGE PURCHASING NON-RETURNABLE. 1065= Q. WITH RESPECT TO RETURNABLE BOOKS THAT YOU'VE PURCHASED,
1066= HAVE YOU EVER RECEIVED CREDIT FROM ANY VENDOR FOR RETURNING THE 1067= BOOKS?
1068= A. FOR RETURNABLE BOOKS? 1069= Q. YES.
1070= A. YES. 1071= Q. HAS YOUR STORE --EITHER OF YOUR STORES EVER DEDUCTED FOR
1072= RETURNED BOOKS OFF AN INVOICE BEFORE YOU'D ACTUALLY SHIPPED 1073= THOSE BOOKS BACK TO THE VENDOR?
1074= A. NO.
1075= Q. HAVE YOU EVER RECEIVED ANY INCENTIVE OR ALLOWANCE FOR 1076= COMBINING THE BOOKS THAT YOU'RE GOING TO BE RETURNING FROM YOUR
1077= TWO STORES? 1078= A. NO.
1079= Q. NOW, WITH RESPECT TO OUT-OF-PRINT BOOKS, DO YOU HAVE AN 1080= UNDERSTANDING WITH RESPECT TO WHETHER OUT-OF-PRINT BOOKS ARE
1081= TYPICALLY RETURNABLE OR NOT? 1082= A. FROM ONE OR TWO PUBLISHERS, YOU MAY BE ABLE TO RETURN
1083= OUT-OF-PRINT BOOKS. FOR MOST PUBLISHERS THEY ARE NOT 1084= RETURNABLE.
1085= Q. AT ANY GIVEN TIME, ARE YOU ALWAYS AWARE OF WHETHER AN 1086= OUT-OF-PRINT --WHETHER A BOOK IS OUT OF PRINT?
1087= A. IT'S SOMETIMES DIFFICULT TO DETERMINE. IT'S PRINTED ON A 1088= FOOTNOTE IN PUBLISHERS WEEKLY WHEN THEY PUT A BOOK OUT OF
1089= PRINT. 1090= Q. HAVE YOU EVER ATTEMPTED TO RETURN WHAT YOU LEARNED TO BE AN
1091= OUT-OF-PRINT BOOK? 1092= A. YOU MEAN --
1093= Q. BEFORE OR AFTER UNDERSTANDING THAT IT WAS OUT OF PRINT. 1094= A. FREQUENTLY, WE JUST DON'T KNOW. WE JUST RETURN BOOKS AND
1095= WE FIND OUT LATER IF THEY'RE OUT OF PRINT. 1096= Q. HOW DO YOU FIND OUT LATER?
1097= A. THEY DON'T GIVE US CREDIT. 1098= Q. HAVE YOU EVER RECEIVED CREDIT FROM A VENDOR FOR THE RETURN
1099= OF AN OUT-OF-PRINT BOOK?
1100= A. IF THE VENDOR PERMITS THE RETURN OF AN OUT-OF-PRINT BOOK, 1101= WE GET CREDIT, BUT MORE OFTEN THAN NOT, THEY JUST EITHER OFFER
1102= TO SHIP THE BOOK BACK TO US AT OUR EXPENSE OR THEY JUST DON'T 1103= CREDIT IT, THROW IT AWAY.
1104= Q. IS IT YOUR UNDERSTANDING THAT YOU'VE NEVER RECEIVED CREDIT 1105= FOR THE RETURN OF AN OUT-OF-PRINT BOOK FROM A VENDOR WHOSE
1106= POLICY IT WAS TO NOT ALLOW THE RETURN OF OUT-OF-PRINT BOOKS? 1107= A. NO, WE HAVE NOT.
1108= Q. ANY VENDORS THAT, ON THE LIST THAT I'M REFERRING TO, TAB 3, 1109= THAT IMPOSE RETURN PENALTIES ON CODY'S?
1110= A. WELL, INGRAM, AND I BELIEVE ALL THE WHOLESALERS HAVE RETURN 1111= PENALTIES.
1112= Q. WHAT DO THESE PENALTIES CONSIST OF, TYPICALLY? 1113= A. INGRAM IS --I BELIEVE THEY ALLOW YOU TO RETURN BOOKS
1114= PURCHASED AT INGRAM AT 50 PERCENT. SO IF WE PURCHASE THE BOOK 1115= AT 41 PERCENT, THEY WOULD CREDIT US AT 50 PERCENT. THAT'S A
1116= PRETTY STIFF PENALTY. PLUS THEY ONLY PERMIT RETURNS UP TO A 1117= CERTAIN PERCENTAGE OF ALL PURCHASES DURING THE YEAR. AFTER
1118= THAT, THEY WON'T ACCEPT THEM. 1119= Q. HAS INGRAM EVER WAIVED THAT RETURN PENALTY FOR YOU?
1120= A. NO. 1121= Q. HAVE ANY OF THE VENDORS THAT YOU'RE FAMILIAR WITH FROM TAB
1122= 3 WHO HAVE RETURN POLICIES EVER WAIVED THEIR REQUIREMENTS?
16
16 Page 17 18
1123= A. CAN I GO BACK TO YOUR PREVIOUS QUESTION? 1124= Q. YES.
1125= A. I BELIEVE THAT IN THE VENDOR OF RECORD PROGRAM, THEY WAIVE 1126= THE RETURN PENALTIES, INGRAM DOES.
1127= Q. AND AGAIN, THE VENDOR OF RECORD PROGRAM IS ONE THAT YOU 1128= UNDERSTAND IS NOT UNIQUE TO CODY'S BUT IS AVAILABLE TO OTHER
1129= BOOKSELLERS AS WELL, IS THAT CORRECT? 1130= A. THAT'S CORRECT, YES.
1131= Q. SO WITH RESPECT TO THE WAIVER OF ANY PENALTIES FROM ANY OF 1132= THE VENDORS, HAVE YOU EVER RECEIVED ANY WAIVER THAT YOU
1133= UNDERSTOOD WAS UNIQUE TO CODY'S AND NOT AVAILABLE TO OTHER 1134= PEOPLE UNDER, FOR INSTANCE, THE VENDOR OF RECORD PROGRAM?
1135= A. NO. 1136= Q. DO YOU HAVE A PREFERENCE WITH RESPECT TO HOW BOOKS ARE
1137= SHIPPED TO YOUR STORES? 1138= A. YOU MEAN SHIPPING COMPANIES OR CONDITION?
1139= Q. PACKAGING? 1140= A. PACKAGING? WELL, WE LIKE THEM PACKAGED IN STURDY CARTONS.
1141= WE LIKE THEM TO USE CERTAIN TYPES OF --WHAT DO THEY CALL 1142= THEM --STUFFING THAT'S EASY TO DEAL WITH. WE LIKE INVOICES TO
1143= BE IN THE BOXES; WE LIKE THEM TO BE READABLE. WE LIKE THE 1144= BOOKS THAT HAVE PRICES PRE-PRINTED ON THEM, YES.
1145= Q. HAVE VENDORS ALWAYS FOLLOWED YOUR PREFERENCES? 1146= A. NO, THEY NEVER FOLLOW OUR PREFERENCES.
1147= Q. HAVE YOU EVER CHARGED A PUBLISHER OR RECEIVED A CREDIT FROM 1148= A PUBLISHER OR ANY OTHER VENDOR BECAUSE THAT VENDOR DID NOT
1149= COMPLY WITH YOUR SHIPPING PREFERENCES?
1150= A. NO, WE HAVE NOT. 1151= Q. FROM TIME TO TIME I ASSUME THAT CODY'S HAS HAD DISPUTES
1152= WITH VENDORS RELATING TO A VARIETY OF THINGS HAVING TO DO WITH 1153= THE BOOKS THAT HAVE BEEN SOLD TO CODY'S. IS THAT ACCURATE?
1154= A. YES. 1155= Q. TYPICALLY WHEN YOU HAVE A DISPUTE WITH THE VENDORS RELATING
1156= TO THE AMOUNT OF MONEY THAT CODY'S OWES TO THAT VENDOR, WHAT 1157= PROCESS DO YOU GO THROUGH TO REACH A CONCLUSION WITH RESPECT TO
1158= THAT DISPUTE? 1159= A. IT'S USUALLY BASED ON AN INVOICE THAT WE THINK --OUR
1160= RECORDS SHOW WE NEVER RECEIVED AND THEIR RECORDS SHOW THEY 1161= SHIPPED. SO THE FIRST THING WE DO IS ASK THEM TO SEND US A
1162= COPY OF THE INVOICE ALONG WITH PROOF OF DELIVERY, AND IF THEY 1163= DO THAT, AND THIS HAPPENS IN MOST OF THE SITUATIONS, WE WILL
1164= PAY THE BILL. IF THEY DON'T, WE WILL CLAIM WE NEVER RECEIVED 1165= IT AND WE WILL TELL THEM WE DON'T THINK WE SHOULD PAY IT.
1166= Q. HAVE THERE EVER BEEN SITUATIONS IN WHICH A PUBLISHER, 1167= ABSENT THAT KIND OF DOCUMENTATION, HAS SIMPLY SAID, IN EFFECT,
1168= WE'LL FORGIVE YOU FOR THIS DISPUTED AMOUNT? 1169= A. YOU KNOW, THERE'S REALLY ONLY TWO SITUATIONS, THOSE WHICH
1170= WE --WHERE THEY CAN'T PROVIDE PROOF OF DELIVERY AND THOSE 1171= WHERE THEY CAN. COULD YOU REPEAT THE QUESTION? I DON'T THINK
1172= I --1173= Q. I'M SIMPLY WONDERING, WHERE YOU HAVE A DISPUTE WITH A
1174= PUBLISHER OR VENDOR --
1175= A. YES. 1176= Q. --RELATING TO THE AMOUNT OF MONEY THAT YOU OWE THEM,
1177= WHETHER THEY'VE EVER JUST SAID TO YOU, DON'T WORRY ABOUT IT, 1178= WE'LL JUSCould not acquire words on page 18 T FORGIVE THIS AMOUNT?
1179= A. NO, THAT ISN'T WHAT HAPPENS. 1180= Q. ARE YOU FAMILIAR WITH THE TERM "COOPERATIVE ADVERTISING"?
1181= A. YES, I AM. 1182= Q. AND DO YOU PLACE ADVERTISEMENTS FOR YOUR STORE IN PRINT
1183= MEDIA? 1184= A. YES, WE DO.
1185= Q. DID YOU AT SOME POINT COME TO AN UNDERSTANDING THAT CERTAIN 1186= VENDORS WERE OFFERING COOPERATIVE ADVERTISING MONEY?
1187= A. YES, I'M PRETTY MUCH AWARE OF CO-OP ADVERTISING. 1188= Q. AND HAVE YOU EVER, INDEED, RECEIVED ANY COOPERATIVE
1189= ADVERTISING MONEY FROM ANY VENDORS? 1190= A. YES, I HAVE.
1191= Q. DO YOU HAVE A MEMORY, AS YOU SIT HERE TODAY, OF WHEN YOU 1192= FIRST RECEIVED COOPERATIVE ADVERTISING?
17
17 Page 18 19

18 Page 19 20
1263= A. I'M NOT AWARE OF THAT. 1264= Q. HAVE YOU EVER RECEIVED INFORMATION FROM INGRAM RELATING TO
1265= A VISITING AUTHORS PROGRAM? 1266= A. I'VE HEARD OF IT. I DON'T REALLY REMEMBER VERY MUCH ABOUT
1267= IT. I THINK I HEARD OF IT IN THE 80'S OR EARLY 90'S. IT 1268= DIDN'T SEEM TO WORK VERY WELL FOR US.
1269= MR. DAWSON: THANK YOU. NO FURTHER QUESTIONS. 1270= THE COURT: ALL RIGHT, CROSS-EXAMINATION.
1271= MR. PETROCELLI: I'M GOING TO BE HANDING THE 1272= WITNESS, YOUR HONOR, A NOTEBOOK SIMILAR TO YOURS.
1273= THE COURT: ALL RIGHT. 1274= MR. PETROCELLI: YOUR HONOR, I'M ALSO HANDING UP THE

1275= THREE-VOLUME DEPOSITION IN THE EVENT THAT I NEED TO REFER TO 1276= IT.
1277= CROSS-EXAMINATION 1278= BY MR. PETROCELLI:
1279= Q. GOOD MORNING, MR. ROSS. 1280= A. GOOD MORNING, MR. PETROCELLI.
1281= MR. DAWSON: YOUR HONOR, BEFORE WE GET STARTED, I'D 1282= LIKE TO GET THE BINDER THEY'RE GOING TO BE USING WITH MR. ROSS.
1283= THE COURT: YES. 1284= MR. PETROCELLI: OKAY, WE'RE SET.
1285= THE COURT: ALL RIGHT, YOU MAY PROCEED. 1286= BY MR. PETROCELLI:
1287= Q. NOW, MR. ROSS, YOU DO NEGOTIATE FOR THE BEST TERMS YOU CAN 1288= GET, CORRECT?
1289= A. I TRY TO GET THE BEST TERMS I CAN GET, YES, SIR. 1290= Q. AND SO YOU HAVE NO PROBLEM AS A MEMBER OF THE ABA
1291= NEGOTIATING FOR TERMS, CORRECT? 1292= A. NO.
1293= Q. AND THERE IS NO ABA RULE OR RESTRICTION AGAINST MEMBERS 1294= NEGOTIATING FOR TERMS, CORRECT?
1295= A. NO. 1296= Q. AND AS A MEMBER OF THE --WELL, WITHDRAW. NOW, YOU
1297= INDICATED THAT YOU WILL NEGOTIATE FOR THE BEST TERMS, BUT THAT 1298= WHERE YOU DRAW THE LINE IS, YOU WON'T NEGOTIATE FOR ANY
1299= EXCLUSIVE CODY'S-ONLY TERMS, CORRECT?
1300= A. I WOULDN'T SAY I WOULDN'T DO IT. I JUST SAY THAT IT'S 1301= JUST --IT'S NEVER HAPPENED. YEAH.
1302= Q. WELL, IN ANSWER TO THE JUDGE'S QUESTION ABOUT, WHY DON'T 1303= YOU NEGOTIATE CODY'S-ONLY DEALS, YOU'RE SAYING, IT'S NOT THAT
1304= YOU WOULDN'T DO IT, IT'S JUST THAT THE OCCASION HASN'T ARISEN. 1305= IS THAT YOUR TESTIMONY?
1306= A. YES. 1307= Q. WHEN YOU ARE NEGOTIATING, SIR, FOR THE BEST TERM AVAILABLE,
1308= AND YOU GET WHAT YOU THINK IS THE BEST TERM AVAILABLE, DO YOU 1309= DO ANYTHING TO VERIFY WHETHER EVERY OTHER BOOKSELLER IS GETTING
1310= THE SAME DEAL YOU'RE GETTING? 1311= A. NO.
1312= Q. AND I TAKE IT BY YOUR ANSWER, THEN, THAT YOU ASK FOR NO 1313= PROOF, NO VERIFICATION FROM THE PUBLISHER OR THE VENDOR WHETHER
1314= YOUR DEAL IS BEING MADE AVAILABLE TO ANYBODY ELSE, CORRECT? 1315= A. IN MOST SITUATIONS I KNOW THAT THESE DEALS ARE GENERALLY
1316= AVAILABLE. 1317= Q. MY QUESTION IS WHETHER YOU ASK FOR ANY VERIFICATION --
1318= A. NO. 1319= Q. --FROM THE PUBLISHER.
1320= A. NO. 1321= Q. AND AS YOU INDICATED AND AS WE --WE'LL GET INTO, YOU'RE
1322= VERY AGGRESSIVE ABOUT GETTING TERMS, CORRECT? 1323= A. WELL, YES, I THINK I AM.
1324= Q. OKAY. NOW, LET'S TALK ABOUT HOW YOU DO GET THOSE TERMS.
1325= A. YEAH. 1326= Q. BEFORE I DO GO THERE, LET ME ASK YOU SOMETHING ELSE ON THIS
1327= ISSUE OF NEGOTIATION. YOU HAVE EVEN ASKED PUBLISHERS, IN 1328= CONDUCTING NEGOTIATIONS, TO MEET COMPETITION FROM OTHER
1329= PUBLISHERS, CORRECT? 1330= A. I'VE DONE IT RARELY, BUT I'VE DONE IT, YES.
1331= Q. OKAY, AND SO WHEN YOU DO SO, YOU REALIZE WHEN YOU'RE 1332= GETTING THE PRICE FROM THE PUBLISHER WITH WHOM YOU'RE
19
19 Page 20 21
1333= NEGOTIATING THAT YOU'RE GETTING A PRICE THAT'S, FOR EXAMPLE, 1334= NOT IN THE RED BOOK.
1335= A. THAT'S POSSIBLE, YES. 1336= Q. AND YOU THINK IT'S APPROPRIATE, IN CONDUCTING YOUR
1337= BUSINESS, TO NEGOTIATE ON A MEETING-COMPETITION BASIS. YOU 1338= DON'T SEE ANYTHING WRONG WITH THAT, CORRECT?
1339= A. NO, NOT REALLY. 1340= Q. OKAY. SO I TAKE IT, THEN, THAT YOU DO NOT AGREE WITH THE
1341= VIEW THAT A PUBLISHER SHOULD NOT DEVIATE FROM ITS PUBLISHED 1342= TERMS, EVEN IF THE PUBLISHER IS TOLD BY ITS CUSTOMERS THAT ITS
1343= TERMS ARE NOT COMPETITIVE WITH THE TERMS OF OTHER PUBLISHERS. 1344= I TAKE IT YOU DON'T AGREE WITH THAT.
1345= A. WELL, I THINK PUBLISHERS SHOULD BE FAIR AND CONSISTENT WITH 1346= THE LAW, BUT, YOU KNOW, I TRY TO FOLLOW THE LAW.
1347= Q. LISTEN TO MY QUESTION. 1348= A. I DIDN'T UNDERSTAND IT. GO AHEAD.
1349= Q. OKAY, FAIR ENOUGH. MY QUESTION WAS, YOU DO NOT AGREE WITH
1350= THE VIEW THAT A PUBLISHER SHOULD NOT DEVIATE FROM ITS PUBLISHED 1351= TERMS, EVEN IF THE PUBLISHER IS TOLD BY ITS CUSTOMERS THAT
1352= THOSE TERMS ARE NOT COMPETITIVE WITH OTHER PUBLISHERS' TERMS. 1353= A. WELL, IF THEY'RE NOT --I BELIEVE, IN MEETING THE
1354= COMPETITION, IF THAT'S APPROPRIATE, SURE. 1355= Q. AND WOULD YOUR ANSWER BE THE SAME IF I TOLD YOU THAT THE
1356= VIEW THAT I JUST READ TO YOU WAS THE VIEW OF YOUR OWN INDUSTRY 1357= EXPERT, GAIL SEE?
1358= A. WOULD I BE --1359= Q. WOULD YOUR OPINION CHANGE IF I TOLD YOU THAT WAS HER VIEW?
1360= A. WELL, I ALWAYS ADMIRED AND RESPECT GAIL SEE. I DON'T KNOW. 1361= Q. YOU DON'T KNOW?
1362= A. OH --1363= Q. DO YOU REALIZE THAT THAT IS THE VIEW OF YOUR EXPERT
1364= WITNESS, YOUR INDUSTRY EXPERT WITNESS, THAT IT IS NOT 1365= APPROPRIATE --
1366= A. I DO NOT KNOW HER OPINIONS, NO. I HAVEN'T HEARD HER 1367= TESTIMONY.
1368= Q. OKAY. AND IF SHE GIVES THAT TESTIMONY LATER ON TODAY, YOU 1369= CERTAINLY WOULD DISAGREE WITH IT, CORRECT?
1370= A. I'M GETTING KIND OF CONFUSED. 1371= Q. WELL, LET'S TURN TO ANOTHER SUBJECT.
1372= A. OKAY. 1373= Q. RED BOOK TERMS. YOU AGREE THAT THE RED BOOK DOES NOT
1374= CONTAIN ALL THE OPERATIVE PURCHASE TERMS THAT GOVERN
1375= BOOKSELLERS' PURCHASES FROM PUBLISHERS AND VENDORS, CORRECT? 1376= A. CORRECT.
1377= Q. AND YOU'VE INDICATED THERE ARE A VARIETY OF OTHER MEANS AND 1378= WAYS IN WHICH TERMS GET COMMUNICATED, CORRECT?
1379= A. YES. 1380= Q. AND THEY INCLUDE STOCK OFFERS, CORRECT?
1381= A. THAT'S RIGHT. 1382= Q. AND BY THE WAY, WHEN WE TALK ABOUT STOCK OFFERS, STOCK
1383= OFFERS COME THEMSELVES IN A VARIETY OF WAYS, AREN'T THEY? 1384= A. YES.
1385= Q. THERE ARE SEASONAL STOCK OFFERS, RIGHT? 1386= A. YES.
1387= Q. THERE'S HOLIDAY STOCK OFFERS, RIGHT? 1388= A. YES.
1389= Q. BACK TO SCHOOL? 1390= A. YES.
1391= Q. OKAY, AND A STOCK OFFER IS WHEN A PUBLISHER WANTS TO PUSH A 1392= PARTICULAR LINE OR TYPE OF BOOKS, RIGHT?
1393= A. USUALLY, YES. 1394= Q. MOVE SOME INVENTORY, RIGHT?
1395= A. YES. 1396= Q. AND THEY OFFER PRICES THAT ARE NOT IN THE RED BOOK IN THOSE
1397= OCCASIONS, CORRECT? 1398= A. YES.
1399= Q. THEY OFFER PRICES THAT ARE DIFFERENT FROM THEIR PRICE
1400= SCHEDULES, RIGHT? 1401= A. YES.
1402= Q. WHEN YOU GET STOCK OFFERS, DO YOU KEEP THE STOCK OFFER
20
20 Page 21 22
1403= DOCUMENTS IN ORDER TO PROVE THAT SOME PRICE THAT YOU PAID THAT 1404= WAS NOT ACCORDING TO THE RED BOOK CAN BE DOCUMENTED?
1405= A. NO. 1406= Q. AND INDEED, NOT ALL STOCK OFFERS EVEN COME IN WRITING, DO
1407= THEY? 1408= A. MOST OF THEM DO. THERE MAY BE AN EXCEPTION TO THAT,
1409= THOUGH, I DON'T KNOW. 1410= Q. I WAS LISTENING CAREFULLY TO YOUR DIRECT EXAMINATION, AND
1411= YOU KEPT USING WORDS LIKE "USUALLY" AND "TYPICALLY" THEY'RE 1412= COMMUNICATED IN WRITING, AND I TOOK FROM YOUR ANSWER THAT THAT
1413= MEANT THAT SOMETIMES THEY'RE NOT IN WRITING, THEY'RE VERBALLY 1414= COMMUNICATED. CORRECT?
1415= A. THEY COULD BE. I DON'T REALLY KNOW. 1416= Q. AND INDEED, WHEN THEY ARE VERBALLY COMMUNICATED, THE ONLY
1417= EVIDENCE THAT ONE WOULD HAVE ABOUT THE TERMS OF THAT PARTICULAR 1418= STOCK OFFER WOULD BE CONTAINED IN THE INVOICE ITSELF, CORRECT?
1419= A. WELL, YOU'RE --HYPOTHETICALLY, YES. BUT SIR, I DON'T 1420= REMEMBER ANY THAT WERE JUST VERBALLY COMMUNICATED. I JUST
1421= DON'T KNOW. 1422= Q. NOW, STOCK OFFERINGS AND OTHER PUBLISHER OFFERINGS OUTSIDE
1423= OF THEIR ORDINARY PRICE SCHEDULES ARE ALSO COMMUNICATED, FOR 1424= EXAMPLE, IN TRADE SHOWS, CORRECT?

1425= A. YES. 1426= Q. AND YOU ATTEND THE NORTHERN CALIFORNIA INDEPENDENT
1427= BOOKSELLERS ASSOCIATION, NCIBA, TRADE SHOW FROM TIME TO TIME? 1428= A. YES.
1429= Q. OR REPRESENTATIVES OF YOUR COMPANY? BY THE WAY, YOUR 1430= COMPANY IS A CORPORATION, RIGHT?
1431= A. CORRECT. 1432= Q. AND YOU ARE THE SOLE STOCKHOLDER, CORRECT?
1433= A. THAT IS TRUE. 1434= Q. AND AT THE NCIBA TRADE ASSOCIATION SHOW, STOCK OFFERS ARE
1435= OFFERED THERE BY NUMEROUS VENDORS, CORRECT? 1436= A. RIGHT.
1437= Q. AND YOU HAVE PARTICIPATED FROM TIME TO TIME IN VOLUME 1438= DISCOUNT PROGRAMS, AS WELL, CORRECT?
1439= A. WHAT DO YOU MEAN BY VOLUME DISCOUNT PROGRAMS? ALL 1440= PUBLISHERS HAVE VOLUME DISCOUNTS, YES.
1441= Q. BEYOND WHAT'S IN THE PUBLISHED TERMS? 1442= A. HOW IS THAT DIFFERENT THAN A STOCK OFFER? I'M SORRY, I'M
1443= NOT SUPPOSED TO ASK YOU QUESTIONS, BUT --1444= Q. YOU'VE RECEIVED OFFERINGS FROM TIME TO TIME THAT THE MORE
1445= YOU BUY, THE LESS YOU PAY, CORRECT? 1446= A. YES, THAT'S TRUE, WE HAVE.
1447= Q. AND YOU'VE ALSO RECEIVED NEW STORE OPENING TERMS NOT 1448= CONTAINED IN PUBLISHERS' PRICE SCHEDULES, CORRECT?
1449= A. WHEN WE OPENED OUR NEW STORE, WE MAY HAVE GOTTEN A FEW --A
1450= FEW EXTENDED DAY PROGRAMS, I THINK. 1451= Q. AN EXTENDED DAY PROGRAMS MEANS WHAT?
1452= A. YOU CAN PAY IN LONGER THAN 30 DAYS. 1453= Q. AND THAT'S WHEN YOU OPENED THE FOURTH STREET STORE?
1454= A. FOURTH STREET STORE. 1455= Q. IN 1997.
1456= A. YES. 1457= Q. IN NOVEMBER, RIGHT?
1458= A. THAT'S CORRECT. 1459= Q. OKAY. AND THERE ARE NUMEROUS OCCASIONS WHEN YOU, CODY'S,
1460= DOES NOT PAY FOR BOOKS ON THE TERMS THAT ARE IN THE RED BOOK, 1461= CORRECT?
1462= A. WELL, I'D STILL SAY THAT THE VAST MAJORITY OF TERMS ARE 1463= CONSISTENT WITH THE RED BOOK, BUT THERE ARE EXAMPLES AND
1464= PROBABLY NUMEROUS EXAMPLES, WHICH ARE DIFFERENT THAN THE BOOK, 1465= YES.
1466= Q. I THINK YOU SAID AT LEAST 10 PERCENT ARE STOCK OFFERS 1467= ALONE, CORRECT?
1468= A. WELL, NO MORE THAN 10 PERCENT. 1469= Q. WELL, LET ME ASK YOU ABOUT A FEW OTHER INVOICES.
1470= AND I'M GOING TO NOW TURN TO THE BOOK THAT YOU HAVE 1471= IN FRONT OF YOU, YOUR HONOR. THE FIRST ONE WOULD BE EXHIBIT
1472= 6503. TO TRY TO SPEED THIS UP, YOUR HONOR, WHAT WE HAVE DONE 1473= FOR BOTH YOU AND THE WITNESS IS HIGHLIGHTED THE --SOME OF THE
21
21 Page 22 23
1474= MATERIAL, AND THEN ALSO WE PUT A COPY OF THE APPLICABLE RED
1475= BOOK PAGE THAT PERTAINS TO THE INVOICE PERIOD OF TIME, AND WE 1476= HAVE TABBED THAT, SO THAT YOU CAN EASILY TURN TO IT. THAT'S
1477= WHAT THAT TAB IS, YOUR HONOR. 1478= THE COURT: ALL RIGHT.
1479= BY MR. PETROCELLI: 1480= Q. OKAY, SO LOOKING AT EXHIBIT 6503, DO YOU HAVE THAT?
1481= A. YES, I DO. 1482= Q. OKAY, NOW, THERE'S A SITUATION WHERE YOU'RE GETTING
1483= 50 PERCENT DISCOUNT IN 1996 IN OCTOBER FOR TRADE BOOKS, 1484= CORRECT?
1485= A. THAT IS CORRECT. 1486= Q. OKAY, AND IF YOU LOOK TO THE APPLICABLE RED BOOK PAGE,
1487= WHICH IS IN THE SAME TAB, SIR, IN THE SAME TAB --1488= A. RIGHT.
1489= Q. --YOU'LL SEE IT'S RIGHT BEHIND THERE. 1490= A. UM-HUM.
1491= Q. AND YOU'LL SEE THAT THE APPLICABLE RATE THERE IS, WHAT, 1492= 47 PERCENT, CORRECT?
1493= A. CORRECT. 1494= Q. OKAY. AND THERE'S NOTHING --BY LOOKING AT THIS RED BOOK
1495= PAGE, YOU CAN'T DETERMINE THAT YOU PAID --YOU GOT A 50 PERCENT 1496= DISCOUNT AS OPPOSED TO A 47 PERCENT DISCOUNT, CORRECT?
1497= A. NOT FROM THE RED BOOK, NO. 1498= Q. YOU COULD TELL FROM THE INVOICE, THOUGH.
1499= A. THAT IS TRUE.
1500= Q. AND BY THE WAY, I THINK YOU ANSWERED THIS, BUT, YOU DON'T 1501= SAVE THE STOCK OFFERS THAT SUPPORT THE HIGHER DISCOUNT AND FILE
1502= THEM WITH YOUR INVOICES, DO YOU? 1503= A. NO.
1504= Q. OKAY, LET'S TURN TO THE NEXT ONE, WHICH IS --AND THEY 1505= SHOULD BE IN ORDER, THERE --EXHIBIT 6504.
1506= A. YES, SIR. 1507= Q. OKAY, THAT'S A OCTOBER 20 --AN OCTOBER, 1997 --OCTOBER,
1508= 1997 INVOICE. DO YOU SEE THAT? AND THERE'S 52 PERCENT 1509= DISCOUNTS THERE.
1510= A. YES. 1511= Q. AND IF YOU GO TO THE RED BOOK PAGE, YOU'LL SEE THE
1512= APPLICABLE RATES. 1513= AND BY THE WAY, WE ACTUALLY COUNTED UP THE NUMBER OF
1514= UNITS ORDERED, AND IT COMES TO 432 TITLES --432 UNITS, I 1515= SHOULD SAY. SO ASSUMING THAT IT'S 432, THE APPLICABLE RATE
1516= WOULD HAVE BEEN WHAT, SIR, BETWEEN --1517= A. YOU KNOW, I'M SORRY, BUT, YOU KNOW, THIS IS --MACMILLAN
1518= HAD BECOME AT THAT TIME A VERY COMPLICATED PUBLISHER, AND THEY 1519= MAY HAVE HAD SEPARATE DISCOUNTS FOR COMPUTER BOOKS. IT MAY
1520= HAVE EVEN BEEN A SEPARATE COMPUTER --1521= Q. THIS IS THE COMPUTER.
1522= A. THIS IS COMPUTER. 1523= Q. YES, I HAVE PUT IN FRONT OF YOU THE RED BOOK PAGE FOR THE
1524= COMPUTER PUBLISHING IMPRINT, AND YOU'LL SEE THAT FOR ORDERS
1525= UNDER 500 IT'S 46 PERCENT, AND FOR ORDERS OF 500 OR MORE IT'S 1526= 48 PERCENT.
1527= A. I SEE THAT, YES, SIR. 1528= Q. OKAY. AND YOU GOT 52 PERCENT.
1529= A. AND I SEE THAT, TOO, YES. 1530= Q. AND AGAIN, YOU CANNOT TELL WHAT PRICE YOU WOULD HAVE PAID,
1531= OR DID PAY, I SHOULD SAY, FOR THE ORDER BY JUST LOOKING AT THE 1532= RED BOOK TERMS, CORRECT?
1533= A. THAT'S CORRECT. 1534= Q. LET'S TURN TO THE NEXT ONE, EXHIBIT 6505. THERE YOU SEE AN
1535= APRIL '95 INVOICE, AND I BELIEVE YOUR COUNSEL SHOWED YOU THIS 1536= ONE ON DIRECT EXAMINATION.
1537= A. YES. 1538= Q. AND HE ASKED YOU ABOUT THE 50 PERCENT DISCOUNT, AND I THINK
1539= YOU SAID THAT COMPUTER BOOKS ARE TYPICALLY PRICED AT 1540= 50 PERCENT. DO YOU SEE THAT?
1541= A. SOMETIMES THEY'RE PRICED THAT WAY, YES. 1542= Q. AND GO TO THE APPLICABLE RED BOOK PAGE FOR MACMILLAN
1543= COMPUTER PUBLISHING.
22
22 Page 23 24
1544= A. YES. 1545= Q. AND YOU'LL SEE THAT THE DISCOUNT RATE IS NOT 50 PERCENT FOR
1546= COMPUTER BOOKS, BUT 45 PERCENT. DO YOU SEE THAT? 1547= A. I SEE THAT.
1548= Q. OKAY. AND AGAIN, BY LOOKING AT THE RED BOOK, YOU COULD NOT 1549= TELL WHAT YOU ACTUALLY PAID FOR THE BOOKS.

1550= A. THAT'S CORRECT. 1551= Q. TURN TO EXHIBIT 6506, NEXT ONE, AND THAT'S A MCGRAW-HILL
1552= INVOICE, CORRECT? 1553= A. RIGHT, THAT'S CORRECT.
1554= Q. AND THERE YOU ORDERED A TOTAL OF 64 BOOKS, AT A 52 PERCENT 1555= DISCOUNT, AND THE CORRESPONDING RED BOOK ENTRY IS 46 PERCENT,
1556= CORRECT? 1557= A. THAT IS CORRECT.
1558= Q. AND WITHOUT LOOKING AT THE INVOICES OR SOME BUSINESS RECORD 1559= THAT SUMMARIZES THE INVOICES, THERE WOULD SIMPLY BE NO WAY TO
1560= KNOW WHAT YOU ACTUALLY PAID FOR THE BOOKS, CORRECT? 1561= A. YOU'D HAVE TO LOOK AT THE INVOICE, YES.
1562= Q. DOES YOUR COMPANY HAVE SOME KIND OF BUSINESS RECORD THAT 1563= SUMMARIZES INVOICE DATA?
1564= A. WELL, WE HAVE A COMPUTER SYSTEM THAT YOU COULD GET SOME 1565= SUMMARIES, YES.
1566= Q. I'LL SHOW YOU ONE MORE, SIR, THAT'S EXHIBIT 6509, AND THEN 1567= I'LL STOP ON THE INVOICES.
1568= A. OKAY. 1569= Q. THAT'S HARPER-COLLINS, NOVEMBER 21, 1996, SHOWING A
1570= 50 PERCENT DISCOUNT. IF YOU TURN TO THE APPLICABLE RED BOOK 1571= PAGE THERE, YOU'LL SEE IT'S 45 PERCENT, AND IF YOU ORDERED
1572= ELECTRONICALLY, ANOTHER 1 PERCENT, SO THE MOST YOU COULD DERIVE 1573= WOULD BE 46 PERCENT, CORRECT?
1574= A. ACCORDING TO YOUR RED BOOK, BUT I SEEM TO REMEMBER THAT --
1575= WELL, YES, I THINK THAT'S --1576= Q. WELL, IT'S NOT MY RED BOOK, SIR, TRUST ME.
1577= (LAUGHTER.) 1578= A. IT'S MY RED BOOK, I ACCEPT. I WILL ANSWER THE QUESTION.
1579= Q. LET'S GET THAT CLEAR. 1580= A. I'LL ANSWER YOUR QUESTION. THAT IS CORRECT, SIR.
1581= Q. OKAY, NO MORE WITH THOSE INVOICES. 1582= THE COURT: ALL RIGHT, I THINK WE'LL TAKE THE
1583= MORNING RECESS. 1584= MR. PETROCELLI: OKAY, YOUR HONOR.
1585= THE COURT: TILL 10: 15. 1586= THE CLERK: ALL RISE.
1587=( RECESS TAKEN FROM 9: 58 A. M. TO 10: 20 A. M.) 1588=( CONTINUED ON FOLLOWING PAGE. NOTHING OMITTED.)
1589= 1590=
1591= 1592=
1593= 1594=
1595= 1596=
1597= 1598=
1599=
1600= THE COURT: ALL RIGHT. FURTHER CROSS-EXAMINATION. 1601= BY MR. PETROCELLI:
1602= Q. MR. ROSS, WHEN WE WERE TALKING ABOUT HOW PUBLISHERS 1603= COMMUNICATE TERMS TO BOOKSELLERS, ONE OF THE THINGS THAT HAPPENS
1604= IS THAT PUBLISHERS HAVE SALES REPS, AND SALES REPS PICK UP THE 1605= PHONE AND CALL YOU OR YOU CALL THEM, CORRECT?
1606= A. YES. 1607= Q. AND SOMETIMES YOU VISIT WITH SALES REPS, RIGHT?
1608= A. YES. 1609= Q. AND IT'S WHEN YOU'RE IN THAT INTERACTION WITH SALES REPS
1610= WHEN YOU DISCUSS TERMS, NEGOTIATE TERMS, ET CETERA, CORRECT? 1611= A. YES.
1612= Q. AND THAT'S, FOR EXAMPLE, WHEN STOCK OFFER OPPORTUNITIES MAY 1613= BE DISCUSSED, CORRECT?
23
23 Page 24 25
1614= A. YES. 1615= Q. NOW, A STOCK OFFER IS TYPICALLY 1 TO 2 PERCENT ADDITIONAL
1616= PRICE DISCOUNT, IN THAT RANGE, CORRECT? 1617= A. YES, THERE ARE DIFFERENT KINDS OF STOCK OFFERS, BUT THAT'S
1618= ONE OF THEM, YEAH, SURE. 1619= Q. WOULD YOU SAY THAT 1 TO 2 PERCENT IS A SOMEWHAT TYPICAL
1620= RANGE? 1621= A. YES.
1622= Q. OKAY. NOW, ON THE LAST EXHIBIT I SHOWED YOU, THE 1623= HARPERCOLLINS EXHIBIT, WHICH WAS 6509, THE INVOICE THERE --
1624= A. UM-HMM.
1625= Q. --NOT DEALING WITH COMPUTER BOOKS, WE SAW A --A GAP OF 1626= 5 PERCENT BETWEEN WHAT THE RED BOOK SAID, 45 PERCENT, AND WHAT
1627= WAS STATED ON THIS INVOICE, WHICH WAS 50 PERCENT? 1628= A. RIGHT.
1629= Q. AND YOU SPECULATED THAT THAT MIGHT BE A STOCK OFFER 1630= PURCHASE?
1631= A. YES. 1632= Q. THAT'D BE KIND OF HIGH FOR JUST A STRAIGHT-OUT STOCK OFFER,
1633= WOULDN'T IT? 1634= A. THERE HAVE BEEN STOCK OFFERS FOR 50 PERCENT DISCOUNT.
1635= Q. ONE OTHER EXPLANATION IS THAT THE SALES REP OFFERED A 1 TO 2 1636= PERCENT PRICE DISCOUNT ON THE STOCK OFFER, AND YOU NEGOTIATED
1637= HIM UP TO 5 PERCENT? 1638= A. NO.
1639= Q. THAT'S CERTAINLY A --1640= A. NO, I WOULD NOT.
1641= Q. --SOMETHING THAT --YOU WOULD NOT HAVE DONE THAT? 1642= A. NO. IT JUST DOESN'T HAPPEN IN OUR BUSINESS.
1643= Q. BUT YOU HAVE NO EXPLANATION LOOKING AT THE --AT THE INVOICE 1644= WHAT THAT ADDITIONAL --OR WHAT THAT ENTIRE DISCOUNT IS REALLY
1645= ATTRIBUTABLE TO, DO YOU? 1646= A. NO.
1647= Q. WOULD YOU NOT AGREE WITH ME THAT THE ONLY REALLY WAY TO FIND 1648= OUT WHAT YOUR ACTUAL PURCHASES ARE, YOUR ACTUAL PURCHASES PRICES
1649= ARE AND YOUR ACTUAL DISCOUNTS ARE, IS TO LOOK AT THE INVOICES,
1650= CORRECT? 1651= A. CORRECT.
1652= Q. AND THAT USING THE INVOICES WOULD BE THE MOST ACCURATE WAY 1653= TO COMPARE WHAT CODY'S PURCHASES AND THE PRICES THEY PAY AND THE
1654= DISCOUNTS THEY RECEIVE WITH THOSE OF BARNES & NOBLE OR BORDERS, 1655= CORRECT?
1656= A. YES. 1657= Q. HAVE YOU PREPARED A SUMMARY OF THAT INVOICE DATA TO BE
1658= PRESENTED IN COURT? 1659= A. HERE TODAY?
1660= Q. YES. 1661= A. NO.
1662= Q. YOU RECEIVE, I BELIEVE, AS WAS ELICITED ON DIRECT 1663= EXAMINATION DISCOUNTS APPLICABLE TO RETAIL DISTRIBUTION CENTERS
1664= OR RDC'S, CORRECT? 1665= A. YES.
1666= Q. AND YOU HAVE A SOMEWHAT SMALL FACILITY, CORRECT? 1667= A. YOU MEAN MY BUSINESS?
1668= Q. NO, YOUR --YOUR RDC. 1669= A. UM, WHAT DO YOU MEAN --I GUESS, YEAH, SURE.
1670= Q. BUT YOU RECEIVE THE SAME PERCENTAGE DISCOUNT THAT THE 1671= RETAILERS WITH --WITH EXTREMELY LARGE FACILITIES RECEIVE,
1672= CORRECT? 1673= A. I DON'T KNOW WHAT THEY RECEIVE.
1674= Q. IF --ASSUME IT'S RED BOOK. THE RED BOOK HAS THE SAME
1675= PERCENTAGE WHETHER IT'S A SMALL FACILITY OR A VERY, VERY LARGE 1676= FACILITY, CORRECT?
1677= A. YES. 1678= Q. AND THE ONLY FACILITY THAT HAS ANY SORT OF RDC CAPABILITY,
1679= AS YOU TESTIFIED, IS TELEGRAPH --IS FOURTH STREET, CORRECT? 1680= A. NO, NOT NECESSARILY BECAUSE ALL RDC'S DON'T REQUIRE A
1681= LOADING DOCK. 1682= Q. WELL, YOU'RE AHEAD OF ME NOW.
1683= A. OKAY.
24
24 Page 25 26
1684= Q. MY QUESTION WAS THE ONLY RDC-TYPE FACILITY THAT YOU HAVE IS 1685= AT WHAT STORE?
1686= A. I DON'T KNOW WHAT AN RDC-TYPE FACILITY --1687= Q. LOADING DOCK WAREHOUSE.
1688= A. LOCATED DOCK IS AT FOURTH STREET. 1689= Q. WAREHOUSE?
1690= A. WE DON'T HAVE A SEPARATE WAREHOUSE. 1691= Q. OKAY. SO YOU HAVE THE LOADING DOCK AT FOURTH STREET, RIGHT?
1692= A. YES. 1693= Q. AND UNDER THE TERMS OF MOST OF THE PUBLISHERS, THAT'S THE
1694= ONLY LOCATION THAT'S ELIGIBLE TO RECEIVE THE RDC DISCOUNTED 1695= SHIPMENTS, CORRECT?
1696= A. I DON'T BELIEVE THAT'S TRUE. 1697= Q. YOU GET THEM AT THE OTHER STORE AS WELL, CORRECT?
1698= A. YES. 1699= Q. EVEN THOUGH THERE'S NO LOADING DOCK THERE, CORRECT?

1700= A. YES. 1701= Q. AND YOU'VE BEEN ABLE TO TAKE ADVANTAGE OF PUBLISHER TERMS
1702= THAT PERMIT YOU TO RECEIVE THEM AT THE OTHER FACILITY, CORRECT? 1703= A. WHEN THE TERMS WARRANT IT, I CAN DO THAT, YES.
1704= Q. NOW, BANTAM DOUBLEDAY, FOR EXAMPLE, REQUIRES YOUR 1705= DISTRIBUTION CENTER TO BE A FREE-STANDING OPERATION, WHOSE
1706= PRIMARY FUNCTION IS WAREHOUSING AND DISTRIBUTION OF BOOKS, 1707= CORRECT?
1708= A. I DON'T REMEMBER THEIR SPECIFIC TERMS. I DON'T KNOW. 1709= Q. BUT WE KNOW THIS: YOUR FOURTH STREET FACILITY WHERE THE
1710= LOADING DOCK IS IS NOT A FREE-STANDING DISTRIBUTION CENTER, 1711= CORRECT?
1712= A. THAT'S CORRECT. 1713= Q. AND EVEN THOUGH IT'S NOT A FREE --AND FURTHERMORE, THE
1714= FOURTH STREET STORE'S MAIN FUNCTION IS TO SELL BOOKS. IT'S A 1715= BOOKSTORE, CORRECT?
1716= A. YES. 1717= Q. YET YOU DO RECEIVE RDC SHIPMENTS THERE FROM THE BANTAM
1718= DOUBLEDAY, CORRECT? 1719= A. I DON'T KNOW IF I RECEIVE THEM ON FOURTH STREET OR ON
1720= TELEGRAPH. I JUST DON'T KNOW RIGHT NOW. 1721= Q. WELL, LET'S TURN TO EXHIBIT 6 IN THE BINDER IN FRONT OF YOU.
1722= 'CAUSE I'M HAVING TROUBLE SEEING THESE, I'VE HANDED 1723= OUT SOME MAGNIFYING GLASSES, YOUR HONOR.
1724= THE COURT: THANK YOU.
1725= (PAUSE IN THE PROCEEDINGS.) 1726= BY MR. PETROCELLI:
1727= Q. AND I PUT THE --I PUT THE BANTAM DOUBLEDAY --I PUT THE 1728= BANTAM DOUBLEDAY RED BOOK IN FOR THE YEAR 1999 SINCE THAT'S
1729= FAIRLY CURRENT, AND YOU INDICATED ON YOUR DIRECT EXAMINATION 1730= THAT THAT IS ONE OF THE VENDORS FROM WHOM YOU BUY BOOKS,
1731= CORRECT? 1732= A. YES.
1733= Q. AND YOU WILL SEE HERE ON EXHIBIT 6 UNDER THE TERMS 1734= APPLICABLE TO RETAIL DISTRIBUTION CENTER, THAT THE REQUIREMENTS
1735= INCLUDE A FREE-STANDING OPERATION WHOSE PRIMARY FUNCTION IS 1736= WAREHOUSING AND DISTRIBUTION OF BOOKS, CORRECT? DO YOU SEE
1737= THAT? 1738= A. YES, I SEE THAT.
1739= Q. OKAY. AND YOU DON'T HAVE ANY RDC FACILITY THAT MEETS THOSE 1740= REQUIREMENTS, CORRECT? IS THAT CORRECT?
1741= A. I'D HAVE TO READ THIS CAREFULLY. WE DON'T --1742= Q. NO.
1743= A. WE --1744= Q. WELL, DO YOU HAVE ANY RDC FACILITY THAT WHOSE PRIMARY
1745= FUNCTION IS TO WAREHOUSE BOOKS, AND THAT'S FREE-STANDING? 1746= A. WE DON'T HAVE A FREE-STANDING FACILITY.
1747= Q. OKAY. 1748= A. THAT'S CORRECT.
1749= Q. SO TO THE EXTENT THAT YOU RECEIVE ANY RDC DISCOUNTS FROM
1750= BANTAM DOUBLEDAY DELL, YOU ARE DOING SO IN VIOLATION OF THEIR 1751= POLICY, CORRECT?
1752= A. I WOULD NOT ADMIT TO THAT, SIR, BECAUSE WE HAVE READ THEIR 1753= POLICIES --
25
25 Page 26 27
1754= Q. OKAY? 1755= A. --VERY CAREFULLY AND WE ARE IN COMPLIANCE. I DO NOT KNOW
1756= IF THIS IS --1757= Q. YOU WON'T --
1758= A. --OR NOT. 1759= Q. YOU HAVE NO EXPLANATION AS YOU SIT HERE ON THE STAND HOW IT
1760= IS YOU CAN RECEIVE RDC-DISCOUNTED SHIPMENTS AT YOUR FACILITY IN 1761= VIEW OF THIS STATED POLICY, CORRECT?
1762= A. THAT IS CORRECT. 1763= Q. I'M GOING TO TURN TO THE SUBJECT OF VOLUME DISCOUNTS FOR A
1764= SECOND. I ASKED YOU ABOUT VOLUME DISCOUNTS THAT YOU MAY RECEIVE 1765= FROM TIME TO TIME. YOU ALSO GIVE AS A BOOKSELLER VOLUME
1766= DISCOUNTS, CORRECT? 1767= A. WE HAVE FROM TIME TO TIME, YES.
1768= Q. AND YOU GIVE VOLUME DISCOUNTS TO CUSTOMERS BECAUSE SELLING 1769= IN VOLUME IS LESS LABOR INTENSIVE AND THUS SAVES YOU MONEY,
1770= CORRECT? 1771= A. THAT WOULD --YES.
1772= Q. LET'S TALK ABOUT A BIT ABOUT CO-OP ALLOWANCES. YOU HAVE 1773= BEEN QUITE AGGRESSIVE IN NEGOTIATING FOR CO-OP FUNDS, CORRECT?
1774= A. YES.
1775= Q. AND YOU ALSO NEGOTIATE FOR CO-OP FUNDS FOR IN-STORE DISPLAY 1776= OR PLACEMENT OF BOOKS, CORRECT?
1777= A. YES. 1778= Q. LET'S LOOK AT EXHIBIT 6520, IF YOU WOULD, PLEASE, MR. ROSS.
1779= A. 6520. 1780= Q. YES.
1781= A. THAT IT? 1782= Q. THAT WAS A MULTI-PAGE DOCUMENT. IF YOU LOOK AT THE VERY
1783= END, AFTER THE PAPER CLIP, YOU WILL SEE A LETTER FROM YOU TO 1784= AVON BOOKS DATED JANUARY 26, 1996. DO YOU SEE THAT, MR. ROSS?
1785= A. YES, I DO. 1786= Q. AND THERE YOU ARE SEEKING CO-OP ALLOWANCE FOR IN-STORE
1787= PLACEMENT FROM AVON BOOKS, CORRECT? 1788= A. IS --THE LETTER IS THIS --I'M SORRY. (REVIEWING
1789= DOCUMENT.) 1790= THAT'S WHAT IT LOOKS LIKE, YES, SIR.
1791= Q. AND AT THE TIME THAT YOU'RE ASKING FOR THIS --WELL, LET ME 1792= ASK YOU THIS: WHY DIDN'T YOU JUST GO TO THE RED BOOK AND LOOK
1793= IT UP? WHY DID YOU WRITE THIS LETTER? 1794= A. AT THE TIME IN 1996, I'M NOT AWARE THAT PLACEMENT ALLOWANCES
1795= WERE PUBLISHED IN THE RED BOOK. 1796= Q. OKAY. BUT EVEN THOUGH THEY WERE NOT PUBLISHED, YOU DID NOT
1797= BELIEVE THAT WAS AN IMPEDIMENT TO YOUR ASKING FOR CO-OP, 1798= CORRECT?
1799= A. WELL, I KNEW THAT CHAINS WERE GETTING PLACEMENT ALLOWANCE.
1800= Q. SO --AND YOU DIDN'T THINK THERE WAS ANYTHING WRONG WITH 1801= YOUR GETTING CO-OP, EVEN THOUGH IT WAS NOT A PUBLICLY STATED
1802= TERMS? 1803= A. I BELIEVE THAT IT WAS RIGHT FOR THE US TO GET WHAT WAS
1804= AVAILABLE TO THE CHAINS. 1805= Q. AND YOU KNEW OF NO REASON WHY YOU SHOULDN'T ASK FOR IT
1806= EITHER, CORRECT? 1807= A. CORRECT.
1808= Q. SO THE IDEA THAT SOMETHING IS NOT PUBLISHED ISN'T A STOP 1809= SIGN FOR YOU, IS IT?
1810= A. NO. OKAY. 1811= Q. NOW, IF YOU LOOK AT THE RED BOOK, BY THE WAY, WHICH IS THE
1812= NEXT DOCUMENT WITH THE YELLOW TAB THAT FOLLOWS THIS LETTER UNDER 1813= CO-OP ADVERTISING POLICY, IT SAYS "CONTACT THE SALES REP FOR
1814= DETAILS." DO YOU SEE THAT? 1815= A. YES.
1816= Q. AND YOU WROTE THIS LETTER, AND YOU TOLD THEM WHAT KIND OF 1817= DOCUMENTATION YOU WOULD PROVIDE IN ORDER TO SUPPORT THE CO-OP
1818= ALLOWANCE, CORRECT? 1819= A. YES.
1820= Q. AND YOU ALSO SAID THAT NO OTHER DOCUMENTATION THAN THE TYPE 1821= THAT YOU WANTED TO PROVIDE WOULD BE REQUIRED, CORRECT?
1822= A. YES. 1823= Q. SO, IN EFFECT, YOU WERE DICTATING A TERM TO AVON?
1824= A. NOT EXACTLY.
26
26 Page 27 28
1825= Q. OKAY. 1826= A. IT HAD BEEN MY UNDERSTANDING THAT THE CHAINS DID NOT PROVIDE
1827= DOCUMENTATION IN THE FORM OF, YOU KNOW, PICTURES, THINGS LIKE 1828= THAT. SO I FELT THAT WE WERE --IT WAS REASONABLE FOR US TO
1829= REQUEST THE SAME --THE SAME KINDS OF TERMS. 1830= Q. ISN'T IT TRUE THAT THE REASON WAS NOT JUST BECAUSE THE
1831= CHAINS DID IT, BECAUSE YOU DIDN'T WANT TO BE BURDENED WITH 1832= BURDENSOME DOCUMENTATION REQUIREMENTS, CORRECT?
1833= A. IT WOULD HAVE BEEN A BURDENSOME DOCUMENTATION REQUIREMENT. 1834= Q. AND THAT WAS ONE OF THE REASONS YOU WROTE THAT IN YOUR
1835= LETTER, CORRECT? 1836= A. I WOULD NOT HAVE ASKED FOR IT IF I HAD NOT HAVE KNOWN THAT
1837= OTHER PEOPLE WEREN'T BEING BURDENED BY IT AS WELL. 1838= Q. DID YOU NOT TESTIFY AT YOUR DEPOSITION THAT WHAT YOU WERE
1839= THINKING ABOUT WAS THAT YOU DIDN'T WANT TO BE BURDENED WITH 1840= BURDENSOME DOCUMENTATION EVEN IF THE PUBLISHER REQUIRED
1841= BURDENSOME DOCUMENTATION? 1842= A. THAT'S TRUE.
1843= Q. OKAY. LET'S TURN TO THE SUBJECT OF CO-OP FOR PLACEMENT WITH 1844= REGARD TO BANTAM DOUBLEDAY.
1845= A. WHERE IS THAT? IS THAT THE NEXT PAGE? 1846= Q. YEAH. LOOK AT EXHIBIT 6521.
1847= A. (REVIEWING DOCUMENTS.) 1848= Q. NOW, THERE, SIR, YOU HAVE A SIMILAR LETTER, THIS TIME TO
1849= BANTAM DOUBLEDAY, CORRECT?
1850= A. YES. 1851= Q. AND, AGAIN, YOU COULDN'T GO TO THE RED BOOK FOR THE CO-OP
1852= PLAN, CORRECT? 1853= A. I DON'T REMEMBER.
1854= Q. WASN'T IN THE RED BOOK, WAS IT? 1855= A. I DON'T REMEMBER. BUT --
1856= Q. WELL, IF IT WAS, YOU WOULD HAVE JUST FOLLOWED WHAT THE RED 1857= BOOK SAID, RIGHT?
1858= A. YES. 1859= Q. 'CAUSE YOU DON'T DEVIATE FROM THE RED BOOK, RIGHT?
1860= A. PARDON ME. 1861= Q. YOU DON'T DEVIATE FROM THE RED BOOK, DO YOU?
1862= A. WELL, I HAVE. 1863= Q. NOW, LOOK AT THE LAST --LOOK AT THE LAST PARAGRAPH OF THIS
1864= LETTER DATED JANUARY 29, 1996. IT SAYS "THIS PLAN IS COMPARABLE 1865= TO ARRANGEMENTS CURRENTLY IN PLACE WITH OTHER MAJOR PUBLISHERS
1866= INCLUDING PENGUIN U. S. A., HARPERCOLLINS AND SIMON & SCHUSTER." 1867= DO YOU SEE THAT?
1868= A. YES. 1869= Q. NOW, IN FACT, THAT WAS NOT A TRUE STATEMENT, CORRECT?
1870= A. I BELIEVE IT WAS A TRUE STATEMENT. 1871= Q. IN FACT, THOSE CO-OP ARRANGEMENTS WITH THOSE OTHER
1872= PUBLISHERS HAD NOT TAKEN PLACE AT THE TIME YOU WROTE THIS 1873= LETTER. YOU WERE TRYING TO CREATE THE IDEA THAT THERE WAS A
1874= COMPETITIVE OFFER THAT THE PUBLISHER HAD TO MATCH, WHEN, IN
1875= FACT, YOU DID NOT HAVE SUCH AN OFFER, CORRECT? 1876= A. I DON'T BELIEVE THAT'S TRUE, SIR.
1877= Q. IT IS TRUE THAT THE ARRANGEMENTS THAT YOU SAID WERE 1878= CURRENTLY IN PLACE, IN FACT, HAD NOT BEGUN UNTIL A POINT LATER
1879= IN TIME, CORRECT? 1880= A. I WOULD --I DON'T KNOW, BUT I KNOW I WOULD NOT HAVE --I
1881= WOULD NOT HAVE LIED. 1882= Q. WELL, CAN WE TURN TO PAGE 330 OF YOUR DEPOSITION. THAT'S --
1883= THAT'S RIGHT THERE. YOU HAVE TO GO TO THE VOLUME THAT HAS PAGE 1884= 330 IN IT, MR. ROSS, AND LET'S GO TO PAGES (SIC) 8 AND 9, THE
1885= BEGINNING. 1886= A. (REVIEWING DOCUMENT.)
1887= THE COURT: HE SAID TO GO TO PAGES (SIC) 8 AND 9. 1888= MR. PETROCELLI: PAGE 330, YOUR HONOR.
1889= THE COURT: OH, I SEE. 1890= MR. PETROCELLI: AND LINE --LINE 8 AND 9.
1891= THE COURT: YEAH. 1892= MR. PETROCELLI: THE QUESTION IS:
1893= "DOES THIS REFRESH YOUR RECOLLECTION THAT AS OF 1894= JANUARY 29TH, 1996, CODY WAS RECEIVING CO-OP FOR
27
27 Page 28 29
1895= PLACEMENT FROM PENGUIN U. S. A., HARPERCOLLINS AND 1896= SIMON SCHUSTER?
1897= "ANSWER: WELL, MY RECOLLECTION IS THAT IT DIDN'T 1898= BEGIN UNTIL LATER, BUT I DON'T REMEMBER THE EXACT
1899= DATES."
1900= YOU SEE THAT? 1901= A. YES.
1902= Q. OKAY. NOW, ISN'T IT --ISN'T IT TRUE THAT YOU SORT OF 1903= STRETCHED THE TRUTH IN YOUR DEALINGS WITH YOUR PUBLISHERS?
1904= A. NO. NO, SIR. 1905= Q. OKAY. CAN YOU TURN TO PAGE 331, LINES 3 TO 9?
1906= A. YES. 1907= Q.
1908= "Q. WOULD YOU HAVE MISREPRESENTED TO 1909= MR. SHAOUP AT BDD THAT YOU WERE, IN FACT,
1910= RECEIVING CO-OP FOR PLACEMENT FROM PENGUIN, 1911= HARPERCOLLINS AND SIMON & SCHUSTER?
1912= "A. NOT --NO. NO. ALTHOUGH I MIGHT 1913= HAVE --I WOULD NOT HAVE MISREPRESENTED IT --
1914= MISREPRESENTED IT. I MIGHT HAVE --I MIGHT HAVE 1915= STRETCHED IT. BUT I JUST CAN'T REMEMBER."
1916= A. SIR, I CAN --1917= Q. TURN TO EXHIBIT --
1918= A. YES. 1919= Q. --6525, PLEASE.
1920= THIS IS RANDOM HOUSE. OUT OF YOUR DEPOSITION, SIR. 1921= WE'RE NOW BACK INTO THE EXHIBIT BINDER.
1922= A. YES, SIR. 1923= Q. NOW, THIS IS AN EXAMPLE OF A LETTER YOU RECEIVED FROM RANDOM
1924= HOUSE, AND I'VE HIGHLIGHTED THE PORTIONS THAT I WANT TO DIRECT
1925= YOUR ATTENTION TO IN THE MIDDLE, WHERE IT SAYS THAT "THIS CLAIM 1926= IS BEING REIMBURSED ON A ONE TIME ONLY BASIS. IN THE FUTURE
1927= PLEASE PROVIDE THE FOLLOWING INFORMATION." AND THEY ASK FOR AN 1928= ACTUAL PHOTOGRAPH OF THE IN-STORE PLACEMENT.
1929= DO YOU SEE THAT? 1930= A. YES.
1931= Q. AND THEN YOU SUBMITTED ANOTHER CLAIM WITHOUT PROVIDING 1932= THE --THE REQUISITE DOCUMENTATION, AND THEY THEN SENT YOU
1933= ANOTHER A LETTER, CORRECT? 1934= A. YES.
1935= Q. AND IF YOU TURN TO THE NEXT EXHIBIT, YOU'LL SEE THAT LETTER. 1936= A. (REVIEWING DOCUMENT.)
1937= Q. YOU SEE THAT, SIR? 1938= A. YES.
1939= THE COURT: 6527? 1940= MR. PETROCELLI: FOR THE RECORD, THAT IS
1941= EXHIBIT 6527. 1942= THE WITNESS: RIGHT. YES.
1943= BY MR. PETROCELLI: 1944= Q. AND EVEN THOUGH YOU DIDN'T PROVIDE THE DOCUMENTATION, THEY
1945= NONETHELESS PAID YOUR CLAIM BUT TOLD YOU THAT THEY'RE NOT GOING 1946= TO DO IT AGAIN UNLESS YOU PAY THE --UNLESS YOU PROVIDE THE --
1947= A. RIGHT. 1948= Q. --THE PHOTOS, CORRECT?
1949= A. THAT'S CORRECT.
1950= Q. NOW, TURN TO EXHIBIT 6528. AND ONCE AGAIN, YOU MAKE A CLAIM 1951= WITHOUT PROVIDING THE DOCUMENTATION, AND THEY ONCE AGAIN PAY,
1952= CORRECT? 1953= A. YES.
1954= Q. AND FINALLY ON CO-OP, YOU ASKED FOR AND RECEIVED 1955= REIMBURSEMENT BECAUSE YOU PLACED ADS ON THE INTERNET, CORRECT?
1956= A. YES. 1957= Q. AND IN COMING UP WITH SOME DOLLAR FIGURE, YOU SIMPLY PICKED
1958= AN ARBITRARY FIGURE, CORRECT? 1959= A. PRETTY MUCH, YES.
1960= Q. AS YOU SAID, CO-OP IS VERY LOOSE, ISN'T IT? 1961= A. IT'S COMPLICATED.
1962= Q. IT'S LOOSE, I THINK WAS THE WORD YOU USED, RIGHT? 1963= A. I MAY HAVE USED THAT WORD, THAT'S POSSIBLE, YES, SIR.
1964= Q. YOU ALSO SAID THAT IN YOUR DIRECT EXAMINATION THAT YOU
28
28 Page 29 30
1965= SOMETIMES PAY YOUR BILLS A LITTLE LATE. RECALL THAT? 1966= A. YES.
1967= Q. IN FACT, YOU PAY YOUR BILLS QUITE A BIT LATE, DON'T YOU? 1968= A. IN SOME CASES.
1969= STPHAOP: I'M SORRY, YOUR HONOR, I THINK I'M GOING TO 1970= HAVE TO INTERPOSE THE FIRST OBJECTION. THIS WAS A MOTION IN
1971= LIMINE IN WHICH THE TERMS OF SALES WERE EXCLUDED AS BEING PART 1972= OF WHAT WE'RE HEARING TODAY. SO THIS SEEMS TO GO DIRECTLY TO
1973= THAT POINT. 1974= MR. PETROCELLI: MAY I RESPOND?

1975= THE COURT: YES. 1976= MR. PETROCELLI: FIRST OF ALL, I'M NOT OFFERING THIS
1977= TO CALCULATE OR PROVE UP ANY DIFFERENTIAL BUT TO SHOW HIS 1978= DEPARTURE FROM RED BOOK TERMS. AND SECONDLY, HE TESTIFIED IN
1979= HIS DIRECT EXAM, RESPONSE TO THE QUESTIONING OF HIS LAWYERS, 1980= THAT HE PAID JUST A LITTLE LATE OR WORDS TO THAT EFFECT.
1981= THE COURT: THE OBJECTION'S OVERRULED. 1982= BY MR. PETROCELLI:
1983= Q. IN FACT, SIR, YOUR AVERAGE TIME TO PAY A 30-DAY INVOICE IS 1984= 75 DAYS, CORRECT?
1985= A. I DON'T HAVE THE EXACT FIGURE, BUT THAT SEEMS REASONABLE, 1986= YES, SIR.
1987= Q. THAT'S WHAT YOU TESTIFIED AT YOUR DEPOSITION? 1988= A. RIGHT.
1989= Q. SEVENTY-FIVE DAYS? 1990= A. YES.
1991= Q. AND YOU ALSO SEEK OUT --AS OFTEN AS YOU CAN EXTENDED DATING 1992= TERMS, CORRECT?
1993= A. YES, SIR. IF THEY'RE AVAILABLE. 1994= Q. THAT ALLOW TO YOU PAY ONE --NINETY TO A HUNDRED TWENTY DAYS
1995= OR BEYOND, CORRECT? 1996= A. YES.
1997= Q. I'M NOT GOING TO TAKE THE TIME UP TO GO THROUGH THE INGRAM 1998= PROGRAMS BECAUSE YOU'VE TESTIFIED TO THOSE, AND SO I WILL THEN
1999= TURN TO ONE OF THE LAST TOPICS HERE, AND THAT'S COMPETITION.
2000= YOU WERE SHOWN THE MAP THAT HAS THE BARNES & NOBLE, 2001= BORDERS AND CODY'S STORES ON IT. I'D NOW LIKE TO SHOW YOU THE
2002= MAP WITH ALL THE BOOKSELLERS IN THE AREA, AND THAT WOULD BE 2003= EXHIBIT 7842.
2004= A. YES, SIR. 2005= THE COURT: I'M SORRY. WHAT WAS THE NUMBER?
2006= MR. PETROCELLI: 7842, YOUR HONOR. 2007= THE COURT: OKAY.
2008= BY MR. PETROCELLI: 2009= Q. INCIDENTALLY, WHAT STORE IS CLOSER TO THE BARNES & NOBLE ON
2010= SHATTUCK? 2011= A. TELEGRAPH IS CLOSER.
2012= Q. TELEGRAPH? 2013= A. (NODS HEAD.)
2014= Q. WHAT'S THE DISTANCE BETWEEN THE TELEGRAPH STORE AND THE 2015= BARNES & NOBLE STORE?
2016= A. I THINK ABOUT FIVE BLOCKS. 2017= Q. AND THEN BETWEEN THE FOURTH STREET STORE AND BARNES & NOBLE?
2018= A. ON SHATTUCK? PROBABLY THREE MILES. 2019= Q. THREE MILES?
2020= A. YES. 2021= Q. THE MAP SHOWS A NUMBER OF BOOKSELLERS WITH WHOM YOU COMPETE
2022= TO ONE DEGREE OR ANOTHER, CORRECT? 2023= A. SOME OF THEM I DON'T RECOGNIZE. BUT MOST OF THEM THAT WOULD
2024= BE TRUE.
2025= Q. AND --AND YOU ALSO COMPETE, OF COURSE, WITH AMAZON, RIGHT? 2026= A. YES.
2027= Q. AND, IN FACT, YOU SAY THEY DOMINATE THE INTERNET FOR BOOK 2028= SALES, RIGHT?
2029= A. YES, BUT THAT REALLY DIDN'T START UNTIL 1998 OR SO. 2030= Q. NOT ONLY DO YOU COMPETE WITH SIGNIFICANT NUMBER OF THESE
2031= BOOKSELLERS BUT YOU ALSO HAVE LOST SALES TO THEM, HAVEN'T YOU? 2032= A. PROBABLY.
2033= Q. YOU --YOU LOST SALES TO COSTCO IN RICHMOND, CORRECT? 2034= A. PROBABLY.
29
29 Page 30 31
2035= Q. YOU'VE LOST SALES TO MOE'S BOOKS, CORRECT? 2036= A. YES.
2037= Q. YOU'VE LOST SALES TO GAIA, THAT'S G-A-I-A, BOOKS, CORRECT? 2038= A. YES, THEY'RE NO LONGER IN BUSINESS.
2039= Q. YOU'VE LOST SALES TO SHAMBHALA, S-H-A-M-B-H-A-L-A, BOOKS? 2040= A. YES.
2041= Q. AND YOU'VE LOST SALES TO BLACK OAK BOOKS, CORRECT? 2042= A. YES.
2043= Q. AND YOU'VE LOST SALES TO ASUC, HAVEN'T YOU? 2044= A. YES.
2045= Q. AND ALSO TO SOME OF THESE OTHERS, SUCH AS UNIVERSITY PRESS 2046= AND PEGASUS, CORRECT?
2047= A. YES. 2048= Q. AND YOU ALSO COMPETE WITH AND HAVE LOST SALES TO HALF PRICE
2049= BOOKS AND RECORDS, CORRECT?
2050= A. PROBABLY, BUT THEY'RE MOSTLY A USED BOOK STORE. THEY'RE A 2051= LITTLE BIT DIFFERENT.
2052= Q. BEFORE CROWN WENT OUT OF BUSINESS, YOU COMPETED WITH AND 2053= LOST SALES TO THEM, RIGHT?
2054= A. YES. 2055= Q. AND YOUR FOURTH STREET STORE COMPETES WITH AND LOSES SALES
2056= TO BUILDERS BOOKSOURCE, CORRECT? 2057= A. YES. AGAIN, THAT'S A SPECIALTY BOOK STORE, IT'S VERY
2058= LIMITED COMPETITION. 2059= Q. NOW, THE SEQUENCE OF EVENTS HERE IS THAT BARNES & NOBLE --
2060= FIRST YOUR STORE IS THERE ON TELEGRAPH, RIGHT? 2061= A. YES.
2062= Q. AND YOU'RE NOT WITHOUT ANY REAL ROBUST COMPETITION FOR A 2063= LONG TIME.
2064= A. WELL, THERE WERE OTHER STORES IN THE AREA, FOR SURE. 2065= Q. NONE OF WHAT YOU CALLED, THOUGH, YOUR PRIMARY COMPETITORS
2066= UNTIL BARNES & NOBLE COMES ALONG IN 1992, CORRECT? 2067= A. RIGHT.
2068= Q. THEN FOR THE FIRST TIME IN A LONG TIME, YOU HAVE A PRIMARY 2069= COMPETITOR, AND THAT'S BARNES & NOBLE, AND NOW IT'S 1992?
2070= A. NO, THAT ISN'T WHAT I TESTIFIED TO, SIR. 2071= Q. YOUR SALES WENT DOWN AFTER BARNES & NOBLE OPENED UP IN 1992?
2072= A. YES. 2073= Q. AND IT WENT DOWN, I THINK FROM ABOUT 8 MILLION, YOU SAID, TO
2074= ACCORDING TO YOUR RECORDS, ABOUT 7.2 MILLION FOR YEAR-END '93?
2075= A. YES. 2076= Q. OKAY.
2077= TO MAKE THIS A LITTLE EASIER, YOUR HONOR, UNDER 2078= THE --UNDER EXHIBIT 7764 --AND YOU CAN TURN TO IT ALSO --WE
2079= HAVE, BASED ON YOUR OWN FINANCIAL RECORDS, PREPARED A CHART OR A 2080= GRAPH, I SHOULD SAY, OF YOUR NET SALES FROM '92 --ACTUALLY FROM
2081= '93 TO '99. YOU SEE THAT? 2082= A. YES.
2083= Q. OKAY. 2084= AND, YOUR HONOR, THE --THIS WAS BASED ON HIS
2085= FINANCIAL DOCUMENTS, ALL OF WHICH ARE INCLUDED UNDER THE VERY 2086= LAST TAB IN THAT NOTEBOOK, WHICH BEARS THE HEADING "FINANCIAL
2087= STATEMENTS." 2088= THESE NUMBERS WERE SIMPLY TAKEN OFF YOUR FINANCIAL
2089= STATEMENTS. OKAY? 2090= A. YES.
2091= Q. NOW, YOU WILL SEE THAT BEFORE BARNES & NOBLE --WELL, LET ME 2092= ASK YOU THIS BEFORE I GET TO THE GRAPH: YOU WERE REAPING
2093= WINDFALL PROFITS IN THE LATE '80S, CORRECT? 2094= A. I WAS DOING QUITE WELL, YES, SIR.
2095= Q. THE WORD YOU USED IN YOUR DEPOSITION WAS "WINDFALL PROFITS," 2096= CORRECT?
2097= A. I BELIEVE IT WAS, YES, SIR. 2098= Q. AND THEN YOU SAW A DECLINE, WHICH YOU ATTRIBUTED TO THE
2099= APPEARANCE OF BARNES & NOBLE, CORRECT?
2100= A. YES. 2101= Q. AND AS YOU ACKNOWLEDGE IN YOUR DEPOSITION, AND I WON'T GO
2102= THROUGH THE DETAILS, THERE WERE SIGNIFICANT PROBLEMS ON 2103= TELEGRAPH AVENUE AT THE TIME, INCLUDING RIOTS, AND SO FORTH,
2104= RIGHT?
30
30 Page 31 32
2105= A. YES. 2106= Q. AND YOU BELIEVE THAT THOSE HAD AN ADVERSE EFFECT ON YOUR
2107= SALES, CORRECT? 2108= A. YES.
2109= Q. NOW, AFTER BARNES & NOBLE SETTLES IN, STARTING IN 1993, YOUR 2110= SALES BEGIN TO RISE, AND THEY GO FROM 7.2 MILLION TO 7.3 MILLION
2111= IN 1994, DO YOU SEE THAT? 2112= A. YES.
2113= Q. AND THEY GO UP TO 7.9 MILLION IN 1995. DO YOU SEE THAT? 2114= A. I SEE THAT, YES, SIR.
2115= Q. AND THEN BORDERS OPENS UP IN EMERYVILLE IN 1995, CORRECT? 2116= A. YES.
2117= Q. AND YOU THEN GO FROM 7.9 MILLION TO 8.5 MILLION? 2118= A. WELL, THERE'S AN OUTSIDE EXPLANATION FOR THAT.
2119= Q. WE'LL GET TO THAT? 2120= A. YES.
2121= Q. YOU HAVE IN ADDITION TO BOOK SALES, YOU HAVE COOPERATE 2122= SALES?
2123= A. RIGHT. 2124= Q. AND YOU HAD A BIG GOVERNMENT CONTRACT CALLED BRIDGE OF ASIA,

2125= WHICH BROUGHT IN COUPLE OF MILLION DOLLARS OF BUSINESS, RIGHT? 2126= A. 1.3 MILLION.
2127= Q. 1.3 MILLION AND THAT HELPED EXPLAIN THIS INCREASE FROM 7.9 2128= TO 8.5, CORRECT?
2129= A. YES. 2130= Q. AND THEN THE CONTRACT WAS OVER, AND YOU DIDN'T HAVE THAT
2131= INSTITUTIONAL REVENUE, AND YOU WERE BASICALLY DOWN TO YOUR BOOK 2132= STORE REVENUE AND YOUR SALES DROPPED A LITTLE BIT, CORRECT?
2133= A. RIGHT. 2134= Q. AND IT DROPPED FROM 8.5 OR 8.6 MILLION DOWN TO 8.0?
2135= A. MAY I ASK YOU A QUESTION NOW 'CAUSE I CAN'T --2136= Q. NO, I ASK THE QUESTIONS.
2137= A. OH, OKAY. 2138= Q. NOW, FOURTH STREET STORE OPENS UP IN LATE --LATE 1997,
2139= CORRECT? 2140= A. YES.
2141= Q. AND WE'VE CLIMBED UP TO 9.1 MILLION. DO YOU SEE THAT? 2142= 1998, AROUND THEREABOUTS?
2143= A. YES. 2144= Q. AND THEN IN 1999, YOUR BIGGEST YEAR EVER --I DON'T KNOW
2145= WHAT 2000 IS, SIR, BUT AS OF YEAR END 1999, YOU WERE UP TO 2146= 9.6 MILLION. DO YOU SEE THAT?
2147= A. YES. 2148= Q. I NOTICE THAT YOUR LAWYER DID NOT ASK YOU ANY QUESTIONS
2149= ABOUT YOUR PROFIT MARGIN. YOUR PROFIT MARGIN DID NOT DECREASE
2150= AT ALL THROUGHOUT THIS ENTIRE PERIOD OF TIME FROM 1992 THROUGH 2151= 1999, CORRECT?
2152= A. THAT'S NOT MY RECOLLECTION, SIR. NO. 2153= Q. YOU TESTIFIED ON DIRECT THAT YOU WERE ALREADY DISCOUNTING
2154= AND SO WHEN BARNES & NOBLE CAME ALONG, YOU MADE THE STRATEGIC 2155= BUSINESS CHOICE NOT TO DO ANY FURTHER DISCOUNTING, DO YOU RECALL
2156= THAT? 2157= A. THAT'S RIGHT, YES.
2158= Q. SO YOU DIDN'T LOSE ANY SALES TO --YOU DIDN'T LOSE PROFITS 2159= TO BARNES & NOBLE BECAUSE YOU DECIDED TO FURTHER DISCOUNT. DID
2160= YOU RECALL THAT? 2161= A. OUR PROFIT DECLINED BECAUSE OUR SALES DECLINED.
2162= Q. WELL, WE'RE GOING TO TALK ABOUT THAT. YOU KNOW WHAT GROSS 2163= PROFIT MARGIN IS, SIR?
2164= A. YES, I DO. 2165= Q. OKAY. I'M NOT AN ACCOUNTANT, BUT WHAT I THINK IT MEANS, AND
2166= CORRECT ME IF I'M WRONG, IS NET SALES --HERE "NET SALES" 2167= MEANING NET OF RETURNS?
2168= A. UH-HUH. 2169= Q. LESS COSTS OF BOOKS SOLD?
2170= A. YES. 2171= Q. OKAY. LET'S CALL THAT GROSS PROFIT.
2172= NOW, ALL OF THE GROSS PROFIT FIGURES ARE PROVIDED IN 2173= YOUR FINANCIAL STATEMENTS WHICH ARE LOCATED IN THE NEXT TAB.
2174= AND IF YOU WANT TO TURN TO THEM, I CAN GO OVER THE NUMBERS WITH
31
31 Page 32 33
2175= YOU. 2176= A. UM --
2177= Q. DO YOU HAVE THAT LAST TAB THERE, SIR? 2178= A. FINANCIAL STATEMENTS. OKAY. GO AHEAD. YES.
2179= Q. OKAY. AND IF WE LOOK AT THE FIRST PAGE, WHICH BEARS 2180= EXHIBIT 120 AT THE BOTTOM, DO YOU SEE THAT?
2181= A. UM-HMM. 2182= Q. AT THE TOP, THE 1993 GROSS PROFIT MARGIN WAS 2.63 MILLION.
2183= DO YOU SEE THAT? 2184= A. UM --
2185= Q. MAKE SURE WE'RE LOOKING AT THE SAME LINE. OKAY? 2186= MAY I APPROACH, YOUR HONOR?
2187= THE COURT: YES. 2188= BY MR. PETROCELLI:
2189= Q. RIGHT HERE, THIS IS 1993, 2.63, AND THIS IS '94, AND THEN 2190= WE'RE GOING TO LOOK AT THE ENSUING YEARS.
2191= A. YES. 2192= Q. OKAY?
2193= A. YES. 2194= Q. SO IN 1993, YOU'RE AT 2.6. 1994, YOU'RE JURY AT 2.6 AGAIN.
2195= A. THAT'S CORRECT. 2196= Q. LET'S TURN TO THE NEXT EXHIBIT IN HERE, WHICH IS THE NEXT
2197= PAGE, WHICH IS EXHIBIT 119. 2198= A. UM-HMM.
2199= Q. AND WHAT I'VE DONE --AND I HOPE THEY'RE ON YOUR COPIES AS
2200= WELL --DO YOU HAVE ANY YELLOW HIGHLIGHTED FIGURES? 2201= A. YES, I HAVE YELLOW HIGHLIGHTING.
2202= Q. OKAY. I TRIED TO HIGHLIGHT THE NUMBERS. WE'RE ON THE 2203= SECOND PAGE UNDER THE LAST TAB, YOUR HONOR.
2204= OKAY. THE GROSS PROFIT THERE FOR YEAR-END 1994 IS --2205= 1995 --EXCUSE ME --IS 2.97 MILLION. DO YOU SEE THAT?
2206= A. YES. 2207= Q. OKAY. SO LET'S TURN THE PAGE.
2208= FOR YEAR-END 1996, WHICH IS REFLECTED ON YOUR EXHIBIT 2209= 118, THE GROSS PROFIT IS 3.15 MILLION. DO YOU SEE THAT?
2210= A. YES. 2211= Q. TURN THE PAGE, EXHIBIT 117, AND THE GROSS PROFIT MARGIN
2212= THERE IS 3.02 MILLION. SEE THAT? 2213= A. YES.
2214= Q. AND YOU TURN THE PAGE FOR YEAR ENDING 1998, WHICH IS ON YOUR 2215= EXHIBIT 116, AND IT'S UP TO 3.45 MILLION IN GROSS PROFIT.
2216= A. (REVIEWING DOCUMENTS.) 2217= Q. AND THEN FINALLY ON EXHIBIT 115, YOU'RE UP TO $3.64 MILLION.
2218= DO YOU SEE THAT? 2219= A. YES.
2220= Q. AND IF YOU RUN THE PERCENTAGES, MOST OF WHICH ARE ON YOUR --2221= YOUR OWN FINANCIAL STATEMENTS, SIR, YOU'LL SEE THAT FROM 1993
2222= THROUGH 1999, YOUR GROSS PROFIT MARGIN RANGED FROM 36.1 PERCENT 2223= TO 37.9 PERCENT. FAIRLY CONSISTENT?
2224= A. YES.
2225= Q. DURING THAT PERIOD OF TIME, AS RECENTLY AS 1998, YOU BLAMED 2226= CRIME AND HOMELESSNESS ON TELEGRAPH AVENUE FOR ANY DECLINE IN
2227= YOUR PROFITS IN BUSINESS, CORRECT? 2228= A. I BELIEVE IN 1998, I BLAMED THE CRIME SITUATION AS BEING A
2229= PROBLEM, YES, IT WAS FOR SURE. 2230= Q. AND, IN FACT, YOU WERE QUOTED IN A NOVEMBER 3, 1998,
2231= NEW YORK TIMES ARTICLE SAYING THAT YOUR BUSINESS HAD DROPPED 2232= 15 PERCENT IN THE DAY AND 75 PERCENT AT NIGHT BECAUSE OF CRIME
2233= AND HOPELESSNESS (SIC) ON TELEGRAPH AVENUE, CORRECT? 2234= A. WE WERE HAVING A VERY DIFFICULT TIME WITH THE SOCIAL
2235= SITUATION OUTSIDE THAT YEAR; THAT'S TRUE. 2236= Q. AND YOU WERE URGING ACTION TO BE TAKEN TO CLEAN UP THE
2237= PROBLEM, RIGHT? 2238= A. YES.
2239= Q. BECAUSE IT WAS HAVING AN ADVERSE EFFECT ON YOUR BUSINESS, 2240= CORRECT?
2241= A. WELL, THERE WERE A NUMBER OF REASONS FOR CLEANING UP THE 2242= PROBLEM, YES.
2243= Q. BUT THAT WAS ONE OF THEM, CORRECT? 2244= A. CERTAINLY WAS, YES.
2245= Q. THAT IT WAS HAVING AN ADVERSE EFFECT ON YOUR BUSINESS,
32
32 Page 33 34
2246= CORRECT? 2247= A. THAT'S CORRECT.
2248= MR. PETROCELLI: NOTHING FURTHER, YOUR HONOR. 2249= THE COURT: MR. STEER?

2250= (PAUSE IN THE PROCEEDINGS.) 2251= MR. STEER: YOUR HONOR, I'M PASSING OUT COPIES OF A
2252= THREE-RING BINDER CONTAINING THE EXHIBITS THAT I BELIEVE I WOULD 2253= USE. IT'S THIN TO BEGIN WITH. WHAT I'M GOING TO REFER TO IS
2254= EVEN THINNER. 2255= IN LIGHT OF THE TESTIMONY UNDER DIRECT AND
2256= CROSS-EXAMINATION DONE BY MR. PETROCELLI, I WON'T NEED TO USE 2257= MOST OF THESE EXHIBITS.
2258= CROSS-EXAMINATION 2259= BY MR. STEER:
2260= Q. MR. ROSS, WE'VE MET. I'M REG STEER, COUNSEL FOR BORDERS 2261= BOOKS.
2262= A. GOOD MORNING, MR. STEER. 2263= Q. THANK YOU.
2264= I JUST HAVE A FEW QUESTIONS FOR YOU. LITTLE BIT MORE 2265= ABOUT THE HISTORY OF YOUR OWNERSHIP AND OPERATION OF CODY'S
2266= BOOKS. YOU BOUGHT THE BOOK STORE IN 1978; ISN'T THAT CORRECT? 2267= A. 1977.
2268= Q. 1977 FROM MRS. CODY? 2269= A. FROM THE CODY FAMILY, YES, MR. AND MRS.
2270= Q. AND I THINK YOU TESTIFIED THAT THERE WERE A COUPLE OF 2271= WALDENBOOKS WITHIN --WALDEN BOOK STORES WITHIN RELATIVELY SHORT
2272= DISTANCES OF CODY'S BACK IN THE 1980'S; IS THAT CORRECT? 2273= A. AND INTO THE '90'S.
2274= Q. AND INTO THE '90'S. BOTH OF THOSE STORES CLOSED IN 1995,
2275= RIGHT? 2276= A. I BELIEVE SO.
2277= (CONTINUED NEXT PAGE; NOTHING OMITTED.) 2278=
2279= 2280=
2281= 2282=
2283= 2284=
2285= 2286=
2287= 2288=
2289= 2290=
2291= 2292=
2293= 2294=
2295= 2296=
2297= 2298=
2299=
2300= BY MR. STEER: 2301= Q. BUT THEY WERE BOTH IN OPERATION --WELL, LET ME ASK YOU,
2302= HOW FAR AWAY WAS THE CLOSING OF THE STORES TO CODY'S? 2303= A. THERE WAS ONE ON TELEGRAPH, WHICH WAS TWO BLOCKS AWAY.
2304= Q. AND THE OTHER STORE WAS HOW FAR AWAY? 2305= A. IT WAS ON SHATTUCK, PROBABLY 10 BLOCKS AWAY.
2306= Q. DID YOU CONSIDER THEM TO BE COMPETITORS? 2307= A. YES.
2308= Q. JUST LIKE ALL THE OTHER BOOKSELLERS IN THE AREA? 2309= A. WELL, AS I SAID EARLIER, SOME COMPETITORS ARE MORE
2310= FORMIDABLE THAN OTHERS. 2311= Q. YOU DIDN'T CONSIDER THE WALDENBOOKS TO BE PARTICULARLY
2312= FORMIDABLE COMPETITORS, DID YOU? 2313= A. NOT THE MOST FORMIDABLE, NO.
2314= Q. WELL, THEIR COMPETITION DIDN'T PREVENT YOU FROM MAKING THE 2315= WINDFALL PROFITS THAT YOU JUST TESTIFIED ABOUT, IN THE LATE
33
33 Page 34 35
2316= 1980'S, IS THAT CORRECT? 2317= A. I WOULD HAVE TO SAY THAT'S CORRECT.
2318= Q. NOW, I WANT TO TALK TO YOU A LITTLE BIT ABOUT CODY'S 2319= REQUEST FOR AND RECEIPT OF RETAIL DISTRIBUTION CENTER OR RDC
2320= DISCOUNTS. AND TO DO THAT, I WANT TO CALL YOUR ATTENTION TO 2321= SOME OF THE EXHIBITS THAT I HAVE IN THIS BINDER.
2322= MAY I APPROACH THE WITNESS, YOUR HONOR? 2323= THE COURT: YES.
2324= MR. STEER: THANK YOU.
2325= Q. IF YOU WOULD PLEASE TURN TO THE TAB FOR EXHIBIT 11063, THE 2326= DOCUMENT IS A PHOTOGRAPH. YOU SEE IT?
2327= A. YES. 2328= Q. AND YOU RECOGNIZE IT?
2329= A. IT LOOKS LIKE CODY'S BOOKS ON TELEGRAPH TO ME. 2330= Q. IT'S, IN FACT, THE FRONT ENTRANCE TO CODY'S BOOKS, IS IT
2331= NOT, ON TELEGRAPH? 2332= A. YES, IT IS.
2333= Q. OKAY. AND NOW IF YOU'D LOOK AT THE PHOTOGRAPH THAT HAS TAB 2334= NUMBER 11744, CAN YOU IDENTIFY THAT?
2335= A. I'M SORRY, 11744? 2336= Q. THAT'S RIGHT.
2337= A. I'M LOST, SORRY. OH, HERE IT IS, OKAY. THIS IS THE CODY'S 2338= BOOKSTORE ALLEY ON TELEGRAPH.
2339= Q. AND IS THAT WHERE YOU RECEIVE BOOKS? 2340= A. THAT IS WHERE THE BOOKS --YES, THAT'S WHERE THE BOOKS COME
2341= IN. 2342= Q. THAT'S WHERE THEY'RE DELIVERED, RIGHT?
2343= A. THAT'S WHERE THEY'RE DELIVERED, THAT'S CORRECT. 2344= Q. LET'S LOOK AT 11745, WHICH IS THE NEXT PHOTOGRAPH. CAN YOU
2345= IDENTIFY THAT? 2346= A. YES, THAT IS A FREIGHT ELEVATOR. WE PUT --THE SHIPMENTS
2347= GO INTO THE FREIGHT ELEVATOR AND THEN GO UPSTAIRS. 2348= Q. OKAY. NOW, THESE PHOTOGRAPHS, 11744 AND -745, DO THEY
2349= DEPICT THE ONLY BOOK LOADING AREA FOR THE TELEGRAPH AVENUE
2350= STORE? 2351= A. WELL, IT'S THE PRIMARY AREA WHERE THE BOOKS GET --GET
2352= DELIVERED IN, YES. 2353= Q. OKAY.
2354= A. WE ALSO HAVE A REGULAR ELEVATOR, AND SOMETIMES THEY GO IN 2355= THAT WAY.
2356= Q. BUT THAT'S IN THE STORE, RIGHT? 2357= A. IT'S IN ONE OF THE BUILDINGS, IT'S NOT IN THE RETAIL AREA.
2358= Q. BUT IF A TRUCK COMES TO THAT STORE LOADED WITH BOOKS, THE 2359= BOOKS WOULD COME OFF THE TRUCK AND THEY WOULD GO IN THROUGH THE
2360= ALLEYWAY THAT'S SHOWN IN EXHIBIT 11744, AND THEN ON THE 2361= ELEVATOR SHOWN AT 11745, CORRECT?
2362= A. YES, YES. 2363= Q. OKAY. NOW, IN 1997, WHEN YOU FIRST RECEIVED RDC DISCOUNTS,
2364= ACCORDING TO YOUR TESTIMONY, DID YOU MAKE ANY INVESTMENT IN 2365= THIS AREA, IN IMPROVING IT, SO THAT YOU WOULD MAKE IT EASIER TO
2366= RECEIVE BOOK SHIPMENTS? 2367= A. NO.
2368= Q. NOW I'D LIKE TO DRAW YOUR ATTENTION TO ANOTHER EXHIBIT IN 2369= THAT BINDER. IT'S EXHIBIT 10919.
2370= A. YES. 2371= Q. AND THIS APPEARS TO BE A COMPILATION OF DOCUMENTS PRODUCED
2372= BY CODY'S, AND THE FIRST DOCUMENT IS ENTITLED, "RANDOM HOUSE, 2373= INC. DISTRIBUTION CENTER APPLICATION AND PROFILE." IT SEEMS TO
2374= HAVE THE DATE OF 8/ 2/ 99 ON IT, AND THERE IS A SIGNATURE BLOCK
2375= IN THE LOWER RIGHT-HAND CORNER, WHERE IT SAYS, "STORE OWNER." 2376= IS THAT YOUR SIGNATURE?
2377= A. THAT IS, YES. 2378= Q. TELL ME, IS THIS A DOCUMENT THAT YOU FILLED OUT?
2379= A. NO, IT LOOKS LIKE A DOCUMENT THAT THE SALES REP FILLED OUT, 2380= OR THAT SOMEONE OTHER THAN ME FILLED OUT. I DON'T SEE THE --
2381= IT'S NOT MY HANDWRITING. 2382= Q. BUT YOU DID SIGN IT AFTER IT WAS FILLED OUT, CORRECT?
2383= A. YES. 2384= Q. NOW, ATTACHED TO THIS DOCUMENT ARE SOME OTHER DOCUMENTS,
2385= CORRESPONDENCE AND COPIES OF INVOICES, IS THAT RIGHT?
34
34 Page 35 36
2386= A. YES. 2387= Q. WHEN YOU SIGNED THIS DOCUMENT, YOU UNDERSTOOD, DIDN'T YOU,
2388= THAT YOU WERE REPRESENTING THAT THE FACTUAL STATEMENTS 2389= CONTAINED ON THE DOCUMENT ARE TRUE AND CORRECT, ISN'T THAT
2390= RIGHT? 2391= A. RIGHT, YES.
2392= Q. LET'S GO THROUGH THE DOCUMENT. IT REFERS, FIRST OF ALL, TO 2393= DISTRIBUTION, SHIP TO ADDRESS. DO YOU SEE THAT UP IN THE FIRST
2394= BLOCK NEAR THE TOP OF THE PAGE? AND IT HAS AN ADDRESS FOR 2395= CODY'S BOOKS, INC., AT 2454 TELEGRAPH AVENUE.
2396= A. YES. 2397= Q. THAT'S THE ADDRESS OF YOUR TELEGRAPH AVENUE STORE THAT
2398= WE'VE JUST SEEN IN PHOTOGRAPHS, CORRECT? 2399= A. YES.

2400= Q. AND GOING ON, FARTHER DOWN, AT THE MIDDLE OF THE PAGE, 2401= THERE IS A QUESTION, AND THE QUESTION IS, "HOW LONG HAS THIS
2402= WAREHOUSE FACILITY BEEN IN EXISTENCE?" TO WHICH THE ANSWER IS, 2403=" THREE YEARS."
2404= THERE IS NO WAREHOUSE FACILITY AT 2454 TELEGRAPH 2405= AVENUE, IS THERE?
2406= A. WELL, WE HAVE A WAREHOUSE FACILITY, BUT NOT A FREE-STANDING 2407= FACILITY. WE WAREHOUSE BOOKS.
2408= Q. HOW LONG HAS THAT FACILITY BEEN IN EXISTENCE? 2409= A. AS LONG AS THE STORE.
2410= Q. SO THERE IS NO WAREHOUSE FACILITY THAT'S BEEN IN EXISTENCE 2411= AT THAT SITE FOR THREE YEARS, ISN'T THAT CORRECT?
2412= A. YES, THAT'S CORRECT. 2413= Q. IN THE NEXT QUESTION IT ASKS,
2414= "IS THIS LOCATION A FREE-STANDING DISTRIBUTION 2415= OPERATION WITH DOCK LOADING FACILITIES CAPABLE OF
2416= RECEIVING FULL SKIDS OF MERCHANDISE?" 2417= TO WHICH THE QUESTION IS, "YES."
2418= NOW, MY QUESTION TO YOU IS, WHEN YOU ATTESTED THAT 2419= THIS --THE ANSWER TO THAT QUESTION IS "YES," YOU WERE
2420= REFERRING TO THE FACILITY THAT WE'VE JUST SEEN PHOTOGRAPHED IN 2421= THE TWO EXHIBITS I'VE SHOWN YOU, 11744 AND -745, ISN'T THAT
2422= RIGHT? 2423= A. YES.
2424= Q. THE NEXT SENTENCE ASKS, "DOES THE DISTRIBUTION CENTER
2425= PERFORM ANY FUNCTION OTHER THAN THE WAREHOUSING AND 2426= DISTRIBUTION OF BOOKS?" TO WHICH THE ANSWER IS "NO." ISN'T
2427= THAT CORRECT? 2428= A. RIGHT.
2429= Q. THOSE WERE NOT TRUTHFUL ANSWERS, WERE THEY? 2430= A. I WOULD HAVE TO SAY HERE THAT THEY ARE NOT TRUTHFUL. I
2431= DON'T REMEMBER FILLING THIS OUT, SO I DON'T KNOW THE 2432= CIRCUMSTANCES. I JUST DON'T REMEMBER.
2433= Q. YOU DID SIGN IT. 2434= A. I DID SIGN IT, THOUGH. YES, SIR, I DID.
2435= Q. AND THIS WAS IN 1999? 2436= A. YES, IT APPEARS TO BE, YES.
2437= Q. LESS THAN TWO YEARS AGO? 2438= A. YES.
2439= Q. AND THE NEXT DOCUMENT HERE ATTACHED APPEARS TO BE AN 2440= AUGUST 2, 1999 LETTER FROM YOURSELF TO MR. DON WEISBERG AT
2441= RANDOM HOUSE. DOES THAT BEAR YOUR SIGNATURE? 2442= A. YES, IT DOES.
2443= Q. THAT'S A COPY OF A LETTER THAT YOU SENT TO MR. WEISBERG, IS 2444= THAT CORRECT?
2445= A. YES, IT IS. 2446= Q. AND THE LETTER SAYS,
2447= "WE ARE IN RECEIPT OF YOUR LETTER DATED 2448= JULY 28TH, 1999 INFORMING US THAT WE NO LONGER
2449= QUALIFY FOR YOUR RDC TERMS."
2450= YOU GO ON TO STATE, 2451= "WE CURRENTLY HAVE RDC ACCOUNTS WITH A NUMBER OF
2452= YOUR COMPETITORS, INCLUDING VON HOLTZBRINCK, 2453= PENGUIN-PUTNAM AND SIMON & SCHUSTER. WE WISH TO
2454= REQUEST THAT YOU MEET YOUR COMPETITION BY EXTENDING 2455= TO US YOUR RDC DISCOUNT."
35
35 Page 36 37
2456= AND YOU GO ON AND SAY, 2457= "I AM ENCLOSING INVOICES FROM PENGUIN-PUTNAM AND
2458= FROM SIMON & SCHUSTER SHOWING THAT WE RECEIVE 2459= 48 PERCENT DISCOUNT FREIGHT FREE ON RDC ORDERS."
2460= THERE THEN ARE TWO ATTACHED --NO, I'M SORRY --2461= THREE ATTACHED DOCUMENTS, BUT THE TWO INVOICES THAT ARE
2462= ATTACHED YOU UNDERSTOOD YOU WERE PROVIDING IN ORDER TO PROVE 2463= THAT THE COMPETITORS, OR AT LEAST SOME OF THEM, WERE ALLOWING
2464= YOU THE RDC DISCOUNT, ISN'T THAT CORRECT? 2465= A. YES, SIR.
2466= Q. NOW, I NOTICE HERE THAT THE FIRST OF THESE SHOWS THAT THE 2467= RDC WAS EXTENDED BY --WELL, LET'S SEE. WHO IS THE FIRST
2468= VENDOR? SIMON & SCHUSTER. ON A SHIPMENT TO CODY'S BOOKS AT 2469= 1730 FOURTH STREET, BERKELEY, DIFFERENT LOCATION, RIGHT?
2470= A. THAT'S CORRECT. 2471= Q. AND THE SECOND ONE INDICATES THAT PENGUIN PUTNAM WAS
2472= SHIPPING TO 2460 TELEGRAPH. 2460 TELEGRAPH IS SIMPLY THE BACK 2473= DOOR, THE BACK ENTRANCE, IS THAT NOT CORRECT, OF THE BUILDING?
2474= A. NO, THAT IS INCORRECT. CODY'S ON TELEGRAPH HAS TWO
2475= DIFFERENT BUILDINGS, AND TWO DIFFERENT ADDRESSES. 2476= Q. NOW, IF YOU LOOK AT THE NEXT PAGE, IT IS A ST. MARTIN'S
2477= PRESS RETAIL DISTRIBUTION CENTER DOCUMENT. NOW, IS THIS 2478= SOMETHING THAT WAS EXECUTED ON BEHALF OF CODY'S?
2479= A. WELL, IT'S NOT MY HANDWRITING, BUT IT IS ON BEHALF OF 2480= CODY'S, THAT'S FOR SURE.
2481= Q. SURE, AND IT'S SOMETHING THAT YOU SENT ON TO RANDOM HOUSE 2482= AS PROOF THAT ITS COMPETITORS WERE GRANTING YOU RETAIL
2483= DISTRIBUTION CENTER TERMS, CORRECT? 2484= A. YES.
2485= Q. YOU CONSIDERED SIMON & SCHUSTER, PENGUIN PUTNAM AND 2486= ST. MARTIN'S PRESS TO BE COMPETITORS OF RANDOM HOUSE, IS THAT
2487= CORRECT? 2488= A. YES.
2489= Q. AND YOU DO, AS YOU SIT HERE TODAY, CONSIDER THEM TO BE 2490= COMPETITORS.
2491= A. YES. 2492= Q. HOW MUCH MONEY HAVE YOU INVESTED IN A RETAIL DISTRIBUTION
2493= CENTER? 2494= A. NOTHING.
2495= Q. DID YOU INQUIRE OF RANDOM HOUSE WHETHER IT WOULD BE 2496= COST-JUSTIFIED FOR RANDOM HOUSE TO EXTEND TO YOU A RETAIL
2497= DISTRIBUTION CENTER DISCOUNT? 2498= A. NO, I JUST ASKED IF IT WAS AVAILABLE TO ME.
2499= Q. SAME QUESTION WITH RESPECT TO EACH OF THESE OTHER
2500= PUBLISHERS. DID YOU ASK SIMON & SCHUSTER WHETHER IT WOULD BE 2501= COST-JUSTIFIED?
2502= A. NO, I DID NOT. 2503= Q. NOR DID YOU ASK ANY OTHER PUBLISHER FROM WHOM YOU REQUESTED
2504= THE RDC DISCOUNT, ISN'T THAT CORRECT? 2505= A. THAT'S CORRECT.
2506= MR. STEER: I HAVE NO FURTHER QUESTIONS. THANK YOU. 2507= THE WITNESS: THANK YOU.
2508= THE COURT: REDIRECT. 2509= REDIRECT EXAMINATION
2510= BY MR. DAWSON: 2511= Q. MR. ROSS, AS A RESULT OF YOUR YEARS OF EXPERIENCE IN THE
2512= BOOKSELLING INDUSTRY, DO YOU BELIEVE THAT YOU HAVE A GENERAL 2513= AWARENESS OF THE TERMS THAT ARE AVAILABLE TO OTHER RETAILERS
2514= FROM PUBLISHERS? 2515= A. IN GENERAL I DO, YES.
2516= Q. AND HOW DO YOU FIND OUT WHAT'S AVAILABLE TO OTHER 2517= RETAILERS?
2518= A. I LOOK IT UP IN THE RED BOOK, I TALK TO PUBLISHERS' SALES 2519= REPS. IN THE CASE OF THE CHAINS, I JUST HEAR ABOUT IT FROM
2520= TALKING TO PUBLISHERS. 2521= Q. BASED ON THIS GENERAL AWARENESS, HAVE YOU EVER SOLICITED
2522= ANY DEALS FROM PUBLISHERS WHICH YOU BELIEVE WERE NOT AVAILABLE 2523= TO OTHER PEOPLE --TO OTHER BOOKSELLERS?
2524= A. NO, I HAVE NOT.
2525= Q. AND BASED ON YOUR AWARENESS OF WHAT WAS AVAILABLE TO OTHER
36
36 Page 37 38
2526= BOOKSELLERS, HAVE YOU EVER RECEIVED ANY DEALS THAT WERE NOT 2527= AVAILABLE TO OTHER BOOKSELLERS?
2528= A. NO. 2529= Q. YOU TESTIFIED THAT YOU'VE BEEN VERY AGGRESSIVE WITH RESPECT
2530= TO SPEAKING TO PUBLISHERS ABOUT THEIR AVAILABLE TERMS. DO YOU 2531= MEAN BY THAT THAT YOU HAVE ATTEMPTED TO GET THEM TO DEVIATE
2532= FROM WHAT THEIR TERMS ARE THAT ARE AVAILABLE TO OTHER 2533= BOOKSELLERS?
2534= A. NO, I HAVE NOT. 2535= MR. PETROCELLI: THE QUESTION IS LEADING, YOUR
2536= HONOR. 2537= THE COURT: YES.
2538= MR. DAWSON: EXCUSE ME, I'LL REPHRASE THE QUESTION. 2539= Q. IN YOUR NEGOTIATIONS WITH VENDORS, HAVE YOU ATTEMPTED TO
2540= DEVIATE FROM WHAT YOU UNDERSTOOD WAS GENERALLY AVAILABLE TO 2541= OTHER BOOKSELLERS?
2542= A. NO. 2543= Q. IS THIS TRUE WITH RESPECT TO.... YOU'VE TESTIFIED THAT IN
2544= CERTAIN INSTANCES, AND YOU'VE SEEN SOME DOCUMENTS TODAY, WHERE 2545= YOU'VE GIVEN INDICATIONS THAT YOU WERE ATTEMPTING TO HAVE A
2546= PUBLISHER MEET COMPETITION. AS YOU UNDERSTAND, DID YOU EVER 2547= RECEIVE, AS A RESULT OF ANY OF THOSE SOLICITATIONS, ANY TERMS
2548= THAT WERE NOT AVAILABLE TO OTHER BOOKSELLERS? 2549= A. NO, I DID NOT.

2550= Q. WERE YOU ATTEMPTING, IN TELLING THEM WHAT YOU WERE 2551= RECEIVING FROM OTHER PUBLISHERS OR VENDORS, TO RECEIVE DEALS
2552= THAT WERE NOT AVAILABLE TO OTHER BOOK SELLERS? 2553= A. NO.
2554= Q. YOU WERE SHOWN A SERIES OF INVOICES BY MR. PETROCELLI, AND 2555= THEY INCLUDED INVOICES FROM SIMON & SCHUSTER, MACMILLAN,
2556= MCGRAW-HILL AND HARPER COLLINS. DO YOU RECALL THAT? 2557= A. YES.
2558= Q. AND HAS CODY'S EVER RECEIVED STOCK OFFERS FROM SIMON & 2559= SCHUSTER, MACMILLAN, MCGRAW-HILL, AND HARPER COLLINS?
2560= A. YES. 2561= Q. IS THERE A TIME OF THE YEAR DURING WHICH YOU TEND TO
2562= RECEIVE MORE STOCK OFFERS THAN OTHERS? 2563= A. THE FALL WOULD BE THE MOST COMMON.
2564= Q. I THINK --IS IT YOUR TESTIMONY --WELL, THE STOCK OFFERS 2565= THAT YOU RECEIVED, TO YOUR KNOWLEDGE, HAVE THEY BEEN STOCK
2566= OFFERS THAT HAVE EVER BEEN UNIQUELY OFFERED SOLELY TO CODY'S? 2567= A. NO.
2568= Q. AND IN ORDER TO DETERMINE WHETHER AN INVOICE HAS A STOCK 2569= OFFER VERSUS A NON-STOCK OFFER, THE INVOICE ITSELF, WILL IT
2570= TELL YOU? 2571= A. NO, THE INVOICE WILL USUALLY NOT TELL YOU. IT MAY NEVER
2572= TELL YOU. 2573= Q. HOW MANY INVOICES IN THE LAST 10 YEARS DO YOU BELIEVE THAT
2574= YOUR STORE HAS GONE THROUGH?
2575= A. TENS OF THOUSANDS. 2576= Q. SO THE FIVE INVOICES THAT YOU WERE SHOWN TODAY, THE
2577= PERCENTAGE OF THOSE WOULD BE WHAT? 2578= A. MINIMAL.
2579= Q. WE SPOKE A LITTLE BIT ABOUT RDC DISCOUNTS. DO ALL RDC 2580= POLICIES FROM ALL PUBLISHERS REQUIRE THAT YOU HAVE A LOADING
2581= DOCK IN ORDER TO BE ABLE TO OBTAIN THE RDC BENEFITS? 2582= A. NO, THEY DO NOT.
2583= Q. DO DIFFERENT PUBLISHERS, IN FACT, HAVE DIFFERENT 2584= REQUIREMENTS FOR RDC BENEFITS?
2585= A. YES. 2586= Q. AND DO THOSE INCLUDE WHETHER OR NOT YOU HAVE A LOADING
2587= DOCK? 2588= A. SOME INCLUDE A LOADING DOCK, SOME DO NOT.
2589= Q. YOU WERE ASKED A QUESTION ABOUT WHETHER YOU HAVE A 2590= WAREHOUSE. DO YOU HAVE A WAREHOUSE AT YOUR TELEGRAPH AVENUE
2591= STORE? 2592= A. NO, BUT WE DO HAVE WAREHOUSING FACILITIES THERE.
2593= Q. DO YOU KNOW WHETHER PUBLISHERS, IN SPEAKING TO YOU OR IN 2594= THEIR PUBLISHED TERMS, EVER DIFFERENTIATE IN THE WAY THEY SPEAK
2595= ABOUT WAREHOUSING, I. E., SOME MIGHT EXIST --Could not acquire words on page 38 SOME MIGHT ACCEPT 2596= WAREHOUSE FACILITIES, SOME MIGHT REQUIRE A DIFFERENT BUILDING?
37
37 Page 38 39

38 Page 39 40
2667= A. YES. I GRADUATED IN 1949 FROM MOUNT HOLYOKE COLLEGE IN 2668= SOUTH HADLEY, MASSACHUSETTS, WITH AN HONORS DEGREE IN
2669= PHILOSOPHY. 2670= Q. AND HOW DID YOU FIRST BECOME INVOLVED IN THE BOOK
2671= PROFESSION? 2672= A. WELL, I'VE BEEN A BOOK PERSON MOST OF MY LIFE, AND WHEN OUR
2673= CHILDREN WERE IN SCHOOL, MY VOLUNTEER ACTIVITIES WERE IN 2674= LIBRARIES. I WORKED IN AN ACADEMIC LIBRARY, AND I'VE JUST

2675= ALWAYS BEEN VERY INTERESTED IN BOOKS. 2676= Q. WHAT TIME PERIOD WAS THAT WHEN YOU WERE INVOLVED IN THE
2677= LIBRARIES? 2678= A. IN THE 50'S AND 60'S.
2679= Q. NOW, I TAKE IT THERE CAME A TIME WHEN YOU OPENED YOUR OWN 2680= BOOKSTORE, IS THAT RIGHT?
2681= A. YES. I, AS WITH MANY PEOPLE, I ALWAYS HAD A DREAM OF 2682= OPENING A BOOKSTORE, AND SO IN 1972 I BOUGHT AN EXISTENT
2683= BOOKSTORE IN WAYZATA, MINNESOTA. 2684= Q. WHAT WAS THE NAME OF THAT BOOKSTORE?
2685= A. "THE BOOKCASE." 2686= Q. NOW, WAYZATA IS A SUBURB OF MINNEAPOLIS?
2687= A. YES, IT'S JUST A FEW MILES WEST OF MINNEAPOLIS. 2688= Q. WHAT TYPE OF BOOKSTORE IS THE BOOKCASE?
2689= A. IT'S A GENERAL --GENERAL INTEREST TRADE BOOKSTORE. IT'S 2690= NOT A SPECIALTY STORE.
2691= Q. AND HOW BIG WAS THE BOOKSTORE WHEN YOU FIRST PURCHASED IT 2692= IN 1972?
2693= A. THE ORIGINAL STORE THAT I PURCHASED WAS ABOUT 1400 SQUARE 2694= FEET.
2695= Q. DID THE BOOKSTORE GROW OVER THE PERIOD THAT YOU OWNED IT? 2696= A. YES, IT CERTAINLY DID.
2697= Q. AND HOW BIG DID IT BECOME? 2698= A. WELL, I MOVED AFTER A FEW YEARS TO A STORE AT ABOUT
2699= 4500 SQUARE FEET.
2700= Q. HOW LONG DID YOU OWN THE BOOKCASE? 2701= A. I OWNED THE BOOKCASE FOR 18 YEARS, FROM 1972 TO 1990.
2702= Q. WHAT WERE YOUR RESPONSIBILITIES AS THE OWNER OF THE 2703= BOOKCASE?
2704= A. MY RESPONSIBILITIES WERE --COVERED ABOUT EVERYTHING; 2705= CERTAINLY THE BUYING OF THE BOOKS, THE MANAGEMENT OF THE STORE,
2706= THE FINANCIAL MANAGEMENT, AND JUST ALL OF THE TASKS THAT GO 2707= WITH OWNING A SMALL BUSINESS.
2708= Q. DID YOU DO ANY MARKETING, AS THE OWNER? 2709= A. I CERTAINLY DID, THE MARKETING, THE ADVERTISING.
2710= Q. AND YOU SPOKE ABOUT BUYING, BOOK BUYING. WHAT DID THE 2711= BUYING RESPONSIBILITY ENTAIL?
2712= A. WELL, THE BUYING RESPONSIBILITY ENTAILED DECIDING WHAT 2713= BOOKS WE WOULD CARRY IN THE STORE, AND SO I WOULD MEET WITH
2714= PUBLISHERS' REPS, AND I HAD TO MAKE THOSE DECISIONS ON THEM, ON 2715= BOTH A DAILY AND SEASONAL BASIS.
2716= Q. HOW DID YOU FIND OUT, DURING THE TIME THAT YOU OWNED THE 2717= BOOKCASE, HOW DID YOU FIND OUT THE TERMS AT WHICH YOU WOULD BUY
2718= THE BOOKS? 2719= A. WELL, I HAD THE AMERICAN BOOKSELLERS ASSOCIATION RED BOOK,
2720= WHICH WAS THE MANUAL FOR LEARNING THE TERMS. 2721= Q. DID YOU HAVE TO BE FAMILIAR WITH THOSE TERMS?
2722= A. CERTAINLY. 2723= Q. AND HOW DID YOU BECOME FAMILIAR WITH THOSE TERMS?
2724= A. WELL, I WOULD OPEN THE BOOK UP AND LOOK AT IT, AND SEE WHAT
2725= THE DISCOUNT SCHEDULES WERE, WHAT THE NUMBERS WERE, QUANTITIES. 2726= Q. I GUESS WHAT I'M ASKING IS, WHAT ABOUT YOUR
2727= RESPONSIBILITIES REQUIRED YOU TO USE THE RED BOOK? 2728= A. WELL, YOU HAVE TO DECIDE WHEN YOU'RE BUYING BOOKS HOW
2729= YOU'RE GOING TO BUY THEM AND HOW MANY YOU'RE GOING TO BUY, AND 2730= FREQUENTLY YOUR DECISIONS ARE BASED ON WHAT YOUR DISCOUNT IS
2731= GOING TO BE, AND SO I WOULD USE THE RED BOOK TO SEE, IF I WAS 2732= PLACING AN ORDER, HOW MANY BOOKS I NEEDED TO, AND IF I ORDERED
2733= ONE MORE BOOK, I MIGHT GO UP ONE DISCOUNT POINT. 2734= Q. OKAY, AND SO YOU CONSULTED THE RED BOOK FREQUENTLY, I TAKE
2735= IT? 2736= A. OH, VERY FREQUENTLY.
39
39 Page 40 41
2737= Q. NOW, YOU MENTIONED THAT YOU DID SOME MARKETING AS AN OWNER. 2738= WHAT DID MARKETING ENTAIL?
2739= A. IT ENTAILED A NUMBER OF DIFFERENT THINGS. I PLACED SOME 2740= NEWSPAPER ADS, AND WE HAD AN IN-STORE NEWSLETTER, AND WE DID
2741= QUIT A FEW OUT-OF-STORE EVENTS. 2742= Q. AND DID YOU HAVE AN UNDERSTANDING, IN DOING THAT MARKETING,
2743= OF THE PUBLISHERS' COOPERATIVE ADVERTISING POLICIES? 2744= A. YES, I DID.
2745= Q. NOW, WHILE YOU OWNED YOUR BOOKSTORE, DID YOU BECOME 2746= INVOLVED IN ANY BOOK INDUSTRY ORGANIZATIONS OR ACTIVITIES?
2747= A. YES, I DID. I BECAME INVOLVED WITH THE AMERICAN 2748= BOOKSELLERS ASSOCIATION.
2749= Q. ANY OTHERS?
2750= A. WELL, I WAS INVOLVED WITH THE INTERNATIONAL BOOKSELLERS 2751= FEDERATION. I APPEARED ON A PANEL WITH A. A. P., THE
2752= PUBLISHERS --2753= Q. WOULD IT ASSIST YOU, MS. SEE, TO SEE A COPY OF YOUR RESUME?
2754= A. YES, AND I HAVE ONE RIGHT HERE. 2755= MR. SPIVA: AND JUST FOR EVERYBODY ELSE'S BENEFIT,
2756= MS. SEE'S RESUME IS ATTACHED TO TODAY'S BOOKLET AT 2281. 2757= I THINK IT'S THE VERY LAST EXHIBIT IN THE BOOKLET,
2758= YOUR HONOR. 2759= THE WITNESS: AND DURING THAT TIME I WAS INVOLVED --
2760= MR. SPIVA: ONE MOMENT, MS. SEE, WHILE EVERYBODY 2761= GETS TO THE SAME PLACE.
2762= I'M SORRY, I MISSPOKE. IT'S NOT 2281, IT'S 2609, 2763= YOUR HONOR, AND IT IS THE LAST EXHIBIT IN THE BOOK. SORRY,
2764= THIS BOOKLET, IF YOURS IS AS DIFFICULT TO TURN THE PAGES AS 2765= MINE.
2766= Q. ALL RIGHT, IF YOU COULD PLEASE CONTINUE, MS. SEE. 2767= A. FINE. DURING THAT TIME I WAS A MEMBER OF --ON THE BOARD
2768= OF GRAYWOLF PRESS, WHICH WAS A SMALL NONPROFIT PRESS IN 2769= MINNESOTA.
2770= Q. NOW, YOU SPOKE ABOUT YOUR INVOLVEMENT IN THE AMERICAN 2771= BOOKSELLERS ASSOCIATION. WHAT WAS YOUR INVOLVEMENT IN THE ABA?
2772= A. I WAS PRESIDENT OF THE AMERICAN BOOKSELLERS ASSOCIATION 2773= FROM 1984 TO 1986, AND I WAS ON THE BOARD FROM 1983 TO 1989.
2774= Q. WERE YOU INVOLVED IN THE ABA'S BOOKSELLERS' SCHOOLS?
2775= A. AND I WAS --CERTAINLY, I WAS ON THE FACULTY OF THE 2776= AMERICAN BOOKSELLERS SCHOOL DURING MOST OF --MOST OF MY
2777= BOOKSELLING CAREER. 2778= Q. I WANT TO ASK YOU A COUPLE QUESTIONS ABOUT YOUR PRESIDENCY
2779= AND YOUR TIME ON THE BOARD AT ABA. WHAT WERE ABA'S MAJOR 2780= INITIATIVES DURING THE TIME THAT YOU WERE PRESIDENT, AND ON THE
2781= BOARD? 2782= A. WELL, WE STARTED A COMMITTEE CALLED THE PUBLISHER PLANNING
2783= COMMITTEE AND WE WOULD MEET WITH PUBLISHERS TO DISCUSS WAYS 2784= THAT THE INDUSTRY COULD IMPROVE.
2785= Q. WHAT TYPES OF THINGS DID YOU DISCUSS WITH THE PUBLISHERS? 2786= A. WE DISCUSSED --WE DISCUSSED FREIGHT POLICIES. WE
2787= DISCUSSED WAYS WE COULD HELP ALL OF US WITH OUR PAPERWORK, 2788= HAVING SOME KINDS OF PROCEDURES THAT WERE UNIFORM AND THINGS --
2789= FOR EVERYBODY. 2790= Q. DID THAT RESULT IN ANY TYPES OF CHANGES IN THE INDUSTRY?
2791= A. PARDON? 2792= Q. DID THOSE DISCUSSIONS RESULT IN ANY CHANGES IN THE
2793= INDUSTRY? 2794= A. YES, BECAUSE THE FREIGHT PASS-THROUGH PROGRAM CAME DURING
2795= THAT TIME. WE ALSO DID SOMETHING TO HELP WITH SPECIAL ORDERS. 2796= WE CREATED SOMETHING CALLED THE SINGLE TITLE ORDER PLAN.
2797= Q. WOULD IT BE FAIR TO SAY THAT AS YOUR TIME --DURING YOUR 2798= TIME AS PRESIDENT OF THE ABA, ESSENTIALLY, YOU DISCUSSED
2799= SEVERAL ISSUES OF INDUSTRY STANDARDS AND PRACTICES WITH THE
2800= PUBLISHERS? 2801= A. YES, YES.
2802= Q. OKAY. NOW, YOU SPOKE OF THE BOOKSELLER SCHOOLS, THAT YOU 2803= WERE ON THE FACULTY OF THE BOOKSELLERS' SCHOOLS. WHAT ARE THE
2804= BOOKSELLERS' SCHOOLS? 2805= A. WELL, ABA HAD BOOKSELLERS' SCHOOLS AT DIFFERENT LEVELS.
2806= THEY WOULD HAVE A PROSPECTIVE BOOKSELLERS' SCHOOL FOR THOSE
40
40 Page 41 42
2807= THAT WERE INTERESTED IN THE GOING INTO THE BOOK BUSINESS, AND 2808= THEN THEY'D HAVE A PROFESSIONAL SCHOOL FOR THOSE THAT HAD BEEN
2809= IN THE BOOK BUSINESS, AND THEN AN ADVANCED, THAT WAS A LITTLE 2810= HIGHER LEVEL.
2811= Q. AND WHAT TYPES OF THINGS WERE TAUGHT AT THOSE SCHOOLS? 2812= A. WELL, WE TAUGHT EVERYTHING ABOUT HOW TO RUN AN EFFECTIVE
2813= BOOKSTORE, FROM BOOK BUYING, MARKETING, FINANCIAL PLANNING IS A 2814= KEY PART OF IT, AND WE HAD --WE WOULD OCCASIONALLY HAVE PEOPLE
2815= FROM THE PUBLISHING INDUSTRY COME AND TALK TO --AND TALK ABOUT 2816= THE PUBLISHING INDUSTRY AND HOW EVERYTHING WORKS.
2817= Q. WHAT TYPES OF CLASSES DID YOU TEACH AT THE BOOKSELLER 2818= SCHOOLS?
2819= A. I TAUGHT SOMETHING CALLED "TOOLS OF THE TRADE," WHICH WAS 2820= THE CLASS WHERE WE EXPLAINED HOW WE USED THE VARIOUS REFERENCE
2821= MATERIALS, PARTICULARLY THE RED BOOK, IN TERMS OF ORDERING. I 2822= TAUGHT MARKETING AND ADVERTISING. I ALSO HELPED OCCASIONALLY
2823= IN THE FINANCIAL SEMINARS. IT WAS REALLY ACROSS THE BOARD. IT 2824= WAS --WE ALL KIND OF CONTRIBUTED.

2825= Q. WHAT TYPES OF THINGS DID YOU TEACH IN THE FINANCIAL 2826= SEMINARS?
2827= A. WELL, WE TAUGHT INVENTORY MANAGEMENT, WE TAUGHT P& L 2828= STATEMENTS, ALL OF THAT KIND OF THING.
2829= Q. AND WHEN YOU SAY, "INVENTORY MANAGEMENT," CAN YOU DESCRIBE 2830= A LITTLE BIT FOR THE COURT WHAT YOU MEAN BY THAT?
2831= A. WELL, ONE OF THE KEYS OF RUNNING A SUCCESSFUL BOOKSTORE IS 2832= TO KEEP YOUR INVENTORY UNDER CONTROL, AND LEARNING HOW TO BUY
2833= IN A TIMELY MANNER BOOKS, AND SO YOU DON'T GET OVERLOADED WITH 2834= INVENTORY, AND THEREFORE, HAVE A CASH PROBLEM.
2835= Q. WAS ONE OF THE ISSUES WHEN TO BUY FROM A WHOLESALER VERSUS 2836= WHEN TO BUY FROM A PUBLISHER?
2837= A. YES, DEFINITELY, BECAUSE AGAIN, YOU HAVE TRADEOFFS, AND SO 2838= IT WAS A QUESTION OF HOW TO USE THE WHOLESALER FOR
2839= REPLENISHMENT OF SUPPLIES, BECAUSE THE WHOLESALER ORDERS WOULD 2840= COME IN VERY QUICKLY, AND WHEN TO HAVE YOUR ORDERS GO TO THE
2841= PUBLISHER, WHERE YOU GET THE HIGHER DISCOUNT. 2842= Q. NOW, CAN YOU DESCRIBE THE MEMBERSHIP OF THE ABA DURING YOUR
2843= TENURE THERE AS PRESIDENT AND ON THE BOARD? 2844= A. WELL, THE MEMBERSHIP WERE BOOKSELLERS ALL ACROSS THE
2845= COUNTRY OF ALL KINDS, GENERAL INTEREST, SMALL STORES, AND 2846= LARGER STORES. THERE WERE SPECIALTY STORES, MUSEUM STORES AND
2847= AT THAT TIME WE HAD WALDEN AND B. DALTON. 2848= Q. WHAT ABOUT BARNES & NOBLE, WERE THEY A MEMBER AT THE TIME?
2849= A. WELL, B. DALTON --BARNES & NOBLE BOUGHT B. DALTON IN THE
2850= LATE 80'S, AND I BELIEVE FOR A TIME THEY WERE STILL A MEMBER. 2851= Q. NOW, WHAT TYPES OF INDUSTRY PANELS HAVE YOU SERVED ON
2852= DURING YOUR 30 YEARS IN THE BOOK BUSINESS? 2853= A. WELL, AT THE AMERICAN BOOKSELLERS ASSOCIATION CONVENTION
2854= EVERY YEAR, THE ABA, I SERVED ON MANY PANELS, IN MANY DIFFERENT 2855= AREAS.
2856= Q. HAVE YOU EVER SERVED ON AN ANY PANELS FOR PUBLISHER 2857= ORGANIZATIONS?
2858= A. I WENT TO THE A. A. P., THE AMERICAN ASSOCIATION OF 2859= PUBLISHERS, AND THEY INVITED THREE OF US TO COME, YES. WE HAD
2860= A VERY INTERESTING PANEL. 2861= Q. WHAT WAS THAT PANEL?
2862= A. WELL, IT WAS A PANEL --THEY REALLY WANTED TO UNDERSTAND 2863= SOME OF THE ISSUES THAT INDEPENDENT BOOKSELLERS FACED, AND ED
2864= MORROW AND JOYCE MESKIS AND MYSELF CAME, REPRESENTING DIFFERENT 2865= KINDS OF STORES, AND THEY JUST --IT WAS JUST, I THINK, AN
2866= INFORMATIONAL PANEL. 2867= Q. AND YOU SOLD YOUR BOOKSTORE IN 1990, IS THAT RIGHT?
2868= A. CORRECT. 2869= Q. WHY DID YOU SELL IT?
2870= A. WELL, FOR A VARIETY OF REASONS. I THINK THERE COMES A TIME 2871= IN LIFE WHEN IT'S GOOD TO DO SOMETHING NEW. I HAD BEEN IN THE
2872= BOOKSTORE FOR 18 YEARS AND SO IT WAS JUST TIME TO MAKE A 2873= CHANGE.
2874= Q. AND WHAT DID YOU DO AFTER YOU SOLD IT?
2875= A. WELL, AFTER I SOLD IT, I HAVE --I HAD BEEN TALKING TO A --2876= ANOTHER BOOKSELLER, DAVID UNOWSKY IN ST. PAUL, AND WE HAD
41
41 Page 42 43
2877= TALKED OVER THE YEARS ABOUT THE POSSIBILITY OF FORMING A 2878= PUBLISHING COMPANY IN THE TWIN CITIES AREA. AND SO THAT'S THE
2879= DIRECTION I WENT IN. 2880= Q. WERE YOU LOOKING AT --STARTING A FOR-PROFIT OR NONPROFIT
2881= PUBLISHER? 2882= A. WE HAD DECIDED WE WOULD TAKE THE CHALLENGE OF STARTING A
2883= FOR-PROFIT PUBLISHING HOUSE. WE HAVE IN MINNEAPOLIS, THE TWIN 2884= CITIES AREA, FOUR VERY STRONG NON-PROFITS.
2885= Q. AND I TAKE IT FROM WHAT YOU SAID EARLIER, ONE OF THOSE IS 2886= GRAYWOLF PRESS?
2887= A. GRAYWOLF, YES. 2888= Q. OKAY. NOW, WHAT DID YOU DO TO IMPLEMENT THIS PLAN THAT YOU
2889= SPOKE OF, OF STARTING A FOR-PROFIT PUBLISHING HOUSE? 2890= A. WELL, IN THE BEGINNING WE FORMED A FAIRLY LARGE INVESTOR
2891= GROUP TO LOOK AT BUYING AN EXISTENT PUBLISHER AND BRINGING IT 2892= TO THE TWIN CITIES, AND WE SPENT ABOUT TWO YEARS DOING --WELL,
2893= WE LOOKED AT FIVE GENERALLY AND THREE VERY SPECIFICALLY, AND 2894= DID, YOU KNOW, THE DUE DILIGENCE AND WENT OUT AND LOOKED AT
2895= THEM, AND THEN FINALLY, MADE THE DECISION THAT WE WOULD GO THE 2896= MORE CHALLENGING ROUTE AND START OUR OWN PUBLISHING HOUSE.
2897= THE COURT: MR. SPIVA, ARE YOU QUALIFYING THE 2898= WITNESS?
2899= MR. SPIVA: YES, SIR. YES, YOUR HONOR.
2900= THE COURT: AS AN EXPERT SPECIFICALLY IN WHAT? 2901= MR. SPIVA: WE ARE GOING TO QUALIFY HER AS AN EXPERT
2902= IN THE BOOK INDUSTRY FOR THE PURPOSE OF DESCRIBING INDUSTRY 2903= PRACTICES AND THE SALE OF BOOKS FROM PUBLISHERS AND WHOLESALERS
2904= TO BOOKSTORES, AND FOR THE PURPOSES, YOUR HONOR, OF COMPARING 2905= PUBLISHERS' AND WHOLESALERS' STANDARD TERMS AND CONDITIONS OF
2906= SALE WITH THOSE RECEIVED BY THE DEFENDANTS. 2907= AND I THINK I UNDERSTAND THE THRUST OF YOUR HONOR'S
2908= QUESTION. WE WON'T BE SPENDING TOO MUCH MORE TIME ON THIS, BUT 2909= I THINK IT WILL BECOME APPARENT FROM THE BACKGROUND WE'RE GOING
2910= THROUGH NOW, THE RELEVANCE OF MS. SEE'S EXPERIENCE IN DOING DUE 2911= DILIGENCE IN LOOKING TO PURCHASE A PUBLISHER.
2912= THE COURT: YES, WELL, I THINK THAT YOU'VE QUALIFIED 2913= HER AMPLY, AND I HAVE REVIEWED THE RESUME BRIEFLY. SO AFTER
2914= THE RECESS WHICH WE'RE ABOUT TO TAKE, I THINK WE CAN GET DOWN 2915= TO WHAT I CALL BRASS TACKS.
2916= MR. SPIVA: YES, YOUR HONOR, WE'LL GO TO THE HEART 2917= OF THE COCONUT.
2918= THE COURT: COURT WILL BE IN RECESS TILL 11: 45 --2919= 11: 50.
2920= CONTINUED ON FOLLOWING PAGE. NOTHING OMITTED. 2921= (RECESS TAKEN AT 11: 34 A. M.)
2922= 2923=
2924=
2925= THE COURT: ALL RIGHT. MR. SPIVA, YOU MAY PROCEED. 2926= MR. SPIVA: THANK YOU, YOUR HONOR.
2927= Q. NOW, MS. SEE, I'M GOING TO TRY TO KEEP THESE QUESTIONS BRIEF 2928= 'CAUSE THERE HAS BEEN TESTIMONY ON THIS PREVIOUSLY.
2929= A. RIGHT. 2930= Q. BUT I DO --JUST TO SET THE STAGE FOR YOUR TESTIMONY, WHAT
2931= KINDS OF TERMS ARE INCLUDED IN THE RED BOOK, WHICH HAS BEEN 2932= PREVIOUSLY IDENTIFIED?
2933= A. WELL, DISCOUNT SCHEDULES. IT HAS CERTAINLY ALL PUBLISHERS. 2934= FREQUENTLY THEY PUT THE CO-OP POLICIES, ALTHOUGH IT'S BEEN KNOWN
2935= THAT SOME PUBLISHERS DON'T PUT THE CO-OP POLICY, THE RETURN 2936= POLICIES, FREIGHT POLICIES MOST OF THE TIME.
2937= Q. ARE THERE TYPES OF TERMS OF SALE WHICH ARE NOT IN THE RED 2938= BOOK?
2939= A. YES. AS WE'VE ALREADY HEARD, STOCK OFFERS BECAUSE THEY'RE 2940= SEASONAL AND TIME LIMITED, THEY'RE NOT IN THE RED BOOK. AND, AS
2941= I SAID, SOME CO-OP POLICIES. 2942= Q. NOW, IN YOUR EXPERIENCE, HOW DO PUBLISHERS COMMUNICATE THOSE
2943= TERMS SUCH AS STOCK OFFERS THAT ARE NOT IN THE RED BOOK? HOW DO 2944= THEY COMMUNICATE THOSE TO BOOKSELLERS?
2945= A. WELL, ONE WAY IS, OF COURSE, THE REP HAS THEM WHEN HE COMES 2946= IN AND CALLS ON YOU OR HE WILL CALL AND LET YOU KNOW AND THEN
2947= SEND IT TO YOU BY MAIL. THEY FAX IT. AND SOMETIMES, THEY'RE
42
42 Page 43 44
2948= PUBLISHED IN THE PUBLISHERS WEEKLY. 2949= Q. IN YOUR EXPERIENCE, ARE THEY USUALLY OR ALMOST ALWAYS IN
2950= WRITING? THE STOCK OFFERS? 2951= A. YES. YES.
2952= Q. NOW, DO YOU FIND OUT ABOUT CO-OP, COOPERATIVE ADVERTISING, 2953= IF IT'S NOT PUBLISHED?
2954= A. IF IT'S NOT PUBLISHED. WELL, AGAIN, YOU CAN CALL THE 2955= PUBLISHER AND FIND OUT THERE. AND OCCASIONALLY, THERE'LL BE A
2956= SINGLE BOOK THAT WILL BE ADVERTISED IN PUBLISHERS WEEKLY AND 2957= THEY'LL HAVE A NOTE ON THE BOTTOM OF THE CO-OP AVAILABLE FOR A
2958= SINGLE TITLE. 2959= Q. IN YOUR EXPERIENCE, IS THERE ANYTHING IN PUBLISHERS'
2960= CATALOGS ABOUT CO-OP --2961= A. YES, SOMETIMES IN PUBLISHERS' CATALOGS, THEY WILL DELINEATE
2962= THE CO-OP POLICIES. 2963= Q. NOW, I WANT TO TURN TO THE TOPIC SPECIFICALLY OF STOCK
2964= OFFERS. AND, AGAIN, WE'VE HAD TESTIMONY ABOUT STOCK OFFERS 2965= WHICH I'M NOT ASKING YOU TO REPEAT. BUT WHAT I WOULD LIKE TO
2966= ASK YOU IS WHAT ARE THE CRITICAL ELEMENTS OF A STOCK OFFER? 2967= A. WELL, OBVIOUSLY THE --THE FIRST ELEMENT IS EXTRA DISCOUNT.
2968= AND THEN, DATING, WHICH IS AN EXTENDED TIME TO PAY. FREQUENTLY, 2969= THERE'S FREE FREIGHT, BUT DIFFERENT PUBLISHERS FORMAT THEIR
2970= STOCK OFFERS IN DIFFERENT WAYS, BUT IT'S ALMOST ALWAYS LIMITED 2971= IN TIME AND LIMITED --MOST OFTEN LIMITED IN TO THE NUMBER OF
2972= ORDERS YOU CAN PLACE WITHIN THAT TIME PERIOD. 2973= Q. AND ARE THERE SOMETIMES OTHER RESTRICTIONS ON STOCK OFFERS?
2974= A. OTHER RESTRICTIONS ON STOCK OFFERS?
2975= Q. SUCH AS IN TERMS OF QUANTITIES YOU HAVE TO PURCHASE? 2976= A. OH, YES, OF COURSE. BECAUSE YOU USUALLY HAVE TO HAVE A
2977= CERTAIN QUANTITY TO QUALIFY FOR THE STOCK OFFER BECAUSE 2978= OBVIOUSLY THE VERY NAME OF IT, STOCK OFFERS, THE PUBLISHERS WANT
2979= TO YOU STOCK UP ON THEIR BOOKS. 2980= Q. NOW, WHAT IS THE PURPOSE FROM THE PUBLISHERS' PERSPECTIVE OF
2981= A STOCK OFFER? 2982= A. WELL, THE --THE PURPOSE, AS I SAID, IS TO HAVE YOU STOCK UP
2983= ON THEIR BOOKS. AND THEY DO FREQUENTLY OFFER THEM ON A SEASONAL 2984= BASIS. THEY'LL OFFER THEM IN THE FALL FOR THE MOST --THE
2985= BUSIEST SELLING SEASON, WHICH IS, OF COURSE, THE HOLIDAY TIME. 2986= THEY MIGHT DO A SUMMER STOCK OFFER OR SOMETHING LIKE THAT.
2987= Q. AND SO IS IT YOUR TESTIMONY BASICALLY THAT THEY'RE TRYING TO 2988= GET THE STORE TO PURCHASE MORE BOOKS?
2989= A. RIGHT. 2990= Q. AT A CERTAIN TIME IN THE YEAR?
2991= A. CORRECT. WHEN --MOST OFTEN, THEY WANT IT WHEN THE STORE --2992= THE SPRING --THEY WILL OFFER IT WHEN THE STORE PROBABLY ISN'T
2993= GOING TO BUY AS MANY BOOKS BECAUSE THAT'S A SLOWER SELLING 2994= SEASON.
2995= Q. WHAT ARE THE ADVANTAGES TO THE BOOKSTORE FROM THE 2996= BOOKSELLERS' PERSPECTIVE OF PARTICIPATING IN A STOCK OFFER?
2997= A. WELL, WHEN YOU HAVE A STOCK OFFER, YOU HAVE TO CONSIDER 2998= COUPLE OF TRADE-OFFS. OBVIOUSLY, WHEN YOU'RE BUYING MORE BOOKS
2999= UNDER THE STOCK OFFER, YOU'RE GETTING --EXCUSE ME --AN
3000= ADDITIONAL DISCOUNT, BUT YOU HAVE TO BALANCE THAT AGAINST YOUR 3001= TURN, AND YOUR TURN IS, OF COURSE, THE SALES DIVIDED BY THE
3002= AVERAGE INVENTORY, SO --3003= Q. CAN I STOP YOU THERE FOR JUST A SECOND?
3004= A. CERTAINLY. 3005= Q. YOU'VE DEFINED THE WORD "TURN" IN A --IN THE TECHNICAL --
3006= TECHNICAL MANNER. CAN YOU EXPLAIN THAT TO THE LAYPERSON, WHAT 3007= IT REALLY MEANS, WHAT THE CONCEPT IS?
3008= A. IT MEANS HAVING AS LEAN A STOCK AS YOU CAN AND NOT LOSING 3009= SALES.
3010= Q. NOW, SORRY I INTERRUPTED YOU. YOU WERE SAYING --YOU WERE 3011= TESTIFYING REGARDING THE TRADEOFF INVOLVED.
3012= A. WELL, THERE'S A TRADEOFF IN THAT OBVIOUSLY IF YOU'RE GOING 3013= TO BRING THESE BOOKS IN AND GET A HIGHER DISCOUNT. THAT'S AN
3014= ADVANTAGE. BUT YOU BALANCE THAT AGAINST, AS I SAY, THIS 3015= JUST-IN-TIME INVENTORY, TRYING TO GET KEEP YOUR INVENTORY AS
3016= LEAN AS POSSIBLE WITHOUT LOSING SALES. AND, OF COURSE, STORES 3017= TODAY HAVE DEVELOPED BECAUSE OF THE TECHNOLOGY VERY
43
43 Page 44 45
3018= SOPHISTICATED JUST-IN-TIME INVENTORY SYSTEMS. 3019= BUT IF THE STORE DECIDES THAT THEY'RE GOING TO USE
3020= THE STOCK OFFER, THEY HAVE TO TAKE --TO MAKE THIS DECISION 3021= BETWEEN TURN AND DISCOUNT. BUT THERE'S ONE OTHER THING, AND
3022= THAT IS YOU BRING THOSE BOOKS IN, YOU MAY NOT NECESSARILY HAVE A 3023= SELL-THROUGH ON ALL THOSE BOOKS. THEY MAY NOT ALL SELL, AND YOU
3024= MAY HAVE THEN THE ADDED EXPENSE OF RETURNING THE BOOKS.
3025= Q. OKAY. WELL, NOW, IF THE BOOKS ARE RETURNABLE, WHAT'S THE 3026= COST TO THE BOOKSTORE REALLY OF HAVING TO RETURN THEM?
3027= A. WELL, THERE'S THE COST IN JUST THE LABOR OF RETURNING THEM, 3028= PACKING THEM UP AND OFTENTIMES, YOU KNOW, MAKING --MAKING YOUR
3029= LISTS AND THEN SENDING THEM BACK AND THEN WAITING FOR YOUR 3030= CREDIT.
3031= Q. NOW, HAVE YOU REVIEWED ANY OF THE DEFENDANTS' DOCUMENTS 3032= RELATING TO STOCK OFFERS?
3033= A. I HAVE. 3034= Q. AND WHAT DID YOU FIND?
3035= A. WELL, I FOUND THAT THE DEFENDANTS PURCHASED --FREQUENTLY 3036= USED STOCK OFFERS TO PURCHASE BOOKS OUTSIDE THE TIME FRAME THAT
3037= THE STOCK OFFERS DEFINED, AND OFTEN THEY PLACED MORE ORDERS WERE 3038= ALLOWED UNDER THE STOCK OFFER.
3039= MR. PETROCELLI: YOUR HONOR, I DON'T WISH TO 3040= INTERRUPT, BUT I JUST WANT TO MAKE AN OBJECTION THAT ON --SHE
3041= WAS PERMITTED TO TESTIFY AS AN EXPERT, BUT AS WE POINTED OUT, A 3042= GREAT DEAL OF HER TESTIMONY MAY RELATE TO HER SIMPLY LOOKING AT
3043= DEFENDANTS' DOCUMENTS AND INTERPRETING THEM. 3044= AND I BELIEVE THAT EXPERT TESTIMONY IS NOT REQUIRED
3045= TO TELL THE COURT WHAT A DOCUMENT SAYS AND THAT THE DOCUMENTS 3046= THEMSELVES, AS WELL AS THE DEPOSITION TESTIMONY, IS THE BEST
3047= EVIDENCE OF WHAT THEY SAY. 3048= I'D LIKE TO ALSO ADD THAT THEY DID NOT PURPORT TO
3049= JUSTIFY HER TESTIMONY AS A SUMMARY WITNESS UNDER RULE 1006. WE
3050= POINTED THAT OUT IN OUR MOTION IN LIMINE. THEY DIDN'T RESPOND 3051= INDICATING THAT THAT WAS AN ADDITIONAL BASIS. SO I --MY
3052= OBJECTION IS TO THE EXTENT THAT SHE IS TESTIFYING ABOUT THE 3053= CONTENTS OF DOCUMENTS AS SHE DID IN THE PRIOR ANSWER, AS WELL AS
3054= ANY DEPOSITION TESTIMONY, ON THE GROUND OF THE BEST EVIDENCE 3055= RULE, THERE'S NO FOUNDATION, AND IT DOESN'T RELATE TO HER EXPERT
3056= OPINION. 3057= MR. SPIVA: MAY I RESPOND, YOUR HONOR?
3058= THE COURT: YES. 3059= MR. STEER: YOUR HONOR, BEFORE --I WANT TO JOIN IN
3060= MR. PETROCELLI'S OBJECTION. 3061= THE COURT: YES.
3062= YES, MR. SPIVA. 3063= MR. SPIVA: YES, YOUR HONOR. THIS WAS THE SUBJECT OF
3064= A MOTION IN LIMINE WHICH YOUR HONOR DECIDED. AS WE EXPRESSED IN 3065= OUR PAPERS, MS. SEE IS DOING MUCH MORE THAN SIMPLY READING WHAT
3066= IS IN DEFENDANTS' DOCUMENTS. HER INDUSTRY EXPERTISE IS 3067= NECESSARY TO UNDERSTAND WHAT'S IN THOSE DOCUMENTS AND TO EXPLAIN
3068= HOW THEY COMPARE TO THE INDUSTRY STANDARDS AND PRACTICES AS 3069= MISS SEE KNOWS IT. AND THIS IS SOMETHING THAT HAS BEEN
3070= PERMITTED BY MANY COURTS IN SIMILAR CONTEXT. 3071= WE CITE SEVERAL CASES INVOLVING PUBLISHING AND
3072= BOOKSELLING INDUSTRY EXPERTS IN OUR PAPERS AND ALSO EVEN OUTSIDE 3073= OF THAT CONTEXT, I BELIEVE IT WAS THE IACOBELLI CASE WHERE
3074= SIMILARLY AN EXPERT WAS PERMITTED TO OPINE ON INDUSTRY
3075= STANDARDS, AS COMPARED TO THE --THE TERMS AND CONDITIONS OF THE 3076= DEFENDANTS.
3077= THE COURT: WELL, IN THIS COURT, SHE'S BEEN QUALIFIED 3078= AS AN INDUSTRY EXPERT. AND I WANT HER TO TESTIFY AS AN EXPERT.
3079= AND SHE'S NOT A SUMMARY WITNESS. AND SO I'M --THE TESTIMONY 3080= SHOULD BE LIMITED TO HER EXPERIENCE AS AN EXPERT AND NOT IN
3081= EFFECT, AS SHE JUST STARTED, AS A SUMMARY WITNESS. 3082= MR. SPIVA: YES, YOUR HONOR. WE WILL DO THAT NOW.
3083= WILL YOU ALLOW ME SOME LATITUDE TO SHOW HER SOME 3084= DOCUMENTS AND IF YOUR HONOR FEELS THAT I'M GOING BEYOND THE
3085= BOUNDS OF YOUR ORDER, I CAN --CERTAINLY WOULD BRING IT WITHIN 3086= THE BOUNDS.
3087= I THINK IT WILL BECOME APPARENT WHEN SHE IS SPEAKING
44
44 Page 45 46
3088= OF CERTAIN DEFENDANTS' DOCUMENTS THAT SHE IS DOING MUCH MORE 3089= THAN JUST SUMMARIZING, YOUR HONOR. SHE IS ACTUALLY EXPLAINING
3090= IT BASED ON HER INDUSTRY EXPERIENCE. 3091= THE COURT: WELL, THAT HASN'T BEEN TRUE IN THE
3092= TESTIMONY TO DATE. AND I WANT --AND I REALIZE THAT SHE'S HAD 3093= EXPERIENCE, WHICH WOULD QUALIFY HER BOTH UNDER SECTION 702 AND I
3094= THINK 704, BUT I WANT HER --WITNESS TO TESTIFY AS TO WHAT SHE 3095= IS QUALIFIED TO TESTIFY AS.
3096= AND YOU COULD MAKE --AFTER YOU'VE GONE THROUGH HER 3097= TESTIFYING AS AN EXPERT WITHOUT LOOKING AT THE DOCUMENTS, YOU
3098= MAY THEN MAKE AN OFFER OF PROOF, BUT I THINK THAT WOULD COME 3099= PREFERABLY AFTER HER TESTIMONY AS AN EXPERT. I'D LISTEN TO THE

3100= OFFER OF PROOF AND LOOK AT THE DOCUMENTS, BUT I HAVEN'T HAD AN 3101= OPPORTUNITY TO DO THAT.
3102= MR. SPIVA: YES, YOUR HONOR. 3103= THE COURT: --LISTENING TO HER SAY WHAT THE DOCUMENT
3104= SAYS, AND THAT'S NOT SATISFACTORY. 3105= MR. SPIVA: YES, YOUR HONOR. WE WILL PROCEED IN THAT
3106= WAY. 3107= THE COURT: ALL RIGHT.
3108= BY MR. SPIVA: 3109= Q. NOW, MISS SEE, YOU TESTIFIED A MOMENT AGO THAT YOU FOUND
3110= THAT THE DEFENDANTS HAD OFTEN PURCHASED OUTSIDE OF THE TIME 3111= WINDOWS PERMITTED BY CERTAIN PUBLISHED STOCK OFFERS. WHAT AS AN
3112= INDUSTRY EXPERT IS THE SIGNIFICANCE OF THAT? WHY DOES THAT 3113= MATTER?
3114= A. WELL, THEN THEY ARE ABLE TO CONTINUE TO GET THE BENEFITS OF 3115= THE STOCK OFFER BEYOND THE --BEYOND THE TIME FRAME. FIRST OF
3116= ALL, IT'S A CONTRADICTION IN TERMS BECAUSE THE STOCK OFFER IS 3117= TIME RELATED.
3118= Q. WHAT TYPE OF ADVANTAGE WOULD THAT GIVE A BOOK STORE, TO BE 3119= ABLE TO PURCHASE UNDER THE TERMS OF THE STOCK OFFER OUTSIDE OF
3120= THE TIME FRAME PERMITTED BY THE STOCK OFFER? 3121= A. IT EXTENDS THE TIME THEY GET THE ADDITIONAL DISCOUNT. AND
3122= THAT'S VERY ADVANTAGEOUS. 3123= Q. DOES THAT MAKE ANY DIFFERENCE TO THE INVENTORY MANAGEMENT
3124= THAT YOU SPOKE OF IN YOUR --BEGINNING OF YOUR TESTIMONY?
3125= A. WELL, YES. YOU'D HAVE TO BALANCE THAT OFF AGAINST THE --3126= THE --BUT --BUT I'VE SEEN EVIDENCE THAT ALSO THE DEFENDANTS
3127= WERE ABLE TO BUY THE --TO EXTEND NOT ONLY THE TIME OF THE STOCK 3128= OFFERS, BUT TO TAKE MORE --PLACE MORE ORDERS THAN WERE ALLOWED
3129= UNDER THE STOCK OFFER. 3130= MR. PETROCELLI: YOUR HONOR, I MOVE TO STRIKE.
3131= THE COURT: MOTION TO STRIKE IS GRANTED. 3132= NOW, GET BACK TO WHAT I SUGGESTED SHE DO, MR. SPIVA.
3133= MR. SPIVA: YES, YOUR HONOR. 3134= Q. MISS SEE, IN YOUR EXPERIENCE, ARE INDIVIDUAL BOOKSTORES
3135= PERMITTED TO NEGOTIATE THE TERMS OF STOCK OFFERS INDIVIDUALLY 3136= WITH PUBLISHERS?
3137= A. NO. 3138= THE COURT: WHY NOT?
3139= THE WITNESS: WHY AREN'T THEY? YOU MEAN, WHY --3140= BECAUSE THE STOCK OFFER HAS --IS A PUBLISHED DOCUMENT, AND IT
3141= HAS A TIME FRAME, AND IT HAS THE CONDITIONS. AND IN OUR 3142= INDUSTRY, WE HAVE STANDARDS THAT THE INDUSTRY GOES BY. AS YOU
3143= SAW IN MY --3144= THE COURT: THIS SOUNDS LIKE THE OLD NRA.
3145= THE WITNESS: WELL, I DON'T KNOW ABOUT THAT. BUT AS 3146= YOU NOTED IN MY --IN MY REPORT, I TALKED ABOUT THE FACT THAT
3147= ONE OF THE THINGS THAT'S DIFFERENT ABOUT THE BOOK --TO ME ABOUT 3148= THE BOOKSELLING INDUSTRY IS THAT WE DO HAVE THESE --THE RED
3149= BOOK TERMS, WHICH EVERYBODY LIVES BY. AND NEGOTIATING FOR TERMS
3150= IS JUST NOT PART OF WHAT IS DONE, ALTHOUGH I'VE HEARD THIS 3151= MORNING THAT IT IS DONE.
3152= BY MR. SPIVA: 3153= Q. MISS SEE --
3154= MAYBE I SHOULD FOLLOW UP ON YOUR HONOR'S QUESTION. 3155= ARE YOU SAYING THAT IT'S WRONG TO NEGOTIATE IN ALL
3156= CIRCUMSTANCES? 3157= A. WELL, AS YOU --AS WAS READ OUT FROM MY REPORT THIS MORNING,
45
45 Page 46 47
3158= I --WHAT I'M SAYING IS I THINK THAT EVERYBODY SHOULD HAVE THE 3159= SAME TERMS, EVERYBODY SHOULD PLAY BY THE SAME RULES.
3160= THE COURT: WHY SHOULDN'T THEY --3161= THE WITNESS: NEGOTIATE --
3162= THE COURT: WHY ISN'T PART OF IT THE AMERICAN 3163= ENTREPRENEURIAL SYSTEM?
3164= THE WITNESS: BUT THEN --3165= THE COURT: THEY GET IN AND GET A BETTER PRICE?
3166= THE WITNESS: THE BOOK BUSINESS HAS BEEN DIFFERENT ON 3167= THAT, YOUR HONOR. AND WE HAVE REALLY HAD A TRADITION WHERE
3168= EVERYBODY WAS --THE DISCOUNTS DID ALLOW YOU TO GET GREATER --3169= BETTER TERMS FOR HIGHER VOLUME, BUT IT WAS ALSO THE TRADITION
3170= THAT EVERYBODY HAD THE SAME TERMS OF SALE. NOW, YOU SAY --3171= THE COURT: TRADITION DOESN'T HAVE MUCH LEGAL
3172= UNDERPINNING WHEN WE'RE TALKING ABOUT THE AMERICAN CAPITALISTIC 3173= SYSTEM OF MAKING A --GETTING THE BEST PRICE YOU COULD POSSIBLY
3174= GET WITHIN THE PARAMETERS OF THE LAW. IT'S THE LAW THAT
3175= GOVERNS, IT'S NOT TRADITION. 3176= THE WITNESS: IT'S NOT TRADITION? WELL, I'M NOT A
3177= LAWYER; HOWEVER MY POINT ABOUT THIS IS THAT IF EVERYBODY IS 3178= PAYING BY THE SAME RULES, THAT'S ALSO PART OF THE AMERICAN
3179= TRADITION. 3180= BY MR. SPIVA:
3181= Q. OKAY. 3182= A. NO?
3183= Q. MISS SEE, YOU CAN'T ASK THE JUDGE QUESTIONS. 3184= A. SORRY. SORRY.
3185= Q. LET ME CONTINUE ALONG THIS LINE. YOU --WHAT TYPE OF 3186= ADVANTAGE WOULD IT GIVE A --A BOOKSTORE, FOR INSTANCE, TO PLACE
3187= MORE ORDERS THAN ARE PERMITTED UNDER A STOCK OFFER, TO PLACE 3188= THEM OVER A LONGER PERIOD OF TIME?
3189= A. BECAUSE THEN WE GET BACK TO YOUR INVENTORY MANAGEMENT. THEN 3190= YOU'D BE ABLE TO BRING YOUR BOOKS IN ON A --ON A TIMELY BASIS
3191= AND NOT HAVE TO BRING THEM ALL IN AT ONCE AND PAY FOR THEM ALL 3192= AT ONCE.
3193= Q. WHAT'S --WHAT TYPE OF EFFECT DOES THAT HAVE ON A 3194= BOOKSTORE'S PROFITABILITY?
3195= A. IT HAS A --IT HAS AN ENORMOUS EFFECT UNDER PROFITABILITY. 3196= IT GOES BACK TO WHAT I WAS TALKING ABOUT WITH TURN. THE GREATER
3197= TURN YOU HAVE, THE GREATER PROFITABILITY. 3198= Q. SO IF I UNDERSTAND YOU CORRECTLY, THEN, IF YOU HAD A
3199= SITUATION WHERE YOU HAD A PUBLISHED STOCK OFFER WHICH REQUIRED
3200= THAT PURCHASES BE MADE AT ONE POINT IN TIME OR WITHIN A 3201= SPECIFIED POINT IN TIME BUT THE BOOKSTORE WERE PERMITTED TO MAKE
3202= PURCHASES OVER A MUCH --OVER A LONGER PERIOD OF TIME THAN 3203= PERMITTED, THAT WOULD GIVE THE BOOKSTORE AN ADVANTAGE IN TERMS
3204= OF INVENTORY MANAGEMENT? 3205= A. CORRECT.
3206= Q. MS. SEE, IN YOUR EXPERIENCE, ARE STOCK OFFERS, ARE THERE ANY 3207= PERMANENT STOCK OFFERS?
3208= A. NO. AS I SAID, THAT'S ALMOST A CONTRADICTION IN TERMS, 3209= BECAUSE THEY ARE TIME --MOST GENERALLY WITHIN A CERTAIN TIME
3210= FRAME. 3211= Q. ARE STOCK OFFERS INTENDED TO INCREASE A BOOKSELLER'S
3212= DISCOUNT ON ALL PURCHASES THAT THE BOOKSTORE MAKES FROM A GIVEN 3213= PUBLISHER?
3214= A. NO, IT'S ONLY ON --DISCOUNT IS ONLY INCREASED ON PURCHASES 3215= UNDER THE STOCK OFFER.
3216= Q. NOW --I WANT TO FOCUS ON THAT FOR A MINUTE. ISN'T IT THE 3217= CASE THAT IN RECENT YEARS SOME PUBLISHERS HAVE OFFERED STOCK
3218= OFFERS OVER A LONGER PERIODS OF TIME THAN TRADITIONALLY THEY HAD 3219= IN PRIOR YEARS?
3220= A. YES, I BELIEVE IT WAS BANTAM DOUBLEDAY DELL HAD SOMETHING 3221= CALLED A FLEX OFFER --
3222= Q. OKAY. 3223= A. --WHICH --
3224= Q. HOW THE --
3225= A. --BASICALLY RAN FOR A YEAR. 3226= Q. CAN YOU DESCRIBE GENERALLY HOW BANTAM DOUBLEDAY DELL'S
3227= FLEXIBLE STOCK OFFER OPERATED?
46
46 Page 47 48
3228= A. WELL, IT WAS --I BELIEVE IT WAS TWO DIFFERENT TIME PERIODS, 3229= AND YOU COULD ORDERS YOUR BOOKS EITHER IN ONE SIX-MONTH PERIOD
3230= OR ANOTHER SIX-MONTH PERIOD, SO IT BASICALLY BECAME A STOCK 3231= OFFER THAT WAS EXTENDED OVER THE YEAR.
3232= BUT, AGAIN, THEY HAD CONDITIONS, BECAUSE I BELIEVE 3233= YOU COULD PLACE FOUR ORDERS.
3234= Q. NOW, YOU MEAN --WHEN YOU SAY THEY COULD --ONE COULD PLACE 3235= FOUR ORDERS, A BOOKSTORE COULD PLACE FOUR ORDERS UNDER THE STOCK
3236= OFFER, DO YOU MEAN THAT WOULD BE FOUR DISCREET POINTS IN TIME? 3237= A. YES, I BELIEVE THAT'S WHAT IT WAS OR WAS IT --YES.
3238= Q. NOW --3239= THE COURT: I DON'T UNDERSTAND. I DON'T UNDERSTAND
3240= THAT AT ALL. 3241= THE WITNESS: WELL, THIS IS WHY --
3242= THE COURT: WILL YOU TAKE IT FROM THE BEGINNING? 3243= THE WITNESS: IT'S VERY COMPLICATED.
3244= BY MR. SPIVA: 3245= Q. WAIT, MISS SEE. ACTUALLY LET ME DIRECT YOU A LITTLE BIT
3246= HERE IN TERMS OF --WE DON'T WANT TO START A COLLOQUY. 3247= THE COURT: I ASKED A QUESTION.
3248= MR. SPIVA: OH, I'M SORRY, YOUR HONOR. 3249= THE COURT: AND I WANT AN ANSWER FROM THE WITNESS.

3250= THE WITNESS: WELL, THAT'S WHY IF I COULD SHOW YOU 3251= THE DOCUMENTS --IT'S VERY COMPLICATED WITH THESE STOCK OFFERS
3252= BECAUSE SOME OF THEM ARE GIVEN WITH --ONE OF THE CONDITIONS OF 3253= THE STOCK OFFERS IS YOU CAN PLACE A CERTAIN NUMBER OF ORDERS IN
3254= A CERTAIN TIME PERIOD. THE STOCK OFFER WE WERE JUST TALKING 3255= ABOUT WAS A LITTLE DIFFERENT IN THAT YOU COULD --IT WAS CALLED
3256= A FLEX STOCK OFFER, AND IT EXTENDED FOR A YEAR, AND THAT'S VERY 3257= UNUSUAL FOR A STOCK OFFER. AND SO THEREFORE --BUT THERE WERE
3258= CONDITIONS WITHIN THAT STOCK OFFER. YOU COULD PLACE, I THINK, 3259= FOUR ORDERS.
3260= DOES THAT HELP? EXCUSE ME. NOT SUPPOSED TO ASK YOU 3261= QUESTIONS. IT'S VERY COMPLICATED.
3262= THE COURT: YES. 3263= BY MR. SPIVA:
3264= Q. WELL, NOW, MISS SEE, WHEN YOU SAY YOU COULD PLACE ONLY FOUR 3265= ORDERS, WHAT DO YOU MEAN BY THAT?
3266= A. WELL, YOU COULD PLACE FOUR PURCHASE ORDERS, AND THAT WOULD 3267= MEAN THAT YOU WOULD PLACE THOSE ORDERS OVER A PERIOD OF TIME.
3268= Q. NOW, WHEN YOU SAY OVER A PERIOD OF TIME, DO YOU MEAN YOU 3269= COULD PLACE THEM WHENEVER YOU WANTED?
3270= A. YOU KNOW, I'M TRYING TO REMEMBER THE EXACT TERMS OF THAT --3271= OF THE DOCUMENT. AND I THINK PROBABLY --I'M NOT CERTAIN.
3272= Q. WELL, LET ME MAKE THIS A LITTLE EASIER. LET ME GIVE YOU A 3273= HYPOTHETICAL --
3274= A. OKAY.
3275= Q. --SINCE YOU ARE AN EXPERT HERE. 3276= IF YOU HAD A STOCK OFFER THAT SAID YOU COULD PLACE
3277= FOUR OFFERS PER --3278= A. ORDERS.
3279= Q. --FOUR ORDERS PER --I'M SORRY --PER YEAR, WOULD YOUR --3280= WHAT WOULD YOUR UNDERSTANDING OF THAT BE AS AN INDUSTRY EXPERT?
3281= A. WELL, YOU COULD PLACE FOUR ORDERS. THAT WOULD BE ALL YOU 3282= COULD PLACE.
3283= Q. AND WHEN YOU SAY FOUR ORDERS, DO YOU MEAN AT FOUR DISCREET 3284= POINTS IN TIME?
3285= A. YES, FOUR DISCREET POINTS IN TIME. 3286= Q. SO WOULD IT BE CONSISTENT WITH SUCH A STOCK OFFER --
3287= A. YES. 3288= Q. --FOR A BOOKSELLER TO BE PERMITTED TO PLACE ORDERS, SAY,
3289= OVER FOUR MONTHS OF TIME DURING THE YEAR? 3290= A. FOUR MONTHS?
3291= Q. YES. 3292= A. ONE ORDER OVER EACH OF FOUR MONTHS.
3293= Q. MORE THAN ONE ORDER? 3294= A. NO.
3295= Q. LET ME JUST GET A CLEAN QUESTION HERE. 3296= A. RIGHT.
3297= Q. WOULD IT BE CONSISTENT WITH THAT STOCK OFFER FOR A 3298= BOOKSELLER, FIRST OF ALL, TO BE ABLE PLACE MORE THAN FOUR
47
47 Page 48 49
3299= ORDERS?
3300= A. NO. 3301= Q. AND WHAT IF THE BOOKSELLER WERE TO PLACE A NUMBER OF ORDERS
3302= OVER FOUR ONE-MONTH PERIODS; IN EACH MONTHLY PERIOD, THEY PLACED 3303= MANY ORDERS. WOULD THAT BE CONSISTENT?
3304= A. NO. 3305= Q. LET ME GIVE YOU ANOTHER HYPOTHETICAL ON STOCK OFFERS.
3306= A. UH-HUH. 3307= Q. IF THERE WERE A PROGRAM WHICH SAID --WHERE THE PUBLISHER
3308= OFFERED A STOCK OFFER FROM MARCH 15TH TO APRIL 15TH, SAID YOU 3309= CAN PLACE --
3310= A. UM-HMM. 3311= Q. --A NUMBER --SET NUMBER OF ORDERS IN THAT TIME PERIOD.
3312= A. UM-HMM. 3313= Q. AND A --AN INDIVIDUAL BOOKSTORE NEGOTIATED TO PLACE ORDERS
3314= IN A DIFFERENT MONTH, SAY IT WAS JUST THE MONTH BEFORE, 3315= FEBRUARY 15TH TO MARCH 15TH. WOULD IT GIVE THE BOOKSTORE THAT
3316= NEGOTIATED THAT DIFFERENT MONTH TIME PERIOD AN ADVANTAGE OVER 3317= BOOKSTORES THAT HAD TO PLACE THEIR ORDERS DURING THE PERIOD
3318= OFFERED BY THE PUBLISHER? 3319= A. IT WOULD GIVE THEM A GREAT ADVANTAGE.
3320= Q. WHAT'S THE BIG DEAL ABOUT THAT? I MEAN, IF THEY'RE 3321= PLACING --UNDER --BASICALLY UNDER THE TERMS OF THE OFFER,
3322= EXCEPT JUST ONE MONTH EARLIER, WHY DOES THAT MATTER? 3323= A. BECAUSE THE TERMS OF OFFER --OFFER WOULD READ SPECIFICALLY,
3324= MARCH 15TH TO APRIL 15TH, AND THAT WAS THE TIME FRAME WITHIN
3325= WHICH --WITHIN WHICH THE PUBLISHED STOCK OFFER ALLOWED YOU TO 3326= PLACE YOUR ORDERS.
3327= Q. OKAY. 3328= A. AND --
3329= Q. OH, GO AHEAD. I'M SORRY. 3330= A. I WAS GOING TO SAY, AND IF YOU COULD EITHER PREDATE WHEN YOU
3331= PLACED YOUR ORDERS OR EXTEND IT, YOU'RE GOING TO BE ABLE TO 3332= CONTINUE TO GET THOSE BENEFICIAL DISCOUNTS BEYOND THE TIME THE
3333= STOCK OFFER DICTATED. 3334= Q. OKAY. BUT BEYOND THE TECHNICAL POINT THAT THEY WOULDN'T BE
3335= TECHNICALLY COMPLYING WITH THE OFFER, JUST DOING IT IN A 3336= DIFFERENT TIME PERIOD, DOES IT MAKE ANY DIFFERENCE, SAY, FOR
3337= INVENTORY MANAGEMENT? 3338= A. OH, IT WOULD DEPEND ON HOW THEIR INVENTORY MANAGEMENT WAS
3339= SET UP. IT COULD. 3340= Q. AND IN WHAT CIRCUMSTANCE COULD IT?
3341= A. WELL, IF THEY --IF THEY --THE POINT OF THE STOCK OFFER IS 3342= YOU BUY YOUR BOOKS IN THE SPRINGTIME. IF THEY ARE ABLE TO TAKE
3343= THE STOCK OFFER AND EITHER PREDATE IT, USE IT AHEAD OF TIME, 3344= THEN THEY CAN ORDER BOOKS THEN --AND THEN IN THE STOCK OFFER
3345= TIME, AND THEN IF THEY'RE ABLE TO EXTEND IT, IT ENDS UP BEING A 3346= PERENNIAL DEAL, AND THAT'S NOT WHAT THE STOCK OFFER IS.
3347= Q. MISS SEE, IN YOUR EXPERIENCE, HAVE YOU HAD EXPERIENCE 3348= UNDERSTANDING PUBLISHERS' RETURNS POLICY, THE RETURNABILITY AND
3349= NON-RETURNABILITY OF BOOKS?
3350= A. YES, I HAVE. 3351= Q. AND WHAT IS YOUR UNDERSTANDING OF MOST PUBLISHERS
3352= NON-RETURNABLE TERMS? 3353= A. THERE ARE TWO TERMS IN THE BOOK BUSINESS, RETURNABLE AND
3354= NON-RETURNABLE. AND MOST PUBLISHERS REQUIRE YOU TO ESTABLISH AT 3355= THE BEGINNING OF THE YEAR WHETHER YOU'RE GOING TO BUY YOUR BOOKS
3356= RETURNABLE OR NON-RETURNABLE. AND NON-RETURNABLE BOOKS, YOU 3357= USUALLY GET A MUCH HIGHER DISCOUNT BECAUSE YOU'RE TAKING THE
3358= RISK OF NOT BEING ABLE TO SELL THOSE BOOKS. 3359= Q. AND WHAT IS THE SIGNIFICANCE OF HAVING TO CHOOSE AT THE
3360= BEGINNING OF THE YEAR --AT THE BEGINNING OF THE PUBLISHER'S 3361= FISCAL YEAR OR THE CALENDAR YEAR WHETHER YOU'RE GOING TO
3362= PURCHASE ALL OF YOUR BOOKS RETURNABLE OR NON-RETURNABLE FOR THE 3363= WHOLE YEAR?
3364= A. WELL, THAT JUST MEANS --THE SIGNIFICANCE IS THAT YOU CAN'T 3365= IN THE MIDDLE OF THE YEAR DECIDE THAT YOU WANTED TO CHOOSE SOME
3366= BOOKS THAT YOU KNOW YOU'RE GOING TO SELL AND BUY THEM 3367= NON-RETURNABLE.
3368= EVERY BOOKSTORE --EVERY BOOKSELLER KNOWS WHAT BOOKS
48
48 Page 49 50
3369= THEY'RE GOING TO SELL ON A CONTINUING BASIS. IT'D BE A 3370= TREMENDOUS ADVANTAGE TO BE ABLE TO SAY, "WELL, I'D LIKE TO BUY
3371= THESE BOOKS NON-RETURNABLE." THERE'D BE NO RISK. YOU KNOW 3372= YOU'RE GOING TO SELL THEM. AND THEN "I'LL BUY THESE BOOKS" --
3373= USUALLY THE FRONT LIST, WHICH ARE THE NEW TITLES, AND YOU DON'T 3374= KNOW WHETHER THEY'RE GOING TO SELL OR NOT, BUY THOSE RETURNABLE.

3375= AND IF YOU COULD DO THAT, IT WOULD BE A TREMENDOUS ADVANTAGE. 3376= Q. MISS SEE, IS THERE ANY WAY FOR A PUBLISHER --STRIKE THAT.
3377= IS THERE AN OPERATIONAL REASON WHY A PUBLISHER WOULD 3378= REQUIRE A BOOKSTORE TO CHOOSE TO PURCHASE ALL OF THEIR BOOKS ONE
3379= WAY OR THE OTHER, RETURNABLE OR NON-RETURNABLE IN A GIVEN YEAR? 3380= A. AN OPERATIONAL --FROM AN OPERATIONAL FROM THE PUBLISHER'S
3381= POINT OF VIEW, YOU MEAN? 3382= Q. YES.
3383= A. WELL, THE PUBLISHER WOULD THEN KNOW IN TERMS OF PRINTING 3384= THEIR BOOKS WHAT BOOKS ARE GOING TO BE ORDERED AND SOLD AND NOT
3385= RETURNED. 3386= ONE OF THE DILEMMA'S IN THE BOOKSELLING BUSINESS IS
3387= YOU --IT'S A HIGH-RISK BUSINESS IN TERMS OF EACH ITEM. BOOK IS 3388= PUBLISHED AND YOU DON'T KNOW --IF YOU'RE A PUBLISHER, YOU PRINT
3389= 25,000 COPIES. YOU DON'T KNOW WHETHER YOU'RE GOING TO GET 20 OF 3390= THOSE COPIES BACK. IF YOU HAVE THOSE BOOKS SOLD ON A
3391= NON-RETURNABLE BASIS, THAT WOULD BE A GREAT ADVANTAGE TO THE 3392= PUBLISHER.
3393= Q. NOW, YOU SAID THAT THE --THE --ONE OF THE TYPICAL 3394= REQUIREMENTS IS THAT ALL PURCHASES BE MADE EITHER RETURNABLE OR
3395= NON-RETURNABLE. WHEN YOU SAID THAT, DO YOU MEAN BY --ON A 3396= TITLE BASIS OR ACROSS A PUBLISHER'S ENTIRE LINES?
3397= A. WHAT I MEANT WAS THAT THE BOOKSELLER HAS TO DETERMINE AT THE 3398= BEGINNING OF THE YEAR WHETHER THAT STORE WILL BUY ALL OF THEIR
3399= PURCHASES FROM SIMON & SCHUSTER OR --I'M NOT SURE THEY EVEN
3400= ALLOW THIS --BUT FROM A PUBLISHER RETURNABLE OR NON-RETURNABLE. 3401= Q. OKAY. LET ME GIVE YOU ANOTHER HYPOTHETICAL. IF A PUBLISHER
3402= HAD A NON-RETURNABLE POLICY WHICH WAS CONSISTENT WITH THE TYPES 3403= OF POLICIES THAT YOU HAVE DESCRIBED, YOU HAD TO CHOOSE EITHER
3404= RETURNABLE OR ALL NON-RETURNABLE AT THE BEGINNING OF THE YEAR, 3405= BUT IT PERMITTED BOOKSTORES --A BOOKSTORE TO PURCHASE
3406= PARTICULAR TITLES DURING THE CHRISTMAS SEASON FOR A HIGHER 3407= DISCOUNT ON A NON-RETURNABLE BASIS, WOULD THAT PROVIDE THE
3408= BOOKSTORE WITH SOME TYPE OF AN ADVANTAGE? 3409= WHAT TYPE OF ADVANTAGE WOULD IT PROVIDE?
3410= A. IT WOULD PROVIDE THE BOOKSTORE WITH A TREMENDOUS ADVANTAGE 3411= BECAUSE THERE ARE MANY TITLES THAT YOU CAN COUNT ON SELLING AT
3412= THE HOLIDAY SEASON, AND SO, THEREFORE, THAT WOULD BE A GREAT 3413= ADVANTAGE. BUT AGAIN, YOU CAN'T CHERRY-PICK THIS --IN THIS
3414= SITUATION. 3415= I REMEMBER HARCOURT BRACE IN THE '80S CHANGED THEIR
3416= POLICIES, AND THEY DECIDED THEY WOULD TRY SELLING ALL THEIR 3417= BOOKS NON-RETURNABLE, AND IT JUST DIDN'T WORK. THEY COULD NOT
3418= GET THEIR BOOKS OUT INTO THE MARKETPLACE. 3419= Q. NOW, WHEN YOU SAY YOU CAN'T JUST CHERRY-PICK, WHY --WHY
3420= CAN'T YOU? WHAT IS --WHAT --STRIKE THAT. 3421= WHAT ADVANTAGE WOULD IT GIVE YOU AS A BOOKSELLER TO
3422= BE ABLE TO CHERRY-PICK THE BEST SELLING TITLES AND CHOOSE TO 3423= PURCHASE THEM NON-RETURNABLE?
3424= A. OH, I'VE BEEN TRYING TO EXPLAIN THAT IT WOULD BE A
3425= TREMENDOUS ADVANTAGE BECAUSE YOU WOULD KNOW --THOSE ARE CERTAIN 3426= SALES. THEY'RE SALES THAT ARE ONGOING AND CONTINUAL, AND SO
3427= THEREFORE THAT --YOU WOULD GET THE ADDED DISCOUNT FOR THOSE 3428= SAFE SALES. THERE'D BE VERY LITTLE RISK, AND YOU'RE GETTING AN
3429= ADVANTAGE IN A DISCOUNT. 3430= Q. NOW, IN YOUR EXPERIENCE, MISS SEE, DO MOST GENERAL INTEREST
3431= BOOKSTORES CHOOSE TO PURCHASE ALL OF THEIR TITLES FROM --FROM 3432= GIVEN MAJOR PUBLISHERS ON A NON-RETURNABLE BASIS?
3433= A. BOOKSTORES --MOST BOOKSTORES PURCHASE THEIR BOOKS ON A 3434= RETURNABLE BASIS.
3435= Q. OKAY. WHY IS THAT? WHY DON'T BOOKSTORES --GIVEN THAT --I 3436= TAKE IT THAT IT'S YOUR TESTIMONY THAT THE NON-RETURNABLE
3437= SCHEDULES GENERALLY PROVIDE A HIGHER DISCOUNT? 3438= A. CORRECT.
49
49 Page 50 51
3439= Q. WHY DON'T BOOKSTORES CHOOSE TO PURCHASE ALL OF THEIR TITLES 3440= NON-RETURNABLE?
3441= A. BECAUSE I DON'T KNOW WHAT THEY DO WITH ALL THE BOOKS THEY 3442= DIDN'T SELL. THAT WOULD BE ONE OF THE THINGS, BECAUSE YOU CAN'T
3443= JUST --IN MANY RETAIL SITUATIONS, YOU JUST KEEP MARKING THINGS 3444= DOWN, MARKING THE MERCHANDISE DOWN, BUT IT DOESN'T SEEM TO WORK
3445= THAT WAY IN THE BOOK BUSINESS. 3446= IF YOU BUY ALL YOUR BOOKS ON A NON-RETURNABLE BASIS,
3447= YOU'D END UP WITH A TREMENDOUS STOCK THAT WASN'T MOVING. 3448= (PAUSE IN THE PROCEEDINGS.)
3449=
3450= BY MR. SPIVA: 3451= Q. NOW, MS. SEE, YOU'RE FAMILIAR WITH INGRAM BOOK COMPANY?
3452= A. YES. 3453= Q. WHAT IS THE SIGNIFICANCE OF INGRAM BOOK COMPANY WITHIN THE
3454= BOOK INDUSTRY? 3455= A. WELL, INGRAM IS THE LARGEST WHOLESALER AND IS VERY
3456= SIGNIFICANT PLAYER IN THE BOOK INDUSTRY TODAY. 3457= BOOKSELLERS, AS I SAID AT THE BEGINNING, MAKE THEIR
3458= DECISIONS ON A --HAVE TRADE-OFFS WHEN THEY MAKE THEIR 3459= DECISIONS. AND WITH INGRAM, WHEN YOU BUY FROM INGRAM, YOU BUY
3460= AT A LOWER DISCOUNT, BUT YOU HAVE A MUCH FASTER REPLENISHMENT 3461= TIME, AND SO THEY'RE VERY --THEY'RE VERY IMPORTANT FOR THAT
3462= REASON. THEY HAVE A WIDE BREADTH OF STOCK AND SO YOU CAN 3463= SOMETIMES GET YOUR SPECIAL ORDERS VERY QUICKLY FROM INGRAM,
3464= WHICH IS ALSO IMPORTANT. 3465= MR. SPIVA: YOUR HONOR, I'D LIKE TO SHOW THE WITNESS
3466= AN EXHIBIT, BUT I DON'T WANT TO RUN AFOUL OF YOUR ORDER. IT HAS 3467= A --IT'S A TERMS COMPARISON OF INGRAM'S RED BOOK TERMS TO THE
3468= TERMS THE DEFENDANTS WERE RECEIVING. BUT IN KEEPING WITH YOUR 3469= ORDER, I WILL NOT HAVE THE WITNESS DISCUSS SPECIFICALLY THE
3470= DEFENDANTS' TERMS. I WOULD JUST HAVE HER DISCUSS THE PUBLISHED 3471= TERMS, IF THAT --AND --IF THAT WOULD BE SUITABLE TO, YOUR
3472= HONOR. 3473= THE COURT: IT'S YOUR CASE. YOU PUT ON THE BEST CASE
3474= YOU CAN, BUT UNDER THE PARAMETERS OF THE STRUCTURE UNDER THE
3475= COURT AND THE LAW. 3476= MR. SPIVA: THANK YOU, YOUR HONOR.
3477= Q. MISS SEE, I'M GOING TO HAND YOU THE TRIAL --THE FULL TRIAL 3478= EXHIBIT NOTEBOOK FOR TODAY, WHICH EVERYBODY ELSE ALREADY HAS,
3479= AND I'M GOING TO ASK YOU TO TURN TO DEMONSTRATIVE EXHIBIT 2547. 3480= (PAUSE IN THE PROCEEDINGS.)
3481= BY MR. SPIVA: 3482= Q. TELL ME WHEN YOU'VE HAD A CHANCE TO REVIEW IT, MISS SEE.
3483= A. YES, I HAVE. 3484= Q. OKAY. NOW, I WANT TO FOCUS JUST ON THE LEFT-HAND SIDE OF
3485= THIS CHART THAT SAYS, "PUBLISHED TERMS." 3486= FIRST OF ALL, HAVE YOU REVIEWED THIS CHART BEFORE?
3487= A. YES, I HAVE. 3488= Q. WHERE DID THE TERMS THAT ARE PRINTED IN THE PUBLISHED TERMS
3489= SECTION OF THIS CHART COME FROM? 3490= A. THEY CAME FROM THE RED BOOK.
3491= Q. AND I WANT TO ASK YOU WHAT YEAR OF THE RED BOOK? 3492= A. 1998.
3493= Q. WHAT IS YOUR UNDERSTANDING OF THE --CAN YOU EXPLAIN FOR US 3494= THE COLUMN AND THE SECTION --FIRST SECTION THERE THAT SAYS
3495=" TRADE AND MASS MARKET DISCOUNTS"? 3496= A. THAT IS THE INGRAM PUBLISHED DISCOUNT SCHEDULE. HOWEVER,
3497= THERE'S ONE OTHER ITEM IN THERE --IN THE INGRAM DISCOUNT 3498= SCHEDULES. IN ORDER TO --TO QUALIFY FOR THE ONE COPY
3499= 40 PERCENT; FIVE COPIES, 41; AND TEN COPIES, 42; YOU HAVE TO
3500= ORDER A MINIMUM NUMBER OF BOOKS --OF UNITS. THESE REFER TO 3501= TITLES. SO THERE ARE TWO --REALLY TWO CRITERIA IN ORDER TO
3502= MEET THEIR DISCOUNT TERMS. 3503= Q. NOW, I TAKE IT THAT THE --FOR INSTANCE, FIVE COPIES OF THE
3504= SAME TITLE --STRIKE THAT. 3505= MS. SEE, WHAT --WHAT ADVANTAGE WOULD IT PROVIDE TO A
3506= BOOKSTORE TO BE ABLE TO RECEIVE THE 42 PERCENT DISCOUNT LISTED 3507= HERE FOR PURCHASING TEN COPIES OF THE SAME TITLE WITHOUT NEEDING
3508= TO MEET THE MINIMUM QUANTITY REQUIREMENT OF INGRAM?
50
50 Page 51 52
3509= A. WELL, THAT WOULD MEAN YOU COULD BUY THE TEN COPIES OF THE 3510= SAME TITLE AND GET YOUR DISCOUNT WITHOUT MEETING THE UNIT. SO
3511= THAT WOULD BE AN ADVANTAGE IF IT'S 25-UNIT MINIMUM. 3512= Q. OKAY. STEPPING BACK, HOW DO BOOKSTORES TYPICALLY PURCHASE
3513= FROM INGRAM? 3514= A. WELL, DEPENDS ON YOUR SIZE, BUT MOST BOOKSTORES DON'T
3515= PURCHASE --THEY DON'T PURCHASE IN TEN QUANTITY --TEN-COPY 3516= QUANTITIES OF THE SAME TITLE 'CAUSE THAT WOULD PROBABLY BE THEIR
3517= INVENTORY FOR A EXTENDED PERIOD OF TIME. 3518= Q. NOW, I NOTE HERE THAT UNDER "INCENTIVES AND REBATES," IT
3519= SAYS "NONE." WOULD THERE BE AN ADVANTAGE TO A BOOKSELLER IN 3520= BEING ABLE TO RECEIVE AN INCENTIVE ON PURCHASES OF BOOKS FROM
3521= INGRAM? 3522= A. OF COURSE.
3523= Q. AND CAN YOU EXPLAIN THE COLUMN THAT READS "CASH DISCOUNT"? 3524= A. WELL, THIS IS A COLUMN THAT INDICATES IF YOU PAY YOUR INGRAM

3525= BILL IN 10 DAYS AFTER THE END OF THE MONTH, YOU CAN RECEIVE A 3526= 2 PERCENT DISCOUNT --2 PERCENT DISCOUNT.
3527= Q. AND WHEN YOU SAY "BILL," DO YOU MEAN? 3528= A. STATEMENT. AND --AND --
3529= Q. DIDN'T MEAN --3530= A. I MEAN THE STATEMENT. AND ONE OF THE REASONS IT'S DIFFICULT
3531= FOR MOST BOOKSTORES TO BE ABLE TO TAKE ADVANTAGE OF THIS IS THAT 3532= MOST BOOKSTORES WORK ON A VERY TIGHT CASH FLOW SCHEDULE, AND IF
3533= YOU'RE BUYING FROM INGRAM, AS YOU --MOST BOOKSTORES DO BUY 3534= QUITE A BIT FROM INGRAM, IT'S DIFFICULT FOR THEM TO PAY THEIR
3535= BILLS IN TEN DAYS. 3536= Q. OKAY.
3537= A. TO TAKE THE CASH COUNT. 3538= (CONTINUED NEXT PAGE; NOTHING OMITTED)
3539= 3540=
3541= 3542=
3543= 3544=
3545= 3546=
3547= 3548=
3549=
3550= BY MR. SPIVA: 3551= Q. MS. SEE, WHAT ARE INGRAM'S NORMAL PAYMENT TERMS, WITHOUT
3552= CASH DISCOUNT? 3553= A. THIRTY DAYS.
3554= Q. AND IN YOUR EXPERIENCE, IS INGRAM.... STRIKE THAT. HOW 3555= STRICT OR LENIENT IS INGRAM REGARDING PAYMENT TERMS?
3556= A. INGRAM HAS A REPUTATION FOR BEING VERY STRICT IN PAYMENT 3557= TERMS.
3558= Q. YOU MENTIONED A MINUTE AGO THAT THE CASH DISCOUNT ROW, 3559= WHICH SAYS, "10 DAYS E. O. M.," REFERS TO 10 DAYS AFTER YOU GET
3560= YOUR STATEMENT. WHAT IS A STATEMENT? 3561= A. A STATEMENT IS A COMPILATION OF THE PURCHASES YOU HAVE MADE
3562= FOR THE PREVIOUS MONTH. IT INCLUDES THE LISTING OF ALL THE 3563= INVOICES FOR THE SHIPMENTS THAT HAVE BEEN SENT TO YOU, AND YOU
3564= PAY YOUR STATEMENT BY CHECKING OFF THE INVOICES, MATCHING THE 3565= INVOICES IF YOU HAVE THEM, AND THAT'S HOW YOU PAY.
3566= Q. CAN YOU EXPLAIN THE --WHAT INGRAM'S PUBLISHED RETURNS 3567= POLICY IS?
3568= A. YES. THAT'S THE RETURNS CREDIT? 3569= Q. YES.
3570= A. AS YOU CAN SEE THERE, THERE IS A PENALTY FOR RETURNS, 3571= BECAUSE, AS MR. ROSS TESTIFIED, IF YOU BUY, AND YOU'RE GETTING
3572= 41 PERCENT DISCOUNT, YOU'RE RETURNING IT AT 50 PERCENT, SO 3573= YOU'RE TAKING A --IT'S A 9 PERCENT LOSS ON THAT BOOK. THE
3574= OTHER THING IS, AS YOU CAN SEE HERE, THERE IS WHAT WE CALL A
3575= CAP ON HOW MANY BOOKS YOU CAN RETURN. YOU CAN ONLY RETURN 3576= 10 PERCENT OF YOUR ANNUAL PURCHASES. AND --
3577= Q. AND A TYPICAL --3578= A. EXCUSE ME. AND THEN I MIGHT ADD, ON THE CAP IDEA, RETURNS
51
51 Page 52 53
3579= RATES TO PUBLISHERS ARE SORT OF ALL OVER THE MAP, BUT YOU 3580= KNOW --
3581= Q. LET US FOCUS IN ON INGRAM HERE, SINCE WE'RE THERE. WHAT 3582= TYPE OF A DIFFERENCE WOULD IT MAKE TO A BOOKSTORE TO NOT BE
3583= HELD TO THE --FIRST LET'S FOCUS ON THE RETURNS CAP THAT INGRAM 3584= HAS.
3585= A. WELL, THAT WOULD BE A TREMENDOUS ADVANTAGE, BECAUSE THEN IF 3586= YOU MISJUDGED AND BOUGHT TOO MANY BOOKS, YOU COULD RETURN AS
3587= MANY AS YOU WANTED. 3588= Q. NOW, MS. SEE, IN YOUR EXPERIENCE WITH INGRAM BOOK COMPANY,
3589= IS IT TYPICAL FOR A BOOKSTORE TO BE ABLE TO NEGOTIATE 3590= INDIVIDUAL TERMS WITH INGRAM?
3591= A. NO. 3592= Q. WELL, DOESN'T INGRAM HAVE A LOT OF SPECIAL PROGRAMS THAT
3593= DON'T COMPORT WITH THESE RED BOOK PROGRAMS? 3594= A. BUT THOSE ARE AVAILABLE TO EVERYBODY. THEY AREN'T
3595= NEGOTIATED ON A STORE-BY-STORE BASIS. 3596= Q. ARE YOU FAMILIAR WITH THE VENDOR OF RECORD PROGRAM?
3597= A. YES, I AM. 3598= Q. DOESN'T THAT PROGRAM ACTUALLY PERMIT BOOKSTORES TO RECEIVE
3599= A HIGHER DISCOUNT THAN THE DISCOUNT STATED IN THE RED BOOK?
3600= A. YES, VENDOR OF RECORD DOES, BUT THAT IS --THE VENDOR OF 3601= RECORD PROGRAM STARTED AS A WAY TO FACILITATE BOOKSTORES
3602= GETTING SMALL PRESS BOOKS AT A HIGHER DISCOUNT, AND THE 3603= DIFFICULTY --NOT THE DIFFICULTY, BUT ONE OF THE CONDITIONS OF
3604= THE VENDOR OF RECORD IS THAT YOU THEN HAVE TO BUY ALL YOUR 3605= BOOKS FROM THOSE PARTICULAR PUBLISHERS THROUGH THE VENDOR OF
3606= RECORD PROGRAM, AND SOMETIMES INGRAM MIGHT NOT HAVE THE BOOK 3607= YOU WANT, BUT YOU ARE NOT ENTITLED TO GO AND BUY IT DIRECTLY
3608= FROM THE PUBLISHER. 3609= Q. WELL, IF THE VENDOR OF RECORD PROGRAM PERMITS A BOOKSTORE
3610= TO GET A HIGHER DISCOUNT THAN THE DISCOUNT IN THE RED BOOK 3611= TERMS, WHY CAN'T A BOOKSTORE SIMPLY PURCHASE ALL THEIR BOOKS
3612= UNDER THAT PROGRAM? 3613= A. WELL, IT WOULDN'T BE FEASIBLE FOR A NUMBER OF REASONS. AS
3614= I SAID, YOU COULDN'T GET ALL YOUR BOOKS, YOU WOULD GET MANY 3615= TIMES ONLY ABOUT HALF THE BOOKS, AND ALSO, 43 PERCENT DISCOUNT
3616= IS NOT GOING TO KEEP YOU VERY FINANCIALLY VIABLE, IF THAT'S ALL 3617= YOU WERE RECEIVING.
3618= Q. TURNING TO THE SHORTAGE ALLOWANCE ROW, HAS --WHAT DOES IT 3619= INDICATE IN TERMS OF WHAT THE --IS OFFERED IN --BY INGRAM IN
3620= THEIR PUBLISHED TERMS? 3621= A. WELL, WE WERE DISCUSSING A LITTLE EARLIER IN THE COURTROOM
3622= THE PROBLEMS WITH SHIPMENTS THAT COME IN AND NEED TO MATCH YOUR 3623= SHIPMENTS WITH YOUR PURCHASE ORDER AND THE INVOICE AND MAKE
3624= CERTAIN THAT EVERYTHING THAT YOU'RE BEING BILLED FOR IS IN THAT
3625= CARTON, AND FREQUENTLY THERE ARE MISTAKES, AND THEN IT'S A VERY 3626= TIME-CONSUMING TASK TO --
3627= Q. LET ME JUST STOP YOU THERE, BECAUSE I THINK YOU'RE --THE 3628= QUESTION HERE IS JUST, WHAT TYPES OF TERMS --SHORTAGE
3629= ALLOWANCE TERMS DOES INGRAM PROVIDE? 3630= A. NONE.
3631= Q. OKAY. NOW, I THINK THE QUESTION YOU WERE ANSWERING IS, 3632= WHAT TYPES OF COSTS DO BOOKSTORES FACE IN DEALING WITH
3633= SHORTAGES AND DAMAGED BOOKS? WHY DON'T WE MOVE AWAY FROM JUST 3634= INGRAM'S, STRICTLY SPEAKING, BUT WITH ALL VENDORS, WHOLESALERS
3635= AND PUBLISHERS ALIKE. 3636= A. WELL, THIS IS A VERY SENSITIVE AND VERY DIFFICULT SITUATION
3637= BECAUSE, YOU KNOW, THERE ARE ALWAYS --NOT ALWAYS --OFTEN 3638= MISTAKES MADE IN SHIPMENTS, AND SO HOW DO YOU ADJUST WHAT
3639= YOU'VE RECEIVED WITH WHAT YOU'VE BEEN BILLED FOR? AND WHAT YOU 3640= HAVE TO DO IS GO THROUGH IT BOOK BY BOOK, AGAINST YOUR INVOICE,
3641= AND THEN IF THERE IS A SHORTAGE, YOU HAVE TO FILL OUT A FORM 3642= AND SEND IT BACK AND THEN WAIT FOR THE CREDIT, AND AS MR. ROSS
3643= EXPLAINED, YOU HAVE TO HAVE PROOF AND ALL OF THAT. 3644= Q. WOULD THERE BE ANY ADVANTAGE TO A BOOKSTORE IN BEING ABLE
3645= TO AVOID THE COSTS THAT YOU MENTIONED AND SIMPLY DEDUCT A SET 3646= AMOUNT FOR DAMAGES AND SHORTAGES?
3647= A. IT WOULD BE A TREMENDOUS ADVANTAGE, AND IT'S SOMETHING WE 3648= ALL HAVE DREAMED ABOUT.
3649= Q. I WANT TO ASK YOU A LITTLE BIT ABOUT RETAIL DISTRIBUTION
52
52 Page 53 54
3650= CENTER POLICIES, MS. SEE. ARE YOU GENERALLY FAMILIAR WITH 3651= RETAIL DISTRIBUTION CENTER POLICIES?
3652= A. YES, I AM. 3653= Q. AND WHAT ARE THE TYPICAL REQUIREMENTS IN ORDER FOR A
3654= BOOKSTORE TO QUALIFY FOR A RETAIL DISTRIBUTION CENTER DISCOUNT? 3655= A. WELL, THEY'RE USUALLY --THERE ARE FOUR, GENERALLY --THERE
3656= ARE FOUR GENERAL REQUIREMENTS: FIRST, THE LOADING DOCK; A 3657= SEPARATE, STAND ALONE WEAR HOUSING FACILITY; AND THEN YOU HAVE
3658= TO TAKE THE BOOKS IN CARTON QUANTITIES; AND THEN ANOTHER 3659= REQUIREMENT IS THAT YOU REDISTRIBUTE THE BOOK TO MULTIPLE
3660= STORES. 3661= Q. AND ARE THOSE CONDITIONS THAT MOST BOOKSTORES CAN MEET?
3662= A. NO, IT WOULD BE VERY DIFFICULT FOR MOST BOOKSTORES TO MEET 3663= THOSE CONDITIONS.
3664= Q. AND WHY DO YOU SAY THAT? 3665= A. WELL, LET'S TAKE THEM ONE BY ONE. MOST BOOKSTORES DON'T
3666= HAVE A LOADING DOCK, AND MOST BOOKSTORES DON'T HAVE A SEPARATE 3667= WAREHOUSING FACILITY, AND FOR A BOOKSTORE TO TAKE BOOKS IN
3668= CARTON QUANTITIES --NOW, A CARTON IS A BOX OF BOOKS CONTAINING 3669= ALL THE SAME TITLES.
3670= Q. ABOUT HOW MANY BOOKS ARE IN A TYPICAL CARTON? 3671= A. WELL, WITH A HARDCOVER BOOK IT WOULD PROBABLY BE ABOUT 20
3672= TITLES. SO FOR A BOOKSTORE TO RECEIVE THEIR BOOKS IN CARTON 3673= QUANTITIES, IT WOULD NOT BE VERY GOOD INVENTORY MANAGEMENT FOR
3674= MOST BOOKSTORES, BECAUSE 20 COPIES OF A BOOK WOULD BE A --
3675= QUITE A FEW COPIES. AND THEN THE FINAL ONE, THE MULTIPLE 3676= STORES, OBVIOUSLY, MOST BOOKSTORES ARE SINGLE-LOCATION.
3677= Q. I WANT TO FOCUS IN ON THE CARTON QUANTITY REQUIREMENT FOR A 3678= MINUTE. YOU SAID THAT IT WOULDN'T BE VERY GOOD INVENTORY
3679= MANAGEMENT FOR MOST STORES TO PURCHASE ALL THEIR BOOKS IN 3680= CARTON QUANTITIES. WHY NOT? WHAT WOULD IT DO TO THEIR
3681= INVENTORY? 3682= A. WELL, IT GETS BACK TO THE JUST-IN-TIME INVENTORY THAT WE
3683= WERE TALKING ABOUT BEFORE. YOU WANT TO CONTROL THE LEVEL OF 3684= YOUR INVENTORY, AND IF YOU'RE REQUIRED TO BUY 20 COPIES OF A
3685= BOOK AND YOU KNOW IT'S GOING TO TAKE THREE OR FOUR MONTHS TO 3686= SELL THOSE 20 COPIES, THAT WOULD NOT BE A VERY GOOD DECISION.
3687= Q. WHAT WOULD IT DO TO THE BOOKSTORE'S TURN RATE? 3688= A. WELL, OBVIOUSLY, AS I DEFINE IT, THE TURN RATE WOULD GO
3689= DOWN. 3690= Q. AND HOW IS THE TURN RATE RELATED TO PROFITABILITY?
3691= A. WELL, AS I'VE SAID, THE --IT'S RELATED IN A COUPLE OF 3692= WAYS. ONE IS THAT THE FASTER YOUR TURN RATE, THE GREATER YOUR
3693= PROFITABILITY. ALSO, YOU HAVE --YOU HAVE A CERTAIN AMOUNT OF 3694= MONEY TIED UP IN INVENTORY. IF YOU HAVE FEWER COPIES OF THE
3695= BOOKS YOU'RE SELLING, AND YOU CAN REPLENISH THOSE BOOKS 3696= QUICKLY, THEN THAT ALLOWS YOU TO TAKE SOME OF THOSE DOLLARS AND
3697= WIDEN YOUR --THE BREADTH OF INVENTORY. YOU CAN CARRY MORE 3698= BOOKS, MORE DIFFERENT TITLES, RATHER THAN HAVING YOUR CASH TIED
3699= UP IN FEWER TITLES. AND IN ORDER TO --THE MORE TITLES YOU
3700= HAVE, THE MORE OPPORTUNITY YOU HAVE TO SELL, AND IT'S A BETTER 3701= BOOKSTORE.
3702= Q. NOW, MS. SEE, ARE YOU GENERALLY FAMILIAR WITH THE 3703= DIFFERENCE, IF ANY, BETWEEN PUBLISHERS' POLICIES, WHOLESALER
3704= POLICIES, AND RETAIL POLICIES? 3705= A. YES.
3706= Q. AND WHAT IS THE DIFFERENCE, AS A GENERAL MATTER? 3707= A. AS A GENERAL MATTER, THE WHOLESALER --PUBLISHER
3708= WHOLESALER'S POLICIES ARE MUCH HIGHER DISCOUNT THAN PUBLISHER'S 3709= RETAILER POLICIES.
3710= Q. AND IN YOUR EXPERIENCE, IS IT TYPICAL FOR PUBLISHERS TO 3711= PERMIT RETAILERS TO PURCHASE BOOKS ON THEIR WHOLESALER --OFF
3712= OF THEIR WHOLESALER DISCOUNT SCHEDULES? 3713= A. NO.
3714= Q. WHAT ABOUT WHOLESALER INCENTIVES? IS IT --IN YOUR 3715= EXPERIENCE, HAVE YOU KNOWN PUBLISHERS TO PROVIDE RETAIL
3716= BOOKSTORES WITH WHOLESALER INCENTIVE PAYMENTS? 3717= A. NO.
3718= Q. WHAT IS A JOBBER, MS. SEE? 3719= A. WELL, THE TERM WHOLESALER, JOBBER, DISTRIBUTOR, ARE USUALLY
53
53 Page 54 55
3720= USED INTERCHANGEABLY. 3721= Q. MS. SEE, WHEN A PUBLISHER SELLS TO A WHOLESALER, WHAT IS
3722= YOUR UNDERSTANDING OF ESSENTIALLY HOW THAT ARRANGEMENT NORMALLY 3723= WORKS?
3724= A. WHEN A PUBLISHER SELLS TO THE WHOLESALER, THE WHOLESALER
3725= RECEIVES THE BOOKS, PUTS THOSE BOOKS IN THE INVENTORY, AND THEN 3726= SELLS THOSE BOOKS TO BOOKSTORES AT THEIR WHOLE---THEIR
3727= WHOLESALER DISCOUNT. 3728= Q. I JUST WANT TO ASK YOU ABOUT THAT LAST PART. THE
3729= WHOLESALER SELLS TO BOOKSTORES AT THEIR WHOLESALER DISCOUNT? 3730= A. EXCUSE ME. THE RETAIL WHOLESALER DISCOUNT. THE DISCOUNT
3731= THAT THE RETAILER GETS FROM THE WHOLESALER. 3732= Q. NOW, IS IT TYPICAL IN THE INDUSTRY, WHEN A BOOKSTORE
3733= PURCHASES FROM A WHOLESALER, THAT THE PUBLISHER WILL SHIP THOSE 3734= BOOKS DIRECTLY TO THE RETAILER?
3735= A. NO. 3736= Q. IS IT TYPICAL IN THE INDUSTRY FOR A WHOLESALER TO SIMPLY
3737= TRANS---TO SIMPLY TRANSFER THE PUBLISHER'S INVOICE FOR BOOKS 3738= DIRECTLY TO THE RETAILER FOR PAYMENT?
3739= A. NO. WHOLESALERS SEND YOU THEIR OWN INVOICES. 3740= Q. AND WHEN YOU PURCHASE FROM A WHOLESALER, DO THE DISCOUNTS
3741= AT WHICH YOU PURCHASE FROM THAT WHOLESALER NORMALLY VARY BY 3742= WHICH PUBLISHER'S BOOKS YOU'RE GETTING FROM THAT WHOLESALER?
3743= A. NO. THE DISCOUNT SCHEDULE IS BASED ON YOUR PURCHASES FROM 3744= THE WHOLESALER. PART OF THE REASON YOU USE THE WHOLESALER IS
3745= YOU'RE BUYING BOOKS FROM MANY DIFFERENT PUBLISHERS. 3746= Q. LET ME GIVE YOU ANOTHER HYPOTHETICAL RELATING TO THIS
3747= ISSUE. LET'S ASSUME THAT SEVERAL PUBLISHERS SELL BOOKS TO A 3748= RETAILER, AND THE PUBLISHERS SHIP THE BOOKS DIRECTLY TO THE
3749= RETAILER'S DISTRIBUTION CENTER, THROUGH THE RETAILER'S FREIGHT
3750= AGENT. THE RETAILER RECEIVES AN INVOICE FROM THE WHOLESALER, 3751= TRANSMITS PAYMENT FOR THE BOOKS THAT WERE SHIPPED DIRECTLY TO
3752= IT TO THE WHOLESALER FOR THE WHOLESALER TO TRANSFER TO THE 3753= PUBLISHER.
3754= HOW DOES SUCH AN ARRANGEMENT COMPARE TO YOUR 3755= UNDERSTANDING OF HOW NORMAL PUBLISHER WHOLESALER RETAILER
3756= ARRANGEMENTS WORK? 3757= A. THAT'S JUST NOT THE WAY WHOLESALER RETAILER ARRANGEMENTS
3758= WORK, AS I'VE EXPLAINED. THE RETAILER BUYS FROM THE WHOLESALER 3759= AND BUYS --AND ONE OF THE REASONS THEY BUY FROM THE WHOLESALER
3760= IS THEY CAN BUY THEIR --FROM MANY DIFFERENT PUBLISHERS, AND 3761= THEN THE WHOLESALER SENDS THE RETAILER THE BOOK, AND THE
3762= RETAILER PAYS THE WHOLESALER FROM THE WHOLESALER'S STATEMENT. 3763= Q. LET ME ADD TO THE HYPOTHETICAL. IF THE WHOLESALER WERE TO
3764= PROVIDE THE BOOKS AT ITS NORMAL WHOLESALE DISCOUNT MINUS A FEE, 3765= WOULD THAT MAKE THAT TRANSACTION A PURCHASE FROM THE
3766= WHOLESALER? 3767= A. NO.
3768= Q. IS THAT THE NORMAL WAY THAT BOOKSTORES PURCHASE FROM 3769= WHOLESALERS?
3770= A. THE WAY YOU'VE JUST DESCRIBED? 3771= Q. YES.
3772= A. NO. 3773= Q. IN TERMS OF THE WHOLESALER'S DISCOUNT, THE WHOLESALER'S
3774= DISCOUNT TO A RETAILER, HOW DO THE BOOKSTORES ORDINARILY
3775= DETERMINE THE DISCOUNT AT WHICH THEY ARE GOING TO PURCHASE FROM 3776= A PARTICULAR WHOLESALER?
3777= A. FROM THE RED BOOK. 3778= Q. MS. SEE, WHEN A RETAILER RETURNS BOOKS TO A PUBLISHER, IS
3779= IT NORMAL WITHIN THE INDUSTRY FOR THE PUBLISHER TO PAY THE 3780= RETAILER MORE FOR THE BOOKS THAN THE RETAILER ORIGINALLY
3781= PURCHASED THE BOOKS --THE PRICE THAT THE RETAILER ORIGINALLY 3782= PURCHASED THE BOOKS FROM THE PUBLISHER?
3783= A. NO. 3784= Q. WHAT'S DIFFERENT ABOUT THAT THAN THE NORMAL INDUSTRY
3785= PRACTICE? 3786= A. COULD YOU REPEAT THE QUESTION?
3787= Q. YES, I'M SORRY, I THINK IT WAS NOT CLEAR. 3788= WHEN A BOOKSTORE RETURNS BOOKS TO A PUBLISHER,
3789= TYPICALLY HOW ARE THEY REIMBURSED FROM THE PUBLISHER?
54
54 Page 55 56
3790= A. WELL, TYPICALLY THEY ARE REIMBURSED BASED ON WHAT THE 3791= RETAILER PAID FOR THOSE BOOKS, AND SO SOME PUBLISHERS HAVE
3792= PENALTIES, BUT MOST OFTEN YOU'RE PAID BASED ON THE --WHAT YOU 3793= PAID FOR THE BOOKS COMING INTO YOUR STORE.
3794= Q. HAVE YOU EVER SEEN PUBLISHED TERMS IN WHICH A PUBLISHER 3795= OFFERS TO PAY A RETAILER MORE FOR THE BOOKS THAT IT'S RETURNING
3796= THAN THE BOOKSTORE ORIGINALLY PAID FOR THOSE BOOKS? 3797= A. NO.
3798= Q. NOW, MS. SEE, I WANT TO TURN TO THE ISSUE OF HOW DISPUTES 3799= BETWEEN BOOKSTORES AND PUBLISHERS ARE ORDINARILY RESOLVED IN

3800= THE INDUSTRY. FIRST, I WANT TO GIVE YOU A LITTLE BIT OF A 3801= DEFINITION OF WHAT I'M TALKING ABOUT; REALLY, ANY DISPUTE OVER
3802= THE BALANCE THAT A BOOKSTORE OWES TO THE PUBLISHER. FIRST OF 3803= ALL, ARE THERE DISPUTES LIKE THAT WITHIN THE INDUSTRY?
3804= A. YES, FREQUENTLY. 3805= Q. WHAT ARE SOME OF THE CAUSES OF DISPUTES BETWEEN PUBLISHERS
3806= AND BOOKSTORES OVER THEIR BILLS? 3807= A. WELL, ONE THING CAN BE SHIPMENTS --SHORT SHIPMENTS.
3808= THAT'S THE KIND OF THING. ALSO YOU CAN SEND RETURNS BACK TO A 3809= PUBLISHER, AND THEN, SOMEHOW OR OTHER, YOU ARE CREDITED FOR
3810= THOSE RETURNS. 3811= AND SO IN ANY OF THOSE INSTANCES, THE BOOKSTORE HAS
3812= THREE OPTIONS. ONE IS, IT'S UP TO THE BOOKSTORE, MOST OFTEN, 3813= TO PROVE TO THE PUBLISHER THAT THEY SENT THE BOOKS BACK, THAT
3814= THEY HAVE A SIGNED RECEIPT; OR THEY CAN PAY THE DISPUTE; OR 3815= THEY'RE PUT ON HOLD, MEANING THEY ARE NOT --THEY WOULDN'T BUY
3816= ANY MORE BOOKS FROM THAT PUBLISHER. 3817= Q. AND IN YOUR EXPERIENCE, ARE THERE TIMES WHEN THE PUBLISHER
3818= SIMPLY AGREES TO EITHER SPLIT THE DIFFERENCE OR FORGIVE A 3819= BALANCE THAT IS --THAT IT CLAIMS IS DUE WHEN THERE'S A DISPUTE
3820= BETWEEN THE PUBLISHER AND THE BOOKSELLER? 3821= A. NO.
3822= Q. WHAT HAPPENS IF THE --TYPICALLY, WHAT WOULD HAPPEN IF A 3823= BOOKSTORE WERE TO SIMPLY REFUSE TO PAY A CLAIM BY THE PUBLISHER
3824= THAT IT DISPUTED?
3825= A. WELL, WITHIN A VERY SHORT TIME THEY WOULD PROBABLY BE PUT 3826= ON HOLD.
3827= Q. I WANT TO ASK YOU --JUST WANT TO RETURN BRIEFLY TO THE RDC 3828= ISSUE, AND THE CARTON QUANTITY ISSUE SPECIFICALLY.
3829= WOULD THERE BE AN ADVANTAGE TO A BOOKSTORE OF BEING 3830= ABLE TO PURCHASE UNDER RDC TERMS IF THEY DIDN'T HAVE TO
3831= PURCHASE IN CARTON QUANTITIES TO DO SO? 3832= A. WELL, YES, BECAUSE THEY'D BE GETTING MUCH HIGHER DISCOUNT,
3833= AND WOULD NOT HAVE TO HAVE ALL THESE --THEY WOULDN'T HAVE TO 3834= OVERLOAD THEIR INVENTORY WITH PARTICULAR TITLES. THEY COULD
3835= HAVE WHATEVER THEY WANTED TO COME IN, IN THAT SAME CARTON. 3836= INSTEAD OF 20 COPIES OF THE SAME TITLE, THEY MIGHT HAVE 20
3837= DIFFERENT TITLES. 3838= Q. IN YOUR OPINION, DO YOU THINK MORE BOOKSTORES WOULD BE ABLE
3839= TO QUALIFY FOR AN RDC DISCOUNT IF THEY DID NOT HAVE TO MEET THE 3840= CARTON QUANTITY REQUIREMENT?
3841= A. DEPENDING UPON WHAT THE OTHER REQUIREMENTS WOULD BE, BUT 3842= CERTAINLY YES.
3843= MR. SPIVA: YOUR HONOR, WE WILL BE MAKING THE OFFER 3844= OF PROOF THAT YOU SPOKE OF EARLIER. I DO BELIEVE MS. SEE'S
3845= EXPERIENCE WOULD HELP TO UNDERSTAND SOME OF THE DEFENDANTS' 3846= DOCUMENTS, BUT WE WILL MAKE THAT TO YOU TOMORROW. WITH THAT, I
3847= HAVE NO FURTHER QUESTIONS. 3848= THE COURT: CROSS-EXAMINATION?
3849= MR. WELSH: YOUR HONOR, MY NAME IS ROBERT WELSH.
3850= YOUR HONOR, WE WERE ADVISED BY PLAINTIFFS THAT THE DIRECT 3851= EXAMINATION OF MS. SEE WOULD YOU TAKE THE ENTIRE DAY, SO WE DID
3852= NOT BRING OUR BOOKS WITH US FOR CROSS-EXAMINATION. WE ARE 3853= PREPARED, HOWEVER, TO BEGIN THE CROSS-EXAMINATION AND GO AS FAR
3854= AS WE CAN. 3855= THE COURT: DO YOUR BEST. YOU HAVE HALF AN HOUR.
3856= MR. WELSH: THANK YOU. 3857= CROSS-EXAMINATION
3858= BY MR. WELSH: 3859= Q. GOOD AFTERNOON, MS. SEE.
55
55 Page 56 57
3860= A. GOOD AFTERNOON. 3861= Q. NOW, I'M GOING TO ASK YOU A SERIES OF QUESTIONS AND I'D
3862= APPRECIATE IT IF YOU COULD --I WILL STRUCTURE THE QUESTIONS IN 3863= A WAY THAT WILL ALLOW YOU TO ANSWER MY QUESTIONS WITH A YES OR
3864= A NO, AND WHEREVER POSSIBLE, I'D APPRECIATE IT IF YOU WOULD DO 3865= THAT. DO YOU UNDERSTAND?
3866= A. YES. 3867= Q. THANK YOU. NOW, MS. SEE, YOUR BOOKSELLING EXPERIENCE IS
3868= CONFINED TO THE OPERATION OF A SINGLE BOOKSTORE THAT WAS CALLED 3869= THE BOOKCASE, IS THAT CORRECT?
3870= A. YES. 3871= Q. AND THAT IS A SINGLE STORE, CORRECT?
3872= A. YES. 3873= Q. YOU'VE NEVER OPERATED A BOOKSTORE THAT HAS HAD MULTIPLE
3874= LOCATIONS, CORRECT?
3875= A. NO, I HAVE NOT. 3876= Q. AND I TAKE IT, MS. SEE, THAT YOU'VE NEVER OPERATED A
3877= BOOKSTORE THAT HAS PERFORMED SOME OF THE DISTRIBUTION FUNCTIONS 3878= TRADITIONALLY PERFORMED BY PUBLISHERS AND WHOLESALERS, IS THAT
3879= CORRECT? 3880= A. THAT'S CORRECT.
3881= Q. YOU'VE NEVER HAD A RETAIL DISTRIBUTION CENTER, IS THAT 3882= CORRECT, NEVER OPERATED ONE?
3883= A. CORRECT. 3884= Q. AND YOU'D AGREE, MS. SEE, THAT IF YOU ARE A BOOKSELLER THAT
3885= OPERATES A THOUSAND STORES, SAY, ACROSS THE NATION, THE 3886= EXPERIENCE OF THAT KIND OF A BOOKSELLER WILL BE DIFFERENT THAN
3887= THE EXPERIENCE THAT YOU HAD OPERATING THE BOOKCASE. WOULD YOU 3888= AGREE WITH THAT?
3889= A. YES, OBVIOUSLY. 3890= Q. THAT THERE ARE CERTAIN ATTRIBUTES TO THE FUNCTIONING OF A
3891= LARGE VERTICALLY-INTEGRATED BOOKSELLER THAT DISTINGUISH IT FROM 3892= A SINGLE-STORE BOOKSELLER, CORRECT?
3893= A. YES. 3894= Q. NOW, MS. SEE, YOU'VE REALLY HAD NO EXPERIENCE WITH REGARD
3895= TO THE OPERATIONS OF RETAIL DISTRIBUTION CENTERS, ISN'T THAT 3896= CORRECT?
3897= A. THAT IS CORRECT. 3898= Q. AND YOU'VE NEVER RECEIVED AN RDC DISCOUNT DURING THE PERIOD
3899= THAT YOU OPERATED THE BOOKCASE?
3900= A. I HAVEN'T, THAT'S CORRECT. 3901= Q. IN FACT, WERE YOU AWARE THAT RDC DISCOUNTS WERE BEING
3902= OFFERED DURING THE TIME THAT YOU OPERATED THE BOOKCASE? 3903= A. THE RDC DISCOUNTS CAME IN ACTUALLY --THE PUBLISHED RDC
3904= DISCOUNTS CAME IN AFTER --MOST OF THEM, AFTER I HAD LEFT THE 3905= BOOKSELLING INDUSTRY.
3906= Q. OKAY. SO THAT'S AN INNOVATION IN THE INDUSTRY, IF YOU 3907= WILL, THAT'S OCCURRED SINCE YOU OPERATED THE BOOKCASE, CORRECT?
3908= A. YES. 3909= Q. AND YOU WOULD AGREE THAT THIS IS A --THAT THE BOOKSELLING
3910= INDUSTRY IS A DYNAMIC INDUSTRY, ISN'T THAT CORRECT? 3911= A. YES.
3912= Q. FOR EXAMPLE, INTERNET BOOKSELLING IS SOCould not acquire words on page 57 Could not acquire words on page 58 METHING THAT YOU DID 3913= NOT CONFRONT AS A BOOKSELLER.
3914= A. CORRECT. 3915= Q. OKAY. AND YOU'RE ALSO AWARE, ARE YOU NOT, MS. SEE, THAT
3916= PUBLISHERS TODAY COMMONLY PROVIDE FOR ELECTRONIC ORDERING OF 3917= BOOKS?
3918= A. YES, AND ACTUALLY, THAT WAS AVAILABLE WHEN I WAS STILL IN 3919= THE BOOK BUSINESS.
3920= Q. AND DURING THE TIME THAT YOU WERE A BOOKSELLER, YOU 3921= PARTICIPATED IN ELECTRONIC ORDERING WITH REGARD TO WHOLESALERS,
3922= CORRECT, BUT YOU DID NOT ENGAGE IN ANY ELECTRONIC ORDERING WITH 3923= REGARD TO PUBLISHERS, CORRECT?
3924= A. CORRECT.
3925= Q. BUT TODAY YOU'RE AWARE THAT MOST PUBLISHERS MAKE AVAILABLE 3926= ELECTRONIC ORDERING.
3927= A. CORRECT. 3928= Q. AND ALSO MANY PUBLISHERS MAKE AVAILABLE DISCOUNTS TO
3929= BOOKSELLERS WHO PARTICIPATE IN ELECTRONIC ORDERING, CORRECT?
56
56 Page 57 58

57 Page 58 59

58 Page 59 60
4071= DISCOUNT AND LONGER TIME. 4072= Q. AND SO THAT PEOPLE MIGHT WANT TO HAVE A HIGHER DISCOUNT AND
4073= A LITTLE LONGER DELIVERY TIME. SOME MAY WANT THAT, CORRECT? 4074= A. YES.

4075= Q. OKAY. SO IF WE WENT THE OTHER WAY, LET'S SAY THAT INGRAM 4076= MOVED FROM BEING ABLE TO DELIVER YOUR BOOKS OVERNIGHT, OR
4077= WITHIN A DAY OR SO, AND MOVED TO A SITUATION OF DELIVERING YOUR 4078= BOOKS WITHIN A WEEK.
4079= NOW, IN THAT SITUATION, IT'S A LONGER DELIVERY TIME, 4080= AND ACCORDINGLY, INGRAM WOULD HAVE TO GIVE YOU, A BOOKSELLER, A
4081= BETTER DISCOUNT RATE IN ORDER TO MAKE UP FOR THE LONGER 4082= DELIVERY TIME, BECAUSE, AS YOU JUST SAID, SOME PEOPLE WOULD
4083= RATHER HAVE A HIGHER DISCOUNT AND WAIT A LITTLE LONGER TO 4084= RECEIVE THEIR BOOKS, CORRECT?
4085= A. YES. I SUPPOSE SO. 4086= Q. NOW, YOU MENTIONED THAT YOU WERE FAMILIAR WITH THE INGRAM
4087= V. O. R. PROGRAM, IS THAT CORRECT? 4088= A. YES.
4089= Q. BY THE WAY, BEFORE WE GET TO THAT, IN YOUR REPORT YOU 4090= IDENTIFIED THE DOCUMENTS THAT YOU REVIEWED AND THAT THE
4091= DEPOSITIONS THAT YOU REVIEWED. DO YOU RECALL THAT? 4092= A. YES, YES.
4093= Q. HAVE YOU VIEWED ANY ADDITIONAL DOCUMENTS OR REVIEWED ANY 4094= ADDITIONAL DEPOSITION TESTIMONY BEYOND WHAT WAS STATED IN YOUR
4095= REPORT? 4096= A. I'VE SEEN SOME ADDITIONAL DOCUMENTS, I THINK.
4097= Q. OKAY, AND WHAT ADDITIONAL, DO YOU RECALL THEM? 4098= A. I CAN'T RECALL THEM.
4099= Q. HAVE YOU REVIEWED ANY ADDITIONAL DEPOSITION TESTIMONY?
4100= A. I REVIEWED SO MANY DEPOSITIONS IN THE FIRST PLACE.... I 4101= DON'T REMEMBER.
4102= Q. NOW, WE WERE TALKING ABOUT THE V. O. R. PROGRAM. YOU'RE 4103= FAMILIAR WITH THAT PROGRAM?
4104= A. YES, I AM. 4105= Q. AND HOW DID YOU BECOME FAMILIAR WITH THE V. O. R. PROGRAM?
4106= A. WELL, WHEN I WAS STILL A BOOKSELLER, THEY OFFERED THE 4107= V. O. R. PROGRAM.
4108= Q. NOW, YOU REVIEWED THE INGRAM RED BOOK ENTRIES, CORRECT? 4109= A. YES.
4110= Q. THE V. O. R. PROGRAM IS NOT CONTAINED IN THOSE RED BOOK 4111= ENTRIES, IS IT?
4112= A. NO, BUT THE V. O. R. PROGRAM IS IN THE BROCHURES THAT INGRAM 4113= SENDS TO ALL BOOKSTORES.
4114= Q. SO IF A BOOKSELLER WERE JUST TO RELY UPON RED BOOK, IF THEY 4115= WERE TO TREAT THE RED BOOK AS THEIR BIBLE, IF YOU WILL, AND
4116= SAY, "I'LL ONLY BUY OUT OF RED BOOK," THEY WOULDN'T KNOW ABOUT 4117= THE V. O. R. PROGRAM, WOULD THEY?
4118= A. NO, BUT INGRAM MAKES CERTAIN THAT THEIR BROCHURES GO THERE, 4119= SO I REALIZE THAT --
4120= Q. THE RED BOOK DOES NOT. 4121= A. RIGHT, AND THERE ARE OTHER TERMS THAT ARE NOT IN THE RED
4122= BOOK, AS WE'VE IDENTIFIED. 4123= Q. FOR EXAMPLE, YOU'VE MENTIONED STOCK OFFERS AREN'T
4124= AVAILABLE --AREN'T MENTIONED IN THE RED BOOK.
4125= A. YES. 4126= Q. SO-CALLED SHARED MARKDOWNS OFFERED BY PUBLISHERS ARE NOT
4127= TYPICALLY CONTAINED IN THE RED BOOK, CORRECT? 4128= A. YES.
4129= Q. YOU'VE ALSO DISCUSSED, IN CONNECTION WITH YOUR DEPOSITION, 4130= THAT SOMETIMES A PUBLISHER WILL NOT SET FORTH ALL ITS CREDIT
4131= TERMS --4132= A. RIGHT.
4133= Q. --IN THE RED BOOK ENTRY. SOMETIMES THE RED BOOK ENTRY 4134= WILL NOT CONTAIN ALL OF THE FREIGHT TERMS --
4135= A. CORRECT. 4136= Q. --THAT ARE OFFERED BY A PUBLISHER. SOMETIMES THE RED BOOK
4137= ENTRIES WILL NOT CONTAIN ALL OF THE --THE AVAILABILITY OF 4138= HOLIDAY OFFERS, FOR EXAMPLE.
4139= A. RIGHT. 4140= Q. WE'VE TALKED ABOUT THE FACT THAT THE RED BOOK DOES NOT
59
59 Page 60 61
4141= CONTAIN ALL OF THE CO-OP POLICIES. 4142= A. RIGHT.
4143= Q. AND IT'S ALSO THE CASE THAT THE RED BOOK DOES NOT CONTAIN 4144= ALL OF THE VARIOUS DISCOUNTS THAT MAY BE MADE AVAILABLE TO
4145= PUBLISHERS --TO BOOKSELLERS, RATHER, WITH REGARD TO Could not acquire words on page 61 ELECTRONIC 4146= ORDERING, CORRECT?
4147= A. CORRECT. 4148= Q. MANY TIMES THE RED BOOK, IN FACT, ADVISES BOOKSELLERS TO
4149= CONTACT PUBLISHERS TO LEARN ABOUT ALL THE TERMS AND POLICIES --
4150= A. UM-HUM. 4151= Q. --THAT ARE AVAILABLE, CORRECT?
4152= A. CORRECT. 4153= Q. SO THE RED BOOK IS FAR FROM A COMPLETE RECITATION OF ALL
4154= THE TERMS AND POLICIES THAT ARE AVAILABLE TO BOOKSELLERS, 4155= CORRECT?
4156= A. YES. 4157= Q. AS THE TITLE OF THE RED BOOK INDICATES, IT IS MERELY A
4158= HANDBOOK, A GUIDE TO BE USED, CORRECT? 4159= A. YES.
4160=( CONTINUED ON FOLLOWING PAGE. NOTHING OMITTED.) 4161=
4162= 4163=
4164= 4165=
4166= 4167=
4168= 4169=
4170= 4171=
4172= 4173=
4174=
4175= BY MR. WELSH: 4176= Q. AND, IN FACT, IN THE RED BOOK --THE RED BOOK ITSELF ADVISES
4177= BOOKSELLERS THAT THEY SHOULD CONSULT OTHER SOURCES IN ORDER TO 4178= GET THE MOST UP-TO-DATE INFORMATION; ISN'T THAT CORRECT?
4179= A. YES. 4180= Q. AND SOMETIMES IN THE RED BOOK, THE --THE PUBLISHERS MAY
4181= ANNOUNCE THAT THEIR TERMS ARE ONLY --THAT THE TERMS SET FORTH 4182= IN THE RED BOOK ARE ONLY AVAILABLE FOR A LIMITED --ARE ONLY
4183= EFFECTIVE DURING A LIMITED PERIOD OF TIME, AND THAT PERIOD OF 4184= TIME MAY NOT EXTEND ALL THE WAY TO THE PUBLICATION OF A NEW RED
4185= BOOK. 4186= HAVE YOU EVER OBSERVED THAT IN THE RED BOOK?
4187= A. I'VE NOT OBSERVED. 4188= Q. OKAY. WELL, PERHAPS TOMORROW WE CAN GO OVER THAT.
4189= YOU'VE NEVER OBSERVED A SITUATION WHERE A PUBLISHER 4190= WILL SAY, "OUR TERMS ARE EFFECTIVE, SAY, THROUGH JUNE OF A
4191= YEAR"? 4192= A. I'M NOT REMEMBERING THAT.
4193= Q. OKAY. NOW, WHEN --WHEN --YOU MENTIONED THAT YOU TAUGHT 4194= SOME COURSES THROUGH THE ABA; IS THAT CORRECT?
4195= A. YES. 4196= Q. AND YOU'RE STILL AFFILIATED WITH THE ABA; IS THAT CORRECT?
4197= A. I'M STILL AFFILIATED BY BEING ON A COMMITTEE OF THE ABA. 4198= Q. OKAY. AND WHAT IS THE NAME OF THAT COMMITTEE?
4199= A. AMERICAN BOOKSELLERS FOUNDATION FOR FREE EXPRESSION.
4200= Q. NOW, WHEN YOU --YOU'VE MENTIONED THAT YOU TAUGHT COURSES TO 4201= BOOKSELLERS, CORRECT?
4202= A. YES. 4203= Q. OKAY. NOW, WHEN YOU TAUGHT THESE COURSES TO BOOKSELLERS,
4204= DID YOU ADVISE BOOKSELLERS NOT TO NEGOTIATE FOR THE BEST PRICES? 4205= A. NEVER CAME UP.
4206= Q. OKAY. DOES THE ABA HAVE ANY RULES OR REQUIREMENTS 4207= PROHIBITING BOOKSELLERS FROM NEGOTIATION --NEGOTIATING FOR THE
4208= BEST PRICES THEY CAN GET FROM PUBLISHERS? 4209= A. NO. THEY DON'T HAVE ANY PARTICULAR RULES OR REGULATIONS.
4210= Q. DOES THE ABA FROWN UPON BOOKSELLERS WHO ATTEMPT TO NEGOTIATE
60
60 Page 61 62

61 Page 62 63
4281= Q. NOW, MISS SEE, DO YOU HAVE AN UNDERSTANDING ABOUT WHY 4282= PUBLISHERS OFFER RDC DISCOUNTS?
4283= A. DO I HAVE AN UNDERSTANDING --4284= Q. YES.
4285= A. --ABOUT WHY? 4286= Q. WHY --WHY ARE SUCH DISCOUNTS MADE AVAILABLE TO BOOKSELLERS?
4287= A. AS I UNDERSTAND IT, BECAUSE IF YOU MEET THESE USUALLY FOUR 4288= QUALIFICATIONS, THE JUSTIFICATION IS THAT CERTAINLY WITH THE --
4289= LET'S TAKE CARTON QUANTITIES. IF PUBLISHERS CAN SHIP IN CARTON 4290= QUANTITIES, THAT'S AN ADVANTAGE TO THE PUBLISHERS.
4291= Q. IT MAKES IT CHEAPER FOR THEM TO DO THE BUSINESS, THEIR 4292= BUSINESS, CORRECT, TO DISTRIBUTE THEIR BOOKS?
4293= A. YES. 4294= Q. IT'S CHEAPER TO DISTRIBUTE BOOKS IN CARTON QUANTITIES THAN
4295= IT IS WHEN YOU HAVE TO FILL UP BOXES WITH INDIVIDUAL SEPARATE 4296= TITLES, CORRECT?
4297= A. RIGHT. CORRECT. 4298= Q. OKAY. AND SO BY AFFORDING AN RDC DISCOUNT, PUBLISHERS ARE
4299= PASSING ON SOME OF THOSE COST SAVINGS TO BOOKSELLERS, CORRECT?
4300= A. CORRECT. 4301= Q. NOW, YOU MENTIONED THAT ANOTHER REQUIREMENT OF THE RDC IS
4302= THAT --THAT MANY PUBLISHERS IMPOSE IS THAT YOU HAVE TO 4303= DISTRIBUTE TO MULTIPLE STORES. RECALL THAT?
4304= A. CORRECT. 4305= Q. OKAY. AND THAT WITH THE RDC DISCOUNT, THEN, PUBLISHERS ARE
4306= ABLE TO SEND THE BOOKS TO A CENTRALIZED LOCATION, AND THEN IT IS 4307= UP TO THE BOOKSELLER TO INCUR THE COST OF OPENING THE BOXES, OF
4308= UNPACKING THE BOOKS, AND THEN DISTRIBUTING THOSE BOOKS OFF TO 4309= THE INDIVIDUAL BOOK STORES, CORRECT?
4310= A. CORRECT. 4311= Q. AND THAT'S ANOTHER COST SAVINGS THAT THE PUBLISHERS ENJOY AS
4312= A RESULT OF --OF A BOOKSELLER OPERATING AN RDC, CORRECT? 4313= A. YES.
4314= Q. AND THAT IS ANOTHER JUSTIFICATION FOR WHY PUBLISHERS PROVIDE 4315= BETTER DISCOUNTS TO BOOKSELLERS WHO OPERATE RDC'S?
4316= A. RIGHT. 4317= Q. CORRECT? OR RETAIL DISTRIBUTION CENTERS.
4318= AND, LIKEWISE, IT'S MORE EFFICIENT FOR A --A 4319= PUBLISHER TO BE ABLE TO DELIVER BOOKS THROUGH LARGE TRUCKS
4320= RATHER THAN SMALLER TRUCKS THAT HAVE TO COME TO AN INDIVIDUAL 4321= STORE, CORRECT?
4322= A. WELL, THERE ARE PLENTY OF STORES --IN FACT, EVEN IN MY 4323= STORES, LARGE TRUCKS CAN COME DELIVER THE BOOKS.
4324= Q. BUT THAT IS ANOTHER COST SAVINGS, IF YOU DON'T --IF YOU ARE
4325= ABLE TO DELIVER IN --LARGE SEMIS CAN COME UP AND BACK UP TO A 4326= LOADING DOCK AS OPPOSED TO HAVING TO UNLOAD THE BOXES?
4327= A. I SUPPOSE SO. 4328= Q. OKAY.
4329= (PAUSE IN THE PROCEEDINGS.) 4330= MR. WELSH: AT THIS TIME, WE HAVE NO FURTHER
4331= QUESTIONS, YOUR HONOR. 4332= THE COURT: ALL RIGHT. WELL, IT'S TIME TO EAT.
4333= MR. SPIVA, IF YOU ARE AVAILABLE AND THE WITNESS IS 4334= AVAILABLE FOR --TO COME THIS AFTERNOON AT 3: 00 O'CLOCK, WE'LL
4335= IRON OUT --SHOULDN'T TAKE VERY LONG --THIS DIFFICULTY ABOUT 4336= THE FURTHER DIRECT TESTIMONY.
4337= MR. SPIVA: THANK YOU, YOUR HONOR. 4338= MR. YOUNG: YOUR HONOR, IF I CAN JUST ADVISE THE
4339= COURT THAT TOMORROW MORNING I MUST BE AT AN INJUNCTION HEARING 4340= IN JUDGE HAMILTON'S COURTROOM.
4341= THE COURT: INJUNCTION. 4342= MR. YOUNG: CONSEQUENTLY EITHER MR. DAWSON OR
4343= MS. LEWIS WILL BE HERE FROM MY OFFICE. 4344= THE COURT: ALL RIGHT.
4345= MR. YOUNG: THANK YOU. 4346= THE COURT: ALL RIGHT. THE COURT'S IN RECESS.
4347= (RECESS TAKEN AT 1: 28 P. M.) 4348= (PROCEEDINGS RESUMED AT 3: 00 P. M.)
4349=
4350= (PROCEEDINGS RESUME AT 3: 00 P. M.)
62
62 Page 63 64
4351= THE COURT: PLEASE BE SEATED. NOW, THE PURPOSE OF 4352= OUR HEARING THIS AFTERNOON IS JUST BRIEFLY TO PERMIT THE
4353= PLAINTIFFS TO MAKE AN OFFER OF PROOF WITH RESPECT TO A FURTHER 4354= TESTIMONY FROM THEIR EXPERT MS. SEE.
4355= I HAVE RULED, BASED ON HER RESUME AND THE 4356= PRELIMINARY QUESTIONS PUT TO HER BY HER COUNSEL, THAT SHE IS
4357= COMPETENT TO TESTIFY WITH RESPECT TO INDUSTRY STANDARDS IN THE 4358= BOOKSELLING INDUSTRY AND POINT OUT, AS SHE HAS, SOME OF THE
4359= PECULIARITIES OF THE INDUSTRY AND THE SO-CALLED TRADITION WITH 4360= RESPECT TO A NUMBER OF THINGS, PRIMARILY, OF COURSE, GETTING
4361= THE DISCOUNTS. 4362= AS AN EXPERT, I THINK THAT SHE IS QUALIFIED TO
4363= EXAMINE INVOICES AND COMPARE DISCOUNTS, PRICES AND SO ON WITH 4364= WHAT'S IN THE RED BOOK, AND TO INTERPRET THAT FOR THE COURT,
4365= AND I DON'T KNOW WHAT OTHER AREAS MR. SPIVA, SHE'S GOING TO 4366= TESTIFY TO, AND YOU WANT TO EXPLAIN TO ME....
4367= MR. SPIVA: YES, YOUR HONOR. YOUR HONOR, I THINK 4368= THAT IS EXACTLY WHAT WE WOULD LIKE MS. SEE TO DO. MS. SEE WILL
4369= TESTIFY, IF CALLED AGAIN, TO THE FOLLOWING SUBJECTS: 4370= IF ASKED, THE WITNESS WOULD TESTIFY THAT SHE HAS
4371= FORMED THE OPINION THAT THE DEFENDANTS HAVE RECEIVED 4372= SUBSTANTIALLY BETTER TERMS THAN THE BEST AVAILABLE STANDARD
4373= TERMS AND CONDITIONS OF SALE OFFERED BY PUBLISHERS AND 4374= WHOLESALERS, INCLUDING IN THE FOLLOWING AREAS:

4375= ONE, STOCK OFFERS THAT ARE NOT PUBLICLY AVAILABLE 4376= THAT ARE ONGOING OR ESSENTIALLY PERMANENT INCREASES IN
4377= DEFENDANTS' DISCOUNTS, AND ESSENTIALLY GIVE THE DEFENDANTS A 4378= PERMANENT INCREASE IN DISCOUNT, AS WELL AS STOCK OFFERS WHICH
4379= ARE SIMPLY NOT MADE AVAILABLE TO THE TRADE. 4380= THE COURT: WELL, THIS OPINION IS BASED ON WHAT, HER
4381= KNOWLEDGE OF THE DISCOUNTS OFFERED IN THE RED BOOK AS COMPARED 4382= TO --
4383= MR. SPIVA: YES, YOUR HONOR, NOT JUST THE DISCOUNTS 4384= IN THE RED BOOK, BUT SHE HAS REVIEWED OVER 20 OF THE DEFENDANT
4385= DEPOSITIONS, SHE HAS ALSO REVIEWED HUNDREDS, IF NOT 4386= THOUSANDS --
4387= THE COURT: WELL, I KNOW --4388= MR. SPIVA: --OF DOCUMENTS, AND SHE HAS APPLIED HER
4389= EXPERTISE. SHE WOULD USE HER EXPERTISE TO COMPARE THOSE 4390= DOCUMENTS, THE PRACTICES THAT THOSE DOCUMENTS EVIDENCE, TO THE
4391= STANDARD INDUSTRY PRACTICES BASED EITHER ON THE RED BOOK OR 4392= OTHERWISE STANDARD PRACTICES.
4393= THE COURT: SHE HAS ADMITTED HERSELF AND THE 4394= TESTIMONY IS CLEAR THAT IN ORDER TO DETERMINE THE ACTUAL PRICE
4395= OF A BOOK, THERE ARE A LOT OF OTHER THINGS BESIDES COMPARING IT 4396= TO THE RED BOOK.
4397= MR. SPIVA: ABSOLUTELY. SHE'S PREPARED TO --4398= THE COURT: AND YOU CAN'T JUST LOOK AT THE RED BOOK
4399= AND THEN INVOICE AND SAY THAT, ALL OF A SUDDEN, SHE LOOKS UP IN
4400= THE CLOUDS, AND THEY'RE GETTING A BETTER DEAL. SHE'S GOT TO 4401= HAVE SOME HARD DATA.
4402= MR. SPIVA: YES, I AGREE, YOUR HONOR, AND IF I 4403= MIGHT, SHE HAS REVIEWED THE FOLLOWING TYPES OF DOCUMENTS WHICH
4404= HAVE PROVIDED HER THE BASIS TO COMPARE THE DEFENDANTS' TERMS TO 4405= THE STANDARD TERMS.
4406= SHE HAS COMPARED DEFENDANTS' TERMS PROFILES, WHICH 4407= EVIDENCE THEIR --THE TERMS THAT THEY ARE RECEIVING. SHE HAS
4408= REVIEWED CONTRACTS AND AGREEMENTS THAT THE DEFENDANTS HAVE 4409= ENTERED, CORRESPONDENCE BETWEEN THE DEFENDANTS AND PUBLISHERS
4410= THAT IDENTIFIED THE DEFENDANTS' STANDARD TERMS AND PRACTICES, 4411= AND INTERNAL COMPANY REPORTS THAT ALSO DO THAT, YOUR HONOR.
4412= THE COURT: ALL RIGHT. WELL, NOW, I DON'T WANT HER 4413= TO SIMPLY SAY WHAT YOU'VE SAID, "I'VE REVIEWED ALL THESE
4414= DOCUMENTS," AND SO ON. I'M LOOKING AT RULE 703, THE BASES OF 4415= OPINION TESTIMONY BY EXPERTS, AND THAT READS,
4416= "THE FACTS OR DATA IN THE PARTICULAR CASE UPON 4417= WHICH AN EXPERT BASES AN OPINION OR INFERENCE MAY BE
4418= THOSE PERCEIVED BY OR MADE KNOWN TO THE EXPERT AT OR 4419= BEFORE THE HEARING, AND IF OF A TYPE REASONABLY
4420= RELIED UPON BY EXPERTS IN THE PARTICULAR FIELD IN 4421= FORMING OPINIONS OR INFERENCES UPON THE SUBJECT, THE
63
63 Page 64 65
4422= FACTS OR DATA NEED NOT BE ADMISSIBLE IN EVIDENCE IN 4423= ORDER FOR THE OPINION OR INFERENCE TO BE ADMITTED."
4424= THOSE ARE THE FACTS OR DATA THAT CONCERN ME. DO
4425= THEY GO BEYOND THE INVOICE, AND THEN YOU HAVE THE RED BOOK, AND 4426= THEN NUMEROUS OTHER CHANGES, MODIFICATIONS TO THE PRICES AS
4427= THEY APPEAR IN THE RED BOOK. 4428= MR. SPIVA: YOUR HONOR --
4429= THE COURT: AND SO HOW --I WANT TO KNOW HOW YOU'RE 4430= GOING TO PROCEED, AND HOW THE --WHAT THE DEFENDANTS ARE GOING
4431= TO REVIEW TO BE ABLE TO CROSS-EXAMINE HER ON. 4432= MR. SPIVA: YES. YOUR HONOR, THE DOCUMENTS THAT SHE
4433= HAS REVIEWED OF THE DEFENDANTS ACTUALLY REVEAL THE PRACTICES 4434= AND TERMS THAT THE DEFENDANTS HAVE RECEIVED. AND SO WHAT SHE'S
4435= DOING IS, BASED ON THAT, SHE IS COMPARING THAT, BASED ON HER 4436= EXPERIENCE, UNDER RULE 702, IN THE INDUSTRY, TO HOW DEFENDANTS'
4437= TERMS AND PRACTICES COMPARE TO STANDARD TERMS AND PRACTICES. 4438= THE COURT: WELL, WHAT SHE'S REVIEWED, IF I
4439= UNDERSTAND THE TESTIMONY THIS MORNING, ARE DOCUMENTS THAT HAVE 4440= BEEN CAREFULLY SELECTED BY PLAINTIFFS' COUNSEL, BY YOU, I
4441= SUPPOSE, AMONG OTHERS, AND SHOWN --SPECIALLY SHOWN TO HER. 4442= MR. SPIVA: THAT'S ACTUALLY NOT ACCURATE, YOUR
4443= HONOR. I KNOW THE DEFENDANTS HAVE SAID THAT, BUT SHE HAS 4444= REVIEWED, AS I SAID, OVER 20 DEPOSITIONS, SOMETIMES MULTI-DAY
4445= DEPOSITIONS, OF THE DEFENDANTS, AND MANY OF THEM IN THEIR --4446= THE COURT: MR. SPIVA, I HAVE READ YOUR RECITATIONS
4447= ABOUT WHAT SHE HAS DONE GENERALLY AND LOOKED AT THEM. THAT'S 4448= NOT ENOUGH TO GET --TO TESTIFY AND GIVE AN OPINION, UNLESS SHE
4449= CAN POINT TO THE --SHE'S GOT TO POINT TO SUFFICIENT FACTS OR
4450= DATA, AND THAT TESTIMONY HAS GOT TO BE THE PRODUCT OF RELIABLE 4451= PRINCIPLES AND METHODS, AND THEN THE WITNESS SHOWS THAT SHE'S
4452= APPLIED THESE PRINCIPLES AND METHODS TO THE FACTS OF THE CASE. 4453= SHE CAN'T JUST SAY GENERALLY, I'VE REVIEWED ALL THIS, AND
4454= THEREFORE, I FIND THAT THE DEFENDANTS ARE GETTING A BETTER DEAL 4455= THAN THE PLAINTIFFS. SHE'S GOT TO GET DOWN, AS I KEEP SAYING,
4456= FAVORITE EXPRESSION OF MINE, BRASS TACKS. 4457= MR. SPIVA: YES, YOUR HONOR, THIS IS NOT JUST AN
4458= EXERCISE OF COMPARING ONE NUMBER TO THE OTHER. I MEAN, 4459= OFTENTIMES THESE ARE INDUSTRY PRACTICES, SUCH AS THE
4460= NON-RETURNABILITY ISSUE, WHERE THINGS ARE --THERE'S STANDARD 4461= PRACTICES WITHIN THE INDUSTRY THAT SHE'S GOING TO TESTIFY TO
4462= BASED ON HER EXPERIENCE. 4463= NOW, THE DEFENDANTS WOULD HAVE THE OPPORTUNITY TO
4464= CROSS-EXAMINE HER, AND IF THEY --A LOT OF THIS WOULD GO TO THE 4465= WEIGHT YOUR HONOR MIGHT GIVE HER TESTIMONY IF YOU'RE NOT
4466= CONVINCED THAT HER EXPERIENCE SUPPORTS HER STATEMENT. BUT I 4467= ASK AT LEAST THAT YOU RECEIVE HER TESTIMONY, AND THEN YOU CAN
4468= GIVE IT WHATEVER WEIGHT YOU THINK IT WARRANTS. 4469= THE COURT: I'LL DO THAT, OF COURSE, IN ANY EVENT.
4470= MR. SPIVA: SURE. 4471= THE COURT: THAT'S WHAT I'M SUPPOSED TO DO. THAT'S
4472= WHY I'M HERE. I UNDERSTAND MY JOB. 4473= MR. SPIVA: OH, SURE.
4474= THE COURT: I'VE GOT TO HAVE SOMETHING TO GO ON. I
4475= WANT TO KNOW HOW YOU'RE GOING TO DO IT. 4476= MR. SPIVA: CAN I TRY ONE MORE THING, YOUR HONOR?
4477= CAN I GIVE YOU AN EXAMPLE? THE DEFENDANTS OR BARNES & NOBLE 4478= HAS A TYPE OF DOCUMENT CALLED A TERMS PROFILE, WHICH MANY OF
4479= THEIR SENIOR EXECUTIVES HAVE TESTIFIED CONTAIN THE TERMS UNDER 4480= WHICH THEY PURCHASE BOOKS. IT'S ALMOST LIKE AN INVOICE. IT'S
4481= BETTER THAN AN INVOICE, BECAUSE IT IS THE STANDARD TERMS THAT 4482= THEY USE FOR MOST OF THEIR PURCHASES, WHEREAS AN INVOICE, AS
4483= YOU HEARD THIS MORNING, OFTEN IS MISLEADING BECAUSE IT MAY 4484= IDENTIFY A ONE-TIME PURCHASE AS OPPOSED TO THE STANDARD ONGOING
4485= TERMS THAT A BOOKSELLER PURCHASES UNDER. 4486= MS. SEE HAS REVIEWED THE DEPOSITION TESTIMONY
4487= REGARDING THOSE TERMS OF PROFILES, HAS REVIEWED THOSE TERMS 4488= PROFILES, AND CAN COMPARE THE TYPES OF TERMS THAT DEFENDANTS
4489= ARE RECEIVING TO THE RED BOOK, IF THAT IS THE APPROPRIATE 4490= COMPARISON, OR OTHER STANDARD INDUSTRY PRACTICES.
4491= THE COURT: WELL, MR. WELSH, DO YOU WANT TO --OR
64
64 Page 65 66
4492= MR. --4493= MR. WELSH: MR. PETROCELLI.
4494= THE COURT: MR. PETROCELLI? 4495= MR. PETROCELLI: THANK YOU, YOUR HONOR. WHEN WE
4496= MADE THE MOTION IN LIMINE, WE ARGUED THAT SHE SHOULDN'T BE 4497= PERMITTED TO TALK ABOUT DEFENDANTS' DOCUMENTS UNDER BOTH RULE
4498= 702 AND RULE 1006. 1006 PROVIDES FOR A SUMMARY WITNESS. 4499= THEY'VE CONCEDED THAT BECAUSE THEY HAVE NOT RESPONDED IN THE

4500= OPPOSITION TO THE MOTION IN LIMINE ON THAT GROUND, AND INDEED, 4501= SHE WOULD NOT BE A PROPER SUMMARY WITNESS BECAUSE A SUMMARY
4502= WITNESS REQUIRES A PERSON TO SORT OF NEUTRALLY TAKE --4503= THE COURT: YOU'RE TALKING ABOUT 702, AND WHAT'S THE
4504= OTHER RULE? 4505= MR. PETROCELLI: RULE 1006 OF THE FEDERAL RULES OF
4506= EVIDENCE TALKS ABOUT THE REQUIREMENTS FOR A SUMMARY WITNESS, 4507= WHICH IS, WE SUBMIT, WHAT THEY REALLY WANT MS. SEE TO DO.
4508= WHEN THEY THOUGHT THERE WAS GOING TO BE A JURY, AND 4509= THEY EVEN SAID SO IN THEIR OPPOSITION, THEY WANTED HER TO, IN
4510= EFFECT, TAKE ALL OF THE DEFENDANTS' DEPOSITION TESTIMONY AND 4511= THE DEFENDANTS' DOCUMENTS AND HAVE HER WALK THROUGH THEM AND
4512= TELL THE JURY WOULD THOSE DOCUMENTS MEANT. 4513= THE COURT: ALL RIGHT, NOW, THE RULE 1006 READS
4514= THAT, 4515= "THE CONTENTS OF VOLUMINOUS WRITINGS, RECORDINGS
4516= OR PHOTOGRAPHS WHICH CANNOT CONVENIENTLY BE EXAMINED 4517= IN COURT MAY BE PRESENTED IN THE FORM OF A CHART,
4518= SUMMARY OR CALCULATION. THE ORIGINALS OR DUPLICATES 4519= SHALL BE MADE AVAILABLE FOR EXAMINATION OR COPYING
4520= OR BOTH BY OTHER PARTIES AT REASONABLE TIME AND 4521= PLACE. THE COURT MAY ORDER THAT THEY BE PRODUCED IN
4522= COURT." 4523= WHAT HAS THAT GOT TO DO WITH A SUMMARY WITNESS?
4524= MR. PETROCELLI: THE CASES HAVE MADE CLEAR THAT THIS
4525= KIND OF TESTIMONY WOULD NOT QUALIFY AS A SUMMARY WITNESS. SO 4526= WE WOULD AGREE THAT SHE WOULD NOT QUALIFY AS A COMPILER OF
4527= VOLUMINOUS DATA TO GET ON THE STAND AND SAY, I TOOK ALL THESE 4528= INVOICES, FOR EXAMPLE, AND HERE'S A CHART, HERE'S A TABULATION,
4529= AND BASICALLY, ALMOST BE A FOUNDATIONAL WITNESS. 4530= THE COURT: YEAH, WELL, WE'RE NOT TALKING ABOUT
4531= THAT. 4532= MR. PETROCELLI: OKAY. UNDER RULE 702, SHE DOESN'T
4533= QUALIFY TO SPEAK ABOUT THESE DOCUMENTS BECAUSE SHE'S NOT 4534= BRINGING ANY EXPERTISE OR SEEKING TO EXPRESS ANY OPINIONS ABOUT
4535= THESE DOCUMENTS, YOUR HONOR. SHE JUST WANTS TO SAY WHAT THEY 4536= SAY. SHE WANTS TO INTERPRET THEM, AND EXPLAIN THE CONTENTS OF
4537= THEM. 4538= THE COURT: I JUST GOT THROUGH SAYING THIS MORNING,
4539= AND I'LL SAY IT AGAIN, THAT I FOUND THAT SHE DOES MEET THE 4540= REQUIREMENTS OF 702, AND I STATED THAT SHE COULD TESTIFY AS AN
4541= EXPERT. 4542= MR. PETROCELLI: YES, AND HE DID WALK HER THROUGH
4543= ALL OF THOSE SUBJECT MATTERS THIS MORNING IN HER EXPERT 4544= TESTIMONY. SHE GAVE HER OPINIONS BASED ON ASSUMPTIONS THAT
4545= WERE GIVEN TO HER, AND SHE WENT THROUGH A WHOLE ARRAY OF 4546= TOPICS, STOCK OFFERS AND RDC AND INGRAM AND SO FORTH, AND WE
4547= HAD AN OPPORTUNITY TO CROSS-EXAMINE. 4548= SO MR. SPIVA DID QUESTION HER EXTENSIVELY ON ALL THE
4549= ISSUES THAT MAKE UP PART OF THEIR CASE, AND YOUR HONOR HAS
4550= PERMITTED HER TO DO SO, AND HAS CONCLUDED THAT SHE'S QUALIFIED 4551= TO DO SO.
4552= THE COURT: WELL, THEN, WHAT ARE YOU FUSSING ABOUT? 4553= MR. PETROCELLI: NOW WHAT THEY WANT HER TO DO IS
4554= THEY WANT HER TO PICK UP EACH OF THE DOCUMENTS THAT ARE IN THAT 4555= NOTEBOOK, THAT ARE DEFENDANTS' DOCUMENTS, AND SAY, "MS. SEE,
4556= LOOK AT THAT DOCUMENT, WHAT DOES IT SAY? IF YOU LOOK AT THIS 4557= DOCUMENT, CAN YOU TELL THE DEFENDANTS GOT A BETTER DEAL THAN
4558= THE PLAINTIFFS?" 4559= AND ALL SHE WOULD BE DOING, YOUR HONOR, WOULD BE
4560= TAKING ONE OF OUR DOCUMENTS AND COMPARING IT TO THE RED BOOK, 4561= WHICH IS NOT SOMETHING THAT AN EXPERT NEEDS TO DO. THE
65
65 Page 66 67
4562= DOCUMENTS ARE THE BEST EVIDENCE OF WHAT THEY SAY, AND THE 4563= WITNESSES HAVE SPOKEN ABOUT THE DOCUMENTS.
4564= THE COURT: MR. PETROCELLI, SKILLED CROSS-EXAMINER 4565= THAT YOU ARE, ARE YOU INSINUATING EVEN THAT A PERSON --THAT
4566= THE ORDINARY LAYMAN, IF WE HAD A JURY HERE --AND YOU'VE GOT 4567= PRETTY CLOSE TO THAT SITTING ON THE BENCH --COULDN'T --COULD
4568= DO WITHOUT HELP IN COMPARING THE INVOICE WITH THE RED BOOK AND 4569= THE SURROUNDING INFORMATION, WHICH YOU SKILLFULLY PRESENTED TO
4570= THE COURT, TO MAKE A PRICE? YOU NEED AN EXPERT TO DO THAT. 4571= AND I'VE SAID THAT SHE'S AN EXPERT.
4572= MR. PETROCELLI: WELL, WHAT SHE CAN'T SAY --SHE CAN 4573= SAY, "HERE'S MY OPINION ON THIS SUBJECT, ON STOCK OFFERS. IT
4574= IS MY OPINION THAT DEFENDANTS GET AN ARRANGEMENT THAT'S NOT
4575= GENERALLY AVAILABLE." "AND WHAT IS THE BASIS OF YOUR OPINION?" 4576= THEN SHE CAN IDENTIFY THE DOCUMENTS.
4577= WHAT SHE CAN'T DO IS SAY WHAT THE DOCUMENTS MEAN, 4578= WHICH IS WHAT SHE WANTS TO DO IN THE TESTIMONY. SHE WANTS TO
4579= PICK UP EACH DOCUMENT AND START, IN EFFECT, READING FROM IT OR 4580= SAYING, "I FIND, BASED ON THIS DOCUMENT," SUCH-AND-SUCH AND
4581= SUCH-AND-SUCH. SHE CAN IDENTIFY THE DOCUMENTS THAT SHE BASED 4582= HER OPINION ON, BUT SHE CAN'T, IN EFFECT, BE THE SPEAKER FOR
4583= THE DOCUMENTS. 4584= THE COURT: ALL RIGHT, WELL, MAYBE THE BEST WAY IS
4585= TO HAVE HER TAKE THE STAND, AND MR. SPIVA, YOU ASK HER 4586= APPROPRIATE QUESTIONS.
4587= MS. SEE, PLEASE COME FORWARD AND TAKE THE STAND. 4588= GAIL S. SEE,
4589= CALLED AS A WITNESS FOR THE PLAINTIFFS, HAVING BEEN PREVIOUSLY 4590= DULY SWORN, TESTIFIED AS FOLLOWS:
4591= THE COURT: AND YOU'RE STILL UNDER OATH. 4592= MR. SPIVA: THANK YOU, YOUR HONOR.
4593= THE COURT: JUST TAKE ONE OR TWO EXAMPLES, AND 4594= THAT'S....
4595= BY MR. SPIVA: 4596= Q. MS. SEE, AS AN EXPERT IN THIS CASE, DID YOU FORM AN OPINION
4597= AS TO THE DEFENDANTS' PRACTICES COMPARED TO INDUSTRY STANDARD 4598= PRACTICES YOU HAVE LEARNED BASED ON 30 YEARS IN THE BOOKSELLING
4599= INDUSTRY?
4600= A. I HAVE. 4601= Q. AND WHAT IS THAT OPINION?
4602= A. THAT OPINION IS THAT THE DEFENDANTS WERE RECEIVING MANY 4603= TERMS THAT WERE --THAT WERE NOT AT ALL IN ACCORDANCE TO
4604= TRADITIONAL TERMS. 4605= Q. WHAT WAS THAT --
4606= A. EXCUSE ME, THE USUAL TERMS. 4607= Q. OKAY, AND WHAT WAS THAT OPINION BASED ON?
4608= A. MY OPINION WAS BASED ON READING THROUGH MANY, MANY 4609= DEPOSITIONS. I READ THROUGH 10 TOTALLY, AND THEN I ALSO READ
4610= MANY OF THE DOCUMENTS WE'VE BEEN DISCUSSING. 4611= Q. YOU SAID YOU READ 10 TOTALLY. DID YOU READ ANY OTHERS,
4612= APART --4613= A. I READ 20, AT LEAST 20. RIGHT.
4614= Q. NOW, I WANT TO TAKE AN EXAMPLE, MS. SEE, OF THE PRACTICES 4615= THAT YOU SAID DIFFERED. CAN YOU SPECIFY, WITH REGARD TO STOCK
4616= OFFERS, HOW YOU FOUND THAT DEFENDANTS' PRACTICES DIFFERED FROM 4617= STANDARD INDUSTRY PRACTICES?
4618= A. YES. THE DEFENDANTS' PRACTICES DIFFERED IN THAT THEY WOULD 4619= TAKE A PUBLISHED STOCK OFFER AND THEY WOULD USE THAT STOCK
4620= OFFER TO CREATE BASICALLY A PERENNIAL, ONGOING DISCOUNT, AND 4621= THAT'S NOT THE DEFINITION OF A STOCK OFFER. AND I SAW
4622= DOCUMENTS TO THAT EFFECT. 4623= THE COURT: SEE, THAT WON'T DO IT. THAT JUST
4624= DOESN'T DO IT.
4625= BY MR. SPIVA: 4626= Q. OKAY, WHAT ABOUT WITH RESPECT TO NON-RETURNABLE TERMS,
4627= MS. SEE, HOW THE DEFENDANTS' PRACTICES IN THE AREA OF 4628= NON-RETURNABLE TERMS COMPARE TO STANDARD INDUSTRY PRACTICES?
4629= FIRST, CAN YOU DESCRIBE THE STANDARD PRACTICE WITH 4630= RESPECT TO NON-RETURNABLE PURCHASES?
4631= A. RIGHT. WELL, AS WE DISCUSSED THIS MORNING, RETURNABLE
66
66 Page 67 68
4632= BOOKS ARE PURCHASED WITH THE ABILITY TO RETURN THEM, AND 4633= NON-RETURNABLE BOOKS, YOU GET A HIGHER DISCOUNT AND YOU DON'T
4634= HAVE THE PRIVILEGE OF RETURNING THEM. 4635= I HAVE SEEN DOCUMENTS THAT INDICATE THAT THE
4636= DEFENDANTS WERE ABLE TO ARRANGE TO HAVE BOOKS PURCHASED --THAT 4637= THEY PURCHASED ON A RETURNABLE BASIS, PURCHASE THOSE SAME BOOKS
4638= ON A NON-RETURNABLE BASIS. 4639= THE COURT: NOW, WHERE IS THE DOCUMENT AND WHAT
4640= DOCUMENTS --AND WHAT ARE YOU RELYING --THAT YOU'RE RELYING 4641= UPON?
4642= THE WITNESS: IT WAS SOMETHING CALLED THE HOLIDAY 4643= FEATURED TITLE PLAN.
4644= BY MR. SPIVA: 4645= Q. WHAT TYPE OF DOCUMENT DID YOU REVIEW, MS. SEE?
4646= A. I REVIEWED A DOCUMENT THAT IDENTIFIED WHAT'S CALLED A 4647= HOLIDAY FEATURED TITLE PLAN, AND --DO YOU HAVE A CHANCE TO GET
4648= IT? THERE IS A LISTING THERE OF THE BOOKS THAT THEY RECEIVED, 4649= AND IT INDICATES WHETHER THEY'RE IN A PARTICULAR COLUMN,

4650= WHETHER THEY WERE RETURNABLE OR NON-RETURNABLE. 4651= I ALSO REVIEWED E-MAIL CORRESPONDENCE BETWEEN SOME
4652= OF THE EXECUTIVES AT BARNES & NOBLE, AND IN THAT DOCUMENT, THE 4653= E-MAIL DOCUMENT, IT'S STATED WHETHER THEY WERE GOING TO BE ABLE
4654= TO ARRANGE TO HAVE THESE OFFERS JUST FOR BARNES & NOBLE 4655= EXCLUSIVELY OR WHETHER THEY'D BE SOME OTHER TIMES --ANOTHER
4656= PUBLISHER MIGHT OFFER THESE SAME TERMS TO THE INDUSTRY. I'LL 4657= END IT THERE.
4658= MR. SPIVA: YOUR HONOR, IF I MIGHT APPROACH THE 4659= WITNESS, AND I'D LIKE TO HAND YOU WHAT HAS BEEN MARKED AS
4660= PLAINTIFFS' EXHIBIT 1134, AND I'D LIKE TO ASK MY COLLEAGUES, IF 4661= WE HAVE ANOTHER NOTEBOOK, IF YOU COULD HAND IT FORWARD, PLEASE.
4662=( CONTINUED ON FOLLOWING PAGE. NOTHING OMITTED.) 4663=
4664= 4665=
4666= 4667=
4668= 4669=
4670= 4671=
4672= 4673=
4674=
4675= MR. SPIVA: WHY DON'T WE LET THE JUDGE GET A CHANCE 4676= TO --
4677= THE COURT: NO, GO AHEAD. YOU CAN GO ON. 4678= BY MR. SPIVA:
4679= Q. MS. SEE, IS THAT ONE OF THE DOCUMENTS THAT YOU REVIEWED IN 4680= CONNECTION WITH FORMING YOUR OPINION ABOUT THE HOLIDAY FEATURED
4681= TITLE PROGRAM? 4682= A. IT IS.
4683= Q. AND WHAT --WHAT SIGNIFICANCE --WHAT IS THAT DOCUMENT? 4684= A. THIS DOCUMENT IS A LISTING OF BOOKS THAT BARNES & NOBLE WAS
4685= BUYING FOR THEIR HOLIDAY FEATURED TITLE PROGRAM, MEANING THEY 4686= WOULD PUT THESE BOOKS IN THEIR STORE AT THE HOLIDAY TIME.
4687= Q. AND WHAT IS --WHAT IS THE SIGNIFICANCE OF THAT LISTING OF 4688= BOOKS?
4689= A. IF YOU LOOK AT --IF YOU LOOK AT --CAN YOU SEE THE COLUMN 4690= JUDGE WHERE IT SAYS HF. THE DISCOUNT.
4691= THE COURT: YES. YOU JUST --4692= THE WITNESS: AND YOU GO DOWN --EXCUSE ME --YOU GO
4693= DOWN AND YOU CAN SEE "NR" AND "R" NEXT TO THE TITLES. AND THE 4694=" NR" MEANS, OBVIOUSLY, NON-RETURNABLE, AND THE "R" MEANS
4695= RETURNABLE. AND THERE'S --FOR INSTANCE, THERE IS A BOOK FROM 4696= HARPER CALLED DIVINE SECRETS OF A YA YA SISTERHOOD. AND THEY
4697= WERE --THE NORMAL DISCOUNT IS 48 PERCENT. THEY WERE RECEIVING 4698= SPECIAL DISCOUNT OF 55 PERCENT. AND IN ADDITION --
4699= THE COURT: WELL, HOW DO YOU KNOW THE NORMAL
4700= DISCOUNT? 4701= THE WITNESS: IT'S UP AT THE TOP. YOU SEE THE PRICE
67
67 Page 68 69
4702= GOING ACROSS THE TOP, IT SAYS "PRICE." 4703= THE COURT: YES.
4704= THE WITNESS: AND THEN "DISCOUNT." 4705= THE COURT: YEAH.
4706= THE WITNESS: AND THAT'S THE DISCOUNT. 4707= THE COURT: YES.
4708= THE WITNESS: AND THEN THE NEXT COLUMN IS THE HFT 4709= DISCOUNT, MEANING HOLIDAY FEATURE TITLE DISCOUNT, AND IF YOU
4710= COULD FOLLOW THE COLUMN DOWN TO NUMBER TEN, THAT'S THE BOOK I'M 4711= DISCUSSING, PARTICULAR BOOK I'M DISCUSSING.
4712= THE COURT: DIVINE SECRETS --4713= THE WITNESS: DIVINE SECRETS OF A YA YA SISTERHOOD.
4714= THIS WAS A BOOK THAT THEY WERE RECEIVING A 55 PERCENT DISCOUNT 4715= ON AND ALSO NON-RETURNABLE PRIVILEGES.
4716= THE COURT: WELL --4717= THE WITNESS: NOW, THEY WERE BUYING IT AT
4718= NON-RETURNABLE. THIS IS A PARTICULAR TITLE, JUDGE, THAT WOULD 4719= HAVE BEEN IN THEIR STORES AT THAT TIME, AND WOULD HAVE BEEN
4720= BOUGHT ON A RETURNABLE BASIS. 4721= BY MR. SPIVA:
4722= Q. WHAT DO YOU BASE THAT OPINION ON, MISS SEE? 4723= A. BECAUSE IT WAS A BOOK THAT AT THAT TIME WAS ON, I'M SURE,
4724= THE BESTSELLER LIST.
4725= Q. HOW DO YOU KNOW THAT? 4726= A. WELL, I JUST HAPPEN TO KNOW WHAT THAT --THAT PARTICULAR
4727= TITLE IN 1998. AND IF YOU GO DOWN THE LIST --4728= THE COURT: WHAT MAKES YOU THINK THIS ISN'T AVAILABLE
4729= TO EVERYBODY? 4730= THE WITNESS: IT ISN'T AVAILABLE BECAUSE IT'S A
4731= HOLIDAY FEATURE TITLE THAT WAS A BARNES & NOBLE PROMOTION. AND 4732= I'VE SEEN DOCUMENTATION FROM E-MAILS THAT TALKED ABOUT THE BOOKS
4733= THAT WERE GOING TO BE --TERMS THAT WERE GOING TO BE OFFERED FOR 4734= SPECIFIC BOOKS THAT WERE EXCLUSIVELY FOR BARNES & NOBLE.
4735= BY MR. SPIVA: 4736= Q. MISS SEE --
4737= THE COURT: AND WHERE IS THAT? 4738= THE WITNESS: I --
4739= MR. SPIVA: YOUR HONOR, IF I MIGHT? 4740= THE COURT: YES.
4741= BY MR. SPIVA: 4742= Q. MISS SEE, I'D LIKE TO HAND YOU WHAT HAS BEEN MARKED AS
4743= PLAINTIFF'S EXHIBIT 1443 AND ASK YOU TO TAKE A LOOK AT IT. 4744= A. THANK YOU.
4745= Q. MS. SEE, BEFORE YOU ANSWER FURTHER QUESTIONS ABOUT THIS 4746= PARTICULAR PROGRAM, I WANT TO ASK YOU WHETHER THESE ARE THE
4747= TYPES OF DOCUMENTS THAT ARE REASONABLY RELIED UPON BY EXPERTS IN 4748= THE BOOK SELLING INDUSTRY TO DETERMINE THE TERMS THAT A --A
4749= BOOKSTORE IS PURCHASING ON?
4750= A. YES. 4751= Q. HAVE YOU HAD A CHANCE TO LOOK AT WHAT HAS BEEN MARKED AS --
4752= I BELIEVE IT'S 1443? 4753= A. YES, THIS IS A SERIES OF E-MAILS, AS YOU WILL NOTE. AND
4754= I --IF YOU WILL LOOK AT THE SECOND E-MAIL FROM BOB WIETRAK TO 4755= DAVID CULLY, WHO IS PRESIDENT OF THE BARNES & NOBLE DISTRIBUTION
4756= AND PATRICIA BOSTELMAN AND OTHERS AND --EXCUSE ME --AND IF YOU 4757= LOOK AT NUMBER A, HARPER IS 55 PERCENT NON-RETURNABLE
4758= EXCLUSIVELY TO BE --EXCLUSIVITY TO BE DETERMINED AND THEN --4759= EXCUSE ME. DO YOU SEE IT? IT'S ABOUT HALFWAY DOWN
4760= THE PAGE. 4761= THE COURT: EXCUSE ME. WHERE --IT'S THE PAGE THAT'S
4762= HEADED PATRICIA BOSTELMAN? 4763= THE WITNESS: CORRECT.
4764= THE COURT: AND THEN --4765= THE WITNESS: HALFWAY DOWN THE PAGE.
4766= THE COURT: YEAH. 4767= THE WITNESS: AND THERE'S A LISTING ONE, TWO, THREE,
4768= FOUR, AND IMMEDIATELY UNDER THAT --4769= THE COURT: YES, OH, ALL RIGHT.
4770= THE WITNESS: SEE, HARPER? 4771= THE COURT: YES.
4772= THE WITNESS: AND --
68
68 Page 69 70
4773= BY MR. SPIVA: 4774= Q. MISS SEE, HAVE YOU --HOW DO YOU KNOW THAT EXCLUSIVITY
4775= REFERS TO A DEAL THAT IS AVAILABLE ONLCould not acquire words on page 70 Y TO BARNES & NOBLE? 4776= A. WELL, MY INDUSTRY EXPERIENCE. EXCLUSIVITY MEANS THAT IT'S
4777= ONLY AVAILABLE. 4778= Q. DID YOU REVIEW ANY DEPOSITION TESTIMONY?
4779= A. YES, I DID. 4780= Q. AND WHAT SIGNIFICANCE DID THAT HAVE?
4781= A. THE DEPOSITION TESTIMONY SUPPORTED MY OPINION. 4782= Q. MISS SEE, YOU SEE IN THE DOCUMENT A REFERENCE TO SPECIAL
4783= PRINTS OR SPECIAL EDITIONS? 4784= A. I DO.
4785= Q. DOESN'T THAT INDICATE THAT BARNES & NOBLE WAS GETTING THIS 4786= BECAUSE THEY WERE SPECIAL PRINTS AND NOT BECAUSE IT WAS SOME
4787= TYPE OF A DISCRIMINATORY DEAL? 4788= A. BUT THESE WERE BOOKS THAT WERE TRADEBOOKS THAT WERE
4789= GENERALLY --THAT ANY BOOKS --MOST BOOKSTORES WOULD LIKE TO 4790= HAVE IN THEIR INVENTORY. THESE WERE NOT SPECIAL EDITIONS.
4791= Q. OKAY. AND WHAT DO YOU BASE THAT ON? 4792= A. BECAUSE I LOOKED AT THE LIST, THE PREVIOUS DOCUMENT, AND I
4793= KNOW THAT --WELL, BETTER HOMES AND GARDEN'S NEW COOKBOOK, WHERE 4794= THE WILD THINGS ARE, LION WITCH AND WARDROBE, THOSE ARE BOOKS
4795= THAT ANY BOOKSTORE WOULD HAVE IN STOCK. 4796= Q. AND SO ARE YOU SAYING THAT YOU BASE THAT OPINION --
4797= A. YES. 4798= Q. --ON YOUR INDUSTRY EXPERIENCE?
4799= A. CORRECT.
4800= Q. HAVE YOU REVIEWED OTHER LISTS IN CONNECTION WITH THE HOLIDAY 4801= FEATURE TITLE PROGRAM?
4802= A. YES. 4803= Q. AND WHERE --HOW DO THEY COMPARE TO THAT LIST?
4804= A. THEY WERE SIMILAR. 4805= MR. SPIVA: YOUR HONOR, I THINK IF I MIGHT, THIS IS
4806= AN EXAMPLE OF WHERE HER EXPERTISE WOULD BE USEFUL TO THE COURT 4807= BECAUSE SHE CAN EXPLAIN HOW THE DOCUMENT EVIDENCES DEFENDANTS'
4808= PRACTICES AND THEN TALK ABOUT THE STANDARD INDUSTRY PRACTICES 4809= HERE, HOW NON-RETURNABILITY WORKS, YOU KNOW, SPECIAL --
4810= THE COURT: LIMIT THE TESTIMONY THIS AFTERNOON TO 4811= THIS.
4812= YOU WANT TO CROSS-EXAMINE ON THIS, EITHER 4813= MR. PETROCELLI OR MR. WELSH?
4814= MR. PETROCELLI? 4815= MR. PETROCELLI: OH, NOW?
4816= THE COURT: YEAH. 4817= VOIR DIRE EXAMINATION
4818= BY MR. WELSH: 4819= Q. NOW, MISS SEE, BEFORE YOU READ THE DOCUMENT CONCERNING THE
4820= HOLIDAY FEATURED TITLE PROGRAM, YOU WERE NOT AWARE OF SUCH A 4821= PROGRAM; IS THAT CORRECT?
4822= A. WELL, I'VE BEEN IN BARNES & NOBLE STORES, AND RECOGNIZED 4823= THAT THEY HAD A NUMBER OF BOOKS AT THE HOLIDAY TIME THAT THEY
4824= WERE DEEPLY DISCOUNTING.
4825= Q. BUT MY QUESTION WAS NOT ABOUT THE BOOKS THAT YOU OBSERVED IN 4826= THE STORE. MY QUESTION WAS ABOUT THE HOLIDAY FEATURE TITLED
4827= PROGRAM. YOU WERE NOT AWARE OF THAT BEFORE YOU READ A DOCUMENT 4828= THAT WAS PROVIDED TO YOU BY PLAINTIFF'S COUNSEL, CORRECT?
4829= A. CORRECT. 4830= Q. OKAY. AND YOU WERE NOT AWARE OF ANYTHING ABOUT THIS
4831= PROGRAM --OR RATHER, WHAT YOU LEARNED ABOUT THE PROGRAM IS WHAT 4832= YOU READ ON THE DOCUMENT AS YOU'VE INDICATED. YOU READ THAT
4833= THERE WAS --4834= A. YES.
4835= Q. --A PARTICULAR PERCENTAGE, CORRECT? AND YOU READ WHETHER 4836= IT SAID HAD AN "R" NEXT TO IT OR AN "NR," CORRECT? AND THEN YOU
4837= WENT AND YOU READ SOME E-MAIL WHERE --WHERE BARNES & NOBLE 4838= PEOPLE WERE TALKING ABOUT IT, CORRECT?
4839= A. CORRECT. 4840= Q. AND THEN YOU LOOKED AT SOME DEPOSITION TESTIMONY WHERE
4841= BARNES & NOBLE PEOPLE TALKED ABOUT THE DOCUMENT, CORRECT? 4842= A. YES.
69
69 Page 70 71

70 Page 71 72
4913= Q. BUT IN YOUR VIEW, THERE'S SOMETHING DIFFERENT ABOUT A BOOK 4914= CLUB VERSUS AN INTERNET BOOKSELLER?
4915= A. FREQUENTLY, THE BOOK CLUB BOOKS, IN MY EXPERIENCE, THEY DO A 4916= SPECIAL EDITION AND LITERALLY PRINT A BOOK FOR A BOOK CLUB.
4917= Q. NOW --4918= A. IT'S A SPECIAL --EXCUSE ME. A SPECIAL PRINTING.
4919= Q. NOW, THE PROGRAM THAT YOU'VE TALKING ABOUT HERE IS CALLED A 4920= HOLIDAY FEATURE TITLE.
4921= A. YES. 4922= Q. FROM READING THE DOCUMENTS, DID YOU LEARN ANYTHING ABOUT
4923= WHAT THE SIGNIFICANCE OF THE WORD "FEATURE" MEANT IN "HOLIDAY 4924= FEATURE TITLE"?

4925= A. NO, BUT IN MY INDUSTRY --FROM MY INDUSTRY EXPERIENCE, I 4926= ASSUME THESE ARE BOOKS THAT ARE GOING TO BE FEATURED IN THEIR
4927= STORES, AGAIN, PROBABLY SPECIAL DISCOUNTS. 4928= Q. AND, IN FACT, YOU WERE SHOWN DOCUMENTS AT YOUR DEPOSITION,
4929= WEREN'T YOU, MISS SEE WHICH SHOW THAT, IN FACT, WITH REGARD TO 4930= THESE PARTICULAR TITLES, THESE DOCUMENTS WERE GOING TO BE
4931= FEATURED ON ENDCAPS, ON HOLIDAY --SPECIAL HOLIDAY TABLES, AND 4932= THEY WERE GOING TO BE PROMOTED IN MUCH THE SAME WAY THAT A
4933= BOOKSTORE PROMOTES BOOKS PURSUANT TO A CO-OP ADVERTISING 4934= PROGRAM.
4935= DO YOU REMEMBER SEEING THOSE DOCUMENTS? 4936= A. YES, I DO.
4937= Q. OKAY. SO THAT FEATURE PART OF THE HOLIDAY FEATURE TITLE WAS 4938= LITERALLY TO TAKE HOLIDAY BOOKS AND GIVE THEM THE KIND OF
4939= COOPERATIVE PROMOTIONS THAT ARE AVAILABLE FOR OTHER BOOKS DURING 4940= THE OTHER PARTS OF THE YEAR, CORRECT?
4941= A. YES. 4942= Q. AND DO YOU RECALL, TOO, MISS SEE, THAT WITH REGARD TO THE
4943= HOLIDAY FEATURE TITLE BOOKS THAT THESE WERE NOT ONLY SPECIAL 4944= PRINTINGS BUT THEY HAD SPECIAL COVERS. DO YOU RECALL LEARNING
4945= THAT? 4946= A. NO. RIGHT NOW I DON'T RECALL THAT. BUT --
4947= Q. BUT IF THEY, IN FACT, HAD SPECIAL COVERS AND WERE SPECIAL 4948= PRINTINGS, THEN THEY WERE NOT THE SAME BOOK THAT ONE COULD GET
4949= RIGHT OUT OF THE STOCK FROM A PUBLISHER'S WAREHOUSE --WOULDN'T
4950= THAT BE CORRECT? 4951= A. IF THEY HAD SPECIAL --IF THEY HAD SPECIAL JACKETS, YES.
4952= Q. OKAY. AND SO YOUR VIEW --YOUR VIEW ABOUT WHETHER THIS IS A 4953= BONA FIDE SPECIAL PRINTING OR SOMETHING ELSE WOULD --WOULD
4954= DEPEND ON WHAT ADDITIONAL DOCUMENTS YOU MIGHT LOOK AT IN THE 4955= DEFENDANTS' RECORDS, CORRECT?
4956= A. YES, BUT --4957= Q. OKAY.
4958= A. TURNING --EXCUSE ME, BUT TURNING TO THE E-MAIL --4959= THE COURT: NO, HE ASKS THE QUESTIONS AND --
4960= THE WITNESS: SORRY. 4961= (PAUSE IN THE PROCEEDINGS.)
4962= BY MR. WELSH: 4963= Q. NOW, YOU ALSO WERE ASKED SOME QUESTIONS ABOUT A FLEX
4964= PROGRAM? 4965= A. THE BANTAM DOUBLEDAY FLEX PROGRAM?
4966= (SIMULTANEOUS COLLOQUY.) 4967= THE COURT: THAT'S OFF THE MARK OF WHAT WE'RE DOING
4968= HERE. 4969= MR. WELSH: OH, I'M SORRY, YOUR HONOR.
4970= THE COURT: DO YOU WANT --4971= MR. SPIVA: CAN I DO A LITTLE REDIRECT, YOUR HONOR?
4972= THE COURT: --REDIRECT? 4973= THE WITNESS: THANK YOU.
4974=
4975= FURTHER VOIR DIRE EXAMINATION 4976= BY MR. SPIVA:
4977= Q. NOW, MISS SEE, WOULD YOU HAVE KNOWN THAT THESE BOOKS ON THE 4978= LIST THAT YOU'VE REVIEWED WERE BOOKS THAT ARE STANDARD BOOKS
4979= THAT ARE CARRIED BY ALL BOOKSTORES IF YOU WEREN'T --BUT FOR 4980= YOUR EXPERIENCE IN THE INDUSTRY?
4981= A. NO. 4982= Q. AND HOW DID YOU KNOW ABOUT PUBLISHERS' STANDARD
71
71 Page 72 73
4983= NON-RETURNABILITY POLICIES? 4984= A. BECAUSE OF MY EXPERIENCE.
4985= Q. AND HOW DID YOU KNOW THAT "NR" IS FREQUENTLY THE SYMBOL USED 4986= FOR NON-RETURNABILITY IN THE INDUSTRY?
4987= A. IT'S PART OF THE LANGUAGE OF THE INDUSTRY. 4988= Q. USED IN THE RED BOOK?
4989= A. YES. AND IT'S ONE OF THE TERMS OF THE RED BOOK. 4990= Q. AND REGARDLESS OF WHETHER ONE OF THESE BOOKS HAD A DIFFERENT
4991= COVER, IS IT STILL THE SAME BOOK THAT OTHER BOOKSTORES WOULD 4992= HAVE BEEN CARRYING AT THE SAME TIME --
4993= A. YES. 4994= Q. --AS --AS THE DEFENDANTS?
4995= A. YES. 4996= Q. OKAY. AND HOW DO YOU KNOW THAT?
4997= A. BECAUSE, AS I SAID BEFORE, THESE ARE BOOKS THAT A BOOKSTORE 4998= WOULD CARRY IN THEIR INVENTORY.
4999= Q. OKAY. AND THE BASIS OF YOUR KNOWLEDGE OF THAT IS
5000= ESSENTIALLY YOUR --YOUR KNOWLEDGE AND EXPERIENCE OF THE 5001= PUBLISHING AND BOOKSELLING INDUSTRY?
5002= A. YES. 5003= MR. SPIVA: I --
5004= THE COURT: ALL RIGHT. I'M GOING TO TRY AND PUT MY 5005= RULING INTO LANGUAGE FROM 706, AND I'LL ANNOUNCE IT TOMORROW
5006= MORNING. 5007= AND IN THE MEANTIME, MR. SPIVA, WOULD YOU BE KIND
5008= ENOUGH TO SEPARATE THIS INTO TWO BINDERS. 5009= MR. SPIVA: YES, YOUR HONOR, WE WILL.
5010= THE COURT: SO I WON'T BE THROWING THIS AROUND 5011= TOMORROW. THANK YOU.
5012= MR. SPIVA: THANK YOU. 5013= THE COURT: THE COURT WILL BE IN RECESS TILL 8: 30.
5014= THE CLERK: ALL RISE. 5015= (PROCEEDINGS WERE ADJOURNED AT 3: 40 P. M.)
5016= --O0O--5017=
5018= 5019=
5020= 5021=
5022= 5023=
5024=
5025= 5026= APPEARANCES: (CONTINUED)
5027= FOR DEFENDANTS: BORDERS GROUP, INC. 5028=( BORDERS GROUP) 100 PHOENIX DRIVE
5029= ANN ARBOR, MICHIGAN 48108-2202 5030= BY: THOMAS D. CARNEY, GENERAL COUNSEL
5031= 5032=
5033= 5034=
5035= 5036=
5037= 5038=
5039= 5040=
5041= 5042=
5043= 5044=
5045= 5046=
5047= 5048=
5049=
5050= 5051= SEE -FURTHER VOIR DIRE \ SPIVA
5052= CERTIFICATE OF REPORTERS
72
72 Page 73
5053= WE, THE UNDERSIGNED OFFICIAL REPORTERS FOR THE UNITED 5054= STATES DISTRICT COURT, NORTHERN DISTRICT OF CALIFORNIA, DO
5055= HEREBY CERTIFY THAT THE FOREGOING PROCEEDINGS IN C 98-1059WHO, 5056= AMERICAN BOOKSELLERS, ET AL. V. BARNES & NOBLE, ET AL., PAGES
5057= NUMBERED 180 THROUGH 383, INCLUSIVE, WERE REPORTED BY US, 5058= CERTIFIED SHORTHAND REPORTERS, AND WERE THEREAFTER TRANSCRIBED
5059= UNDER OUR DIRECTION INTO TYPEWRITING; THAT THE FOREGOING IS A 5060= FULL, COMPLETE AND TRUE RECORD OF SAID PROCEEDINGS AS BOUND BY
5061= ME AT THE TIME OF FILING. 5062= THE VALIDITY OF THE REPORTERS' CERTIFICATIONS OF SAID
5063= TRANSCRIPTS MAY BE VOID UPON DISASSEMBLY AND/ OR REMOVAL FROM THE 5064= COURT FILE.
5065= _________________________ 5066= RAYNEE H. MERCADO, CSR 8258
5067= _________________________ 5068= LEO T. MANKIEWICZ, CSR 5297
5069= TUESDAY, APRIL 10, 2001 5070=
5071= 5072=
5073= 5074=
5075=
end= Text
73

Page Navigation Panel

1 2 3 4 5 6 7 8 9
10 11 12 13 14 15 16 17 18 19
20 21 22 23 24 25 26 27 28 29
30 31 32 33 34 35 36 37 38 39
40 41 42 43 44 45 46 47 48 49
50 51 52 53 54 55 56 57 58 59
60 61 62 63 64 65 66 67 68 69
70 71 72 73