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TUCoPS :: Cyber Law :: 0719-t~1.txt

MPAA vs. 2600 - Trial Day 3, July 19, 2000




                                                                412



   1   UNITED STATES DISTRICT COURT
       SOUTHERN DISTRICT OF NEW YORK
   2   ------------------------------x

   3   UNIVERSAL CITY STUDIOS, INC.,
       et al,
   4
                      Plaintiffs,
   5
                  v.                           00 Civ. 277 (LAK)
   6
       SHAWN C. REIMERDES, et al,
   7
                      Defendants.
   8
       ------------------------------x
   9
                                               July 19, 2000
  10                                           9:00 a.m.

  11   Before:

  12                       HON. LEWIS A. KAPLAN,

  13                                           District Judge

  14                            APPEARANCES

  15   PROSKAUER, ROSE, L.L.P.
            Attorneys for Plaintiffs
  16   BY:  LEON P. GOLD
            CHARLES S. SIMS
  17        CARLA MILLER
            SCOTT COOPER
  18
       FRANKFURT, GARBUS, KLEIN & SELZ
  19        Attorneys for Defendants
       BY:  MARTIN GARBUS
  20        ERNEST HERNSTADT
            DAVID ATLAS
  21

  22

  23

  24

  25




                                                                413



   1            THE COURT:  Before we get started with the witness,

   2   let me just make a suggestion to you.

   3            We have been proceeding on the assumptions that

   4   everybody knows and that the record reflects such fundamental

   5   facts as what's a computer, what's an operating system, what's

   6   the Internet or the worldwide web, and so on.

   7            In the interest of having a complete record, it seems

   8   to me we ought not to assume those things.  So, I invite your

   9   attention to what I think are entirely uncontroversial

  10   findings on those points in U.S. v. Microsoft, basically

  11   defining the terms which is reported at 84 Fed.Supp.2d page 9.

  12   And the ones I thought particularly relevant were paragraphs

  13   1, 2, 11, 12, 13, 14, and 16, which simply lay out the

  14   background.

  15            I would invite you to look at them at some point and

  16   see whether you will stipulate to them.  And if you can't

  17   stipulate to them, address the question of why I shouldn't

  18   take judicial notice of the facts in those paragraphs.

  19   Obviously we are not trying the Microsoft case here.

  20            Let's proceed.

  21            MR. GARBUS:  Your Honor, may we approach the bench?

  22            THE COURT:  Yes.

  23            (At the sidebar)

  24            MR. GARBUS:  I have some suggested stipulations that

  25   may save a great deal of time and we may be able to -- (1)




                                                                414



   1   that there's no direct proof that any single copy of a movie

   2   has ever been sent out on the Internet, that is DeCSS and

   3   deencrypted --

   4            MR. GOLD:  If I may?  Your Honor, I would

   5   respectfully request that whatever stipulations Mr. Garbus may

   6   have in the case and whenever he has them, I would love to get

   7   them in writing so I can look at them and it seems to me the

   8   quickest way to do it, instead of grabbing a minute or two

   9   before a particular witness is examined --

  10            MR. GARBUS:  I'm trying to do this because of time.

  11            MR. SIMS:  Your Honor --

  12            THE COURT:  Don't everybody talk at once.

  13            I know you are, Mr. Garbus.  And I appreciate that

  14   you are trying to save time.  I don't want to take trial time

  15   unnecessarily with this.  I can't anticipate the discussion

  16   from yesterday's discussion and I think the solution on at

  17   least the one you read now is readily obvious, in light of the

  18   solution yesterday.

  19            I suspect that when Mr. Gold gets a chance to think

  20   about it, he will agree with the same caveats he agreed

  21   yesterday, that is, he's going to ask me to infer and he is

  22   going to want you to, at this point, I suppose that lots of

  23   people are offering movies that purport to be decrypted and

  24   that I should infer, even in the absence of specific knowledge

  25   as to what utility was used to decrypt them, that at least




                                                                415



   1   some of them were decrypted with DeCSS, and you will have your

   2   arguments on.

   3            Why don't you have that discussion between yourselves

   4   first.

   5            MR. SIMS:  We provided you five pages of proposed

   6   stipulations last week at the judge's request and we've never

   7   gotten any response and I've written about it.

   8            MR. GARBUS:  I haven't seen them.

   9            THE COURT:  Work that out.

  10            MR. GARBUS:  The other thing I wanted to mention is

  11   since your Court has been very sensitive about the whole issue

  12   of press, I wanted to mention that over the of the two days, I

  13   have not spoken to any representative of the press.  I have no

  14   objection to the fact that other people have spoken to members

  15   of press.  They have every right to do so.

  16            I just wanted to point that out.  We have not in over

  17   the last two days not spoken to a soul.

  18            THE COURT:  We are just not going to get into that,

  19   Mr. Garbus.  You have made your assertion.  Ms. Gross and the

  20   Electronic Frontier Foundation, which is I gather financing

  21   this case, and she's sitting at counsel table with you,

  22   weren't covered by your remarks I noticed.

  23            MR. GARBUS:  They were.

  24            THE COURT:  Nor were any of a number of other people.

  25   So, let's --




                                                                416



   1            MR. GARBUS:  I was talking about myself.

   2            THE COURT:  Let's just avoid all these protestations.

   3            MR GOLD:  Your Honor, in the late afternoon

   4   yesterday, you asked us several questions about turning over

   5   of drafts of Mr. Schumann's declaration and we have run that

   6   down at this point.  Is it appropriate to do it now or would

   7   you rather wait?

   8            THE COURT:  Did I ask you questions?  I just asked

   9   you to turn them over, if you had it.  What's the problem?

  10            MR GOLD:  What happened is when we verified this with

  11   the records, after the deposition, we got a letter from

  12   defendant's firm asking very specifically for documents.  They

  13   did not ask for the drafts of any declarations; however, they

  14   did ask for some specific materials and what Mr. Schumann did

  15   is turn over his whole file at that point.

  16            The file contained drafts that he had in his

  17   possession of this declaration.  Although they had not been

  18   asked for, we took Mr. Schumann's file and turned it all over,

  19   including declarations, to the defendants.

  20            I know your Honor doesn't want me to bring up other

  21   issues that we have about documents with the defendants, so I

  22   will not.  So, there were drafts and they were turned over.

  23            THE COURT:  All right.  Let's go.

  24            (In open court)

  25    MARSHA KING, resumed.




                                                                417



   1        called as a witness by the plaintiff

   2        having been previously duly sworn, testified as follows:

   3            MR. HERNSTADT:  Your Honor, just to complete the

   4   record on that, I believe to the extent they were turned over,

   5   they were turned over within the last week after the second

   6   day of Mr. Schumann's declaration.

   7            THE COURT:  Look, could we please get on with the

   8   testimony.

   9            MR. HERNSTADT:  Thank you.

  10            THE COURT:  Ms. King, you are still under oath.

  11   DIRECT EXAMINATION Continued

  12   BY MR GOLD:

  13   Q.  Good morning, Ms. King.

  14   A.  Good morning.

  15   Q.  You had just finished yesterday testifying about the

  16   nature of the importance the studios attributed to having an

  17   encryption system before they came out with their DVDs and I'm

  18   going to continue from there.

  19            What has happened with DVD sales since the adoption

  20   of CSS and the studio's decision to release their pictures in

  21   DVD format?

  22   A.  Well, the sales of DVD players have been quite successful.

  23   There are over, I believe it's about 5 million U.S. homes, the

  24   projections show probably 10 million by the end of the year

  25   2000.  The sales of DVD software have been quite robust both




                                                                418



   1   in the United States and where we are launched around the

   2   world.

   3   Q.  Approximately how many DVD players have been sold?

   4   A.  I think it's -- I think it's about 5 million.

   5   Q.  Is there current harm to the plaintiffs represented by the

   6   dissemination in the DeCSS hack?

   7            MR. GARBUS:  I object to the form.

   8            THE COURT:  What's the objection to the form?

   9            MR. GARBUS:  No foundation for it.  Could we hear the

  10   question again?

  11            THE COURT:  Read the question please, Amy.

  12            (Record read)

  13            MR. GARBUS:  I object to the question.

  14            THE COURT:  Overruled.

  15            The witness is the head of business affairs for the

  16   studio.

  17   A.  First of all, we lost what to us was our first line of

  18   defense in protecting our copyrights in the digital domain.

  19   The CSS encryption system was to provide protection for our

  20   works in DVD.  As I said before, the reason that the studios,

  21   including Warner Brothers, were willing to distribute their

  22   product in the digital domain in this new format was because

  23   they had this protection.

  24            So, the first thing is we've lost our protection.

  25   That in itself is of great harm to us.  Secondly, the second




                                                                419



   1   harm might be the loss of confidence in using.

   2            MR. GARBUS:  May I object, your Honor --

   3   A.  Excuse me.

   4            THE COURT:  You can cross-examine, Mr. Garbus.  You

   5   can't object to the answer.

   6   A.  The second problem is certainly the loss of confidence

   7   that the studios would have in continuing to distribute

   8   product in this format.  There's a tremendous amount of

   9   investment that's gone into the development of DVD, the

  10   investments of the studios, including in mastering a very

  11   expensive product, the investment of the consumer electronics

  12   industry, the investment of the computer industries and

  13   equally the investment of what will be we think 12 million

  14   consumers by the end of the year 20000 and purchasing a

  15   product that is widely accepted around the world.

  16            On top of that, we believe that we are beginning to

  17   lose legitimate sales of our product and will continue to

  18   increasingly lose legitimate sales of our product.

  19   Q.  Does Warner believe that the DeCSS --

  20            THE COURT:  Let's talk about what the witness

  21   believes, at least.  I don't think she can speak for untold

  22   thousands of individuals.

  23            MR GOLD:  Thank you, your Honor.

  24   Q.  Do you believe any other damage will flow to Warner from

  25   the DeCSS hack unless dissemination of DeCSS is enjoined?




                                                                420



   1   A.  Well, if the dissemination of DeCSS is not enjoined and if

   2   the legislation is not upheld, then we've lost our protection

   3   for products in the digital domain, not only could it have a

   4   tremendously adverse effect on the sale of DVD, but Warner

   5   Brothers at least is now looking into digital distribution of

   6   its movie in video-on-demand avenues.  They can be private

   7   video on demand through a pay-per-view network like direct TV

   8   or it could be through the Internet.

   9            But the only way I think that we would be willing to

  10   go ahead is if we had some type of protection for our product.

  11   Additionally, even if we had protection on video on demand, if

  12   there still was a hack like this of DVD, it could cut the

  13   window and cut off our future revenue from that new product

  14   stream.  So, our TV revenues as well as our video revenues

  15   would be impacted greatly.

  16   Q.  Have you ever heard the term "film library"?

  17   A.  Yes.

  18   Q.  What is that?

  19   A.  Our film library like the libraries of the other studios

  20   had a great value to us because in the reselling of our older

  21   catalog titles, what we call our "crown jewels" of the studio.

  22            We make income just to bring in new movies because

  23   there's a very small percentage of new movies that actually

  24   turn a profit over the short term.  So, the resale of our

  25   library and the value of existing products like "Casablanca"




                                                                421



   1   or "Gone With The Wind" are very valuable to the studios.

   2            A product like DVD gives the studios a chance to

   3   resell its library to a new -- to a new consumer and since

   4   video was the first consumer product in their hands provided

   5   by the motion picture studios, we have seen a tremendous sale

   6   of catalog product.  The continued dissemination of our movies

   7   not coming from the studios would impact those sales.

   8   Q.  Can you quantify the potential loss of revenue that Warner

   9   would suffer unless the dissemination of the DeCSS hack is

  10   enjoined?

  11            THE COURT:  Mr. Garbus?

  12            MR. GARBUS:  I object.

  13            THE COURT:  Pardon?

  14            MR. GARBUS:  I object to that.  There's no

  15   foundation.

  16            THE COURT:  Overruled.

  17   A.  I have not seen a quantification of projected harm.  I do

  18   know that our -- when I speak for Warner Home Video in which I

  19   work, that we have done our five-year projections and our

  20   five-year strategic plan.  And one of the great risks focuses

  21   on the growth of DVD which provides, not just income to

  22   balance out a mature business like video, but incremental

  23   income to show growth for our company.

  24            One of the tremendous risk factors that we list and

  25   that we emphasize every time we talk about the business is to




                                                                422



   1   the risk of digital piracy and digital copyright sharing.

   2   Q.  Does DeCSS create any problem with the public's image of

   3   motion pictures and motion picture distribution?

   4            MR. GARBUS:  I object to the form of the question.

   5            THE COURT:  What's the problem with the form?

   6            MR. GARBUS:  As to what the public is thinking?  As

   7   to what the public's image is?

   8            THE COURT:  I'm going to take it for what it's worth

   9   as a perception of the studio.  I don't know that it's worth

  10   much.

  11            Go ahead.

  12   A.  Well, I also can't speak, you know, for the entire public,

  13   but I can speak for how the studios look at what's happening

  14   in the marketplace today.

  15            One of the great problems that we believe at the

  16   studio is happening in the music industry is the perception

  17   that copyrighted music is free and whether that's grounded in

  18   prior law or whether that's grounded in just common practice,

  19   we are not sure, but it's a perception that exists in the

  20   marketplace that makes it very difficult for the music

  21   industry to make its case.

  22            In the movie industry, we are in a different -- we

  23   are in a different situation and we know that our movies are

  24   protected by copyright in that there is no right to make a

  25   copy of a movie.  There just isn't.  And we want to protect




                                                                423



   1   our movies now and into the future.

   2            MR. GOLD:  I have no further questions, your Honor.

   3            THE COURT:  Ms. King, I've got one.

   4            Is there any way to put this genie back in the

   5   bottle, I mean, the DeCSS genie by a Court order addressed to

   6   this defendant?

   7            THE WITNESS:  Well, I'm not a technical expert and I

   8   know that that is very difficult, however, I believe that the

   9   combination of the enforcement of the DMCA code, citizens

  10   being law-abiding citizens and the measures that we have in

  11   place in terms of our own antipiracy and anticopying efforts

  12   sends a message that I think it's a combination of the

  13   enforcement, further technological innovations that will put

  14   on our product, the enforcement of the law and the public

  15   perception -- the public understanding that you cannot just

  16   violate the copyright law and take product that has -- is up

  17   there because it's a violation of the law, it's being

  18   trafficked on, because it's violated the law.

  19            That's why I think -- that's why I think this is

  20   exceptionally important and I know my colleagues believe that

  21   as well.

  22            THE COURT:  Given the apparent dissemination of the

  23   DeCSS code, wouldn't your interests, if they are valid, be

  24   served to whatever extent a Court is able to serve them by

  25   declaratory judgment in determining whether or not what




                                                                424



   1   occurred here and what is threatened to continue occur with

   2   DeCSS, assuming there's a continued threat, is illegal or not?

   3            Do you follow me?

   4            THE WITNESS:  In other words, you're saying if it

   5   just was declared illegal, as opposed to --

   6            THE COURT:  As opposed to picking out one defendant

   7   to enjoin.  It's as if what you were trying to do here was to

   8   stop 37,000 kayakers coming down the Hudson River and you're

   9   asking for an injunction against one of them on the premise

  10   that coming down the Hudson River in a kayak is illegal.

  11            Even if you get that injunction, there are going to

  12   be 36,999 kayakers coming down the river.  Isn't what you are

  13   really after here a determination of whether it's illegal to

  14   kayak down the Hudson?

  15            THE WITNESS:  Yes, that is certainly what we are

  16   after here.  My response to that is that, at least as one of

  17   the studios involved in this lawsuit, we had to start

  18   somewhere.

  19            THE COURT:  Mr. Garbus?

  20   CROSS-EXAMINATION

  21   BY MR. GARBUS:

  22   Q.  Does anyone in the studio -- and I'm just repeating the

  23   stipulations now we were going to offer this is morning --

  24   have any direct proof that any single copy of a movie that has

  25   ever been sent out on the Internet was sent out after DeCSS




                                                                425



   1   encryption, yes or no, direct proof?

   2   A.  I can't answer that question for all the studios.

   3   Q.  For yourself?

   4   A.  Not that I know of.

   5   Q.  Now, you say you meet with other studios' representatives

   6   and heads, is that right?

   7   A.  From time to time.

   8   Q.  Has anyone at any studio ever told you -- have you ever

   9   seen a document -- let me rephrase that question.

  10            Have you ever seen a document from any studio or the

  11   MPAA or any third party showing any direct proof that any one

  12   single copy of a movie has ever been sent out on the Internet

  13   that was DeCSS encrypted?

  14   A.  No.

  15   Q.  Have you ever seen any direct proof that anyone ever

  16   downloaded source or object code from 2600.com?

  17   A.  Other than in this courtroom, I have not.

  18   Q.  Other than the plaintiff's witnesses, you mean?

  19   A.  Yes.

  20   Q.  Have you ever seen any direct proof that anyone ever made

  21   a copy of a DVD as a result of having downloaded anything from

  22   2600.com?

  23   A.  I don't recall ever seeing that.

  24   Q.  And in your conversations with the studio, has anyone ever

  25   told you that they ever saw any direct proof that anyone ever




                                                                426



   1   downloaded source or object code from 2600.com that was used

   2   to make a copy of a movie?

   3   A.  That was not a topic of any conversation I had with the

   4   studio people.

   5   Q.  Weren't you involved --

   6   A.  So, the answer is no.

   7   Q.  Weren't you involved in copy protection?  Wasn't that your

   8   issue?

   9   A.  Yes, I was involved in the development of copy protection

  10   technology in the initial licensing.

  11   Q.  Did you ever ask anybody at any studio whether or not

  12   there was one single document that indicated that anyone ever

  13   downloaded source or object code from 2600.com?

  14   A.  No.

  15   Q.  Did you ever ask anyone at any studio whether there was

  16   any proof that anyone ever made a copy of a film as a result

  17   of having downloaded object or source code from 2600.com?

  18   A.  No.

  19   Q.  Do you know of any direct proof or did anyone at the

  20   studio ever tell you or did you ever see a document that said

  21   that anyone did not buy a DVD because they saw a DeCSS

  22   deencrypted movie?

  23   A.  No.

  24   Q.  Do you have any direct proof or has anyone at the studio

  25   ever told you that any DVD, any one DVD in the United States




                                                                427



   1   was ever not sold because someone saw a DeCSS encrypted movie

   2   on the Internet?

   3            MR GOLD:  Your Honor, I would object to this whole

   4   line as being irrelevant to the issues in this case.

   5            Moreover, if Mr. Garbus is going to continue with his

   6   questions about direct proof, maybe he ought to define what

   7   that is.

   8            THE COURT:  The witness is a lawyer.

   9            MR. GOLD:  A long time ago.  Sometimes --

  10            THE COURT:  You want the standard charge on the

  11   difference between direct and circumstantial proof, Counsel?

  12            Are you having any problem with the concept of direct

  13   proof, Ms. King?

  14            THE WITNESS:  No.

  15            THE COURT:  O.K.  Overruled.

  16   Q.  Do you or anyone at the studio have any projection for the

  17   year 2000 of the loss of any DVD sales as a result of films

  18   deencrypted by DeCSS either sold on the street or transmitted

  19   on the Internet?

  20   A.  I don't.  I can't speak for anyone at the studio.

  21   Q.  Is there anyone at the studio who would have that

  22   information, if such information exists?

  23   A.  I don't know of anyone that would have them.

  24   Q.  You mentioned on the direct examination a five-year plan?

  25   A.  Yes.




                                                                428



   1   Q.  Is there any word in that document that in any way relates

   2   to any anticipated loss of sales as a result of anything

   3   having to do with DeCSS specifically?

   4   A.  It is my recollection that in that documentation, under

   5   "risks," we list digital copyright protection as one of the

   6   major risks that we take as we go into the digital media.  It

   7   is set up as a risk.  It is not quantified.

   8   Q.  Please answer my question.

   9            Is there anything in that document that in any way

  10   indicates that DeCSS particularly, specifically, creates any

  11   risk for the next five years?

  12   A.  No, not --

  13   Q.  Do you have a copy of that document?  Pardon me.

  14   A.  Not specifically, no, it does not.

  15   Q.  Do you have a copy of that document here with you today?

  16   A.  No, I do not.

  17            MR. GARBUS:  Mr. Gold, may I see it?  She testified

  18   to it on direct.

  19            MR. GOLD:  Was this a document in our document

  20   designation?

  21            MR. GARBUS:  Pardon me?

  22            MR GOLD:  Was this a document in our document

  23   designation?

  24            MR. GARBUS:  This is a document that she testified

  25   about on your question, a five-year plan, and I ask for that




                                                                429



   1   document.

   2            MR GOLD:  Well --

   3            THE COURT:  Do you have it here, Mr. Gold?  That's

   4   the first question.

   5            MR GOLD:  No.

   6            THE COURT:  No.  Ask the next question.

   7            MR. GARBUS:  I ask that it be produced.

   8            THE COURT:  We will consider that later.

   9   BY MR. GARBUS:

  10   Q.  Now, you were in court when you saw Mr. Shamos testify, is

  11   that right?

  12   A.  Yes.

  13   Q.  And have you been part of the defense team in this case?

  14   A.  No.

  15   Q.  Did you file an original affidavit in this case back in

  16   January?

  17   A.  Yes, I did.

  18   Q.  And were you deposed in this case?

  19   A.  Yes, I was.

  20   Q.  Has anyone at Warner's ever asked anybody to replicate or

  21   duplicate or to make the same kind of test that Mr. Shamos

  22   made with respect to the use of DeCSS, then DiVX'ing a movie,

  23   and then sending it out over the Internet?

  24   A.  To the best of my knowledge, and I don't know everyone at

  25   Warner Brother; no.




                                                                430



   1   Q.  Can you tell me why if DeCSS is such a threat, that no one

   2   prior to the time that Mr. Shamos was asked to do this test,

   3   anyone at Warner's or anyone at the other major studios or

   4   anyone at the MPAA never made such a test?

   5            MR GOLD:  Your Honor, that --

   6            THE COURT:  Sustained.

   7   Q.  Did you discuss Mr. Shamos' test with him at any time

   8   prior to the time he made it?

   9   A.  No.

  10   Q.  Since you saw Mr. Shamos in court, have you requested

  11   anyone at Warner Brothers to try and replicate the test?

  12   A.  Since I saw him the day before yesterday?

  13   Q.  Yes.

  14   A.  No.

  15   Q.  To your knowledge, since Mr. Shamos performed the test

  16   about a month ago, has anyone ever asked anyone at Warner's to

  17   replicate the test?

  18   A.  Not that I know of.

  19   Q.  To your knowledge, has anyone at any of the other major

  20   studios for the last eight months since DeCSS was cracked made

  21   any attempt to replicate the test that Mr. Shamos made?

  22   A.  I have no information about the other studios in this

  23   area.

  24   Q.  Do you have any direct proof of anyone who did not go to

  25   see a movie or watch an HBO film because they had previously




                                                                431



   1   seen a deencrypted copy of a DVD, deencrypted through DeCSS?

   2   A.  I have no direct proof.

   3   Q.  Do you know what the budget is of the MPAA to investigate

   4   piracy?

   5   A.  I can't remember off the top of my head, but I know I've

   6   been told in the past.

   7   Q.  Do you know what the budget of Warner Brothers is to

   8   investigate piracy?

   9   A.  We don't have a budget to investigate piracy.  We

  10   participate through the MPAA and provide them with

  11   information.  We have an intellectual property group that

  12   helps facilitate the work with the MPAA.

  13   Q.  And can you tell me if the MPA has offices in New York, in

  14   California, and in Washington, is that right?

  15   A.  I know there are offices in Washington and Los Angeles;

  16   yes.

  17   Q.  And they also have offices throughout the world?

  18   A.  I know they have offices, not in every country in the

  19   world, but I know they have offices in Europe and in other

  20   place.

  21   Q.  In Asia?

  22   A.  They have an office in Singapore.

  23   Q.  And do you know at these offices they have investigators?

  24   A.  Yes, they do.

  25            THE COURT:  Mr. Garbus, this is not a helpful line.




                                                                432



   1            MR. GARBUS:  I think we could deal with it all on a

   2   stipulation.  That's the stipulation I was offering before.

   3            THE COURT:  You offered five propositions for before.

   4   I think that you are now on about the 40th of the 5.

   5            MR. GARBUS:  No, no, I'm prepared to go through

   6   the --

   7            THE COURT:  Mr. Garbus, it is perfectly obvious that

   8   the studios have antipiracy efforts.  They have antipiracy

   9   resources, just about every trademark holder in America does,

  10   every copyright holder, everybody knows that.

  11   Q.  Were you here when you saw Mr. Schumann talk about the

  12   logs that had been developed?

  13   A.  Yes, I was in the courtroom.

  14   Q.  And do you know what the LiViD logs are?

  15   A.  No.

  16   Q.  Do you know what the logs were that he was referring to?

  17   A.  From what I gathered in the courtroom, they were logs

  18   relating to Linux development.

  19   Q.  The people have been involved in the cracking of the

  20   DeCSS, among other things?

  21   A.  No.

  22   Q.  To your knowledge, has anyone at the MPAA or any of the

  23   major studios made any attempt at all at any time to contact

  24   any of the people who were involved in the DeCSS crack?

  25   A.  To the best of my knowledge, the studios, once they were




                                                                433



   1   informed by the MPAA of the cracking of DeCSS spent an

   2   incredible amount of time talking together about what action

   3   they should take.  We took it as a unified group through the

   4   MPAA.

   5            That was a conscious decision, and we left together

   6   immediately after we heard about it.  This wasn't just

   7   something we put on the shelf.  There were immediate meetings

   8   and there were many of them.

   9   Q.  Let me ask you this:  To your knowledge, did anyone ever

  10   attempt to contact anyone who allegedly on the Internet is

  11   trying to sell or distribute or share a film that allegedly

  12   was deencrypted through DeCSS?

  13            That you can answer that, I think, yes or no.

  14   A.  No, I -- no, I can't.

  15   Q.  Let me rephrase it.

  16            Do you know the name --

  17            MR. GARBUS:  Judge, I think this is unnecessary.

  18            THE COURT:  I do, too.

  19   Q.  Do you know the name of any one person who was sharing

  20   films on the Internet who was sharing a film that has been

  21   deencrypted through DeCSS?

  22   A.  No, I don't.

  23   Q.  Have you ever seen a document from the MPAA, your studio,

  24   or any other studio that indicates that any attempt was made

  25   to learn the names of the people who allegedly claim on the




                                                                434



   1   Internet that they have used DeCSS to deencrypt movies?

   2            MR GOLD:  Your Honor, I object to the form of the

   3   question.

   4            THE COURT:  To the form, Mr. Gold?  What's wrong with

   5   the form?

   6            MR GOLD:  I thought it was compound and I didn't

   7   quite understand it myself.

   8            THE COURT:  Rephrase it, Mr. Garbus.

   9            MR. GARBUS:  Can I hear the question again?

  10            THE COURT:  Go ahead.

  11            (Record read)

  12            MR. GARBUS:  I can break it is down into six

  13   questions, if you want.

  14   Q.  Have you ever seen any document --

  15            THE COURT:  I do you think the sarcasm is helpful, or

  16   is that designed to provoke a reaction?

  17            MR. GARBUS:  No, no, no, no, just trying to save

  18   time.

  19            THE COURT:  Go ahead.

  20   Q.  Have you ever seen a document from the MPAA that gives you

  21   the name of any person on the Internet who allegedly is

  22   seeking to share a deencrypted movie?

  23   A.  No.

  24   Q.  Have you ever seen any document which shows any attempt

  25   made by the MPAA to learn the name of any person who allegedly




                                                                435



   1   shares a movie allegedly deencrypted through DeCSS?

   2   A.  No.

   3   Q.  Have you ever seen a document from any studio, including

   4   yours, indicating any attempt to learn the name or the

   5   identification of any person who was allegedly sharing on the

   6   Internet DeCSS deencrypted movies?

   7   A.  When you say the identification, I do know that the MPAA

   8   looked for sites where they were posting the DeCSS code.  So,

   9   I did see documents that referred to that, but not names.

  10   Q.  Now, with respect to those sites, do you know if anyone at

  11   the MPA or the studios or Warner Brothers ever made an attempt

  12   to contact any of those sites?

  13   A.  Yes.

  14   Q.  And what attempt was made to contact those sites other

  15   than 2600.com?

  16   A.  I know they sent out cease and desist letters and I don't

  17   know to the extent they sent out letters.  They had some take

  18   downs and that's about all I know.  I wasn't intimately

  19   involved, but I know they did that.

  20   Q.  Other than cease and desist letters, did they make any

  21   contact with by IPS server to determine the name of any

  22   individual who allegedly used DeCSS to deencrypt a movie?

  23   A.  Oh, I don't know.

  24   Q.  Do you know that IPS servers will give you that

  25   information, if requested?




                                                                436



   1   A.  I'm not familiar with that.

   2   Q.  Do you know that the technology now permits -- excuse

   3   me -- do you know that IPS servers have logs about who visits

   4   their sites?

   5            MR GOLD:  Your Honor, I object to the question.

   6            Could Mr. Garbus describe what an "IPS" is?

   7            MR. GARBUS:  Internet Service Provider.  I'm sorry.

   8   I said "IPS."

   9            THE COURT:  Look, Mr. Garbus, I had this point about

  10   four months ago and whatever merit it has, it has.  It's not

  11   getting any better or worse.  If you want to pursue it, I'm

  12   going to give you five more minutes.

  13   BY MR. GARBUS:

  14   Q.  Now, in your direct examination, you talked about the

  15   licensing structure.  Do you recall that?

  16   A.  Yes.

  17   Q.  See if you can help me and let me just state it and you

  18   tell me if it's accurate, if that's an appropriate way to do.

  19            The DVD CCA has licenses with the movie studios

  20   concerning CSS?

  21   A.  Not necessarily.

  22   Q.  Then why don't you describe the licensing system.

  23   A.  Well, you need to have a license with DVD CCA to put the

  24   encryption on your disks, but that license could either be

  25   taken out by the motion picture studio or it could be taken




                                                                437



   1   out by their replicator who makes the disks.

   2   Q.  O.K.  We are getting at it the same way, and it also is

   3   taken out by the hardware manufacturer?

   4   A.  Yes, it is.

   5   Q.  So that the license from DVD CCA goes to the movie studio,

   6   it goes to the replicator, and it goes to the hardware

   7   manufacturer, is that right?

   8   A.  Yes, and if there's going to be a software implementation,

   9   I would assume it goes to that party as well.

  10   Q.  So that the only people who allegedly can play DVDs or use

  11   CSS are those people who have the licenses from DVD CCA, is

  12   that right?

  13   A.  That's correct.

  14   Q.  Now, if you buy -- do you have any information -- does

  15   Warner Brothers have any information on the number of sales of

  16   DVDs to Linux users?

  17   A.  No.  We don't follow that information.

  18   Q.  Do you know whether, in fact, the number of sales of DVDs

  19   have increased because they are now available for Linux users

  20   when they were not available before the DeCSS crack?

  21            MR. GOLD:  Your Honor, I object to the question

  22   because it assumes facts that aren't in evidence.

  23            THE COURT:  Sustained as to form.

  24   Q.  Are there any licensed Linux users?

  25   A.  I have been told that there are at least two licensed




                                                                438



   1   Linux implementations.

   2   Q.  Do you know if there are any people using or watching DVDs

   3   on Linuxes that do not have licenses?

   4   A.  I do not know that.

   5   Q.  Has there been any investigation -- I don't know if this

   6   is the same round or a different round --

   7            Has there been any investigation made by the MPA,

   8   your studio, any of the nine major studios over whether or not

   9   the extent to which Linux users who do not have licenses are

  10   using DVDs?

  11   A.  Linux users don't have to have licenses.  Linux users just

  12   have to use an authorized implementation.  So, I don't have

  13   that information.

  14   Q.  Let me ask the question another way.  Linux users, of

  15   course, can have a Windows system, so they can have a Windows

  16   system so they can watch a licensed DVD, isn't that correct?

  17   A.  That is correct.

  18   Q.  And if a Linux user does not have a Windows system,

  19   then -- withdrawn.

  20            Do you know how many sales of DVDs have been made to

  21   Linux users who do not have Windows operating systems?

  22   A.  We do not track the different types of computer operating

  23   systems that use our product.

  24   Q.  To make a DVD player, how many different licenses do you

  25   need?




                                                                439



   1   A.  I don't know.

   2   Q.  Is it more than five licenses?

   3   A.  I don't know.  I thought it was just one, but I'm not

   4   familiar enough with how they're licensing now.

   5   Q.  Do you know what the cost of those licenses are?

   6   A.  The cost of the license, which is royalty free, is

   7   $10,000, from my recollection.

   8   Q.  That's for the first year?

   9   A.  Yes.  I don't know.  I remember $10,000.

  10   Q.  You were talking about the increased sales of DVDs, is

  11   that right, and how it's mushroomed in the market?

  12   A.  Yes.

  13   Q.  And given someone who's in this area, one would expect

  14   that the mushrooming would continue?  It's a highly-profitable

  15   business, is that right?

  16   A.  Yes.

  17   Q.  And it's replacing videos?

  18   A.  Yeah.  I mean, it's a very complex -- excuse the word

  19   "matrix" to figure out how the business is growing.  I mean,

  20   we have VHS.  We have VCD in Asia.  We have DVD.  So, we are

  21   always analyzing what the growth is.  Is DVD taking anything

  22   away from our current business?  Is it incremental?  It's part

  23   of our business plan.

  24   Q.  And are there any projections within Warner Brothers in

  25   your business plan indicating the decrease in videos as a




                                                                440



   1   result of the DVD sales?

   2            THE COURT:  Asked and answered.

   3   Q.  What are those projections?

   4            THE COURT:  She said there were none.

   5   Q.  Does your five-year plan for Warner Brothers have no

   6   projections with respect to the loss of video sales as a

   7   result of the increase in the DVD market?

   8   A.  Let me see if I understand.

   9            THE COURT:  I'm sorry.  The question you asked a

  10   minute ago, I misheard.  You can go back to that, if you want,

  11   video versus DVD, Mr. Garbus.

  12   A.  Yes.  Our projections show the, as I said before, our

  13   sales of DVD are incremental to our video sales currently.

  14   But in our projections for the future, it shows that video

  15   would decline as DVD increases.

  16   Q.  Isn't it fair to say that the expectation is within a

  17   relatively short period of time, if the audio and video market

  18   would become very small as the DVD market becomes very large?

  19   A.  No, that's not accurate.

  20   Q.  Isn't it fair to say that as time goes on, a movie will

  21   not be released on both audio and video?

  22   A.  We have no projections that show that; none.

  23   Q.  Now, do you have any projection --

  24            THE COURT:  Just a second.  I mean, obviously people

  25   are not paying any attention to the words that are being used.




                                                                441



   1            Are movies being released on "audio and video"?

   2            THE WITNESS:  No.

   3            THE COURT:  O.K.  Mr. Garbus, you meant to say, "DVD

   4   and video."

   5            That's what you expected, Ms. King, so you answered

   6   the question that he didn't ask.

   7            Let's pay a little attention, folks.

   8   BY MR. GARBUS:

   9   Q.  With respect to DVD and video?

  10   A.  Yes.

  11   Q.  Are there projections?

  12   A.  Certainly.

  13   Q.  And these projections show that the DVD market is

  14   increasing and as that increases, the sale of the video market

  15   will decrease, is that right?

  16   A.  Yes, to a certain extent; yes.

  17   Q.  And are there projections of when movies will be released

  18   on DVD, but will no longer be released on videos?

  19   A.  No.

  20   Q.  Have you seen any projections made by anyone other than

  21   Warner's about when video becomes fundamentally far less

  22   significant and has fewer films released on it?

  23   A.  I've seen no projections that show that we are not going

  24   to release our movies in the video cassette format which is in

  25   99 percent of American television homes.




                                                                442



   1   Q.  And in what percentage of American television homes right

   2   now are DVDs?

   3   A.  This is an estimate.  We are looking at I think 10 percent

   4   by the end of the year in the United States.

   5   Q.  And by the end of next year?

   6   A.  I don't remember.

   7   Q.  And by the end of the third year?

   8   A.  I don't remember.

   9   Q.  Now, do you recall that at the deposition we had been

  10   talking about the release of DVD audio?  Do you remember that?

  11   A.  Yes.

  12   Q.  And you know that DVD audio is in the stores today?

  13   A.  I don't believe DVD audio in the sense that I think of DVD

  14   audio is in the stores today.

  15   Q.  Well, you say in the sense that you think DVD audio, is

  16   there something out there called DVD audio?

  17   A.  There's a bit of confusion about what DVD audio is.

  18   Q.  Let me ask you a question:  Is there something out in the

  19   stores now that you called first DVD audio players by

  20   Panasonic and by Phillips?

  21   A.  There may be.  I don't know.

  22   Q.  And DVD audio players are supposed to play DVD audio, is

  23   that right?

  24   A.  Yes.

  25   Q.  And is it your testimony that there are DVD audio players




                                                                443



   1   out for sale today, but that there is no product for the DVD

   2   audio players?

   3            THE COURT:  The witness just said she didn't know if

   4   there were DVD audio players in the store today.  So, your

   5   question starts off on an erroneous premise that maybe you

   6   understand the facts right and the witness is not informed.

   7            But let's at least listen to the answers.

   8            (Continued on next page)

   9

  10

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  12

  13

  14

  15

  16

  17

  18

  19

  20

  21

  22

  23

  24

  25




                                                                444



   1   BY MR. GARBUS:

   2   Q.  So when you say there is something out there, is there

   3   something out there called DVD audio which is used with the

   4   DVD audio players?

   5   A.  I don't know.  I have been told that there is some music

   6   in the marketplace that is in what is the video audio

   7   component of DVD.

   8            In other words, DVD video plays 5.1 surround audio

   9   which is even different from a normal CD.  You can put out

  10   music in 5.1 surround which is the video standard for sound.

  11   I'm trying to make this clear.  But that isn't DVD audio.  DVD

  12   audio is another standard, and I don't believe that any music

  13   is in the marketplace that meets that standard yet.  Although

  14   I could be wrong.  That's just what I have been told.

  15            THE COURT:  That meets which standard?

  16            THE WITNESS:  That meets the new DVD audio standard.

  17   The sound on the DVD video has a certain specification.  DVD

  18   audio goes beyond that specification, so it's an even added

  19   feature.

  20            THE COURT:  When you are talking about DVD audio, you

  21   are not talking about 5.1 surround, you are talking about a

  22   different standard, is that correct?

  23            THE WITNESS:  That's correct, that's what I would be

  24   talking about, yes.

  25            THE COURT:  Let's go.




                                                                445



   1            MR. GARBUS:  May I mark this as an exhibit?  It

   2   hasn't been marked as an exhibit before.  I can describe it or

   3   not.  These are things that I purchased last night at Tower.

   4            THE COURT:  Mr. Gold?

   5            MR. GOLD:  We object, your Honor.

   6            THE COURT:  Where are you going with this, Mr.

   7   Garbus?

   8            MR. GARBUS:  There is testimony in the record and

   9   there are affidavits in the record that DVD audio was not

  10   released because DeCSS somehow affected it and that DVD audio

  11   was going to be delayed for another year, and in fact they are

  12   out for sale now.

  13            THE COURT:  Mr. Gold?

  14            MR. GOLD:  It may well be, your Honor, that the DVD

  15   audio market, that the product that we are going to get into

  16   now was not on the market but this other DVD product that

  17   Ms. King described is, from her prior answers.

  18            THE COURT:  Well, I mean that's kind of an

  19   observation about what might be going on, Mr. Gold, but is

  20   there an objection, and, if so, what is it?

  21            MR. GOLD:  Your Honor, we got a list of documents and

  22   I thought the way the games were played -- if they want to go

  23   out and buy some videos, they could have given them to

  24   Mr. Hernstadt last night when he was in our office and he

  25   could have given them to us, or we could have gotten some




                                                                446



   1   notice.

   2            The rules provide for appropriate notice, and all of

   3   your Honor's orders provided for appropriate notice.

   4            THE COURT:  I am going to sustain the objection.

   5            MR. GOLD:  Also, I don't think there is a foundation

   6   on that to that question.

   7            THE COURT:  Well, all we have had is a proposal to

   8   mark the disks.  You don't need a foundation to mark a disk,

   9   but I don't see the relevance of this, Mr. Garbus.

  10            MR. GARBUS:  Let me see if I can explore a little

  11   further.

  12   Q.  Do you know what water marking is?

  13   A.  Yes, I do.

  14   Q.  And was that one of the potential encryption systems that

  15   were considered for DVDs?

  16            MR. GOLD:  Your Honor, is this not way beyond the

  17   subject of direct testimony?  Is this not irrelevant?  I

  18   object on those grounds.

  19            MR. GARBUS:  I will make an offer of proof, basically

  20   that the movie studios knew back in --

  21            THE COURT:  Before you make any offer of proof, maybe

  22   you could respond to the objection.

  23            MR. GARBUS:  I think it's relevant because I think it

  24   shows -- and I am prepared to do this at the sidebar, or if

  25   you want, I will do it from here.




                                                                447



   1            THE COURT:  Would you go ahead, please, Mr. Garbus.

   2            MR. GARBUS:  That at the time that the encryption

   3   system was placed on the DVDs, they knew that the encryption

   4   system would be broken in a very, very short period of time,

   5   and they got into the study of water marking, and different

   6   groups then competed for the kind of encryption system that

   7   was available.

   8            I think the proof will show, and it relates to the

   9   clause you read yesterday of the law, that they knew that it

  10   was not an effective device, and that since they have known

  11   about the cracking they have developed in fact other

  12   encryption codes that are superior to CSS which they can place

  13   immediately on DVDs.  It may cause some difficulty in how you

  14   put it into the machine, but in fact a security system is now

  15   available and can be used now to stop any potential loss of

  16   future sales.

  17            MR. GOLD:  Your Honor --

  18            MR. GARBUS:  And you then get into a very important

  19   economic issue, namely because you are concerned about and you

  20   indicated I think that the concern is not today's damage or

  21   may be today's damage to circumstantial proof, but certainly

  22   damage tomorrow.

  23            And what I would like to show, if we had an

  24   opportunity to do it, is that the movie studios know about it,

  25   knew about it two years ago, and have the total ability to




                                                                448



   1   stop that damage, unlike the audio business.

   2            THE COURT:  Whatever the movie studios may have known

   3   about two years ago is first of all not within the scope of

   4   the direct and second of all not relevant.

   5            It is not relevant because although you seem to have

   6   the view, and you are entitled to advocate it, that when the

   7   statute speaks of effective control of access to copyrighted

   8   works it should be construed to mean good or hard to crack

   9   control, that is not the way the term is defined in the

  10   statute.

  11            Indeed, if it were so defined in the statute, it

  12   would be meaningless, the entire statute, because the

  13   definition of something that effectively would control access

  14   would mean something uncrackable if it exists, and the only

  15   occasion for envoking the statute is where something has been

  16   cracked.  So, by definition any time something had been

  17   cracked, the control wouldn't have been effective.

  18            Now, I just don't read the statute that way, and you

  19   are welcome to take that up on appeal should the occasion

  20   arise, if indeed the plaintiffs win this lawsuit.

  21            Now, that having been said, that takes care of the

  22   past.  As to threatened harm, I think that the witness has

  23   raised the question of threatened future harm on direct, and I

  24   think certainly in terms of a claim for an injunction you are

  25   entitled to some latitude to explore her claim on that.




                                                                449



   1   That's the ruling.

   2   BY MR. GARBUS:

   3   Q.  Isn't it a fact that since CSS was cracked, the studios

   4   have been developing other encryption systems?

   5   A.  The studio?  The studio -- I'm not sure I know what you

   6   mean by other encryption systems.

   7   Q.  You know what water marking is?

   8   A.  Yes, but water marking is not the same as an encryption

   9   system, so that's why I say that.  They have been working on

  10   water marking, they have been working on a system for digital

  11   transmission for a long time in both of those systems.  Since

  12   CSS was cracked, you know, they have looked, they certainly

  13   have asked Matsushita Toshiba what they can do about it, if

  14   anything, and I have not heard that we have an instant or an

  15   immediate fix.

  16   Q.  Have you heard of CSS 2?

  17   A.  Yes.

  18   Q.  What is CSS 2?

  19   A.  CSS 2 is a similar encryption system to CSS that was meant

  20   to protect DVD audio.

  21   Q.  And do you know what CPPM is?

  22   A.  Yes, I believe that CPPM, to the best of my knowledge, is

  23   the encryption system that audio adopted after they

  24   disregarded CSS 2 upon being cracked in October.

  25   Q.  And when you say CPPM was adopted, that was after they




                                                                450



   1   learned that CSS 2 would not protect audio, is that right?

   2   A.  Let me rephrase what you said.  CSS 2 was a system similar

   3   to CSS.  When we found out about DeCSS, the music industry

   4   decided they did not want to use CSS 2 because it was

   5   vulnerable.  Therefore, they looked for another type of system

   6   to protect DVD audio, and I believe the one that they picked

   7   was CPPM, which is different than CSS 2.

   8   Q.  You have now talked about the way that the audio

   9   industry -- pardon me -- the audio industry has changed

  10   encryption systems or security systems.  Tell me what attempt

  11   the movie industry has made since October to develop security

  12   systems or encryption systems.  And I gather the word

  13   encryption system is not appropriate for water marking but the

  14   word security system is.  Is that correct?

  15   A.  Yes.

  16            MR. GOLD:  Your Honor, I object to the form of that.

  17            THE COURT:  Overruled.  I think it's clear.  Go

  18   ahead.

  19   A.  The studios have spent a tremendous amount of time, I know

  20   because I have been tangentially involved, in coming up with a

  21   system that is now called 5C, which is for digital

  22   transmission.  It works on IEEE 1394 digital connections, and

  23   it protects the transmission from one digital device to

  24   another.  That's extremely important because in the CSS

  25   license we demanded that all digital ports be turned off so




                                                                451



   1   that product could not be transmitted.  We are looking for a

   2   strong protocol now for that, and it has taken up a tremendous

   3   amount of time and resources at every single studio in that

   4   discussion.

   5            Simultaneously with that, the studios have been

   6   working on a very difficult situation involving the choice of

   7   water marking.  And water marking does not provide an

   8   encryption system.  What it does is if encryption is broken or

   9   if for some reason circumvented, if you have a water mark then

  10   the copy would not play in an authorized player.  So it's

  11   another system of security as well.

  12            In addition to that, we would have loved to have

  13   chosen an immediate substitute system for DVD.  However, there

  14   are going to be, you know, I'm making a guess here, 12 million

  15   DVDs in the market by December.  If you put another encryption

  16   system on and you started encrypting your movies, then all of

  17   those players would be obsoleted and it's very difficult to

  18   trade in the installed base of CE players and those are just

  19   stand alone players.  There is probably 20 million or more DVD

  20   ROM drives that would also be obsoleted if we were to put a

  21   noncompatible encryption system on.  So the first thing we did

  22   was go to Matsushita Toshiba and say is there any way we can

  23   get a fix on this that would help us going into the future.

  24   The studios certainly have not sat on their thumbs but have

  25   put in a tremendous amount of time and resources to see what




                                                                452



   1   they could do to fix the situation.

   2   Q.  Can you tell us, do you have any document with you here

   3   today indicating when the studios project -- the judge asked

   4   before the question putting the genie out of the bottle.

   5   DeCSS has been posted regularly since October, at least since

   6   October of 1999, is that right, to your knowledge?

   7   A.  I imagine.

   8   Q.  It has been posted regularly in November, December,

   9   January, February, March, April, May, June.

  10            THE COURT:  We all know what the intervening months

  11   are, Mr. Garbus.  Another question, please.

  12   Q.  And is it fair to say that anyone who wants DeCSS or any

  13   number of people in the United States who wanted DeCSS in the

  14   last months already has had an opportunity to see it?

  15            MR. GOLD:  I object on the grounds that that calls

  16   for speculation.

  17            THE COURT:  Look, I guess it does, but the

  18   fundamental point is obvious.

  19   A.  Okay, it's available.

  20            THE COURT:  That's all right.  I am sustaining the

  21   objection.  There is no need to take time on it.  Somebody who

  22   wants it and knows anything about the Internet knows how to

  23   get it.  It's that obvious.

  24   Q.  And they have known how to get it since at least October.

  25            MR. GOLD:  Your Honor, objection.




                                                                453



   1            THE COURT:  Yes.  Well, no, no.  I will allow that,

   2   but the witness needs to answer from her personal knowledge.

   3   Q.  From your personal knowledge, based on your involvement in

   4   the industry, since October, anyone in the United States with

   5   a computer can get a copy of DeCSS, is that true?

   6            THE COURT:  I suppose they need an Internet

   7   connection, don't they?

   8   A.  I was going to say, if they are knowledgeable about where

   9   to go and have the right connections.

  10   Q.  You say "if they are knowledgeable."  If you go to

  11   Disney's search engine and you punch in DeCSS, does it tell

  12   you where to go?

  13   A.  You have to be knowledgeable in knowing what DeCSS is.  I

  14   mean not everyone knows that.

  15   Q.  I see.  Can you go to let's say Infoseek and punch in CSS

  16   and then gets references to DeCSS?

  17   A.  I don't know.

  18   Q.  Can you go to Infoseek or to any search engine and punch

  19   in DVD and then get CSS or DeCSS?

  20   A.  I don't know.

  21   Q.  Do you know enough about the Internet to know that the

  22   search engines, there are variable ways of getting to DeCSS

  23   without punching in DeCSS?  Is that right?

  24            MR. GOLD:  Your Honor, I object to the question.

  25            THE COURT:  Sustained.




                                                                454



   1   Q.  Do you go on the Internet?

   2   A.  Rarely.

   3   Q.  Have you ever used any of the search engines to see where

   4   DeCSS is?

   5   A.  No.

   6   Q.  Have you ever gone to 2600.com?

   7   A.  No.

   8   Q.  Now, Warner permits buyers of its DVDs to play them in a

   9   DVD player no matter where they purchase the DVD player, is

  10   that correct?

  11   A.  Yes.

  12   Q.  Can Warner decide on its own to allow a company to play

  13   its DVDs without that company having a license from the

  14   DVD-CCA?

  15   A.  No, not if we have encrypted the movie.

  16   Q.  If you encrypted the movie and I created a player that

  17   could deencrypt that movie, could Warner sell that DVD to me?

  18   A.  I think that would violate the license with DVD-CCA.

  19            MR. GARBUS:  Can I have a moment, your Honor?

  20            THE COURT:  Yes.

  21   Q.  Now, do any of your business plans -- and I think you have

  22   mentioned this -- in Warner Brothers take into account DeCSS?

  23   The five year plan, that you have mentioned.  Does any other

  24   specifically take into account DeCSS?

  25            MR. GOLD:  Your Honor, I believe this has been




                                                                455



   1   covered in prior cross.

   2            THE COURT:  Sustained.

   3   Q.  Have you ever seen any press releases from the MPAA saying

   4   that -- let me show you Exhibit 2M.

   5            THE COURT:  M as in Michael?

   6            MR. GARBUS:  Yes.  May I approach the bench?

   7            THE COURT:  Yes.

   8   Q.  Did you ever see that press release?

   9            MR. GOLD:  Your Honor, we are trying to come up with

  10   a copy of this.

  11            THE COURT:  Mr. Garbus, maybe you can give counsel a

  12   copy.

  13            MR. GOLD:  We have ZM.

  14            THE COURT:  Z as in zebra, Defendants' ZM.  Do you

  15   have it now, Mr. Gold?

  16            MR. GOLD:  Yes, ZM.

  17   Q.  Have you ever seen that press release before?

  18            MR. GOLD:  Your Honor, I believe -- this is a

  19   document as to which you have held it is work product.

  20            THE COURT:  What?

  21            MR. GOLD:  We have made the assertion that this is

  22   work product, this document.

  23            THE COURT:  This is one of the things that was

  24   produced under the no waiver?

  25            MR. GOLD:  Yes, your Honor.




                                                                456



   1            MR. HERNSTADT:  No, your Honor, that one wasn't.

   2   There may have been others.

   3            THE COURT:  It has a Bates number on it.  You fellows

   4   ought to be able to figure this out.

   5            MR. HERNSTADT:  All the no waiver documents were

   6   stamped.

   7            MR. SIMS:  This was officially produced without a

   8   stamp, and we sent them a letter, it was privileged as they

   9   know because they have seen the other documents.  It was never

  10   released as a press release and it was drafted largely by

  11   lawyers.

  12            THE COURT:  Look, Mr. Garbus, I think you are

  13   entitled to find out at a minimum whether it was ever

  14   released, because if it was there is no question of privilege.

  15   So, see if you can deal with that.

  16            MR. GARBUS:  Mr. Gold, was it ever released?

  17            MR. GOLD:  We were advised it was not released.

  18            THE COURT:  Mr. Gold is not the witness.

  19   Q.  Ms. King, do you know if it was ever released?

  20   A.  I don't think it was released.

  21   Q.  Have you ever seen any statements made by Mr. Valenti

  22   saying that the so-called CSS hack is useless?

  23   A.  Well, I may have seen this draft.

  24            THE COURT:  That's not the question.  Forget the

  25   document.




                                                                457



   1            THE WITNESS:  Okay.

   2   Q.  Have you ever seen or have you ever heard Mr. Valenti say

   3   that the CSS hack is useless?

   4   A.  I don't remember that exact quote coming from Mr. Valenti.

   5   Q.  Well, in substance do you remember any quotes coming from

   6   the MPAA or any other movie studio saying fundamentally that

   7   the CSS hack is useless because the cost of making an illegal

   8   copy is too high?  Just yes or no.

   9   A.  Yes.

  10   Q.  Do you recall statements by Mr. Valenti that deencrypted

  11   movies on the Internet are useless because they are not of

  12   such a greater quality?

  13   A.  No.

  14   Q.  Do you recall any statements by Mr. Valenti, lengthy

  15   talking about the difficulty of making copies through DeCSS or

  16   the CSS hack?

  17   A.  No.

  18   Q.  Now, you say you saw the draft of this document?

  19   A.  It looks familiar.

  20   Q.  When did you see the draft?

  21   A.  To the best of my recollection probably a meeting at the

  22   MPAA.

  23            MR. GOLD:  Your Honor, we just asserted our work

  24   product privilege as to this document.

  25            THE COURT:  Right now he is asking whether she saw it




                                                                458



   1   or drafted it.  I'm not sure which.

   2            MR. GOLD:  The question is did she see it.

   3            THE COURT:  Yes.

   4   Q.  Did you see it?

   5   A.  I think so.

   6   Q.  And how do you know that it was not released?

   7   A.  I believe we decided not to do a press release.  That's

   8   the best of my recollection.

   9   Q.  Why was that?

  10            MR. GOLD:  Your Honor, that's part of the privilege.

  11            THE COURT:  Where was this decision made and by whom?

  12            THE WITNESS:  It was made by all lawyers at the MPAA,

  13   at a meeting to discuss how to handle this threat, what type

  14   of litigation should we take.  It was all in the context of

  15   deciding how to respond to DeCSS in an overall context.

  16            THE COURT:  Look, it seems to me that to the extent

  17   lawyers were sitting around discussing legal matters, that's

  18   one thing.  To the extent lawyers are sitting around being

  19   public relations consultants, that's another thing.  So, I

  20   don't see, I don't think, Mr. Gold, any valid objection to the

  21   witness testifying.

  22            MR. GOLD:  We respectfully suggest that if it was

  23   released then the lawyers were sitting around engaging in

  24   public relations, if a decision was made not to release it, I

  25   believe the lawyers were sitting around engaging in the




                                                                459



   1   practice of law.

   2            THE COURT:  I see.  Your theory is that in substance

   3   the nonrelease embodies the legal advice they gave their

   4   client.  What about that, Mr. Garbus?

   5            MR. GARBUS:  I disagree.

   6            THE COURT:  I know you disagree, but is there a

   7   reason you disagree?

   8            MR. GARBUS:  I think functioning in the area of

   9   public relations and deciding what to release and what not to

  10   release, you are sitting -- well, first of all we get into who

  11   else was in the room.  Put that aside.

  12            I don't think that's a lawyer's function and that the

  13   whole question of press releases and public releases do not

  14   come within the attorney/client privilege.

  15            In this case, where you have a great deal of public

  16   information being released by the MPAA, either with or without

  17   its lawyers, then what is out there is certainly waived, and I

  18   think that that waiver also applies to what's in there.

  19            THE COURT:  Suppose you were advising a criminal

  20   defendant who had been indicted in a case as to whether or not

  21   to issue a press release giving the defendant's version of the

  22   facts and coming to the conclusion that the government was all

  23   wet in indicting him.  Do you think that's legal advice?

  24            MR. GARBUS:  I think a criminal situation like that

  25   is totally different.




                                                                460



   1            THE COURT:  Could you just answer the question I put

   2   to you?

   3            MR. GARBUS:  I can't.  I just think it's so

   4   different.  I think here you have a series of -- I think we

   5   can agree in this case that there had been a series of press

   6   releases.

   7            Let me move on to the next exhibit.

   8            THE COURT:  All right.

   9   Q.  Let me show you Exhibit RK.

  10            MR. GARBUS:  May I approach the bench?

  11            THE COURT:  Yes.

  12   Q.  Is that your name at the top of that document?

  13            MR. GOLD:  Your Honor, may we just wait until we

  14   can -- are we dealing with RV?

  15            THE COURT:  No, K as in knight.

  16            MR. GOLD:  Thank you, your Honor.

  17            THE COURT:  Go ahead, Mr. Garbus, please.

  18   Q.  Have you ever seen that document which is the first page?

  19   It says to Marsha King.

  20   A.  Well, I believe so.

  21   Q.  And is Dean Marks at the MPAA?

  22   A.  No, he isn't.

  23   Q.  Where is he?

  24   A.  Dean Marks is with Time Warner.

  25   Q.  John Schulman?




                                                                461



   1   A.  Warner Brothers.

   2   Q.  Ed Weiss?

   3   A.  Time Warner.

   4   Q.  Jeremy Williams?

   5   A.  Warner Brothers.

   6   Q.  Bernard Sorkin?

   7   A.  Time Warner.

   8   Q.  Now look at the next page.  Do you see a quote in the

   9   fourth paragraph from James Cardwell?

  10   A.  Yes, I do.

  11   Q.  Who is James Cardwell?

  12   A.  James Cardwell is the executive vice president of North

  13   American, Australia, New Zealand for Warner Home Video.

  14   Q.  Looking at that document, does this refresh your

  15   recollection that Mr. Cardwell told CNN --

  16            THE COURT:  Now, just a minute, Mr. Garbus.  She

  17   hasn't said that her recollection needed refreshing, first of

  18   all, so there is no foundation for the question.

  19            Secondly, you know perfectly well that this is

  20   hearsay.  If it was offered against you, you would have

  21   objected to it strenuously.  If you want to ask a question in

  22   an unsensational fashion, I think you know how.

  23   Q.  Do you know if Mr. Cardwell ever made a statement on

  24   behalf of Warner with respect to his expectation that the CSS

  25   code would be broken?




                                                                462



   1   A.  I was shown this article.  I was not there.

   2   Q.  Did you ever have a conversation with Mr. Cardwell --

   3   wasn't it the position of Warner Brothers they had expected

   4   the source code to be broken, that you weren't surprised it

   5   was broken and you believed there was no economic incentive to

   6   hacking the product?  Wasn't that the Warner Brothers

   7   position?

   8            MR. GOLD:  I object to the form of that question.

   9            THE COURT:  Sustained as to form.

  10   Q.  Did anybody to your knowledge at Warner Brothers ever say

  11   we expected the source code to be broken?

  12   A.  I don't remember anyone actually saying that, but it could

  13   have been said.

  14   Q.  And what did they say, if not exactly that, what your

  15   expectation was --

  16            (Record read)

  17   Q.  -- with respect to the breaking of the code?

  18   A.  It's difficult.  We didn't have a joint expectation with

  19   respect to the code.  We always knew that with any code there

  20   was a possibility it could be hacked.

  21   Q.  And to your knowledge, did anyone at Warner -- by the way,

  22   after you saw this document, did you at any time speak to

  23   anyone at Warner Brothers to determine whether or not Cardwell

  24   had said that?

  25   A.  Yes, I did.




                                                                463



   1   Q.  Who did you speak to?

   2   A.  Mr. Cardwell.

   3   Q.  What did he say?

   4   A.  He said he didn't remember those exact words but he could

   5   have said it.

   6   Q.  And when did you speak to Mr. Cardwell?

   7   A.  The day that I saw this article or saw something similar

   8   to this article.

   9   Q.  And if he didn't remember the exact words, did he tell you

  10   what he did say?

  11            MR. GOLD:  Your Honor, I object on hearsay grounds.

  12            THE COURT:  Mr. Cardwell?  Overruled.

  13   A.  No.

  14   Q.  Isn't it true -- by the way, this article is back in

  15   January 13 of the year 2000.  Did you ever ask him when they

  16   expected the source code to be broken?

  17   A.  No, I didn't.

  18   Q.  Did you ever ask anybody at Warner Brothers when they

  19   expected the source code to be broken?

  20   A.  I --

  21            MR. GOLD:  Your Honor, I don't understand so far as

  22   it relates to source code.

  23            THE COURT:  I think that point is well taken, but,

  24   you know, the witness can answer if she can.

  25   A.  I don't know the answer to that.  We didn't have a Warner




                                                                464



   1   expectation.

   2            THE COURT:  Does the concept of breaking a source

   3   code have any meaning to you, Ms. King?

   4            THE WITNESS:  No.  The way I'm thinking of it, I

   5   guess is breaking the encryption.

   6            THE COURT:  Proceed.

   7   Q.  Did he ever tell you that we expected CSS to be broken?

   8            MR. GOLD:  Your Honor, hasn't that been asked and

   9   answered twice and ruled on, my objection?

  10            THE COURT:  I think so.  Sustained.  It's cumulative.

  11   Q.  And did you ask him about the sentence, we were surprised

  12   it wasn't broken earlier, what he meant by that?

  13   A.  No, that's not what I asked him.

  14   Q.  What did you ask?

  15   A.  I asked him if he had said this.

  16   Q.  And he said he had said it substantially, is that right?

  17   A.  He said he couldn't remember but it could have been said.

  18   Q.  Now, when you asked him that, who else asked him?  Who was

  19   in the room when that question was asked of him?

  20   A.  Warren Lieberfarb.

  21   Q.  And who is he?

  22   A.  He is the president of Warner Home Video.

  23   Q.  And did Mr. Lieberfarb say anything at that meeting?

  24   A.  No.

  25   Q.  Tell me how that meeting came about.




                                                                465



   1   A.  It came about because I had been at an MPAA meeting and

   2   they had shown me this very same piece of information and

   3   asked me if I could find out about it.  When I got back to the

   4   office, they were in a meeting together, and so I went in

   5   there and showed it to Jim, asked them if I could interrupt,

   6   and I did.

   7   Q.  And after Mr. Cardwell said whatever he said, what then

   8   happened?

   9   A.  Excuse me?

  10   Q.  Tell me what happened in the room.

  11   A.  Well, I asked him if he had said that, and, you know, he

  12   said he didn't exactly remember but he could have, and I said

  13   okay, and then I left basically.

  14   Q.  And did Mr. Lieberfarb say anything?

  15   A.  I don't remember him saying anything.

  16   Q.  Did you show him this article when you asked him if he

  17   said that?

  18   A.  Yes, I did.

  19   Q.  And do you know where that article comes from?

  20   A.  No.  I think I showed him this or something similar to

  21   this, but it was a similar quote.

  22            MR. GARBUS:  I offer the document into evidence.

  23   It's an exception to the hearsay rule.  It come in as an

  24   exception because it explains a course of conduct that is

  25   ultimately taken, namely litigation here.  January 13 is the




                                                                466



   1   date of the lawsuit here and of course there is the litigation

   2   before in December.  And I think that all of these documents

   3   come in, and we have several others, as an exception to the

   4   hearsay rule because it shows exactly what Warner Brothers was

   5   doing to deal with this particular problem.  I offer it in

   6   evidence.

   7            MR. GOLD:  Your Honor, this document, as is apparent

   8   from the cross-examination of the witness, is offered for the

   9   truth of the material contained therein, and I believe it's

  10   clearly hearsay.

  11            MR. GARBUS:  I also believe that even the way the

  12   witness testifies to it, assuming it's of any significance,

  13   that it's an admission of a party.

  14            MR. GOLD:  Not this, your Honor.

  15            THE COURT:  Well, there is a double hearsay problem

  16   with that, Mr. Garbus, and the double hearsay problem is that

  17   if you had somebody testifying on personal knowledge to what

  18   Mr. Cardwell said, that would be an admission.  But what you

  19   have is a newspaper reporter saying that Mr. Cardwell told him

  20   something, and that's the link, that is the double hearsay

  21   problem.

  22            Nonetheless, it seems to me that so much of RK as

  23   consists on the cover sheet, and the sentence on the second

  24   page purporting to quote Mr. Cardwell, the whole purported

  25   quote from Mr. Cardwell comes in for what it's worth in light




                                                                467



   1   of Mr. Cardwell's direct admission to the witness that he

   2   could have said it and whatever else she said he said.  I

   3   think it is close enough that there is a foundation on which I

   4   could find that it was an adoption by the witness of the

   5   statement, and so it comes in on that basis and to that

   6   extent.

   7            THE COURT:  I meant to say an adoption by

   8   Mr. Cardwell, not an adoption by the witness.

   9            MR. GARBUS:  Your Honor, can we take our morning

  10   break now?

  11            THE COURT:  All right.  15 minutes.

  12            (Defendants' Exhibit RK received in evidence)

  13            (Recess)

  14            MR. ATLAS:  Before we go on the lunch break if we.

  15   could just figure out the scheduling for the next couple of

  16   days.  We are just trying to tell our witnesses with some

  17   precision when they are going to be called.  It would take

  18   maybe five minutes.  I think we are hoping to look for

  19   something like a Friday to begin our case.  If that's okay

  20   with the Court and if that's okay with the other side, we can

  21   get our witnesses lined up.

  22            THE COURT:  We will talk about it later.
                Mr. Gold, remind me, is there a claim for declaratory
  23   relief in this case?  Do you want to go back and check?  All
       right.
  24            Mr. Garbus, you may proceed.
                (Continued on next page)
  25




                                                                468



   1   CROSS-EXAMINATION Continued

   2   BY MR. GARBUS:

   3   Q.  Ms. King, I'm going to try and pick up where Mr. Gold

   4   began examination and I'll try and do it quickly so we can

   5   finish before lunch.

   6            When did you start at Warner Home Video?

   7   A.  Beginning of March 1990.

   8   Q.  And when did you start begin working on DVD?

   9   A.  We didn't call it DVD, but I did some work on that during

  10   the year 1990.

  11   Q.  What did you then call it?

  12   A.  We called it movie on a disk.

  13   Q.  And at some point does that get called DVD or whatever

  14   that predecessor was?

  15   A.  Then it was called Taz and then it was called DVD.

  16   Q.  And about when was it called DVD?

  17   A.  '96, it had been called SD as well.

  18   Q.  And at the very beginning of these conversations, was

  19   there a concern about a security system for whatever was

  20   called that was going to be released the movie on a disk?

  21   A.  Well, when it was just an idea, there wasn't a security

  22   system.

  23   Q.  When did it go beyond being just an idea?

  24   A.  Well, when it was coming into being reality and the studio

  25   started meeting, we talked about a security system.  I believe




                                                                469



   1   that was around 1995.

   2   Q.  So that the first time --

   3            MR. GOLD:  Your Honor, if I may, this line of

   4   questioning that goes back in time, back before 1996 when this

   5   was released and on into the early '90s hasn't got any

   6   relevance to this case whatsoever.

   7            THE COURT:  Well, look, you know why Mr. Garbus wants

   8   to go into it and Mr. Garbus knows why he wants to go into it

   9   and it hasn't got much to do with the issues in the case and I

  10   know why he wants to go into it.  He's trying to do some

  11   discovery for another purpose.

  12            MR GOLD:  Yes, your Honor.

  13            MR. GARBUS:  No, I'm not.  I'll skip it.  That's not

  14   the point.

  15            THE COURT:  Pardon me?

  16            MR. GARBUS:  That's absolutely not the point and I'll

  17   skip it.  I'll start with 1996.  That has nothing to do -- I

  18   see what's implied and it has nothing to do with that at all.

  19   I don't know when it started.  I don't know when they thought

  20   of security systems.

  21            THE COURT:  Mr. Garbus, relax.  There was something

  22   else I was going to say on that subject, but in light of your

  23   representation that that's not what it's all about and you

  24   will skip it, I will accept the representation that we will go

  25   on.




                                                                470



   1   Q.  Now --

   2            THE COURT:  If you want to press it, then we will

   3   deal with it.

   4   Q.  Now, when you started working on what we call DVD, let's

   5   say 1995, and don't tell me anything about before 1995, was

   6   that when the name DVD first came in or was it '96?

   7   A.  I can't exactly remember when the name DVD came in.  The

   8   two competing optical disk formats were converged I believe in

   9   September of '95.

  10            DVD as a name, since there was a convergence of two

  11   standards, one called SD and one called MMCD came in after

  12   that.  So, it was either late '95 or early '96.

  13   Q.  And when for the first time after January 1, 1995 did they

  14   start discussing encryption systems or security systems?

  15   A.  I can't -- I can't remember the initial date and I've been

  16   given nothing to refresh my memory.  I could find it, I'm

  17   sure, in my files.

  18            But around that time in '95, the motion picture

  19   companies started discussing legislation.  Originally it was a

  20   legislative proposal between consumer electronics and the

  21   motion picture industry to protect their product in the

  22   digital domain.

  23   Q.  And tell me just a little about those conversations?

  24   A.  Those conversations were -- originally we looked at the

  25   Audio Home Recording Rights Act where they had a big stream




                                                                471



   1   which had to be recognized.  We were looking at legislation

   2   similar to that, however, you wouldn't be able to make a copy

   3   as you are under the Recording Home Rights Act.

   4            The issue was:  Do we need the computer industry in

   5   the room?  We certainly at Warner said we did.  Other studios

   6   said we did, Disney included.  When we finally came up with

   7   some proposed legislation and brought the IT industry into the

   8   room, we stopped the legislation and sat down and started from

   9   scratch on a new security idea that that would be acceptable

  10   by the computer industry along with a new type of legislation

  11   to protect us.

  12   Q.  And the people --

  13            THE COURT:  Excuse me a minute, Mr. Garbus.

  14            Are you able to say from your own knowledge whether

  15   Warner was working on encryption prior to January of 1995?

  16            THE WITNESS:  No, we weren't.

  17            THE COURT:  Proceed.

  18   Q.  Now, with respect to, instead of encryption, how about the

  19   word -- since the judge asked the question -- how about

  20   security system?  Was there any concern prior to '95 expressed

  21   about security for the videos -- pardon me -- for the movies

  22   that were -- could be released?

  23   A.  I don't remember that being a topic that I participated

  24   in.

  25   Q.  You say you don't remember being a topic that you




                                                                472



   1   participated?

   2   A.  We were trying to come up -- we had a certain window of

   3   opportunity, we felt, in the video industry, at least at

   4   Warner Brothers, and we were part -- we were a large part of

   5   the development of DVD.

   6            We wanted to get this hard copy consumer product into

   7   the market before high definition television and before video

   8   on demand was widely available.  We wanted to get consumer

   9   acceptance and we knew we had a limited window of opportunity.

  10   So, before you can think about security, you have to think

  11   about having a product and we were immersed in developing the

  12   product.

  13   Q.  Now, one of the issues with the AHRA, do you know what

  14   that stands for?

  15   A.  The Audio Home Recording Rights Act.

  16   Q.  Yes, and that's 1992?

  17   A.  I don't know the date.

  18   Q.  One of the issues there was the question of security for

  19   audio recordings, is that right?

  20   A.  That's how I understand it.

  21   Q.  So, everybody understood after 1992 that you had to have

  22   some kind of security system for any product that was released

  23   into the market?

  24   A.  That's right.

  25            MR. GOLD:  I object to the form of the question, your




                                                                473



   1   Honor.

   2            THE COURT:  Yes, look, this is now enough, Mr.

   3   Garbus.  I have an affirmative obligation that I recognize.

   4   As far as I'm concerned, I have discharged it.  You can now

   5   proceed and handle this case.

   6            MR. GARBUS:  Thank you.

   7   Q.  Now --

   8            MR. GARBUS:  Can we just approach the bench for a

   9   moment, your Honor?

  10            THE COURT:  I'm sorry?

  11            MR. GARBUS:  Can we approach the bench for a moment?

  12            THE COURT:  Yes.

  13            (At the sidebar)

  14            MR. GARBUS:  I'm not going to pursue this line of

  15   inquiry any further.  It seems perfectly obvious to me that

  16   even before the Audio Home Recording Act of 1992 that anyone

  17   who was thinking of releasing any product into the consumer

  18   market was extraordinarily concerned about security.

  19            What this witness has just answered is, and I don't

  20   remember her question and answer, that you were not going to

  21   have a product released, she just gave a "yes" to my last

  22   question.  I'm not going to state it here and I'm not going to

  23   go any further with it, but it's inconceivable to me -- I

  24   won't say what's inconceivable to me.

  25            MR GOLD:  Your Honor, the witness has testified that




                                                                474



   1   Warner had made the decision that they were not going to

   2   release DVDs unless there was an encryption system that they

   3   felt good about.  She also testified that at the meeting, she

   4   went to in the industry, she heard and knew that the other

   5   studios felt the same way.

   6            THE COURT:  Look, I don't have to hear all of that.

   7   This is exceptionally simple.  The only reason I raise the

   8   question is because quite apart from what the parties have

   9   raised, I have an independent obligation under Section

  10   455(b)(2) of the Code to disqualify myself if it appears that

  11   someone with whom I practiced law at the time I did so was

  12   engaged by a party "concerning the matter."

  13            It is a subject in the context of this case on which

  14   I have no knowledge of my own.  I am entirely at the mercy of

  15   what the parties put before me.  I don't know that I had.  An

  16   obligation extending so far as to ask the question that I did,

  17   but I now have before me the witness' deposition testimony.  I

  18   have what she said here.

  19            I have the affidavits that were put before me on the

  20   motion.  And the issue is, as far as I'm concerned, closed

  21   absent new evidence.  I do not view this trial as a discovery

  22   proceeding for the purpose of conducting an expedition in

  23   search of that new evidence.  Obviously, if there is such

  24   evidence and it requires my disqualification, I will readily

  25   do so, but I haven't seen it and what we are here to try now




                                                                475



   1   is this case.

   2            MR. GARBUS:  So, can I understand something?  So,

   3   then I should not continue the line of questioning leading

   4   from the AHRA of '92 up to '95 and '96?

   5            THE COURT:  I can't make abstract rulings like that.

   6   I believe that I said in my opinion, Mr. Garbus, that one

   7   reasonably might infer, although I don't have the text in

   8   front of me, that somebody probably thought about security at

   9   some earlier point, but somebody thinking about security and

  10   my partner, former partner, having been engaged with respect

  11   to security, if indeed that would be enough, which I express

  12   no view on right now, in the period prior to August 22, 1994

  13   is a whole other matter.

  14            MR. GARBUS:  Thank you.

  15            (In open court)

  16   BY MR. GARBUS:

  17   Q.  Any question that I ask you now, I want to direct, whether

  18   I state it or not, to only after January 1, 1995; is that

  19   clear?

  20   A.  Yes.

  21   Q.  Now, at the time these various groups were meeting, was it

  22   all of the movie studio -- the representatives of all of the

  23   movie studios?

  24   A.  All of the MPAA members participated in the discussions on

  25   copy protection.




                                                                476



   1   Q.  And who else, if anyone?

   2   A.  We met separately and we met with the Consumer Electronics

   3   Manufacturing Association in the United States.

   4   Q.  And who was that?  Those are the people who make --

   5   A.  Those are the major consumer electronics companies, Sony,

   6   Phillips, Toshiba, Matsushita Electronics, Incorporated, I

   7   believe, the major players.

   8   Q.  Let me just see if I can, and correct me if I'm wrong:

   9   One group of people, the people who make the movies, the other

  10   group of people are the people, if the movies have been

  11   released, make the hardware to play the consumer products, is

  12   that right?

  13   A.  That's correct.  They were consumer electronics companies.

  14   Q.  And then what happened as to these discussions?  Was there

  15   ever a discussion of licensing of this product?

  16   A.  No, this was prior to CSS.  There was discussion of

  17   legislation.  That's what it basically was all about.  And

  18   like I said, when we came out with a draft legislative

  19   proposal, the computer industry rejected it and we started

  20   leading with the computer industry.

  21   Q.  And tell me just in short substance about those

  22   conversations.

  23   A.  Well, in short, the computer industry said, unlike in the

  24   Audio Home Recording Rights Act, they did not want their

  25   general purpose computers to be subject to legislation and




                                                                477



   1   regulation.  However --

   2   Q.  Why not?

   3   A.  Because that would mean they have to change the structure

   4   of all their computers.

   5   Q.  Why?

   6   A.  Because we were saying, computers -- we were saying that

   7   everyone had to put in a certain bit, anything that could

   8   record and they didn't want to be subject to that legislation.

   9            And Microsoft, for example, said it was religious

  10   with them not to be subject to that type of legislation, but

  11   all the computer companies felt strongly.

  12            So, we sat and met with them and listened to their

  13   proposal about a way that could be a good situation for

  14   everyone involved.  It was unprecedented that three major

  15   industries got together to talk about a way to be able to

  16   distribute to the consumer the highest quality of product,

  17   even in the computer environment, but yet to be protected.

  18   So, we sat down with the --

  19   Q.  Excuse me.  So, the three major industries are the

  20   recording industry, the motion picture industry, and the

  21   computer companies?

  22   A.  Well, when you say, "recording industry," the consumer

  23   electronic industry.  It's not the music industry.

  24            So, we sat down.  We had groups of engineers working

  25   and we had policy people talking about legislation and we




                                                                478



   1   had -- we set up a group called the Copy Protection Technical

   2   Working Group, which was open to the public.  And the meetings

   3   were announced, and what the computer industry said was, if

   4   you were to encrypt your product, if you were to scramble it,

   5   then we in the computer industry could decide whether or not

   6   we wanted our computers to have that feature on it.

   7            If we didn't, we'd just go ahead and make our

   8   computers, however, we want, and if we do want that feature on

   9   it, then since it's encrypted, we go and get a license and

  10   then we are subject to the rules within the license.

  11            And in addition, we talked about the third prong.  It

  12   was a three-pronged regime that we came up with in all these

  13   groups.  One was technology, whether it be encryption or water

  14   marking or digital transmission, but technology, the use of

  15   new technology that we in the motion picture industry had to

  16   embrace new technology as a way to protect our films and to

  17   use our films.  I mean, if you want to have digital films, we

  18   are using digital technology.

  19            Secondly, that with that technology comes

  20   responsibility and licensing.  So, if you want to show our

  21   movies, you need to make a deal with us that if you have the

  22   keys to unlock our house and look at our crown jewels, that

  23   when you leave, you're going to lock it up, O.K., so it can't

  24   be sent everywhere.  That was the second piece.

  25            Then the third piece was, well, if you have the keys




                                                                479



   1   to unlock our house, and you don't lock it up or you break the

   2   window and get inside, then we need legislation to protect

   3   someone who is stealing the keys and using it illegally.  So,

   4   it was a three-pronged regime that we came up in those

   5   multi-industry negotiations.  They took a long time.

   6   Q.  This is 1995, 1996?

   7   A.  This is 9996, at least.

   8   Q.  1996, at least?

   9            THE COURT:  "1996, at least" meaning when?

  10            THE WITNESS:  Meaning it wasn't prior to 1996.

  11            THE COURT:  Thank you.

  12   Q.  And go on.  Continue.

  13            THE COURT:  What's the question?

  14            THE WITNESS:  Yeah.

  15            MR. GARBUS:  Pardon me?

  16            THE COURT:  What's the question?

  17   Q.  After you started to recognize the need for legislation,

  18   what did the movie industry do?  What did the consumer

  19   electronics industry do?

  20   A.  Well, our first focus was -- although legislation was

  21   always part of the three-pronged approach, our first focus was

  22   on the technology.

  23            The consumer electronics and computer industries

  24   wanted to bring this product to market.  They thought it was a

  25   good product.  We thought it was -- we at Warner Brothers




                                                                480



   1   thought it was a great product.  So, the first phase we went

   2   through it with was how are we going to protect the product

   3   and, therefore, we were looking at technologies to encrypt.

   4   Q.  And when you say -- and then what happened?

   5   A.  And then we adopted CSS.

   6   Q.  Were any consumers rights groups involved in any of these

   7   tri-industry discussions?

   8   A.  I know that the Home Recording Rights Coalition

   9   representatives were at all of these meetings.  So, I mean

  10   there were consumer advocate groups at the meetings; yes.

  11   Q.  And then what happened?  In other words, the technology

  12   moves apace, the attempts for legislation move apace, is that

  13   right?

  14   A.  We finalize the technology in mid-to-late '96 and I think

  15   simultaneously with finalizing the technology, we were working

  16   on the licensing agreements and I don't remember the exact

  17   timing.  I just know when Warner released its product at that

  18   point and we did not release until we had the ability to

  19   encrypt it.

  20            MR. GARBUS:  Now, excuse me.  Can I hear the last

  21   answer, please?

  22            THE WITNESS:  We did not release our product until we

  23   had the ability to encrypt it.

  24   Q.  And when was that?

  25   A.  In the United States, it was March of 1997.




                                                                481



   1   Q.  Now, prior to that time, had a licensing scheme been

   2   worked out?

   3   A.  I can't give you exact specifics, but there were intense

   4   negotiations on the licensing scheme.

   5   Q.  And did you play a part in that?

   6   A.  I attended quite a bit of those discussions, many of those

   7   discussions.

   8   Q.  And are you familiar with licenses that are now used?

   9   A.  I was at one time.  I hadn't seen them in two to three

  10   years, I would guess.

  11   Q.  Let me show you Defendant's --

  12            MR. GARBUS:  May I approach the bench?

  13            THE COURT:  You may.

  14   Q.  Defendant's Exhibit AJB.  Now, this is one of the

  15   documents that I'm not quite clear about.  Before I ask

  16   questions about it --

  17            THE COURT:  Is it the part in Japanese we are going

  18   to focus on?  Maybe Judge Shinoda can help us.

  19            MR. GARBUS:  It's the part that says "highly

  20   confidential."

  21            THE COURT:  Mr. Gold, what are we doing here?  What's

  22   the problem?  I see it's not Mr. Gold's documents, it's a

  23   non-party document.

  24            MR. GARBUS:  Yes, it's a document of DVD-CCA.

  25            THE COURT:  Right.




                                                                482



   1            MR. GARBUS:  But their interests are sufficiently

   2   similar.

   3            MR GOLD:  Well, this is a -- I see, as your Honor

   4   does, that it's the DVD-CCA has hacked this highly

   5   confidential attorney's eyes only and although we had -- we

   6   attended the deposition in this case, Mr. Hoy, who is with the

   7   DVD-CCA, I'm afraid I don't know why the DVD-CCA has marked it

   8   "confidential; attorney's eyes only."

   9            THE COURT:  Without discussing the terms of the

  10   document, which is a license agreement, Mr. Garbus, can you

  11   give me a clue without breaching the confidentiality on the

  12   public record where you are going with this?

  13            MR. GARBUS:  Just to show that the license exists,

  14   the terms of it.  It relates to the antitrust argument.

  15            THE COURT:  I don't know that you have made any

  16   antitrust arguments, sir.

  17            MR. GARBUS:  We have in our answer.

  18            THE COURT:  And it is what?  That the DVD, the DMCA

  19   violates the antitrust laws?

  20            MR. GARBUS:  No, that wasn't the argument.

  21            THE COURT:  What is the argument?

  22            MR. GARBUS:  The argument is that structure of this

  23   licensing agreement, namely, that the only people that can

  24   play like DVDs are people who are also signatories to the

  25   DVD-CCA license agreement.  That thereby excludes people like




                                                                483



   1   Linux and that that is anticompetitive and that's the same

   2   argument that was made successfully in the Sega case and in

   3   the Connectix case and whether or not the DMCA overrules that

   4   or not is an issue that this Court is going to decide.

   5            MR. GOLD:  Your Honor, we have --

   6            MR. GARBUS:  That was indicated affirmatively in the

   7   answer.

   8            MR GOLD:  Every person can get a license from the DVD

   9   if they pay money and require it and if they sign the license

  10   agreement.  I know there are two Linux groups that have.

  11            THE COURT:  We heard all that.  Let's talk about

  12   this, what we are doing with this document.

  13            MR. GARBUS:  I'm prepared just to offer the document

  14   into evidence without getting into any further -- other than

  15   if I can just address your attention to page A-1 and I'm

  16   prepared to do that at the bench.

  17            MR. GOLD:  Your Honor, one has to lay a foundation

  18   for the document.

  19            THE COURT:  Mr. Gold, are you really telling me you

  20   don't know if this is a real document at this point?

  21            MR GOLD:  I don't know if the witness can tell me if

  22   it's real document.

  23            THE COURT:  I don't know that either, but you are

  24   trying the case.  Presumably you know whether this is for real

  25   or not.




                                                                484



   1            MR. GARBUS:  It comes out of the file of the DVD-CCA.

   2   They have three.

   3            THE COURT:  I understand that, but we don't have a

   4   DVD-CCA witness here.

   5            MR GOLD:  I don't know as I stand here if this is a

   6   license that the motion picture companies have.

   7            THE COURT:  I would be tremendously surprised if the

   8   two of you, perhaps even involving a conference call with the

   9   lawyer for the DVD-CCA can't by the end of the day stipulate

  10   to as to whether this is authentic or not.

  11            Now, assuming it is authentic and it is what it

  12   purports to be, is there any objection to its being received

  13   in evidence, Mr. Gold?

  14            MR GOLD:  I think it's irrelevant to the case, your

  15   Honor.

  16            THE COURT:  Beyond that?

  17            MR. GOLD:  No, your Honor.

  18            THE COURT:  O.K.  I'm going to assume for present

  19   purposes that it is authentic.  I'm going to receive it

  20   subject to a motion to strike, if somebody can demonstrate to

  21   me that there's a real issue as to authenticity and the

  22   exhibit, just to be clear, is subject to the confidentiality

  23   order in this case.  It is going to be under seal.

  24            Now, that's so long as there's no application to open

  25   it.  And if there's an application to open it, obviously the




                                                                485



   1   DVD-CCA whose interests are those that are involved has to be

   2   given notice of the application.

   3            MR. GARBUS:  I would just ask, as I mentioned before,

   4   page A-1.  I would just ask the question and I don't care

   5   whether the question is answered by this witness in open court

   6   or Mr. Gold, and I can stipulate to the answer, but I'll just

   7   ask the question which I don't think creates an issue, namely,

   8   how many separate licenses are issued by the CSS in order to

   9   allow -- in other words, to which part as we talked about

  10   before, movie studios, replicators and hardware manufacturers,

  11   how many different kinds of licenses are issued to control the

  12   entire process.

  13            If you know that, fine.  Don't look at the document.

  14   Do you know that?

  15   A.  I just looked at the document, but I certainly didn't know

  16   before I looked, I didn't remember.

  17            MR. GARBUS:  Perhaps Mr. Gold and I can discuss that.

  18            THE COURT:  I hope so.

  19   Q.  Now, before you mentioned the Home Recording Rights

  20   Coalition, that's funded by the consumer electronics industry?

  21   A.  I believe so.  I don't really know.

  22   Q.  Now, picking up on your narrative, if I can remember where

  23   it was, when does the DVD-CCA come into existence, if you

  24   know?

  25   A.  I wasn't participating in these meetings any longer when




                                                                486



   1   they came into existence, so I believe it's been in existence

   2   around a year.

   3   Q.  And let me, just getting away from the contracts, see if I

   4   can understand something.  If I go into Tower and buy a Warner

   5   Brother DVD, give me the name of a film that Warner Brothers

   6   makes so we can make it more specific.

   7            THE COURT:  It would have to have Tom Hanks and Meg

   8   Ryan.

   9   A.  "Matrix."  "You've Got Mail"; it's our movie.

  10            MR. GARBUS:  We'll use the judge's movie.

  11   Q.  "Sleepless In Seattle"?

  12   A.  Not our movie.

  13   Q.  Sorry.  "You've Got Mail."  If I go in, am I authorized by

  14   Warner Brothers from whom I buy it to look at that DVD?

  15   A.  Sure.

  16   Q.  Am I authorized by Warner Brothers to -- with respect to

  17   that DVD to somehow break it down so that I can look at it in

  18   my video box?

  19            THE COURT:  What's a video box?  What do you mean by

  20   that?

  21            MR. GARBUS:  Video player.

  22            MR GOLD:  Your Honor, I object to the question.

  23            THE COURT:  Sustained.

  24   Q.  Am I authorized by Warner Brothers to make a copy of that

  25   DVD?




                                                                487



   1   A.  No.

   2   Q.  Am I authorized by Warner Brothers to take that DVD to an

   3   unauthorized player, one that does not have a contract with

   4   the DVD-CCA?

   5            MR GOLD:  Your Honor, I cannot understand the

   6   relevance of this line.  He may be planning other lawsuits,

   7   but I don't understand the relevance to this one.

   8            THE COURT:  Look, Mr. Garbus, it seems to me that

   9   what this is beginning to sound like is the start of a debate

  10   between you and the witness about what the Copyright Act

  11   permits the buyer of a copyrighted work to do with it.

  12            If that's what it is, that's a debate that you and

  13   Mr. Gold will have and I will decide.  It's a legal question.

  14   And it's not a matter for testimony.  If it's something else,

  15   I don't perceive what it might be.

  16            MR. GARBUS:  It's not a debate.  I just want to find

  17   out the facts as Warner Brothers understands it.

  18            THE COURT:  So, you want Warner Brothers'

  19   understanding of what the Copyright Act provides?

  20            MR. GARBUS:  No.  I want to know, she stands there on

  21   behalf of Warner Brothers.  And I want to know if I can

  22   whether as she -- in my contract, if you will, when I buy this

  23   from Tower, can I play this on any player, anywhere, anywhere

  24   in the world?  That's what I want to know.

  25            THE COURT:  The objection is sustained.




                                                                488



   1            The law is what it is.  And arguing with the witness

   2   about it, even in an entirely amicable way is not an

   3   appropriate part of this trial.

   4            MR. GARBUS:  Well, it seems to me, and I'm not going

   5   to press it, and I say this amicably that it's a way of

   6   getting at least the facts in with respect to -- unless we can

   7   stipulate.

   8            THE COURT:  But the facts are perfectly obvious.

   9   There is no contract between Warner and the ultimate consumer.

  10   Warner sells the disks to whomever they sell them to.  Tower

  11   buys them from somebody.

  12            Tower then sells the disk to you or to whomever else

  13   and whatever rights you acquire beyond the naked ownership of

  14   the project, the hunk of plastic that constitutes the disk is

  15   a function of the Copyright Act and the DMCA and whatever

  16   other legislation is appropriate.

  17            MR. GARBUS:  Excuse me.

  18            THE COURT:  It's not a factual matter.

  19            (Pause)

  20   BY MR. GARBUS:

  21   Q.  What is the public position that Warner has taken with

  22   respect to whether or not one can make copies of DVDs for

  23   personal use?

  24            MR GOLD:  Your Honor, I think that's been asked and

  25   answered already.




                                                                489



   1            THE COURT:  I don't remember it.  Overruled.

   2   A.  You can't make a copy.

   3   Q.  Now, if I buy a DVD in New York, can I play it -- a Warner

   4   DVD in New York, can I play it in France?

   5            MR GOLD:  Your Honor, I object to the question.

   6            THE COURT:  Why is it relevant, Mr. Garbus?

   7            MR. GARBUS:  The answer is "I can't."

   8            THE COURT:  The answer is you can't explain why?

   9            MR. GARBUS:  No, the answer is "I cannot."  In other

  10   words, I can buy a Warner disk on a licensed player for a

  11   licensed player.  If that licensed player is in Europe rather

  12   than in the United States, I can't play the disk, and that's

  13   the fact I was trying to get at.

  14            So, Warner Brothers is selling me a disk because of

  15   the licensing agreements that I can only use in certain areas.

  16            THE COURT:  Well, look, Mr. Gold --

  17            MR GOLD:  Again, your Honor, it's irrelevant to this

  18   case.

  19            THE COURT:  I have heard no explanation to the

  20   relevance and I also think, though I know what you are driving

  21   at, Mr. Garbus, that you haven't even stated it accurately.

  22            Certainly as I understand the facts, if you have a

  23   DVD player that you purchased here in the United States and a

  24   DVD that you purchased here in the United States and you took

  25   both to France and plugged the transformer into the wall to




                                                                490



   1   convert the current so that your DVD player didn't explode

   2   when you plugged it in, you could play it.

   3            MR. GARBUS:  That's correct.

   4            THE COURT:  I still haven't heard an explanation of

   5   why this is relevant.

   6            MR. GARBUS:  It seems to me, again, it goes to the

   7   antitrust issue.  But I'll move on.

   8            THE COURT:  Go ahead.

   9   Q.  I think that the DMCA has a section on authorization and

  10   what authorization means and the question then is when Warner

  11   "authorizes" the buyer of its DVDs, the question is what are

  12   the limitations in that authorization?

  13            You may say that's just a question of law.  I think

  14   we can all agree fundamentally as to the facts and let me just

  15   state what I understand the facts to be.  The facts as I

  16   understand it -- let me ask you a question.  This a better way

  17   to do it:

  18   Q.  Ms. King, the DVD-CCA consortium requires every maker of a

  19   DVD player that wants to play a DVD to sign a license, is that

  20   right?

  21   A.  That's correct.

  22            MR GOLD:  Your Honor, again, this is part of the very

  23   same irrelevant line of questioning.

  24            THE COURT:  Overruled, for the moment.

  25   Q.  And the CSS licensing technologist includes, does it not,




                                                                491



   1   restrictions on what features a DVD player can offer to the

   2   public?

   3   A.  To the best of my recollection, that's right.

   4   Q.  Is there anything so that without that CSS licensing

   5   technology, you couldn't have a DVD player that plays a DVD

   6   that can do things that the license would not otherwise

   7   restrict it to?

   8            MR. GOLD:  Objection as to form, your Honor.

   9            THE COURT:  I don't understand the question, Mr.

  10   Garbus.  Sustained as to form.

  11   Q.  So that if you had a DVD player that could play a DVD, it

  12   is the license that restricts what that DVD player can do, is

  13   that right?

  14            MR GOLD:  Your Honor, again, I object as to form and

  15   irrelevance.

  16            THE COURT:  Sustained as to form, at least.

  17   Q.  Let me put it this way:  If you previously said, and you

  18   correct me if I'm wrong, that the CSS license and technology

  19   includes restrictions on what features a DVD player can offer

  20   to the public, is that right?

  21   A.  Well, that's putting it a bit more broadly.  It has

  22   certain --

  23            MR. GARBUS:  We are getting into areas now that

  24   concern me because of the confidential nature of the document

  25   and I'm not sure --




                                                                492



   1            THE COURT:  Look, the document speaks for itself.

   2   Whatever it says, it says.

   3   Q.  So that --

   4            MR. GOLD:  Your Honor, I believe that Mr. Garbus

   5   needs to wait for the witness to finish speaking before he

   6   makes a speech about why he's asking the question.

   7            THE COURT:  Look, Mr. Gold that's not helpful.  Thank

   8   you.  Next question?

   9   Q.  So, with Time Warner music, you can make personal copies

  10   of the music, but with respect to Time Warner movies, you

  11   cannot make personal copies, is that right?

  12   A.  Time Warner --

  13            MR GOLD:  If I may, I object to that question because

  14   I believe it calls for a legal conclusion.

  15            THE COURT:  Objection sustained.

  16            It's also argumentative.  There are two different

  17   statutes, two different technologies.

  18   Q.  Do you know -- is Warner Brothers as a result of the DeCSS

  19   making any plans to stop releasing DVDs?

  20   A.  Not that I know of.

  21   Q.  And with respect to the various security systems and

  22   encryption systems, do you have any idea when they can be put

  23   into place?

  24   A.  It's my understanding currently that with respect to

  25   digital transmission protocols that we are very close.  With




                                                                493



   1   respect to water marking, that although there has been some

   2   delay due to a conflict between two different proposals, that

   3   they're working on blending the proposals so we can have a

   4   water marking solution, and I'm not familiar with the status

   5   of any upgrade for CSS.  I know there were discussions, but I

   6   don't know the results.

   7   Q.  Now, you say with respect to digital transmission, they're

   8   very close.  Can you tell me what that means?

   9   A.  In the CSS license, if you took a CSS license, you weren't

  10   allowed to transmit the materials out of a digital port until

  11   there was proper copy protection.  There is a group called 5C;

  12   "5C" stands for five companies, the leader of which -- the

  13   leaders of which are IBM and Hitachi -- not IBM, excuse me --

  14   Intel and Hitachi.  I've got this confused -- let me go back.

  15            In 5C, Intel, Matsushita, Toshiba, Sony and one other

  16   company, I don't remember, have come up with a protocol and

  17   they have been negotiating with the motion picture industry on

  18   how this would work for some time and I believe they're

  19   getting very close.

  20            THE COURT:  Close to what?

  21            THE WITNESS:  To finalizing an agreement so that the

  22   digital ports can be opened up with a certain encryption

  23   protection so that materials can be transmitted from one

  24   digital media to another.

  25   Q.  And when you say, "very close," we talked about this month




                                                                494



   1   or next month?

   2   A.  Well, it's always hard to predict these things.  I know

   3   there was a meeting last week and they've been working on this

   4   for an extremely long time, probably a year.

   5            THE COURT:  This meeting is not at Camp David; is it?

   6            THE WITNESS:  It's equally as contentious, I think.

   7   I know that it's a drawn-out process.  My estimate would be

   8   within the next couple of months, it will be finalized.

   9            We have real time frames to do this in, because if

  10   this protocol is going to have significant meaning to this

  11   industry, we need to have it in things in set top boxes and I

  12   don't pretend to be an expert in this area, but I know the

  13   studios and the MPAA have been working with the FCC and with

  14   the cable industry to try to make an overall protocol where

  15   our content is protected.

  16            So, I know there are real time frames that are set by

  17   the Federal Government in this regard as well.

  18   Q.  So, the only thing -- the technology is there, is that

  19   right?

  20   A.  The technology, I believe, is there; yes.

  21   Q.  And the technology has been there for how long?

  22   A.  I don't know.

  23   Q.  A year?

  24   A.  They're constantly working on the technology and I

  25   wouldn't want to speculate.  I don't know.




                                                                495



   1   Q.  For the reason that it hasn't yet become operative is

   2   because the business negotiations surrounding that technology

   3   have not yet concluded, is that right?

   4   A.  That's right.  It's a very complicated negotiation.

   5   Q.  And what would be the effect of that digital technology

   6   with respect to the security for DVDs?

   7   A.  Well, it would protect our product when it's transmitted

   8   from one digital domain to another.

   9   Q.  And had there been an agreement between the parties on the

  10   economics, this could have been done a year ago, is that

  11   right?

  12            MR. GOLD:  I object to the question.

  13   A.  Excuse me.  It has nothing --

  14            MR. GOLD:  I object to the question, your Honor;

  15   calling for speculation.

  16            THE COURT:  Sustained.

  17   Q.  Do you have -- have you ever seen any documents concerning

  18   this digital technology and when it first became operative?

  19   A.  I don't remember seeing those documents.  I came into

  20   these negotiations, again -- I left the multi-industry

  21   negotiations.  They were turned over to Dean Marks a couple of

  22   years ago, who works for Time Warner.

  23            I started participating again in an effort to speed

  24   up the process around October or November of last year.  So, I

  25   have been there on an as-needed basis since then.




                                                                496



   1   Q.  So, as I understand it, and if I'm wrong, correct me

   2   because I'm less technical than you are, that this particular

   3   technology would stop the transmission, let's say, of a movie,

   4   a DVD movie over the Internet, is that right?

   5   A.  I don't want to characterize the technology.  I just don't

   6   know and I don't -- I don't want to speculate.

   7   Q.  Let me ask you a question:  Hasn't there been a technology

   8   that has been available for a year that stops the transmission

   9   of DeCSS deconstructed movies over the Internet?

  10   A.  I have no knowledge.

  11            MR GOLD:  Your Honor, I object to the question.

  12            THE COURT:  The witness doesn't know.

  13   Q.  Who would know at Warner Brothers?

  14            MR GOLD:  On top of that, your Honor, this is getting

  15   to the robustness and effective issue again and I think

  16   that --

  17            THE COURT:  It goes to the threat of irreparable

  18   injury, too.

  19            MR GOLD:  What's that, sir?

  20            THE COURT:  It's going to the threat of irreparable

  21   injury, too.

  22            MR. GARBUS:  I'd like to go to the bench on this, if

  23   I may, so I'm not saying it before the public.

  24            THE COURT:  No.  Go ahead.

  25            MR. GARBUS:  Pardon me?




                                                                497



   1            THE COURT:  Say what you have to say.

   2            MR. GARBUS:  It also shows that a year ago, they knew

   3   of the problem.  They could have stopped it, and that they

   4   couldn't work out their business arrangements with respect to

   5   it.

   6            THE COURT:  That may be your contention, but it

   7   certainly doesn't show that.

   8            MR. GARBUS:  That's what we are going to try and

   9   prove and that's what we tried to prove through discovery

  10   which we never finished.

  11            THE COURT:  I'm not rising to that fish on the

  12   surface either.

  13   Q.  Now, Ms. King, tell me who at Warner Brothers knows about

  14   this digital technology?

  15            MR GOLD:  Which digital technology?

  16   Q.  How about a Mr. Cookson, do you know that name?

  17   A.  Yes, I do.

  18   Q.  Has Mr. Cookson ever been deposed in this case, to your

  19   knowledge?

  20   A.  I don't believe he has.

  21   Q.  Who is Mr. Cookson?

  22   A.  He's an executive vice-president and chief technology

  23   officer for Warner Brothers.

  24   Q.  And where is he located?

  25   A.  In Burbank, California.




                                                                498



   1   Q.  And is he the person at Warner Brothers who would be most

   2   familiar with this digital transmission technology?

   3   A.  Yes.

   4   Q.  How long -- and what is his background?

   5   A.  He's an engineer.

   6   Q.  How long has he been working on it?

   7            MR GOLD:  Your Honor, if I may object to this line of

   8   questioning about depositions and what they've been able to

   9   take.

  10            They never asked for the deposition of this

  11   gentleman, although they knew his name and title for a long

  12   time, they never asked.

  13            THE COURT:  O.K.

  14   Q.  Are there any documents, to your knowledge, at Warner

  15   Brothers that deal with the digital transmission technology?

  16            MR GOLD:  I object to the form of the question, your

  17   Honor.

  18            THE COURT:  Look, Mr. Garbus, what's the difference?

  19   One of the points you have spent a good deal of time trying to

  20   make is that CSS was only as good as whatever period of time

  21   it would take somebody to crack it.  Presumably that is true

  22   of this technology, just like the Japanese naval codes in the

  23   war, with all due respect to my colleague, just like our own

  24   codes that other people are reading.  Life is that.  Nothing

  25   is perfect.




                                                                499



   1            MR. GARBUS:  I can only deal with this case and in

   2   this case, I believe the evidence is clear that they could

   3   have stopped if they had wanted without changing -- I won't

   4   argue it because it's obvious -- and that goes to the question

   5   of harm and it goes to the other legal questions.

   6            THE COURT:  Look, if I understand you correctly, the

   7   net of your position is that people are free, notwithstanding

   8   an act of Congress, to circumvent technological measures

   9   because there's always another technological measure that

  10   could be used with which the particular mode of circumvention

  11   doesn't work ad infinitum.

  12            MR. GARBUS:  That's not my argument.

  13            THE COURT:  Well, I think it is.

  14            MR. GARBUS:  It's too intellectual for me.  I'm only

  15   dealing with this particular case.

  16            THE COURT:  Well, sir, it is this case.  It goes to

  17   the question of the relevance in this lawsuit of whether there

  18   were other protective means available to them.  It is, as I

  19   see the statute, no defense to a charge of circumventing a

  20   means of protection, No. 1, that there may be another means of

  21   protection available.

  22            MR. GARBUS:  I think, and I don't know that this is

  23   the time for that debate, and I think I'd rather not get into

  24   it, but I think there is an appropriate response which we

  25   should make at an appropriate time, but I think for now,




                                                                500



   1   unless you preclude me, I would like to prove that a year ago

   2   they were -- the industry was perfectly capable of stopping

   3   any damage from this particular type of circumvention.

   4            And I'm not now dealing with whether or not the

   5   ultimate issue about whether this is an appropriate

   6   circumvention or inappropriate, because I think that you get

   7   into all of the balancing issues that are involved in the

   8   First Amendment and other issues.

   9            I don't think, and I think the Court disagrees with

  10   me, that you can take this and totally -- and I'm not

  11   suggesting the Court has done that -- not look at the other

  12   values.  In Sony v. Betamax and Sega v. Accolade, and the

  13   Connectix case, everybody recognizes that there is some degree

  14   of infringement.  And in Sony v. Betamax, the movies industry

  15   said, there would be a great deal of infringement.  And they

  16   were fundamentally correct, nonetheless the Court came to the

  17   conclusion that it did.

  18            Now, one can interpret --

  19            THE COURT:  Under a totally different statute.

  20            MR. GARBUS:  Yes.  So, one can suggest that the DMCA,

  21   and that is a legitimate argument which I disagree with, has

  22   rendered Betamax, Sega, Connectix not applicable to these

  23   technologies, that is an argument and that is an argument I

  24   think that we are prepared to deal with.

  25            But I think that what I would like to be able to do




                                                                501



   1   is to get into the whole question of proof about -- and we

   2   were not permitted, and I won't go back into discovery, but we

   3   have not done that.  We have not shown that the only reason

   4   that there is any possibility of any future economic harm,

   5   assuming DeCSS does everything that they say it does, they

   6   chose not to put into place technology that existed a year

   7   ago.

   8            You may find that irrelevant.  I think I'm entitled

   9   to get into it, getting --

  10            THE COURT:  You have gotten into it and I think what

  11   you have established through this witness is that she doesn't

  12   know.

  13            MR. GARBUS:  Well, then we get into the other issues

  14   about -- and I don't want to put that on the table now, but it

  15   is an issue for me, where are the witnesses who know and how

  16   do we get that proof?

  17            That is an issue, I think, for another time and that

  18   goes back to some of the other issues we have been discussing.

  19   We have never had access to that information.  They can claim

  20   that we never sought it.  I don't think we have to go through

  21   that whole thing again either.

  22            (Continued on next page)

  23

  24

  25




                                                                502



   1            THE COURT:  Do you have another question for the

   2   witness?

   3            MR. GARBUS:  I do.

   4            THE COURT:  Put it, please.

   5   BY MR. GARBUS:

   6   Q.  Now, prior to the DVD-CCA, were there other entities

   7   issuing licenses?

   8   A.  Matsushita issued licenses for a long time before the

   9   DVD-CCA, an interim license.

  10   Q.  Why was Matsushita issuing licenses?

  11   A.  Because they were the developer of CSS.

  12   Q.  They owned CSS.

  13   A.  Yes, along with Toshiba.

  14   Q.  Now, do you know when Matshushita first developed CSS?

  15   A.  No.

  16   Q.  Do you know, did they do it in collaboration with Toshiba

  17   or independently?

  18            MR. GOLD:  Your Honor, I object on the basis of

  19   relevance.

  20            THE COURT:  Sustained.

  21   Q.  Was the DVD-CCA permitted --

  22            MR. GOLD:  Your Honor, I object on relevance.

  23            THE COURT:  Sustained.

  24            MR. GARBUS:  May I make an offer of proof?

  25            THE COURT:  You can make the offer of proof in open




                                                                503



   1   court.

   2            MR. GARBUS:  That the DVD-CCA was created by the

   3   people who owned CSS to create a monopoly with respect to the

   4   movie companies and the hardware manufacturers with respect to

   5   the use of DVDs, that this entire monopoly was created so that

   6   you could not make copies as Sony Betamax said you could of

   7   things that you had purchased at the store by yourself for

   8   your personal use.

   9            THE COURT:  You think the witness is going to testify

  10   to that, right, Mr. Garbus?

  11            MR. GARBUS:  No, I don't think so.

  12            THE COURT:  An offer of proof, Mr. Garbus, is not

  13   supposed to be counsel's imagination of what counsel alleges.

  14   It is supposed to be what you think the witness would answer

  15   if permitted to answer.

  16            MR. GARBUS:  I understand.

  17            THE COURT:  So, we will do it this way.  I sustain

  18   the objection, and I will give you five minutes to make your

  19   offer of proof through the witness.  Let me know when you are

  20   done with the offer of proof.

  21            MR. GARBUS:  I believe that this witness will be

  22   called upon to testify --

  23            THE COURT:  Make it through the witness.  Ask her.

  24   We will not have speculation about what she would say.  We

  25   will get her answers, I'll rule it out, and if after hearing




                                                                504



   1   your answers I think it's relevant, I will reverse my ruling.

   2            MR. GARBUS:  I'm not sure where we are.

   3            THE COURT:  Go ahead and ask your question.  You have

   4   five minutes to develop this point through this witness, the

   5   point on which I've sustained the objection.

   6            MR. GARBUS:  Can I hear my question again.

   7            (Record read)

   8            THE COURT:  Go ahead and answer, Ms. King.

   9   A.  I don't really know.  I know when Matsushita brought CSS

  10   to the multi-industry negotiations, that they said it had been

  11   developed by them in collaboration with Toshiba.  That's all I

  12   know.

  13   Q.  When you say the multi-industry negotiations?

  14   A.  They brought it to the Copy Protection Technical Working

  15   Group which was open to all parties who wanted to come.

  16   Q.  And these were the consumer electronics groups and the

  17   motion picture industry?

  18   A.  And the computer industry and anyone else who wanted to

  19   attend, like the Home Recording Rights Coalition.  I mean lots

  20   of parties were there.

  21   Q.  And as a result of that, the DVD-CCA or its predecessor

  22   was created.

  23   A.  Yes.

  24   Q.  And the purpose of that was to have that organization

  25   issue the licenses for anybody who would make movies that




                                                                505



   1   would use the encryption system, work as replicators, who

   2   would press out the DVD itself, or have the hardware that

   3   would show the DVD.  Is that right?

   4   A.  If you want to get the keys to decrypt our encrypted

   5   movies, you had to get a license to get those keys and play by

   6   the rules.  It's as simple as that.

   7   Q.  Tell me what the rules are.

   8            THE COURT:  They are in the license, Mr. Garbus.  We

   9   have been through that.

  10            MR. GARBUS:  Okay.

  11   Q.  Are there any rules outside of the license?

  12   A.  Not that I know of.  I mean, you know, it's a complicated

  13   process.  In order to play a DVD you have to comply with the

  14   DVD specifications so that the machines are compatible with

  15   the disks.  I mean there are lots of things you can and can't

  16   do.  It's not simple but, you know, products are manufactured

  17   all the time that have to agree with certain standards and

  18   certain quality standards, as well as if you want to play

  19   movies you adhere to that standard.

  20   Q.  Isn't it also a fact that the technology has been

  21   developed so that merely by adding a small addition to the

  22   hardware you can play DVD movies with a different security

  23   system?

  24   A.  I have never heard of that.

  25   Q.  Have you ever heard of any attempts to develop that,




                                                                506



   1   namely keeping the hardware out there but just through some

   2   small addition making it safe to play DVD movies?

   3   A.  I'm not sure I understand your question.

   4   Q.  You testified before that to pull back the DVD movies or

   5   to go and change the encryption system would render useless

   6   all the hardware that's out there, is that right?

   7            MR. GOLD:  Your Honor, is this yet not going back to

   8   robustness?  It sounds that way.

   9            THE COURT:  I don't think that's what it is actually.

  10   A.  Yes, if you put a new encryption system onto our disks and

  11   it wasn't backwardly compatible, then you would have the

  12   problem of the installed base of consumer electronics and

  13   computer products that are out there, and that's a major

  14   problem.

  15   Q.  And has there been research at Warner Brothers and the

  16   other major studios that had to deal with that problem?

  17   A.  I know that the motion picture studios went to Matsushita

  18   immediately after we heard about DeCSS and said would you work

  19   on something to help us upgrade this that would not obsolete

  20   the players.  I know they went ahead and tried to do that.  I

  21   don't know the results of those discussions at this time.  I

  22   know that it was difficult.  It wasn't an easy thing to do

  23   without obsoleting the players that were already out there.

  24   Q.  Isn't it a fact -- and you tell me if I'm wrong -- that

  25   Matsushita and Toshiba came back to the movie companies with a




                                                                507



   1   solution to that problem back in May?

   2            THE COURT:  May of what year?

   3            MR. GARBUS:  This year.

   4            THE COURT:  2000?

   5            MR. GARBUS:  Yes.

   6   A.  I don't remember.  I mean they may have.  I'm not saying

   7   they didn't.  I know they were asked to, so it's very likely

   8   they could have, but I don't know what that solution is, and I

   9   wasn't attending all of those meetings.

  10   Q.  Who at Warner Brothers would know that solution?

  11   A.  I'm not sure anyone would know the solution, but the

  12   persons that attend those meetings on a regular basis are

  13   Chris Cookson from -- I mean we put our most senior technology

  14   experts on these committees.  That's how important Warner

  15   thinks this is.  Chris Cookson and Dean Marks, who is a senior

  16   intellectual property counsel for Time Warner, these are

  17   senior people.  Warner takes this quite seriously.

  18            MR. GARBUS:  Now, I don't think we have to get into

  19   here again questions of discovery, documents or depositions of

  20   these witnesses.  I presume we can do that at some time before

  21   the bench rather than get into that hassle now.

  22            THE COURT:  Okay.  Are at the end of your offer of

  23   proof?

  24            MR. GARBUS:  Excuse me, no.

  25   Q.  Who owns CSS at the moment?




                                                                508



   1   A.  I don't know if it's Matsushita or DVD-CCA.  I just don't

   2   know.  But it's either a combination of Matsushita and Toshiba

   3   or they have transferred it to the DVD-CCA, and I don't know

   4   the answer to that question.

   5   Q.  Can you tell me why it was transferred?

   6   A.  No.

   7   Q.  Do you know if the movie industry paid any price for that

   8   transfer?

   9            MR. GOLD:  I object to the form of that question.

  10            THE COURT:  There is nothing wrong with the form.

  11   Overruled.

  12   A.  No, I don't know.

  13   Q.  Do you know if any of the consumer electronics hardware

  14   manufacturers like Panasonic or Pioneer paid for the price of

  15   that transfer?

  16            THE COURT:  First of all, the witness said she didn't

  17   know whether there was a transfer, so how could she answer

  18   what somebody paid or didn't pay for the transfer that she

  19   didn't know whether it occurred?

  20   Q.  Who would know that at Warner Brothers?

  21   A.  I don't know that anybody would know that at Warner

  22   Brothers.  I think you would have to ask Matsushita.

  23   Q.  Now, DVD-CCA at the present time is a conglomeration of

  24   companies, is that right?

  25   A.  There is a board that consists of some companies, yes.




                                                                509



   1   Q.  Which companies are they?

   2   A.  I know that Time Warner is now sitting on that board along

   3   with 20th Century Fox.  That's the representatives from the

   4   motion picture industry.  I believe it's Matsushita and

   5   Toshiba from the consumer electronics industry, and I believe

   6   it's Intel and Compaq from the computer industry, but I'm not

   7   sure about the IT companies.

   8   Q.  So let me just see if I can understand.  So, some of the

   9   people that own CSS are the hardware manufacturers and some of

  10   them are representatives of the movie studios.

  11            THE COURT:  She just got finished -- objection is

  12   sustained.  You keep going over and over and over, and the

  13   answer that she has given over and over and over is that she

  14   didn't know.

  15   Q.  Who would know that at Warner Brothers?

  16   A.  I just answered that question.  I don't know that anyone

  17   would know that at Warner Brothers.

  18   Q.  Does any of the income from the licensing to let's say a

  19   hardware player go back to Warner Brothers?

  20   A.  No.

  21   Q.  Where does the income go?

  22   A.  Let me just describe the income.  The income is a fee for

  23   the administration of the licensing.  Toshiba and Matsushita

  24   were kind enough to donate whatever intellectual property is

  25   contained in CSS.




                                                                510



   1   Q.  Kind enough to donate?

   2   A.  Yes, kind enough, because they could have asked for money

   3   on a continuing royalty basis, but they didn't, so this is

   4   basically a not-for-profit organization that runs the

   5   licensing.

   6            Now, they didn't do it out of the kindness of their

   7   hearts.  They wanted to sell consumer electronics products, so

   8   they wanted the motion picture studios to be comfortable

   9   having an encryption scheme, but they didn't charge for the

  10   intellectual property like other patent holders, etc. might

  11   charge.  So, it's just an administration fee that they charge.

  12   Q.  Is this a patent or a copyright on CSS?

  13   A.  I don't know.  Whatever intellectual property is in CSS,

  14   there is not a running royalty on it.

  15   Q.  So, as I understand it -- and tell me if I'm wrong -- and,

  16   Judge, if I'm misstating it -- Warner Brothers then, which

  17   make the movies -- and I don't know, did you say that Warner

  18   Brothers sit on the board of DVD-CCA?

  19   A.  Yes, Time Warner, I believe.

  20   Q.  So, Warner Brothers --

  21   A.  Well, maybe -- one or the other.

  22   Q.  -- Warner Brothers or one of the Time Warner companies --

  23   A.  Yes.

  24   Q.  -- sits on DVD-CCA?

  25   A.  Yes, this is very recent.




                                                                511



   1   Q.  And it is DVD-CCA that decides who gets the licenses let's

   2   say to the hardware, is that right?

   3   A.  As long as you provide a robust implementation, anyone can

   4   take a license to make software or hardware for decrypting

   5   CSS.

   6   Q.  And you pay the money?

   7   A.  Any party --

   8   Q.  And you pay the money?

   9   A.  That's correct, but the money is just an administration

  10   fee to provide for this licensing so everyone can get it.  I

  11   mean we have Chinese hardware companies and Chinese software

  12   companies, and we have companies from all over the world that

  13   have applied and received licenses from DVD-CCA.

  14   Q.  Has anybody ever been turned down?

  15   A.  I don't know that anyone has ever been turned down.

  16   Q.  Has anybody at Linux ever been turned down?

  17   A.  I don't know.

  18   Q.  Has anybody ever made an application but wanted to get

  19   permission or the license without paying the requested fee?

  20   A.  I don't know.

  21   Q.  Have there been any attempts, to your knowledge -- and if

  22   you know nothing about it, I don't want to pursue this line of

  23   inquiry -- any attempts to your knowledge to negotiate those

  24   fees, or is it an absolute set fee, the same one in every

  25   contract?




                                                                512



   1   A.  I don't know.

   2            MR. GOLD:  Your Honor, I hope that it's useful.  They

   3   took the deposition of Mr. Hoy, who runs DVD-CCA, for a day

   4   and a half, and they have all of this information.

   5            MR. GARBUS:  And the information -- well, I will

   6   withdraw that.

   7   Q.  Have there been any lawsuits that you know of brought by

   8   the motion picture studios, the MPA or anyone concerning Power

   9   Rippers?

  10            THE COURT:  Is this still part of your offer of proof

  11   or are we now done with that?

  12            MR. GARBUS:  I lost track.

  13            THE COURT:  We will deem it over.

  14            MR. GARBUS:  Unless I can re-think it and remember

  15   it.

  16   Q.  Do you know what rippers do, Power Rippers?

  17   A.  Just in general, just in general terms, that they by brute

  18   force try to rip up an encrypted product.

  19   Q.  After you sat in court for several days and you heard Mr.

  20   Shamos, Mr. Schumann, do you know whether or not the MPA

  21   brought any other lawsuits, or Warner brought any other

  22   lawsuits concerning any of these other utilities?

  23   A.  Not that I'm aware of.

  24   Q.  And to your knowledge, do any of those other utilities

  25   have any relationship to Linux?




                                                                513



   1            MR. GOLD:  Your Honor, this seems to be some defense

   2   I've never heard about, selective enforcement.

   3            THE COURT:  What's the objection?

   4            MR. GOLD:  Relevance.

   5            THE COURT:  Sustained.

   6   Q.  Have you had any conversations with anyone at Warner

   7   Brothers concerning the Linux system?

   8   A.  No.

   9   Q.  Do you know anything about the Linux system?

  10   A.  No, just that it's an open architecture system.

  11   Q.  Have you ever heard anything about the LiViD group before

  12   you came today?

  13   A.  Before I came to court this week?

  14   Q.  Yes.

  15   A.  No.

  16   Q.  Would you happen to know whether the MPAA since let's say

  17   January 1 has been keeping copies of the LiViD logs?

  18   A.  I have no idea.

  19   Q.  Have you never seen them?

  20   A.  No.

  21   Q.  And do you have any knowledge as you sit here today as to

  22   the growth of Linux in the market?

  23   A.  No.

  24            THE COURT:  How much more do you have for this

  25   witness, Mr. Garbus?




                                                                514



   1            MR. GARBUS:  I think I'm about a minute away or less.

   2            THE COURT:  Okay.

   3            MR. GARBUS:  Excuse me.

   4            (Pause)

   5   Q.  Now, you said that you were a member of the Copyright

   6   Protection Technical Working Group, is that right?

   7   A.  I attended quite a few of their meetings at the beginning.

   8   There was no membership.

   9            THE COURT:  Was the name Copyright Protection or Copy

  10   Protection?

  11            THE WITNESS:  Copy Protection.

  12            MR. GARBUS:  Technical Working Group.

  13   Q.  I show you document AV1.

  14            MR. SIMS:  AUI?

  15            MR. GARBUS:  It looks like AV1.

  16   Q.  Do you remember discussions at the Copy Protection

  17   Technical Working Group about the weakness of the CSS system?

  18   A.  I remember they discussed the strength of copy protection

  19   systems at the CPTWG, yes.  I don't remember a discussion

  20   about weakness.  I remember a discussion about is it strong,

  21   is it weak, you know.  They were analyzing the encryption.

  22   Q.  Look at the second page of that document, which is dated

  23   January 31, 1997.  Were you ever told that a college student

  24   had broken CSS back in January of 1997?

  25   A.  I don't remember being told that, no.




                                                                515



   1   Q.  Did you ever see that document before?

   2   A.  No.

   3   Q.  Did you attend the Copy Protection Technical Working Group

   4   meeting, if you can remember, back in January 31?

   5   A.  I don't remember.

   6   Q.  Do you remember any discussions in any of the meetings

   7   about the CSS having been broken in 1997?

   8   A.  No.

   9   Q.  As you look at the document, does that refresh your

  10   recollection, the third paragraph --

  11   A.  No.

  12   Q.  -- about any conversations that were had at the Copy

  13   Protection Technical Working Group meeting about the breaking

  14   of CSS?

  15            MR. GOLD:  Which paragraph are you referring the

  16   witness to?

  17            THE WITNESS:  I'm looking at paragraph 3.  I have

  18   never seen this before, but it seems like they are talking

  19   about the encryption.

  20            THE COURT:  No, the question to you is only whether

  21   looking at this refreshes your recollection as to whether you

  22   were involved or had any knowledge of conversations in the

  23   Copy Protection Technical Working Group about the breaking of

  24   CSS in 1997.

  25            THE WITNESS:  I don't remember any such knowledge.  I




                                                                516



   1   don't remember that.

   2   Q.  Look at the fourth page of that document headed

   3   "California Student Unscrambles Internet Code," when is the

   4   first time that you learned --

   5            MR. GOLD:  I don't see this on what is marked on page

   6   4 here, but you may be on another page.

   7            THE COURT:  On the fifth page.

   8            MR. GOLD:  Thank you, your Honor.

   9            THE WITNESS:  Okay.

  10            THE COURT:  The page 4 with the number 5 on it.

  11   A.  This is not a hack of CSS.

  12            THE COURT:  You have told us earlier, did you not,

  13   several times that CSS encrypted disks were first put into the

  14   marketplace by Warner in March of '97, right?

  15            THE WITNESS:  That's correct.

  16            THE COURT:  And is that accurate?

  17            THE WITNESS:  Yes.

  18            THE COURT:  And this memorandum is dated two months

  19   before the product was in the market, is that right?

  20            THE WITNESS:  That's right.

  21            THE COURT:  Let's move on.

  22   Q.  When for the first time did you learn that CSS was broken?

  23   A.  To the best of my recollection I learned about it in

  24   October of '99.

  25   Q.  Now, the Copyright Protection Technical Working Group was




                                                                517



   1   set up when?

   2   A.  I don't remember the exact dates.  '96 probably.

   3   Q.  And it was set up to deal with among other things DVD and

   4   DVD security.

   5   A.  Yes.

   6   Q.  And do you know when CSS or the 40 bit encryption code

   7   that later came to be put on DVDs was first released or made

   8   public?

   9   A.  Well, I don't think it has ever been made public.  That's

  10   why we have the licensing entity.  So, when they were finished

  11   and ready to license it, I don't know.  I do know it was

  12   before we released the product.

  13   Q.  So how many months, if you can tell me, if you know,

  14   before the product was released was information about the

  15   encryption code released?

  16            THE COURT:  If it was.

  17            MR. GARBUS:  If it was.

  18   A.  I don't think information about the -- I mean they made an

  19   announcement that they were licensing, I guess.  I really

  20   don't know.  I just know that Matsushita started licensing the

  21   product, that our replicator got a license and that we went

  22   ahead fairly quickly into the marketplace, because we had

  23   wanted to launch even sooner, so we were happy we had the

  24   encryption and ready to go.

  25   Q.  Do you know whether or not anybody at Warner Brothers or




                                                                518



   1   MPAA knew that even before they had released their product the

   2   code had been broken?

   3   A.  I don't believe --

   4            MR. GOLD:  I object to the question, your Honor.

   5            THE COURT:  Objection sustained.  It assumes facts as

   6   to which there is no evidence.  There is nothing before me to

   7   suggest that it was cracked at that point.

   8   Q.  Look at this document now, Exhibit AVI.  Is that the form

   9   of documents, executive summaries that are issued by the Copy

  10   Protection Technical Working Group meeting?

  11   A.  They don't issue summaries.

  12   Q.  You have never seen anything like this before?

  13   A.  No.  This looks to me not to -- well, I don't know where

  14   it came from.

  15   Q.  What if I tell you it came from the DVD-CCA files.

  16   A.  Well it may have come from the DVD-CCA files but the Copy

  17   Protection Technical Working Group didn't produce documents

  18   like the one attached to this.

  19            THE COURT:  I thought the document from the DVD-CCA

  20   all were stamped DVD-CCA.  Is that not correct?

  21            MR. SIMS:  This came from Sony, your Honor.

  22            THE WITNESS:  That makes sense.

  23            THE COURT:  Okay.  Let me make this simple, Mr.

  24   Garbus.  You are assuming, I take it based on your questions,

  25   that the reference in this document to a 40 bit common key




                                                                519



   1   encryption system is CSS.

   2            MR. GARBUS:  Yes.

   3            THE COURT:  Whether that is true or not is by no

   4   means clear, and the circumstances suggest -- though don't

   5   prove -- otherwise.

   6            Now, I imagine that there might be some relevant

   7   proof on whether they are the same, and even if they are not

   8   the same what the relevance of the cracking of a 40 bit key

   9   would be to the security of CSS, but I don't think a lawyer

  10   who does business affairs for a movie studio is a likely

  11   candidate to be able to give that kind of testimony.

  12   Q.  Can you tell me who at the MPAA might be able to give me

  13   that testimony?

  14   A.  I don't know --

  15            MR. GOLD:  I object to the question.  I'm not sure

  16   what testimony.

  17            THE COURT:  Yes, neither am I.  Sustained.

  18   Q.  Can you tell me whether or not there is anyone at Warner

  19   Brothers who has any information about the significance of the

  20   January break of a 40 bit encryption code to DVD and CSS?

  21            MR. GOLD:  Your Honor, I object to the relevance of

  22   that question.

  23            THE COURT:  Sustained.

  24            Look, Mr. Garbus, you have access to whatever experts

  25   you want in the area of encryption, and if you have some




                                                                520



   1   evidence to call on this, call it.

   2            MR. GARBUS:  Let me tell you what I don't have.  I

   3   don't have the documents.

   4            THE COURT:  You don't know if there are documents.

   5            MR. GARBUS:  That's true, and I never had the

   6   chance --

   7            THE COURT:  And, furthermore, I don't know that you

   8   don't have whatever documents that there are.

   9            We have already I believe once this morning had an

  10   incident -- or yesterday -- in which you claimed that you

  11   didn't have the documents, and it was proved you did.  I

  12   believe it had to do with the drafts of the documents that I

  13   believe Mr. Schumann was questioned about yesterday, or maybe

  14   this witness.  And after the whole Sturm und Drang that you

  15   didn't have the documents, it turned out they had been

  16   produced to you.

  17            Now, I am not faulting you.  I know trial lawyers are

  18   busy people and there are lots of documents, but I just can't

  19   accept as a given these assertions like that.

  20   Q.  Let me show you a document from Warner Home Video

  21   addressed to you.

  22            MR. GARBUS:  May I approach the bench?

  23            THE COURT:  Yes.

  24   Q.  Document SF, have you ever seen that document before?

  25   It's from you.




                                                                521



   1   A.  Yes.

   2   Q.  Addressing your attention now to the ninth page, which is

   3   designated "WB01462."  And the fist sentence under 2.2.2.  Do

   4   you see that sentence?

   5   A.  Yes.

   6   Q.  Who is Merdan?

   7   A.  I believe Merdan was an outside technology consulting firm

   8   that some of the motion picture companies, not including mine,

   9   had do an analysis of CSS, retained to do an analysis of CSS.

  10   Q.  Now, in addition to Merdan, was Macrovision also at some

  11   time asked to do an analysis of DeCSS?

  12   A.  I don't remember that.

  13   Q.  Do you know who Macrovision is?

  14   A.  Yes, I do.

  15   Q.  Who are they?

  16   A.  They make analog protection, analog copy protection, and

  17   they participated a lot in the Copy Protection Technical

  18   Working Group.

  19   Q.  And is Macrovision utilized on DVDs?

  20   A.  Yes, it is.

  21   Q.  How?

  22   A.  It's used to protect analog content through two systems,

  23   one called Automatic Gain Control, AGC, and something called

  24   color burst, I believe.

  25   Q.  Have you ever seen a Macrovision report dated November 15




                                                                522



   1   saying that the encryption system is weak, useless and,

   2   however, will not be of any use to hackers in making illegal

   3   copies?

   4            MR. GOLD:  Your Honor, is that a quote from the

   5   article?

   6            THE COURT:  I don't know what it is.

   7            MR. GOLD:  I object to the form of the question.

   8            THE COURT:  Sustained as to form.

   9   Q.  Looking at 2.2.2, it says the content scrambling scheme is

  10   relatively unsophisticated.  And this was furnished to Warner

  11   Home Video back in April 30, 1997, and it goes from you to

  12   Mr. Cookson.

  13            Did you and Mr. Cookson have any discussion about

  14   that sentence?

  15   A.  I can't recall whether we discussed this particular

  16   sentence.

  17   Q.  Did you have any discussion with him about the weakness of

  18   CSS?

  19            MR. GOLD:  Your Honor, clearly this goes to

  20   effectiveness, and I think that you blocked that area of

  21   inquiry, that you ruled on that area of inquiry yesterday.

  22            THE COURT:  What about that, Mr. Garbus?

  23            MR. GARBUS:  If you want, I will get away from it.  I

  24   think the issue --

  25            THE COURT:  That's not the point, Mr. Garbus.  The




                                                                523



   1   point is to respond to the objection.

   2            MR. GARBUS:  I think the objection is incorrect.  I

   3   think it's relevant whether or not the movie studios knew back

   4   in April of 1997 that DeCSS was unsophisticated and could be

   5   easily broken.

   6            THE COURT:  It's relevant for what purpose?

   7            MR. GARBUS:  Pardon me, I said DeCSS.  I think it's

   8   relevant in this case to show that they knew that this CSS

   9   could not control access to the product that they had.

  10            THE COURT:  Objection sustained.

  11            MR. GARBUS:  It also goes to the question I think of

  12   harm, namely if we show that they knew in 1997 that this

  13   encryption system was to be what I understand it, then if they

  14   suffered harm knowing that, then I think that's relevant to

  15   the question of the harm that they suffered.

  16            THE COURT:  So, in other words, if somebody put a

  17   crummy lock on their door and a burglar goes through it, there

  18   is no crime.  Is that your point?

  19            MR. GARBUS:  That's not what I'm saying.

  20            THE COURT:  Okay.  Objection sustained.

  21            MR. GARBUS:  Not what I'm saying.  A burglar is not

  22   dealing with the DMCA or copyright law.

  23            THE COURT:  No, the burglar is dealing with a penal

  24   law that says in substance you can't circumvent controls that

  25   limit access to your apartment, Mr. Garbus.




                                                                524



   1            MR. GARBUS:  Shall I then stop asking questions?

   2            THE COURT:  Mr. Garbus, I'm ruling on them one at a

   3   time.

   4   Q.  Directing your attention to the conclusions, let me read

   5   the conclusions to you.

   6            THE COURT:  She can read them herself.

   7   Q.  Read the conclusions under 4 and then afterwards the

   8   recommendations.

   9            Did you have any discussion with Mr. Cookson about

  10   those conclusions or recommendations?

  11   A.  I had a discussion --

  12            MR. GOLD:  Objection, your Honor.

  13            THE COURT:  Sustained.

  14   Q.  Do you know if any changes were ever made in the CSS

  15   system after you received these recommendations and

  16   conclusions from Merdan?

  17            MR. GOLD:  Your Honor, I think we are on the same

  18   subject.

  19            THE COURT:  Sustained.

  20   Q.  I show you Defendants' Exhibit BX.

  21            THE COURT:  How much longer do you expect to be with

  22   the witness?

  23            MR. GARBUS:  I think a little while.  I think that it

  24   may well be that -- well, I think a little while.

  25            THE COURT:  Can you define "a little while," Mr.




                                                                525



   1   Garbus?  At five to 12 you told me a minute or two.  It's now

   2   almost 12:30.

   3            MR. GARBUS:  I think beyond lunch.

   4            Your Honor, I move into evidence the Warner Home

   5   Video document dated April 30, 1997.

   6            MR. GOLD:  Your Honor, I object to that on the

   7   grounds of --

   8            THE COURT:  Which exhibit, Mr. Garbus?

   9            MR. GARBUS:  SF.

  10            THE COURT:  Do you include within your offer the

  11   attachments?

  12            MR. GARBUS:  Yes.

  13            THE COURT:  Mr. Gold?

  14            MR. GOLD:  I object on relevance grounds and on

  15   hearsay grounds.

  16            THE COURT:  Objection sustained as to both.

  17            The hearsay ruling applies to pages WB01637 through

  18   01644, and absent a showing that Ms. Zwilling of page 01636 is

  19   a Warner employee, it extends to that as well.

  20            MR. GARBUS:  Your Honor, you are ahead of me as

  21   usual.  I don't see -- oh, I see.  Excuse me.

  22   Q.  I show you --

  23            MR. SIMS:  I'm sorry.  We don't have the document.

  24   DX?

  25            MR. GARBUS:  BX.




                                                                526



   1            THE COURT:  B as in boy.

   2            MR. GARBUS:  May I approach the bench?

   3            THE COURT:  Yes.

   4   Q.  Does the one you have, Ms. King, have my scribblings on

   5   it?

   6            THE COURT:  No, that's the one you gave me.

   7            MR. GARBUS:  Let me give you a clean copy.

   8   Q.  Do you recall, Ms. King, that this document was shown to

   9   you at your deposition and that it was a memo to you?  Do you

  10   see your name on the third line of the document?

  11   A.  Yes, but I don't remember this from the deposition.  I

  12   thought it was a different article.

  13   Q.  It was marked at your deposition as K8 for identification.

  14   Do you remember seeing it?  Perhaps Mr. Gold and I can

  15   stipulate.

  16            THE COURT:  I don't see what the relevance of that

  17   particular point is.  Why don't you just ask your next

  18   question.

  19            MR. GOLD:  Your Honor, this says it was marked on

  20   July 10, and I don't think there was a deposition on July 10.

  21            THE COURT:  I don't care.  I don't care.  I assume

  22   Mr. Garbus has questions to ask her about the document other

  23   than who scribbled what on it in early July.

  24   Q.  Did you know that the people who were creating Linux --

  25   pardon me -- the people who were creating DeCSS were Linux




                                                                527



   1   programmers?

   2            MR. GOLD:  Can I have that question read back?

   3            (Record read)

   4            MR. GOLD:  Your Honor, I object.  There is no

   5   foundation for that.

   6            THE COURT:  Sustained as to form.  Do you want to

   7   rephrase it, counsel?

   8   Q.  Were you ever told or did you ever see a document that

   9   said that Linux programmers were working on DeCSS in order to

  10   create the DeCSS so that they could use DVDs on their

  11   machines?

  12            MR. GOLD:  Your Honor, I object on the grounds of

  13   relevance.

  14            THE COURT:  The question of whether the witness was

  15   told that by anyone I think is not relevant unless it was

  16   somebody at Time Warner.

  17   Q.  Let me ask you if you were asked and answered the

  18   following question at your deposition at page 228.

  19            THE COURT:  Just read it, please, Mr. Garbus.

  20   Q.  It's line 8.

  21         "Q.  Before you spend a long time reading it, let me

  22   just ask you, have you seen this before?

  23         "A.  Yes, I believe I have."

  24            Does that refresh your recollection as to whether or

  25   not --




                                                                528



   1   A.  I would have to look at the deposition, because I just

   2   don't remember this particular article.

   3   Q.  Well, I'm reading to you.

   4   A.  From the deposition, I understand that.  But is that what

   5   I was reading, this article?

   6   Q.  Yes.

   7   A.  Okay.

   8   Q.  Now, where did you get this article from?

   9   A.  Well, obviously -- I got it --

  10            MR. GOLD:  Your Honor, is there anything in the

  11   record about this witness getting this article?  I don't think

  12   so.

  13            THE COURT:  Well, it's addressed to her among others.

  14            THE WITNESS:  But I don't know that I got it.  I just

  15   don't know if they showed this to me at deposition.  Lewis

  16   Osterover showed this to me.

  17   Q.  Who is see?

  18   A.  He is our senior president of new media at Warner Home

  19   Video.

  20   Q.  Did you and Mr. Ostrover have any conversation about this

  21   article?

  22   A.  No.

  23   Q.  Is there any comment on the top of this document from

  24   Mr. Ostrover to you about the article?

  25   A.  There is a comment to all of us from him.




                                                                529



   1   Q.  And what does that say?

   2   A.  "This is a relatively rational take.  See particularly the

   3   last four paragraphs."

   4   Q.  Do you recall looking at the last four paragraphs?

   5   A.  I read a lot of articles when CSS was first hacked, so I

   6   probably read this as well.

   7            MR. GARBUS:  Your Honor, I can belabor the witness,

   8   but rather than do that, and to save time, this is an adoption

   9   by a Warner Brothers employee of his interpretation of the

  10   material of the article.  I move it into evidence.

  11            MR. GOLD:  Your Honor, I object on the grounds of

  12   hearsay.  That something is rational doesn't make it true or

  13   false.

  14            MR. GARBUS:  I offer it for what it's worth, for what

  15   it says and for his interpretation.

  16            MR. GOLD:  Hearsay, your Honor.

  17            THE COURT:  Given the limited nature of Mr. Gold's

  18   objection, I am going to receive the entire document.  The

  19   portion that says "Here is a relatively rational take, see

  20   particularly the last four paragraphs," is received without

  21   restriction.  The portion that consists of a retyping or a

  22   copy of what appears to have been a newspaper or other media

  23   report is received for the fact that it was said and for

  24   whatever inference ought to be drawn from this statement,

  25   particularly the last four paragraphs are a rational take.  In




                                                                530



   1   other words, the media report is not received for its truth

   2   but it is received to shed light on what Mr. Ostrover meant.

   3            MR. GOLD:  Your Honor, I also would like to object to

   4   it on the grounds that it relates to the robustness.

   5            THE COURT:  What about that, Mr. Garbus?

   6            MR. GARBUS:  I'm sorry.

   7            THE COURT:  He is now objecting on grounds of

   8   relevance.  Do you have anything new to say on that?

   9            MR. GARBUS:  Sure.  The sentences, I would have to

  10   read the sentences aloud to show why I think it's relevant.

  11   It would be the first sentence.  It talks about -- the article

  12   talks about who made DeCSS, which group made it.  It talks

  13   about why it took so long to DeCSS, because people have known

  14   about for so long.  It talks about the potential ramifications

  15   of the DVD industry and it says the impact probably -- I don't

  16   want to read it.  I think it's obvious.

  17            THE COURT:  I am going to receive it on the limited

  18   basis I indicated.  To the extent it goes to the robustness

  19   issue, you know my view.

  20            MR. GARBUS:  Thank you.

  21            (Defendants' Exhibit BX received in evidence)

  22            MR. GARBUS:  May I approach the bench?

  23            THE COURT:  Yes.

  24   Q.  I show you Defendants' Exhibit AUA.  I don't know if it's

  25   defendants.




                                                                531



   1            THE COURT:  What's the question?

   2   Q.  Have you ever seen this document before?

   3   A.  No, to the best of my knowledge, no.

   4   Q.  Do you recall meetings within Warner Brothers saying that

   5   a 40 bit encryption system is not the best we can do at this

   6   time?

   7   A.  No, I remember meetings where I heard from the computer

   8   industry and the consumer electronics industry that 40 bit

   9   encryption was the only one allowed to be exported under the

  10   U.S. export laws.

  11   Q.  Did anybody tell you that you could not apply for a

  12   license to get permission for a 56, a 58, a 65 encryption key?

  13   A.  I don't remember.

  14            MR. GOLD:  I object to this line on the grounds of

  15   relevance, which it is still in robustness and effectiveness.

  16            THE COURT:  Is that right, Mr. Garbus?

  17            MR. GARBUS:  I don't think so.  It seems to me what

  18   this shows is that -- and it happens to be the law, and I am

  19   prepared to go up there to talk about it -- do you want me to

  20   continue?

  21            THE COURT:  Yes, Mr. Garbus, continue.

  22            MR. GARBUS:  Oh, excuse me.

  23   Q.  Now, you are a lawyer, Ms. King.  Isn't it a fact --

  24            THE COURT:  No, I wanted you to continue on the

  25   objection.  Mr. Gold objected.  He said it goes to the




                                                                532



   1   robustness issue.  I asked you what your response was, and I

   2   don't know what your response is.

   3            MR. GARBUS:  It goes to the fact that they knew in

   4   '97 that the 40 bit encryption system was weak.  They knew

   5   that.  They could have gone to the government to get a

   6   license, easily obtainable, so that they could have built a

   7   56, 58 encryption system.

   8            THE COURT:  Sustained.

   9   Q.  Now, tell me when you had this conversation about a 40 bit

  10   encryption being as large as you could have before you went

  11   and sought an export license?

  12            MR. GOLD:  Your Honor, I object to the relevance.

  13            THE COURT:  Sustained.

  14   Q.  Ms. King, let me show you --

  15            MR. GARBUS:  May I approach the bench?

  16            THE COURT:  Yes.

  17   Q.  -- Exhibit ADT.  I direct your attention to the bottom

  18   right-hand corner, Fox.  Is Fox one of the people who made

  19   motion pictures?

  20   A.  Well, 20th Century Fox is.

  21   Q.  Have you ever seen any report that was given to Fox that

  22   points out that the CSS standard was totally inadequate for

  23   protection?

  24            MR. GOLD:  Your Honor, I object on relevance grounds.

  25            THE COURT:  Sustained.




                                                                533



   1   Q.  Is it your testimony, Ms. King, that you never heard in

   2   1997 anyone within the motion picture industry say that the

   3   CSS system was inadequate for protection?

   4            MR. GOLD:  Your Honor, same objection.

   5            THE COURT:  Sustained.

   6            MR. GARBUS:  Your Honor, if we could take our lunch

   7   break, I think I might be able to finish up after lunch in

   8   about ten minutes.

   9            THE COURT:  Okay.  2 o'clock.

  10            (Luncheon recess)

  11            (Continued on next page)

  12

  13

  14

  15

  16

  17

  18

  19

  20

  21

  22

  23

  24

  25




                                                                534



   1            THE COURT:  Before we start, is Mr. Young in the

   2   courtroom?

   3            I have had a request from a John Young at Cryptome

   4   for an approval of a live feed of proceedings from the court

   5   reporter who's doing the realtime for the purpose of receiving

   6   the transcript as it's generated to post on the Internet.

   7            I wanted to inform him, and if anybody is talking to

   8   him, you can tell him that the matter is under consideration,

   9   but it involves a whole series of complex issues that involve

  10   the court reporters' rights for being compensated for their

  11   work, the fact that the realtime transcript in this case,

  12   because of the technical nature of much of the time leaves a

  13   great deal to be desired, inasmuch as neither party has yet

  14   provided the court reporter with a glossary, at least so I

  15   have been told in the last five minutes, so the draft

  16   transcript is not what it would be if that had occurred.

  17            And thirdly, I need technical advice on the extent to

  18   which if at all connecting any outside computer by direct

  19   cable to the court reporters' equipment potentially gives

  20   access to my own equipment.

  21            And, lastly, there are U.S. judicial conference rules

  22   that prohibit electronic connections between computers that

  23   are on the Judiciary's network and anybody outside the

  24   judiciary and mine is on the judiciary's network.

  25            I will look into these matters, but it isn't going to




                                                                535



   1   happen in a matter of hours.

   2            MR. SIMS:  Your Honor, just -- we did provide a

   3   glossary yesterday morning to the male court reporter, and

   4   we'll try to find other copies.

   5            THE COURT:  All right.  Mr. Garbus, you may proceed.

   6            MR. GARBUS:  May we approach the bench?

   7            THE COURT:  Yes.

   8            (At the sidebar)

   9            MR. GARBUS:  This came up in a way shortly before

  10   lunch and maybe I can just get the Court's guidance on this.

  11            I see the statute here and then I see the licensing

  12   arrangements here.  And I see what the licensing arrangements

  13   do and the rights that they allegedly give or don't give.

  14            I don't see the DMCA and the licensing arrangements

  15   as one, seeing them as two separate things.  I see the DMCA as

  16   a boarder in the licensing arrangements and one of the things

  17   that the witness testified to was that the licensing

  18   arrangements cuts down on the rights that certain people would

  19   otherwise have.

  20            I would like to understand that further.  I think it

  21   has legal significance and I was trying to pose questions to

  22   the witness at the end of the morning that basically deal with

  23   this.  Now, I don't want to do that, if you feel that that's

  24   not an area that I should pursue.

  25            For example, I would ask a question:  If I can build




                                                                536



   1   a DVD player physically capable of playing a Warner Brother's

   2   disk which I have purchased without signing the license with

   3   DVD-CCA, is it Warner's policy or position that I am permitted

   4   to play it?

   5            She answered before, I think, that anything that you

   6   buy from Warner Brothers and can play on any disk on any

   7   hardware player.

   8            Now, if that's so, then is it is Warner brother's

   9   position that you can even play it on a player which does not

  10   have a license from the DVD-CCA.  In other words, I'm trying

  11   to deal with the question of the relationship between the

  12   licensing statute and the DMCA to see exactly who is

  13   prohibiting what is happening here.  I think one of the words

  14   that you've been focusing on appropriately is "authorized" and

  15   "unauthorized."

  16            THE COURT:  I don't think I have focused on that in

  17   the course of the trial so far at all.

  18            MR. GARBUS:  O.K.  I guess it seems to me that as I

  19   understand the licensing structure here, it is the licensing

  20   structure that authorizes or doesn't authorize, it brings

  21   about this lawsuit.

  22            As I understand it, though I'm not clear, I think the

  23   plaintiffs are suing pursuant to their licensing arrangements

  24   against this defendant and the question is whether or not

  25   because those are the rights, I presume, that they have.




                                                                537



   1            The thing that's in issue here is the CSS.  And the

   2   question is, I asked the witness, is this a patent or a

   3   copyright?  I'm not exactly -- I think she wasn't sure.  If

   4   it's a patent, it's been published, so there's nothing unusual

   5   about knowing the structure of CSS.

   6            I'm just raising a lot of questions that should

   7   become apparent as a result of this morning's questioning.

   8   Having said that, let's all go home.

   9            THE COURT:  Well, I will vote for that.  I don't know

  10   what the question is, Mr. Garbus.

  11            MR. GARBUS:  Here's the question:  If I can build a

  12   DVD player physically capable of playing a Warner Brother's

  13   disk, which I've lawfully purchased without signing the

  14   license with DVD-CCA, is it Warner's position/policy that I am

  15   permitted to play it?

  16            THE COURT:  And Mr. Gold, if he asked that

  17   question --

  18            MR. GOLD:  I would object.  I would object to the

  19   relevancy of it.

  20            THE COURT:  And I will sustain the objection.

  21            So, you can ask it, if you want and I will sustain

  22   the objection.

  23            MR. GARBUS:  I'm certainly not going to ask it.

  24            Let me go through another whole bunch of questions.

  25            THE COURT:  Let's not do that.  I'm not here to give




                                                                538



   1   an advisory opinion about what happens.  If you want to ask

   2   the witness questions, ask the witness questions, and let's

   3   get it done with.

   4            You promised me almost two hours ago you had a minute

   5   to go.  I realize a lot of that has been lunch.

   6            (In open court)

   7            THE COURT:  Go ahead, Mr. Garbus.

   8   BY MR. GARBUS:

   9   Q.  One thing I wasn't clear with respect to CSS.  I asked you

  10   whether it was a patent or a copyright.  Do you recall what it

  11   is?

  12   A.  No, it may be both.  I don't know.

  13   Q.  If it's a patent, it will be published, is that right?

  14            THE COURT:  Please, Mr. Garbus, this isn't a patent

  15   lawyer.  The Patent Code of the United States provides for

  16   what it has to be.

  17   Q.  To your knowledge, based on your experience at Warner

  18   Brothers, what is it that requires a consumer to only view a

  19   DVD on a player licensed by DVD-CCA?

  20            MR. GOLD:  I object, your Honor, on relevance

  21   grounds.

  22            THE COURT:  Sustained.

  23   Q.  To your knowledge, if a consumer sees a piece of hardware

  24   that plays a DVD, how is the consumer to tell whether that's

  25   an authorized player or not?




                                                                539



   1   A.  I don't know what the word "authorized" means.

   2   Q.  The statute uses the word "authorized."  That's what I'm

   3   trying to find out.

   4            THE COURT:  Maybe you ought to read the statute again

   5   and see in what connection it uses it because I don't think

   6   it's in this one.

   7   Q.  Do you know what the term "compliant equipment" means?

   8   A.  I don't think there is a standard definition for

   9   "compliant equipment."

  10   Q.  Tell me your understanding of it.

  11   A.  I think in the context of the CSS licensing, it would be

  12   equipment that has taken a license that is compliant with the

  13   license terms.

  14   Q.  So, a compliant piece of equipment under the statute would

  15   be one that would be authorized by the DVD-CCA, is that right?

  16            MR. GOLD:  Your Honor, I object.

  17            THE COURT:  Sustained.

  18            MR. GARBUS:  Excuse me for a moment.

  19            (Pause)

  20            MR. GARBUS:  Your Honor, I see the word "authority"

  21   in the statute, and I said "authorization," but the statute,

  22   as I see it at Section A, and I'm prepared to go to the bench

  23   for this, if it's necessary.

  24            THE COURT:  Which subpart of A?

  25            MR. GARBUS:  It says, "To circumvent the




                                                                540



   1   technological measure."

   2            THE COURT:  Which subpart of A?

   3            MR. GARBUS:  (a)(1), I think; (2)(a) -- (3)(a).

   4            THE COURT:  (3)(a)?

   5            MR. GARBUS:  Yes.

   6            THE COURT:  12(a)(3)(a)?  There is none.

   7            MR. GARBUS:  1201(a); walking my way through this is

   8   very difficult.

   9            THE COURT:  I know it's not an easy statute.  It

  10   takes some attention.

  11            MR. GARBUS:  1201(a).

  12            THE COURT:  Are you talking about (a)(3)(b)?

  13            MR. GARBUS:  I'm talking about -- yes, (3)(a) and

  14   (b).  Let me show you what I'm referring to.

  15            THE COURT:  I can read (a)(3)(a) and (b).  I have it

  16   in front of me.

  17            MR. GARBUS:  It starts "to circumvent."

  18            THE COURT:  Yes.

  19            MR. GARBUS:  And then (b) talks about without the

  20   authority.

  21            THE COURT:  Yes.  Do you have a question?

  22   BY MR. GARBUS:

  23   Q.  So, there is an authorization factored in the statute, and

  24   I'm trying to determine with respect to that authorization,

  25   the extent to which it is granted or not granted and the




                                                                541



   1   relationship between the statute and this licensing structure.

   2            THE COURT:  Well, you read the statute.  You read the

   3   license.  That's what you have.

   4            MR. GARBUS:  Except that the statute and the license

   5   are not coextensive.

   6            THE COURT:  So, you compare the two and you analyze

   7   the respects in which they differ and you make your argument

   8   about what the legal effect of that is.

   9            MR. GARBUS:  And that's what I'm trying to ask

  10   questions about.

  11            THE COURT:  I know.  But it's a legal issue.

  12            What's the question?

  13   BY MR. GARBUS:

  14   Q.  Do you have knowledge of what Warner's position is with

  15   respect to these licenses about what the authority a buyer of

  16   a DVD has with respect to the use of that DVD?

  17            MR GOLD:  Objection, your Honor.

  18            THE COURT:  Sustained.

  19            What you are obviously trying to get at, Mr. Garbus,

  20   is whether Warner or any of the other studios has authorized

  21   consumer purchases of their DVDs to circumvent the copy

  22   protection of CSS.

  23            Now, if you want to ask that question, why don't you

  24   ask it.

  25   BY MR. GARBUS:




                                                                542



   1   Q.  I'll ask that question of the witness.

   2   A.  No.

   3            THE COURT:  Now, maybe we can move on.

   4   Q.  So, as you understand it -- and this is the last question

   5   and then I'm through for the day with respect to this

   6   witness -- a purchaser of a DVD cannot make a copy of a DVD

   7   for his own personal use or to lend -- is that right?

   8   A.  That's right.

   9   Q.  And the purchaser of a DVD cannot lend the copy of the DVD

  10   to a friend who does not have an authorized, licensed player?

  11            MR GOLD:  Your Honor, it's beginning to sound like --

  12   he's asking for a legal opinion, I think.

  13            THE COURT:  Well, I don't even see what the relevance

  14   of the question is.  Can't lend it?  I mean, is there really

  15   some suggestion that there's an issue in this case as to

  16   whether somebody who owns a DVD can lend it to somebody else

  17   without knowing whether they have a player?

  18            Suppose they lend it to somebody who didn't have

  19   electricity?

  20            MR. GARBUS:  To play it.  I thought the question was

  21   to play it on a player that does not have a license from the

  22   DVD-CCA.

  23            THE COURT:  Well, that wasn't the question.  Do you

  24   want to take another stab at the question?

  25   BY MR. GARBUS:




                                                                543



   1   Q.  Is it Warner's position that the purchaser of a DVD cannot

   2   lend the DVD to a person who has an unauthorized player so

   3   that the person who has that unauthorized player can watch the

   4   DVD?

   5            MR GOLD:  I object, your Honor.

   6            THE COURT:  Look, I'm going to allow the answer to

   7   this question just to be done with it; all right.

   8            Bear with everybody, Mr. Gold.

   9   A.  Someone who owns a DVD disk can lend it to whoever they

  10   want, but the disks are only authorized to be played on

  11   compliant players.

  12            MR. GARBUS:  Thank you.

  13            THE COURT:  O.K.  Thank you, Mr. Garbus.

  14            Mr. Gold?

  15            MR GOLD:  I do have several questions for the

  16   witness, your Honor.

  17   REDIRECT EXAMINATION

  18   BY MR GOLD:

  19   Q.  Ms. King, would any upgrade in the security system of the

  20   DVD provide protection for the films that have already been

  21   released in CSS format?

  22   A.  From what I understand, they would not.

  23   Q.  Now, turning, if I may, do you still have Exhibit RK, the

  24   second page?

  25   A.  Exhibit?




                                                                544



   1            THE COURT:  You mean BK?

   2            MR GOLD:  Mine says "RK."

   3            THE COURT:  RK; thank you.

   4   A.  I have it.

   5   Q.  You have it, Ma'am?

   6   A.  Yes, I do.

   7   Q.  In January of the year 2000, did you agree with the view

   8   expressed from the article, the one about the DV code crack?

   9   A.  I certainly didn't.

  10   Q.  Specifically, if I can, I want to refer you to the part of

  11   that paragraph which relates to economic incentive.  Did you

  12   agree with the view expressed about economic incentive?

  13   A.  No, I didn't agree, however --

  14   Q.  Why not?

  15   A.  Well, I didn't agree because there is an economic

  16   incentive to hack the product.  Certainly people that want to

  17   make money off of pirating our product would be very happy to

  18   do so and have done so ever since we started releasing it.

  19   Q.  Did you understand in January of 2000, despite what you've

  20   just said, that there was a good business reason for Mr.

  21   Cardwell to have expressed the view contained in that

  22   paragraph?

  23   A.  Yes, I do.  I believe I understand why he said this.

  24   Q.  And why is that?

  25   A.  Well, he was at the consumer electronics show.




                                                                545



   1            MR. GARBUS:  I object to her understanding.

   2            THE COURT:  Sustained.  Sustained.

   3   Q.  Did you know whether or not at Warner's in January of the

   4   year 2000, this January, that there was a concern among

   5   executives that people were panicking unnecessarily about the

   6   crack of BSD?

   7            MR. GARBUS:  I object to the form of the question.

   8            THE COURT:  Sustained.

   9   Q.  Did you ever engage in any discussion with executives

  10   where you expressed a view that it would be good for Warner's

  11   to get some control over what was happening in the market as a

  12   result of this crack of CSS?

  13            MR. GARBUS:  I object to the form of the question.

  14   (A) it's leading, and it assumes facts not in evidence.

  15            THE COURT:  Rephrase it.

  16   Q.  Do you believe in January of 2000 that your public,

  17   Warner's public, was jittery about the crack of the BSD could

  18   lose faith in the --

  19            MR. GARBUS:  I object to the form of the question.

  20            THE COURT:  Sustained.

  21            MR. GARBUS:  If the witness hasn't been told thus far

  22   what to answer --

  23            THE COURT:  That was unnecessary.

  24            Anything else, Mr. Gold?

  25            MR GOLD:  Yes.




                                                                546



   1   Q.  What is your present judgment, Ms. King, about the

   2   incentives to use DeCSS to copy and transmit Warner DVDs?

   3            MR. GARBUS:  Object to the question.

   4            THE COURT:  On what ground?

   5            MR. GARBUS:  That he's told him what to testify to

   6   already.

   7            THE COURT:  This will be a very short trial if we

   8   exclude the witnesses called by both parties on the theory

   9   that each lawyer has told them what to say.

  10            Overruled.

  11            THE WITNESS:  Can you repeat the question, please?

  12            THE COURT:  I think we could get rid of all trials in

  13   America on that ground.

  14            MR. GOLD:  When I used that statement at lunch in a

  15   different context, my listener said, well, will that be a bad

  16   thing?

  17            THE COURT:  Don't answer that, Ms. King.

  18            MR. GOLD:  I said, yes.

  19            THE COURT:  Come on.  Is there another question?

  20   BY MR. GOLD:

  21   Q.  What is your present judgment, Ms. King, about the

  22   incentives to use DeCSS to copy Warner DVDs?

  23            MR. GARBUS:  I'll object to it, that there's been no

  24   proof that DeCSS is being used to transmit any DVDs.

  25            THE COURT:  Overruled.




                                                                547



   1   A.  We have highly-desirable product.  People want to view our

   2   product.  They want to view our new product.

   3            MR. GARBUS:  Excuse me.  May I interrupt?

   4            Was the question "do you believe" or "what do other

   5   people think"?

   6            THE COURT:  The question was what her present

   7   judgment was about whether incentives existed.

   8            MR. GARBUS:  Is that based on her belief or her view

   9   as an expert?

  10            THE COURT:  I don't know.  I didn't ask the question.

  11            MR. GARBUS:  I object to the question on the grounds

  12   of a lack of foundation.

  13            THE COURT:  Do you want to address that, Counsel?

  14   BY MR. GOLD:

  15   Q.  Was it part of your job to form judgments about anything

  16   that related to the product of Warner Brothers home video?

  17   A.  I do that all the time.

  18   Q.  And did you form judgments about the continued viability

  19   of CSS and the use of DeCSS in the United States ever since

  20   you heard about the DeCSS crack?

  21   A.  We are constantly evaluating the situation.

  22   Q.  Can you tell us what your present judgment is about the

  23   incentives to use DeCSS to copy and transmit Warner's DVDs?

  24   A.  The studios have highly-desirable product.  We not only

  25   have professional pirates that steal our product and transmit




                                                                548



   1   it to others for a commercial gain, but we have people that

   2   want to take it just because they like to view it.  It's

   3   highly-desirable product, not just mine.  I'm not just

   4   speaking for my studio.

   5            If one of the things we found when we started taking

   6   action against Internet Service Providers was if they knew

   7   that this was illegal or thought it was illegal when we

   8   started saying cease and desist from posting DeCSS, they took

   9   it down.  We saw that happen.

  10            It's very important that there isn't perception that

  11   you can just take the product and also that we don't lose

  12   control of the distribution of our product in the future.  So,

  13   the incentives are real both for profit and not for profit.

  14   Q.  Do you know where Mr. Cardwell was when he was speaking to

  15   the press as reflected in this article?

  16   A.  Yes, I do.

  17   Q.  Where?

  18   A.  He was in lace Vegas at the consumer electronics show.

  19   Q.  Do you know the purpose of -- do you know why Warner sends

  20   people to the consumer electronics show?

  21            MR. GARBUS:  I object.

  22            THE COURT:  Sustained.

  23   Q.  What is the purpose of the consumer electronics show?

  24   A.  At the consumer electronics show, consumer electronics

  25   companies like, you know, Sony, Toshiba, RCA present their new




                                                                549



   1   products and their new product lines.

   2   Q.  Prior to the consumer electronics show in 1990, did Warner

   3   executives make any decision with respect to what they wanted

   4   to accomplish at that show?

   5   A.  Yes.

   6   Q.  What was that decision?

   7            THE COURT:  We are talking about 1990.  What's that

   8   got to do with anything?

   9            MR GOLD:  2000.  I don't know how that happened.

  10   It's January of 2000.

  11   A.  We had been attending --

  12            MR. GARBUS:  I think I would object to this on the

  13   grounds that it's hearsay.

  14            THE COURT:  I'm going to sustain the objection on the

  15   ground that enough already, Mr. Gold.

  16            MR GOLD:  I know what that means.  Thank you, your

  17   Honor.

  18            THE COURT:  You're welcome.

  19            Mr. Garbus, any recross?

  20            MR. GARBUS:  Very, very brief.

  21   RECROSS-EXAMINATION

  22   BY MR. GARBUS:

  23   Q.  Isn't it a fact that since the date you first filed or the

  24   first lawsuit was filed in January in this case and the

  25   lawsuit that was filed in California, that there are an




                                                                550



   1   increased number of postings of DeCSS on the Net?

   2   A.  I don't know.

   3   Q.  As a practical matter, hasn't the fact that these lawsuits

   4   have started brought to the public's attention the fact that

   5   there's DeCSS on the Net with the result that more people are

   6   mirroring it and more people are downloading it?

   7   A.  I don't know.

   8   Q.  Isn't it a fact that if the industry wanted to protect

   9   itself from the spread of DeCSS, a public lawsuit rather than

  10   attempting to contact individual service providers was exactly

  11   the wrong thing to do?

  12   A.  We did both.

  13   Q.  So, when you went to these ISPs, did you ever ask -- well,

  14   we've been through that.

  15            MR. GARBUS:  I have no further questions.

  16            THE COURT:  Thank you.

  17            Mr. Gold?

  18            MR GOLD:  No further questions.

  19            THE COURT:  The witness is excused.

  20            Thank you, Ms. King.

  21            THE WITNESS:  Thank you.

  22            (Witness excused)

  23            THE COURT:  Next witness, Mr. Gold?

  24            MR GOLD:  Yes, may I have a minute and a half just to

  25   go get him?




                                                                551



   1            (Pause)

   2            THE COURT:  Who is your next witness, Mr. Gold?

   3            MR GOLD:  Professor Franklin Fisher.

   4    FRANKLIN M. FISHER,

   5        called as a witness by the plaintiff

   6        having been duly sworn, testified as follows:

   7            THE CLERK:  State your name.

   8            THE WITNESS:  Franklin M. Fisher.

   9            THE COURT:  Proceed, counsel.

  10            THE WITNESS:  Can I get rid of this stuff?

  11            THE COURT:  There's an enormous pile of paper up

  12   here.

  13            Go ahead.

  14   Q.  What is your occupation?

  15   A.  I'm the Jean Berkowitz Carlton and Dennis William Carlton

  16   professor of Economics at MIT.

  17   Q.  And how long have you been teaching at MIT, sir?

  18   A.  40 years.

  19   Q.  Do you hold any other professional positions?

  20   A.  Yes.

  21   Q.  And what are they?

  22   A.  I'm a member of the board of the National Bureau of

  23   Economic Research.  I'm the chairman of the board of Charles

  24   River Associates, which is an economics consulting firm, and I

  25   have been, still am, I have been for about the last eight




                                                                552



   1   years the chair of the Middle East Water Project, which is a

   2   project of Dutch, American, Palestinian, Israeli, Jordanian

   3   scholars working on the economics of water in the Middle East.

   4   Q.  Which degrees did you receive?  In what institutions did

   5   you receive them from?

   6   A.  I received the B.A. summa cum laude in 1956, the M.A. in

   7   1957, the Ph.D. in 1960, all in economics and all from

   8   Harvard.

   9   Q.  Have you received any scholarships or other professional

  10   honors?

  11   A.  Yes.

  12   Q.  Please name a few of the outstanding ones.

  13   A.  O.K.  A long time ago, now I received the John Bates Clark

  14   award of the American Economic Association, which is given

  15   every other year essentially to the most-promising economists

  16   under the age of 40.

  17            I was the president in 1979 of the Econometrics

  18   Society, which is the most prominent professional organization

  19   specializing in the use of quantitative methods and

  20   mathematics in economics.

  21            I'm a fellow of the American Academy of Arts and

  22   Sciences.  I was once a junior Fellow of the society of

  23   Fellows at Harvard.  Let's see.  I've held Ford Foundation

  24   faculty scholarship, a National Science Foundation faculty

  25   team fellowship and a Guggenheim fellowship.




                                                                553



   1   Q.  Have you -- what are your fields of specialization in

   2   economics?

   3   A.  Well, for a long time, my principal field was

   4   econometrics, which in this connection, it's the application

   5   of statistical methods to economics, but I wouldn't say I left

   6   that field, but that stopped being my principal field of

   7   specialization some time ago.

   8            Basically, I am a microeconomist, that is, as opposed

   9   to macroeconomists, who are supposed to know about things like

  10   things and unemployment and inflation.  Microeconomists study

  11   the way consumers behave, the way firms behave, the way the

  12   price system works, the allocation of resources, the way

  13   markets behave, and of various forms.

  14            Within that, I have worked on various aspects of

  15   price theory, including price indices and the general study of

  16   how a competitive price system works and on industrial

  17   organization which is more applied subject and in my case that

  18   is involved working very heavily in the antitrust area.

  19   Q.  Have you published, sir?

  20   A.  Yes, I am the author of approximately 16 books and

  21   something substantially over 100 articles.

  22   Q.  Have you ever testified in court before as an expert?

  23   A.  Yes, I've testified quite extensively over the last 30

  24   years.  Most recently, I was the government's principal

  25   economic witness in the Microsoft case.




                                                                554



   1   Q.  Were you retained by the Proskauer, Rose firm appearing

   2   for the plaintiffs -- appearing for the movie studio

   3   plaintiffs in this case?

   4   A.  Yes, I was.

   5   Q.  And what were you retained to do, sir?

   6   A.  Well, in general terms, I was retained to give an opinion

   7   about what economic analysis had to say about various aspects

   8   of the case.

   9            More specifically, I was asked to read and comment on

  10   various declarations of experts of the defendants from the

  11   point of view of economic analysis, and more important, I was

  12   asked the question of whether -- to opine on the question of

  13   whether on the assumption that no copies were yet being made

  14   using DeCSS, no movie copies, whether it was the case that the

  15   movie companies had nevertheless already been injured.

  16   Q.  Could you please tell the Court the particular work and

  17   scholarship that you relied on in giving the opinions you gave

  18   in your declaration and are about to give in court today?

  19   A.  Well, on the one hand, I've quite heavily relied on some

  20   of the very basic tools of economic analysis.  A lot of what I

  21   have to say is not really very difficult or complicated

  22   material and it relies heavily on issues involved in the

  23   theory of the consumer, a subject that I have written on and

  24   teach every year in several courses about.

  25            In addition, I have over the course of the last




                                                                555



   1   approximately 28 years been involved in a number of cases and

   2   I've written some involving movies and movie distribution,

   3   mostly perhaps entirely related primarily to movies and the

   4   television industry.

   5   Q.  Professor, I'd like to give you several assumptions and

   6   have you accept those assumptions, and then I am going to ask

   7   you a question.  I'm going to ask you to assume -- oh, before

   8   I start that.

   9            Did you read any of the papers in this case?

  10   A.  Yes.

  11   Q.  Which ones?

  12   A.  Well, I read various of the declarations of defendant's

  13   experts and then I've read some of the pleadings.  I've read

  14   his Honor's decision on the preliminary injunction matter and

  15   I read the complaint.  I read various of the motions.  I read

  16   the briefs on the motions surrounding that, I don't remember

  17   exactly.

  18   Q.  Now, I'd like to put several assumptions in front of you.

  19   Assume that DeCSS technology can be used to circumvent the

  20   access and copy protection contained on DVD movies.  Then

  21   assume that as a result, the movies could be decrypted and

  22   copied.

  23            Assume the movies could be transmitted over the

  24   Internet, but transmission lines and hard drive capacities are

  25   not quite advanced enough to make it convenient for a large




                                                                556



   1   number of computer owners to obtain the movies.

   2            Assume Internet speeds and storage capacities are

   3   expected to increase in the near future to the point that such

   4   transmissions could be widely achieved.

   5            And lastly, assume that no material amount of copying

   6   or transmission has yet taken place.

   7            Do you understand those assumptions?

   8   A.  Yes, I do.

   9   Q.  Given those assumptions, do you have an opinion as to

  10   whether the availability of DeCSS would produce harm?

  11            MR. GARBUS:  I would object to the question.

  12            I recognize that an expert witness is allowed to

  13   testify on the basis of assumption, but I think that the

  14   assumptions have to be more precise than the assumptions that

  15   were given to this witness.

  16            For example, words like "near future" and then the

  17   whole question of generalizations of Internet capacity.  I

  18   think that the question is bad as to form in not being precise

  19   about the assumptions and it being so generalized as to the

  20   assumptions as to render any answer meaningless.

  21            THE COURT:  It goes to weight and it's a matter for

  22   cross-examination.  Overruled.

  23            You may answer.

  24   A.  I'm sorry.  Could you read back just what the last bit of

  25   the question was?  I lost it.




                                                                557



   1   Q.  Given those assumptions, do you have an opinion as to

   2   whether the availability of DeCSS would produce harm?

   3   A.  Yes.

   4   Q.  And what is that opinion?

   5   A.  It's my quite strong belief that the answer to that is

   6   "yes" and that that harm would begin before copies were

   7   actually made.

   8   Q.  And what is the basis for that conclusion, sir?

   9   A.  Well, the movie companies as the proprietors of the

  10   intellectual property involved here plan in various ways how

  11   to exploit that property and those plans are forward looking

  12   and I could describe them in somewhat more detail, if you

  13   wish.

  14   Q.  Please do.

  15   A.  O.K.  Movie companies plan quite carefully about the

  16   release of their movies.  They release them in various windows

  17   of distribution, first to theater, then to airlines, then to

  18   hotels and premium cable, then to DVDs and videotapes, then to

  19   network television, then to basic cable and television

  20   stations, and this set of windows, as they are called, are

  21   organized, timed, produced so as to extract in the movie

  22   company's opinion the maximum profit from the movies.

  23            Now, in planning to do that and in considering what

  24   investments to make as to movies, the movie companies under

  25   the assumptions you've given me will have to take into account




                                                                558



   1   the quite likely expectation that there will be negligible,

   2   probably a substantial number of free, unlicensed copies of

   3   DVDs in circulation, if they release movies in DVDs, and

   4   they'll have to think about what to do about that.

   5            Either they'll have to let that happen, plan to let

   6   that happen, or they will have to not release movies as DVDs.

   7   In any event, their plans for the release of movies that they

   8   are now making or will make in the near future will be

   9   changed.  They won't get as much revenue as they would have

  10   done.  It will not be as profitable for them to invest in

  11   movies.

  12            That will change, to some extent, the inputs they

  13   choose to put into movies.  It will have changed the decision

  14   in marginal cases as to whether to accept a movie.  It may in

  15   some cases -- it will generally force them to take actions

  16   which while profit maximizing in the presence of the new

  17   constraints that the prospect of unlicensed copies would not

  18   have been profit maximizing without it and in that respect, it

  19   will change what they do.  It will reduce their expected

  20   profits.  It exposes them to risk.  That's a harm.

  21   Q.  Now, I'd like to change several of those assumptions.

  22   Assume now that copying has taken place and that unauthorized

  23   high-quality reproductions of copyrighted DVDs are available

  24   on the Internet for free.

  25            Do you have any opinion on whether the availability




                                                                559



   1   of such reproductions would cause harm to the owners of the

   2   copyright in those films?

   3            MR. GARBUS:  I would object to the question on the

   4   grounds that when this witness was deposed back on July 6,

   5   2000, and he was asked what he was going to testify to, he

   6   talked about testifying on the assumptions that there was no

   7   copying.

   8            And I would object to any testimony that implies any

   9   kind of copying.

  10            THE COURT:  Mr. Gold?

  11            MR GOLD:  The witness in that deposition, as I

  12   remember, was asked many questions about the harm that would

  13   ensue from the complaint of the acts contained in the

  14   complaint in this action, and he answered them.  And I think

  15   that this hypothetical is relative, not to all, but to many of

  16   the questions and answers in that deposition.

  17            MR. GARBUS:  I object.  That's not what this witness'

  18   proposed expert testimony was going to be.

  19            THE COURT:  Was there ever a Rule 26 statement served

  20   with respect to the experts in this case?

  21            MR GOLD:  There was a declaration.  The way this case

  22   has run, everybody has put in an affidavit from their expert.

  23            MR. GARBUS:  That's not entirely so.  We have served

  24   with respect to Mr. Fisher, an affidavit in the case.  We have

  25   received from other witnesses, including our own




                                                                560



   1   declarations -- they're supposed to conform.  We've never

   2   received any document from Mr. Fisher, other than the

   3   affidavit he submitted on the motions.

   4            So, there has been no document submitted by

   5   Mr. Fisher.  All we have is his deposition testimony which was

   6   based on conversations he had with Mr. Hart which dealt with

   7   his testimony on the basis that there was no copying.

   8            THE COURT:  What part of the deposition are you

   9   relying on, Mr. Garbus?  Do you have the page?

  10            And someone please give me a copy.

  11            MR. GARBUS:  He says at page 9 --

  12            THE COURT:  I will read it for myself.  I would just

  13   like to see it.

  14            So, it's page 9, Mr. Garbus?

  15            MR. GARBUS:  Page 9, line -- the very top of the

  16   answer.

  17            MR GOLD:  The declaration of Franklin Fisher I have

  18   is in six pages or five and a quarter.

  19            THE COURT:  Just let me do one thing at a time, Mr.

  20   Gold, please.

  21            MR. GARBUS:  And then, again, at page 17, he's

  22   answering at line 13, we went again over my position on the

  23   question of damage, if there was not copying.

  24            THE COURT:  Page 17?

  25            MR. GARBUS:  Yes.  It's the long answer.




                                                                561



   1            THE COURT:  And what about the part on page 11 where

   2   the examiner for the defendant, whoever that may have been

   3   said:

   4            "Q.    And that's the basis of your testimony here

   5   today basically on the assumptions that there is no copying?"

   6            And the witness answered:  "I don't think the basis

   7   of my testimony -- I am prepared to testify either on the

   8   assumption that there is copying or on the assumptions that

   9   there isn't, but I don't know for a fact whether there is or

  10   is not."

  11            What about that?

  12            MR. GARBUS:  I think that what he said was that he

  13   was going to testify on the basis of no copying.  I recognize

  14   how the answer that he gave me affects that.  But he was

  15   specifically offered, as it says at page 9 and page 17, on the

  16   grounds of no copying had taken place.

  17            (Continued on next page)

  18

  19

  20

  21

  22

  23

  24

  25




                                                                562



   1            MR. GOLD:  Your Honor, in addition to the portion of

   2   the deposition transcript you've read, page 56 of his

   3   declaration says, at paragraph 11, "I'm less in serious

   4   disagreement with professor Kurlantzick if it is his opinion

   5   that the availability of an authorized product for free on the

   6   Internet will not have a substantial market impact upon those

   7   companies which are in the business of producing and

   8   distributing feature films."

   9            THE COURT:  The objection is overruled.  The defense

  10   was clearly on notice.

  11   Q.  Professor Fisher, the question is:  Assume now that

  12   copying has taken place and that unauthorized time quality

  13   reproductions of copyrighted films are available on the

  14   Internet for free.  Do you have any opinion on whether the

  15   availability of such reproductions would cause harm to the

  16   owners of the copyright in those films?

  17   A.  Indeed I do.

  18   Q.  And what is that opinion, sir?

  19   A.  I think it would cause harm in several ways.  The most

  20   obvious way has to do with the sale of DVDs.  We are talking

  21   about a situation in which unlicensed copies are available

  22   free.  People who would otherwise have bought DVDs at fairly

  23   high prices, in the roughly $25, a little less, will now have

  24   the option of getting those same things or essentially the

  25   same things at zero.  It's not difficult to figure out that




                                                                563



   1   people would prefer to buy at zero rather than buy at a higher

   2   price.  The result of that would be that revenues from the

   3   sale of the DVDs to the movie companies will go way down, they

   4   will have to either cut the prices of DVDs very substantially

   5   or not sell DVDs at all.  That's apart from the DVDs that have

   6   already been made and can no longer, as it were, be withheld.

   7   There will be other effects as well.

   8   Q.  What would that be, sir?

   9   A.  People who would otherwise have bought or rented

  10   videotapes will now have the option of instead acquiring

  11   movies at essentially a zero after they -- some of them will

  12   of course have to acquire a DVD player.  Given that option,

  13   one would expect sales and rentals of movies, videotapes of

  14   movies also to decrease.

  15            In addition, there will be some more effects.  As I

  16   mentioned before, movies are released through a series of

  17   windows, and those windows are staggered in time quite

  18   deliberately.  If copying becomes widespread, and unlicensed

  19   free copies of movies circulate a good deal, then by the time

  20   the movies are released to ordinary network television and

  21   then further there are likely to be more people who have seen

  22   them, and seen them incidentally for free, which is why there

  23   will be more people, that would make the audience for those

  24   movies on network television lower than it would otherwise

  25   have been and make the movies less valuable to the networks




                                                                564



   1   and then again to the later uses, and that in turn will reduce

   2   what networks and other television broadcasters or cable

   3   casters are willing to pay for movie rights.

   4            There may in addition be an effect, as it were,

   5   earlier in time than that.  That has to do with the following:

   6            People deciding to go to the movie theater or to

   7   watch movies on premium cable or on Pay-Per-View now have to

   8   make the decision should we pay the price to go to the movie

   9   theater or should we pay the price either to subscribe to a

  10   premium service or to watch Pay-Per-View, and they do that

  11   presumably because -- aside from the fact they might like the

  12   experience of going to the movie theaters -- they are choosing

  13   doing that now or waiting for a later release when the movie

  14   becomes available on videotape or on DVD, and then still later

  15   on free television.

  16            At present, without copies, they are making that

  17   decision based on the fact that in order to get the movie when

  18   it is released on DVD or videotapes, you have to pay something

  19   for it.  In the circumstance of free copying, free unlicensed

  20   copying of DVDs, they are going to have that decision maybe

  21   somewhat altered.  Instead of saying, well, I go to the movies

  22   now or I can wait, but if I wait I'll either have to wait a

  23   long time or I'll have to pay something, they will be saying,

  24   well, I can go to the movies now and pay or I can wait, but if

  25   I wait the movie will be available free and rather earlier




                                                                565



   1   than it used to be.  And that will tend to shift decisions

   2   somewhat at least in favor of waiting.  That will make movies

   3   less valuable for premium cable, it will make movies less

   4   valuable for theatrical exhibition, although I don't think the

   5   effect I'm talking about now -- of course, I don't think

   6   that's the largest effect.  This one is somewhat indirect.

   7            I might also mention that effect will take some time

   8   to work itself out simply because premium cable companies tend

   9   to contract for and pay for movies before they are even

  10   produced.

  11   Q.  Professor Fisher, would your opinion that the availability

  12   of free unauthorized copies of film on the Internet would have

  13   a negative effect on sales, licensing and distribution, hold

  14   if the free copies were of a lesser quality than the

  15   authorized copies?

  16   A.  Yes, it would.  Let me explain.  On the one hand,

  17   obviously in some limited case it can't hold.  If the copies

  18   were so bad that they were unwatchable, then there might as

  19   well not be any copies at all.  Now we are talking -- I assume

  20   we are not talking about that.  I assume we are talking about

  21   some degradation in quality relative to the original DVD, less

  22   than that.

  23            There is large literature, maybe only medium-sized

  24   literature, in economics about how one adjusts prices for

  25   quality and about the tradeoff of quality changes in prices.




                                                                566



   1   I have contributed somewhat to it, but I'm certainly not the

   2   primary person.  And I think it is well established and not

   3   difficult to understand that you can think of a "good at a

   4   given price with lower quality" as equivalent to a "good with

   5   higher quality at a lower price."  Or put it differently, a

   6   degradation in quality is like an increase in price.

   7            People instead of paying in money pay in what

   8   economists call utility for the degradation in quality.

   9   Therefore, I think the right way to think about this is that a

  10   lower quality copy available free would be the equivalent not

  11   of having the original at a zero price but of having the

  12   original at perhaps only a very low price, and while that

  13   might tend to moderate the effect a bit, it certainly wouldn't

  14   change them in substance.

  15   Q.  Professor Fisher, you have mentioned that movies are timed

  16   and released to different segments of the market at different

  17   times.  Why is that?

  18   A.  It's because the willingness of people to pay to see

  19   movies differs depending on how long the movie has been out,

  20   the circumstances in which it has been out, how much it has

  21   been exposed and so forth.  People who will pay to see a movie

  22   in the theater on first release are paying fairly high ticket

  23   prices.  That wouldn't be true -- in other words, they

  24   wouldn't pay the same high ticket prices if the movie had

  25   already been visible to them in lots of other forms, except




                                                                567



   1   for rather special movies.  I know people go to see Gone With

   2   The Wind every time it comes around, but that's at least an

   3   unusual case.

   4            Now, the movie companies take advantage of this by

   5   offering licenses to their property at different times and at

   6   different prices, in different modes of exhibition, to try to

   7   capture revenues from the people who are willing to pay a high

   8   price and then capture other revenues that come directly or

   9   indirectly from people who aren't willing to pay that price

  10   but are interested in seeing the movie later on and so on.

  11   Q.  Will the DeCSS hack of DVDs cause or have any impact on

  12   the studio's right to determine when and in what format the

  13   film should be distributed?

  14            MR. GARBUS:  Object to the form of the question.

  15            (Record read)

  16            THE COURT:  Sustained as to form.

  17   Q.  Do you have an understanding as to whether the studios now

  18   carefully time their distribution?

  19   A.  They absolutely do.

  20   Q.  And how will the circulation or the availability of free

  21   decrypted DVDs via the Internet affect the studio's decisions

  22   about timing of release in different segments of the market?

  23   A.  Well, as I've already said, once the movie gets copied on

  24   DVD its value in later uses goes down, because people can

  25   watch it for free, and one presumes that many will.




                                                                568



   1            The prospect that the movie will be copied on DVD

   2   also reduces the extent to which people will pay in theaters.

   3   I don't know quite which way this will go, but I think that

   4   would mean either an adjustment in prices in the various forms

   5   of release or an accelerated release schedule, less time in

   6   movies, possibly earlier exhibition on free television, less

   7   time in premium television.  I don't know, but it will change

   8   that rather crucial set of decisions.

   9   Q.  Do you know whether the movie studios are currently

  10   distributing movies via the Internet?

  11   A.  I do not know for sure that they are actually doing that.

  12   Q.  Let's assume that the studios are now considering entering

  13   the market for Internet-distributed motion picture content.

  14   Using that assumption, what would be your opinion as a matter

  15   of economic analysis as to whether that market would or

  16   wouldn't be harmed by the free availability of copyrighted

  17   motion picture content on the Internet?

  18   A.  Look, that's an easy one.  If there is widespread copying

  19   and distribution of copies of movies once they go on DVDs, and

  20   if the movie companies continue to issue DVDs, the movie

  21   company's ability to extract payment for distributing

  22   themselves movies on the Internet is going to be highly

  23   reduced, they are going to be competing, as it were, with free

  24   copies of themselves.

  25   Q.  In your opinion would purchasing behavior be affected over




                                                                569



   1   time by the no-cost availability of movies on the Internet?

   2   A.  Yes, I do think so.  Once things become available for

   3   free, particularly, I don't think exclusively, but

   4   particularly on the Internet, people come to expect that they

   5   will continue to be available for free.  It won't be a novelty

   6   after a while.  People will regard this as a regular way to

   7   obtain movies.  They will plan for it, as it were, in

   8   considering whether to go to theaters or whether to buy

   9   licensed copies.

  10   Q.  In your opinion, would the availability of free

  11   unauthorized copies of films likely stimulate interest in

  12   films, causing an increase in sales?

  13   A.  Well, you have to be careful.  It depends what you mean by

  14   sales.  If you mean by sales will it cause more people to

  15   watch movies overall, the answer is it might.  But if you mean

  16   by sales will it increase the revenues of movie companies, the

  17   answer is of course it won't increase the revenues of movie

  18   companies.  There will be people who watch movies for free,

  19   who would not have watched them when they had to pay.  That

  20   taken alone would be an increase in viewership but it surely

  21   wouldn't be an increase in revenue.

  22            There will also be people who watch the movies for

  23   free that they would otherwise have paid to watch.  Directly

  24   or indirectly, that will certainly be a decrease in revenue.

  25   Q.  Dr. Einhorn in his deposition transcript took the position




                                                                570



   1   that the availability of free unauthorized DVD movies on the

   2   Internet could lead more consumers to buy DVD players, which

   3   in turn could lead those same consumers to buy more authorized

   4   DVD movies, which would result in a net gain or at least no

   5   net loss to the movie industry.

   6            What is your opinion concerning that position?

   7   A.  I think a polite word is fantasy.  Look, I should have

   8   mentioned this in connection with my previous answer as well,

   9   there is a presumption that I hold and I think any reasonable

  10   person holds:  The movie companies understand their own

  11   business.

  12            I would start out by saying I suppose they understand

  13   it better than Dr. Einhorn does and better than I do.  And if

  14   the movie companies really thought that was true, the movie

  15   companies would be encouraging in the first instance perhaps

  16   unauthorized copies -- which they're certainly not doing --

  17   and in the second they would be promoting the distribution of

  18   DVD players.  Now they may decide to do that.  If they do

  19   that, they will do it in ways that they consider brings them

  20   the most benefit.  But I think it escapes belief to suppose

  21   that unauthorized copying is going to lead to increased

  22   profits for the movie companies.

  23            People who use the DVD players acquire those DVD

  24   players and in this circumstance are acquiring them precisely

  25   to watch free copies.  They are not going to acquire them




                                                                571



   1   because they want to pay a lot of money to watch the

   2   originals.  That doesn't make any sense.

   3   Q.  Do you have any knowledge about the markets for computer

   4   operating systems?

   5   A.  Oh, more than you want to know.

   6   Q.  In paragraph 11 of his declaration, Dr. Einhorn states,

   7   "If priced in open sourced fashion, a LiViD player will be

   8   made freely available to home PCs using any operating system.

   9   This could maximize the base of enabled users and promote the

  10   sales of DVDs far beyond any other event."  Do you agree with

  11   that statement?

  12   A.  I do not.

  13   Q.  Why not?

  14   A.  Well, a LiViD player is a DVD player for Linux.  Now,

  15   there are a couple of things to say about this.  One is Linux

  16   is and I think for the foreseeable future surely will be a

  17   system which is used by a relatively small minority, an

  18   operating system used by a relatively small minority of

  19   computer users.  I'm talking about individuals and desktop

  20   computer users, not servers, and I think there are good

  21   reasons for that.

  22            Secondly, you have to realize that LiViD players

  23   would not be a net gain in viewership or a very large net gain

  24   in viewership in any event.  Operating systems don't view

  25   movies.  People view movies.  Well, I know some peculiar




                                                                572



   1   people and I am related to some of them.  I want to make clear

   2   I'm not criticizing any general set, but people typically

   3   don't buy DVD players so that they can play them on a

   4   particular operating system, except if they are interested

   5   directly in the technology.  People buy DVD players because

   6   they want to watch movies.

   7            Now, it happens that almost everybody -- I don't

   8   think it's everybody, but it's very widespread -- almost

   9   everybody who has a computer who will run Linux, has a

  10   computer that will run Windows, and therefore those same

  11   people are able to watch DVD movies without having a LiViD

  12   player.  They just don't have to watch them on Linux.

  13            I should also mention -- perhaps I already did --

  14   that if it were true that the availability of LiViD players

  15   was going to mean a great increase in sales for the movie

  16   companies, I mean dollar sales, then the movie companies would

  17   be promoting it, and they indeed may be promoting the creation

  18   and sales of LiViD players but of course they would be doing

  19   it under conditions of licensing involving the exploitation

  20   for money of their intellectual property instead of the giving

  21   away of it free.

  22   Q.  Turning to Dr. Einhorn again.  In paragraph 12 of his

  23   declaration he states as follows, "Efforts that hinder the

  24   development of open source operating systems play into the

  25   hands of Microsoft, which illegally restricts competitive




                                                                573



   1   access to its closed operating platform."

   2            Do you agree with that conclusion?

   3   A.  No.

   4   Q.  Why not?

   5   A.  Well, in the first place it is not true that the findings

   6   in the Microsoft case are that Microsoft illegally restricts

   7   access to its closed platform.  There are of course extensive

   8   findings that Microsoft did commit illegal acts, but those

   9   aren't it.

  10            Secondly, it's true that Microsoft's monopoly power,

  11   now found to have been illegal, is protected by something

  12   called in the Microsoft case the applications barriered entry,

  13   which I won't go into in detail unless somebody wants me to.

  14   This has to do with a natural phenomenon in which many, many,

  15   many more applications are written for Windows than for

  16   anything else.  Linux suffers in its competition with

  17   Microsoft from the disadvantages of the applications barriered

  18   entry.  Indeed, one of the commercial purveyors of Linux had

  19   to pay software developers to write word processing programs

  20   for Linux, programs of the sort that get written for free for

  21   Windows.  Okay.

  22            Now, I don't believe it's true that -- I hope I'm

  23   wrong -- I don't believe it's true that Linux is going to

  24   succeed in becoming an all-out competitor to Microsoft.  That

  25   will depend in large part on what remedies there finally are




                                                                574



   1   in the Microsoft case.  And remedies in that case are a very

   2   complicated matter.  And I certainly don't believe that the

   3   availability of LiViD players is going to be of giant help in

   4   that.  It will be of some help.

   5            Every application that's written for Linux makes

   6   Linux a more interesting system, but it strikes me as simply

   7   bizarre to suppose that one ought to permit unlicensed copying

   8   in the hopes that this will provide an answer to the problems

   9   in Microsoft.  You might as well take that to extremes and

  10   observe that if one were to cancel all copyright of its

  11   software, that would take care of quite nicely a good deal of

  12   the Microsoft problem, but it doesn't sound like a remedy

  13   that, how shall I put it, is set up to fit the problem.

  14   Q.  Do you recall that the first economic expert opinion that

  15   you read of defendants' expert was that of a professor

  16   Kurlantzick, a law professor at University of Connecticut?

  17   A.  I do.

  18   Q.  The defendants have chosen not to call him to the stand.

  19            THE COURT:  The problem, Dr. Fisher, is you are about

  20   two inches too close to the microphone and it swallows some of

  21   your words.

  22            THE WITNESS:  I'm sorry.

  23   Q.  In professor Kurlantzick's declaration --

  24            THE COURT:  Mr. Gold, he is not going to testify, is

  25   that right?




                                                                575



   1            MR. GOLD:  We are told he is not.

   2            MR. GARBUS:  He is not.

   3            THE COURT:  Is the substantial equivalent of whatever

   4   he said in his declaration going to be offered by the

   5   defendants?

   6            MR. GARBUS:  It will be.

   7            THE COURT:  It will be.  All right, go ahead.

   8   Q.  In that declaration Professor Kurlantzick states --

   9            MR. GARBUS:  He is not listed as a witness.  I don't

  10   know if the Court would then receive his affidavit.  If the

  11   Court would not receive his affidavit, then the question is

  12   improper.  In other words, we knew he was not going to testify

  13   so we had not anticipated putting his affidavit in, so I think

  14   the more precise answer to your question will be that he will

  15   not be a witness and, therefore, his affidavit would not be

  16   admissible.

  17            THE COURT:  And I understood all that.  The next

  18   question was whether through somebody else you will offer the

  19   substantial equivalent of what you offered previously.

  20            MR. GARBUS:  Yes.

  21            THE COURT:  You will.  So, I will let the witness go

  22   ahead and answer it, but in the first place we will take a 15

  23   minute break for the afternoon, and I will ask Anna to speak

  24   to Mr. Young to tell him what I said before about his request.

  25            (Recess)




                                                                576



   1            MR. GOLD:  Your Honor, there was to be a witness

   2   named Eric Burns, but the parties have just now worked out a

   3   stipulation, and we will be designating portions of his

   4   deposition.  He would like to come into the room and watch.

   5            THE COURT:  Any problem?

   6            MR. ATLAS:  No problem.

   7            THE COURT:  Bring him in.  Okay, Mr. Gold.

   8   DIRECT EXAMINATION Continued

   9   BY MR. GOLD:

  10   Q.  Professor Fisher, we go back to the declaration of

  11   Professor Kurlantzick, and within paragraph 3 he stated as

  12   follows:

  13            "A common error in assessing the financial effects of

  14   unauthorized reproduction is the positing of a one-to-one

  15   ratio between acts of copying and displaced sales.  That is,

  16   the assumption is that each pirate sale and instance of home

  17   recording of music, for example, represents a lost sale by the

  18   original record company.  But that assumption is erroneous and

  19   contrary to accepted microeconomic principles.  If it costs a

  20   person less to reproduce a recording than it does to purchase

  21   on the original, it does not follow that a person who home

  22   records will necessarily purchase the record if the home

  23   recording option is available.  The willingness to pay $2 for

  24   a product, whether a quart of orange juice or a musical tape

  25   does not necessarily indicate a willingness to pay $6 for that




                                                                577



   1   product."

   2            Do you agree with that conclusion?

   3   A.  Well, I do and I don't.

   4   Q.  Could you explain, sir.

   5   A.  Okay.  I don't know whether it's a common error to posit a

   6   one-for-one ratio.  I haven't seen it.  In any case it's not

   7   my error.  My conclusions certainly don't depend on that.

   8            It is perfectly true economic analysis, and common

   9   sense suggests it, that if there are copies available for free

  10   whereas before there were only originals available at a price

  11   of 20 some dollars, that some of the people who take the

  12   copies for free would not have paid the 20 some dollars in any

  13   event.

  14            But the important fact is that economic analysis also

  15   assures us that a number of people who paid $20 previously

  16   will now take the copies for free.  Before there was one store

  17   to which they could go and buy things for $20 and it was that

  18   or nothing, and some people went in and some people didn't.

  19   Now there are two stores, one offering for $20 and one

  20   offering substantially the same thing for zero.  It doesn't

  21   take much to figure out that among the people who go into the

  22   zero priced store are going to be people who would have gone

  23   into the $20 store.

  24            MR. GOLD:  Thank you.  I have no further questions,

  25   your Honor.




                                                                578



   1            THE COURT:  Thank you, Mr. Gold.  Mr. Garbus.

   2   CROSS-EXAMINATION

   3   BY MR. GARBUS:

   4   Q.  Professor Fisher, how much are you being paid for your

   5   time here today?

   6   A.  I'm being paid my current standard commercial rate, which

   7   is $900 an hour.

   8   Q.  And how many hours have you thus far spent on this case?

   9   A.  Up to today, approximately 16.

  10   Q.  Now, is it fair to say that during the first half of the

  11   year you made approximately $300,000 as a result of testifying

  12   in cases?

  13   A.  No, I believe I told you at deposition that with some

  14   uncertainty I thought I made about $300,000 in connection with

  15   cases involved in litigation, not in testifying in them

  16   necessarily.

  17   Q.  How much did you make last year in connection with

  18   testifying?  Do you recall your estimate of $600,000?

  19   A.  I don't.  I do recall my estimate.  I have no reason to

  20   think it was either righter or wronger than I told you then.

  21   It's roughly right.

  22   Q.  $600,000 last year?

  23   A.  In connection with litigation, not necessarily in

  24   connection with testifying.

  25   Q.  And in the previous five years, your average also was




                                                                579



   1   $600,000, was it not, in connection with your work in

   2   litigation?

   3   A.  Again, I think that's what I told you at deposition.  I

   4   don't mean to change it now.  I wasn't certain then, I'm not

   5   particularly certain now, but it's roughly of that order of

   6   magnitude.

   7   Q.  And are you involved with a company called Charles River

   8   Associates?

   9   A.  I am indeed.

  10   Q.  And did that company earn last year approximately $35

  11   million for its work in preparation for litigation and

  12   servicing lawyers?

  13   A.  In connection with litigation.  That's got to be roughly

  14   right.

  15   Q.  Are you a shareholder in that corporation?

  16   A.  I am.

  17   Q.  Are you a chairman of the board in that corporation?

  18   A.  Yes, I am.

  19   Q.  Have there been any cases in which you have testified

  20   where the court has totally disregarded your testimony?

  21   A.  There have been --

  22   Q.  Just answer yes or no.

  23   A.  Totally disregard?

  24   Q.  Yes.

  25   A.  No.




                                                                580



   1   Q.  Disregarded much of your testimony?

   2   A.  If you want simply a yes or no answer, I think the answer

   3   is no.  I think the answer may be becoming somewhat

   4   misleading.

   5   Q.  At your deposition, reading now at page 38 -- start at

   6   page 37.  Do you recall these questions and answers?  And I am

   7   just reading some preliminary questions:

   8         "Q.  These are cases in which you are quoted or cited.

   9   And could you tell me which one of the two."  Then there is an

  10   objection by Mr. Hart --

  11         "A.  Well, I believe all the cases I described now are

  12   cases I testified in; and so the opinion says something about

  13   me.  No, I don't remember beyond that.  I do remember some of

  14   them.  Both Polaroid v. Kodak and CBS v. ASCAP discussed my

  15   testimony specifically -- not favorably on the whole; and the

  16   others I don't remember.

  17         "Q.  When you say 'not favorably,' can you be more

  18   specific?

  19         "A.  Sure.  Well, I can't be -- I mean, I can be more

  20   specific, but I can't group the two of them.  So I will need

  21   to describe each one of them separately.  In CBS v. ASCAP,

  22   1973, I testified at considerable length for CBS.  And in part

  23   the judge's findings of fact turned on the question of whether

  24   ASCAP members -- if CBS dropped its so-called blanket

  25   license -- would have lined up to do business with CBS.  It




                                                                581



   1   was my view they would not for reasons I am happy to go into,

   2   but probably that would take us too far afield.

   3            "Cross-examination of me was really quite successful.

   4   It consisted very largely of ASCAP's lawyer asking me if I

   5   ever talked to a songwriter; and I observed that I had not,

   6   partly because they were, in fact, the defendants, in effect;

   7   and the judge made much of this and disregarded much of my

   8   testimony on the grounds that I had never talked to a

   9   songwriter.

  10            "In Polaroid v. Kodak I was a damage witness, and I

  11   put forward a quite elaborate model of damages for Polaroid,

  12   which I still think was quite correct.  The judge in that case

  13   essentially -- I think what happened there was he

  14   essentially -- he found for Polaroid, by the way, and quite a

  15   big award, but he decided what he thought the award should be;

  16   and in order to get there, had to disregarded the testimony of

  17   every expert, including me; and he thereupon went out and

  18   disregarded the testimony of every expert, including me; and

  19   he said so, both sides."

  20            Then you continue somewhat.

  21            Did you give that answer to that question?

  22   A.  Sure I did.  And I was thinking of those answers when I

  23   told you that just saying yes or no would be misleading.

  24   Q.  Now, how many other cases are you involved in at the

  25   present moment?




                                                                582



   1   A.  Somewhere between ten and 12.  That includes all cases

   2   that I'm no longer involved in and that I don't know are dead,

   3   but some of those would be cases on which no work has been

   4   done for a couple of years.

   5   Q.  You and I discussed at some length -- by the way, have you

   6   done any studies since your deposition of July 6, 2000?

   7   A.  In this case?

   8   Q.  Yes.

   9   A.  No.

  10   Q.  Have you prepared any studies at all of your own of any

  11   analysis of the movie industry for the purpose of your

  12   testimony in this case?

  13   A.  No.

  14   Q.  Do you know the number of DVDs that were sold, let's say,

  15   in the year 1999?

  16   A.  I do not.

  17   Q.  Do you know the number of DVDs that were sold, that are

  18   expected to be sold in the year 2000?

  19   A.  I do not.

  20   Q.  Do you have any idea of any of the DVDs that were sold in

  21   the last five years or anticipated being sold in the next five

  22   years?

  23   A.  I do not.  That's why I said -- that's why I was asked to

  24   and I said I would testify on the basis of assumptions.  I

  25   haven't made any separate fact studies.




                                                                583



   1   Q.  Now, when you say you haven't made any fact studies, tell

   2   me about these 16 hours.  Did you speak to anybody at the

   3   studios?

   4   A.  Other than counsel, no.

   5   Q.  Did you call anybody at the MPAA for any information about

   6   sales, piracy, loss of sales due to piracy, or different ways

   7   in which piracy is accomplished?

   8   A.  No.

   9   Q.  Did you call anybody at any of the studios to learn any

  10   facts for either the last five years or the projected five

  11   years concerning sales, loss of sales, piracy, the

  12   relationship between piracy and cost?

  13            MR. GOLD:  Your Honor, I am going to object.  It was

  14   very clear from Mr. Fisher's direct testimony exactly what he

  15   relied upon and, therefore, exactly what he didn't.

  16            THE COURT:  I know.  Look, I don't know why we have

  17   the witness in the first place.  You have basically called the

  18   equivalent of the world's leading expert on physical chemistry

  19   to testify that under the laws of physics and chemistry if you

  20   drive an ice pick into an inflated automobile tire the air

  21   will come out, and the cross-examination is designed to prove

  22   that that opinion did not involve looking at anybody driving

  23   an ice pick into the tire.

  24            I understand that.  This is all wonderful.  I mean I

  25   don't know that we needed an expert witness to say that all




                                                                584



   1   things being equal if you give the stuff away for free some

   2   number of people who previously paid for it maybe won't pay

   3   for it in the future.

   4            MR. GOLD:  As always I think your Honor has much to

   5   say on the subject that is truthful and right, but I wish very

   6   much that the motion on damages and the in limine motions were

   7   granted, because I thought we could dispose of any foreseeable

   8   factual issue in less than a day and a half.  And I tried.

   9            THE COURT:  I still have my reservations about

  10   whether there are very many factual issues in this case.

  11            MR. GOLD:  Well, you know our position, but I felt

  12   that put us in somewhat of a bind.  People wanted assurances.

  13            THE COURT:  I am no more complaining about you

  14   calling the witness than I am complaining about Mr. Garbus

  15   asking these questions.  You are both doing what you think you

  16   have to do.  If either one of you thinks it is moving me in

  17   either direction, I invite you to think about the car tire and

  18   the ice pick.

  19            MR. GOLD:  We did try to do it in less than 40

  20   minutes, which is in my experience the usual.

  21            THE COURT:  Go ahead, Mr. Garbus.

  22            MR. GARBUS:  I'm trying to think about the tire and

  23   the ice pick.

  24            THE COURT:  Good.

  25            MR. GARBUS:  Can I have five minutes to think about




                                                                585



   1   the tire and the ice pick?

   2            THE COURT:  No, just do the cross-examination.

   3            MR. GARBUS:  Okay.

   4            THE COURT:  That's not intended in any way to cast

   5   any aspersions on the witness who is just here doing what he

   6   was asked to do.

   7            THE WITNESS:  Your Honor, I have never before been

   8   called the world's greatest expert on physical chemistry.

   9            THE COURT:  I didn't call you that either.

  10   BY MR. GARBUS:

  11   Q.  So your testimony of 16 hours at $900, that costs the

  12   plaintiff about 13 or $14,000 if my addition is correct?

  13            THE COURT:  Do you need a Ph.D. for that, Mr. Garbus,

  14   to multiply 16 times nine?

  15            MR. GARBUS:  I went to the High School of Science and

  16   I was bad in math.

  17            THE COURT:  You are up to it, Mr. Garbus.  Next

  18   question.

  19   Q.  Who contacted you about this case?

  20   A.  I was first contacted by Mark Litvak who is an attorney

  21   for the Motion Picture Association.

  22   Q.  Isn't it a fact, by the way -- do you know anything about

  23   the growth of Linux in the United States?

  24   A.  I know some things about it, yes.

  25   Q.  Isn't it growing at roughly 30 percent a year?




                                                                586



   1   A.  On desktops?

   2   Q.  Yes.

   3   A.  That would exceed the numbers I've seen.

   4   Q.  And with respect to their entire sales of desktops and

   5   word processors, can you tell me?

   6   A.  It's not desktops and word processors.  It's desktops and

   7   servers.  Servers are growing fast.  I don't know what the

   8   rate is, but they are very successful on servers.

   9   Q.  Have you seen articles recently about China and the Linux

  10   system?

  11   A.  I'm aware very recently of an article that said that China

  12   has decided to adopt Linux.

  13   Q.  A lot of people in China?

  14   A.  There are a lot of people in China.  Most of them I

  15   shouldn't think buy $25 DVDs.

  16   Q.  Do you know how many Linux systems right now are being

  17   sold in China?

  18   A.  I do not.

  19   Q.  Do you know of any other country that is backing any other

  20   operating system?

  21   A.  No, I don't.

  22   Q.  Professor Fisher, do you recall testifying in your

  23   deposition about the circumstances of your affidavit?

  24   A.  Yes, I do.

  25   Q.  And you remember you said you signed the affidavit in a




                                                                587



   1   hurry?

   2   A.  Yes.

   3   Q.  Now, can you tell the Court why you signed the affidavit

   4   in a hurry?

   5   A.  Because it was due.

   6   Q.  When did they call you to become an expert in this case?

   7   A.  About a week before it was due, I think, a week to ten

   8   days.

   9   Q.  And who called you?

  10   A.  Mr. Litvak in the first instance, and then Mr. Litvak and

  11   Mr. Hart, and I'm not quite sure whether Mr. Hart was on the

  12   first conversation, but if not he was on almost immediately.

  13   Q.  And do you recall testifying that prior to the time you

  14   signed the affidavit you had spent a total of three hours on

  15   the case?

  16   A.  Yes.

  17   Q.  So, you gave an opinion in an affidavit for this case

  18   based on three hours.  What did you do in those three hours to

  19   help form an opinion in this case?

  20   A.  I thought --

  21   Q.  You thought a lot.

  22   A.  I'm not finished.

  23   Q.  Excuse me.

  24   A.  When I would like you to finish my sentences, I'll ask

  25   you.  I thought about what economic analysis had to say, and




                                                                588



   1   that wasn't really very difficult.  I did some writing of

   2   portions of the affidavit along those lines.  I read the

   3   declarations of defendants' experts and decided quite quickly

   4   that there wasn't any need, they weren't very long and most of

   5   them weren't about economics anyway, and what they had to say

   6   about economics was easy to discuss, and I said what I thought

   7   about that.  This wasn't exactly a difficult task.

   8   Q.  Did you tell Mr. Hart that an economist wasn't needed to

   9   testify in this case?

  10   A.  My first reaction to Mr. Litvak actually, or Mr. Litvak

  11   and Mr. Hart, the way they posed the question, which wasn't

  12   quite the way I came to think about it, which is it didn't

  13   quite have to did with economics, but then when I checked with

  14   my company Charles River Associates for conflicts and I

  15   thought some more about this, and I thought that wasn't true,

  16   that economists do in fact have something to say about this.

  17   Q.  I don't want to be repetitive, but let me just ask you one

  18   question.  In those three hours did you look at any one

  19   statistic coming out of the movie industry?

  20   A.  No.

  21   Q.  Now, have you ever seen Mr. Kurlantzick's testimony which

  22   is cited by the Ninth Circuit in the Rio case?

  23   A.  I have not.

  24   Q.  Has your testimony with your name on it specifically ever

  25   been cited in any case, in all the cases you have testified




                                                                589



   1   to?

   2   A.  Well, you just --

   3   Q.  Your name.

   4   A.  You just pointed out it has been cited twice.

   5   Q.  Favorably.

   6   A.  I don't recall that it -- my testimony, as opposed to some

   7   other things I've written -- have been cited favorably,

   8   although in at least one rather important case and also in

   9   others the court's opinions have tracked the testimony fairly

  10   closely.

  11   Q.  Let me ask you the question again.  Has your name ever

  12   been cited with respect to any testimony that you have ever

  13   given in any case over the last 20 years?

  14   A.  Favorably?

  15   Q.  Yes.

  16   A.  I do not recall specific citation of my name, no.

  17   Q.  Is the answer no?

  18   A.  I think I've told you twice now.

  19   Q.  Now, when you had this conversation about whether any

  20   copying had taken place, who was it who said to you we might

  21   want you to testify on the basis that no copying had taken

  22   place?

  23   A.  Mr. Litvak, but I don't think he said -- I'm sorry.

  24   Q.  Tell me what he said.  I don't want to misstate it.

  25   A.  I don't think we discussed specifically whether copying




                                                                590



   1   had taken place.  I think the question that was posed to me

   2   was if I assumed that no copying had yet taken place, would it

   3   still be the case that there was harm.

   4   Q.  Did you ask him if they had any proof of any copying?

   5   A.  No, I wasn't asked that.

   6   Q.  So, you get the call.  By the way, who did the first draft

   7   of this affidavit?

   8   A.  Mr. Hart did the first draft after substantial

   9   conversation with me.

  10   Q.  So, let me see if I understand what happens in this three

  11   hours from the time you first get called until the time this

  12   affidavit is created, which is a six page affidavit.  Tell me

  13   how it works.

  14   A.  Okay.

  15   Q.  By then do you have the documents in the case?

  16   A.  By when?

  17   Q.  At the time that you are drafting your first affidavit.

  18            MR. GOLD:  Your Honor, I'm not sure -- I think that's

  19   a misstatement of the testimony.

  20            MR. GARBUS:  Let me ask it again.

  21            THE COURT:  I think it is.

  22   Q.  Tell me what happens during those three hours from the

  23   time you are retained until the time the affidavit is created.

  24   A.  I had a preliminary conversation with Mr. Litvak, and then

  25   with Mr. Litvak and Mr. Hart, about what economics might




                                                                591



   1   apply.

   2   Q.  By the way, do you have time sheets?

   3   A.  If you mean do I have records?  I do have records of how

   4   much time was spent on particular days.  I do not have records

   5   of what was done during that time.

   6            MR. GARBUS:  We had asked for those records.  I don't

   7   know, because Mr. Hernstadt is not here, whether or not they

   8   were produced.  Mr. Gold?

   9            MR. GOLD:  No. It might be one of my overnight

  10   assignments to prove the things you have in your file.

  11            THE COURT:  Oh, Mr. Gold, enough already, really,

  12   from both sides and from the witness.  I'm referring to the

  13   comment about finishing sentences.

  14            MR. GARBUS:  Your Honor, may I approach the bench?

  15            THE COURT:  Yes.

  16   Q.  I give you Defendants' Exhibit AYX.  It has some

  17   scribbling at the top which has nothing to do with the

  18   exhibit.  I don't know if the original has scribbling or not.

  19   I recognize the scribbling is my handwriting which is totally

  20   unrelated to it.

  21            Mr. Fisher, you testified in the Microsoft case as an

  22   antitrust expert?

  23   A.  Yes.

  24   Q.  Were you asked in this case to testify in the antitrust

  25   areas?




                                                                592



   1   A.  No.

   2   Q.  Take a look at your affidavit.  How many years did you

   3   teach at MIT?

   4   A.  40.

   5   Q.  And look at the number on the third paragraph of the first

   6   page of the affidavit.  What is that number?

   7   A.  3.

   8   Q.  What number generally follows after 3?

   9   A.  4.

  10   Q.  What is the number of the next paragraph?

  11   A.  Unfortunately there has been a glitch and it says 2.

  12   There is a repetition of the numbers 2 and 3.

  13   Q.  Now, when you say unfortunately there is a glitch, did you

  14   read this affidavit before you signed it?

  15   A.  Of course I read it.

  16   Q.  Now, look at the indentation at pages 5 and 6.  It's a

  17   different indentation, is it not, than the other pages in the

  18   affidavit.

  19   A.  It is.

  20   Q.  And were these documents signed on separate papers?

  21   Pardon me.  Were these affidavits --

  22            THE COURT:  There is only one affidavit.

  23   Q.  Was this affidavit sent to you in several pieces?

  24   A.  No, I had the whole affidavit when I signed it.

  25   Q.  Are you aware of the -- do you know Mr. David Boies?




                                                                593



   1   A.  I do.

   2   Q.  Have you seen any of the reports or studies that have been

   3   filed in the Napster case?

   4   A.  I have not.

   5   Q.  Are you aware of any studies that have been filed by the

   6   Digital Media Association with respect to the effect of

   7   illegal copying of either movies or audio on sales?

   8   A.  No.

   9   Q.  Do you know of the report of Professor Fayder that has

  10   been filed in the Napster case concerning the relationship

  11   between sales and piracy?

  12   A.  I do not.

  13   Q.  Do you know of the report filed by the Annenberg Center at

  14   the University of Southern California on the relationship

  15   between piracy and increased sales?

  16   A.  In the Napster case?

  17   Q.  Yes.

  18   A.  I don't.  I've already told you I don't know of any of the

  19   reports.

  20   Q.  Putting those reports aside, prior to coming here today

  21   have you looked at any report ever created relating

  22   specifically to the movie industry and the effect of illegal

  23   copying and sales?

  24   A.  No.

  25   Q.  You mentioned all the books you have written and all the




                                                                594



   1   articles you have written, is that right?

   2   A.  By number.

   3   Q.  Have you ever written a book specifically dealing with the

   4   relationship between piracy or illegal copying in the movie

   5   industry and sales?

   6   A.  No.

   7   Q.  And would your answer be the same if I asked you with

   8   respect to have you ever written an article specifically

   9   dealing with the effects of piracy or copying and sales?

  10   A.  Yes, my answer would be the same.

  11   Q.  Now, do you know that Professor Kurlantzick who you spoke

  12   about before had testified in the Rio case in California?

  13   A.  No.

  14   Q.  Did you know that both the trial court and the Ninth

  15   Circuit had cited the exact same testimony that you have just

  16   been asked about by Mr. Gold?

  17            MR. GOLD:  Objection, your Honor.

  18            THE COURT:  Sustained as to form at least.

  19   Q.  Do you know who Professor Kurlantzick is?

  20   A.  Only from reading his declaration in this case.

  21   Q.  Did you ever make any attempt to find out anything about

  22   his background?

  23   A.  No.

  24   Q.  To your knowledge, has he ever testified in any cases

  25   involving the relationship between copying and sales in the




                                                                595



   1   record history?

   2   A.  I don't know.

   3   Q.  Now, have you ever heard of Professor Einhorn?

   4   A.  No, never.

   5   Q.  Have you ever read any articles that Professor Kurlantzick

   6   has written about the relationship between piracy or illegal

   7   copying and sales?

   8   A.  No.

   9            MR. GOLD:  Objection, your Honor, no foundation.

  10            THE COURT:  Sustained.

  11   Q.  Do you know if he has?

  12   A.  No.

  13   Q.  Do you know if Professor Einhorn has ever written any

  14   articles about the relationship between sales and illegal

  15   copying?

  16   A.  No.

  17   Q.  Do you know who Barbara Simon is?

  18   A.  I read her declaration, and while I forget at the moment

  19   what her position is, my recollection is she is with a

  20   nonprofit group.

  21   Q.  Now, do you know who Professor Abelson is at Princeton --

  22   pardon me -- at MIT?

  23            MR. GOLD:  Your Honor, I object to this line.

  24   Abelson is a computer assistant professor at Princeton, and we

  25   could go through --




                                                                596



   1            MR. GARBUS:  I withdraw it.

   2   Q.  You were asked in your assumption to make certain

   3   assumptions about Internet speeds.  Have you ever written any

   4   articles specifically related to the sending of movies over

   5   the Internet?

   6   A.  No.

   7   Q.  Have you ever seen a DVD movie, period?

   8   A.  No.

   9   Q.  Have you ever seen or has anyone ever asked you to see a

  10   movie that was allegedly transmitted that had been deencrypted

  11   through DeCSS?

  12   A.  No.

  13   Q.  Is there any way that you can have a position on the

  14   difference in the quality between two things that you haven't

  15   seen?

  16            MR. GOLD:  Your Honor, I object to the question.

  17            THE COURT:  Sustained.  He didn't offer any opinion

  18   on that subject.

  19            MR. GARBUS:  Your Honor, I don't think I'll be too

  20   long.

  21   Q.  Do you know what an individual demand curve is?

  22   A.  Yes.

  23   Q.  Do you know what a market demand curve is?

  24   A.  Yes.

  25   Q.  Did you try and prepare any of those curves prior to your




                                                                597



   1   testimony here today concerning the movie industry or any

   2   individual buyer of DVDs?

   3   A.  I thought about the properties of those curves, but I

   4   certainly didn't try empirically to estimate.

   5   Q.  Now isn't it true that at a zero price there are many

   6   people who will get a DVD where they would not pay 10, 12 or

   7   $15 for it, and that it therefore doesn't affect their

   8   particular buying of the product?

   9   A.  A, yes, it is certainly true that there would be some such

  10   people.  I don't know how many.  B, yes, it is true that it

  11   doesn't affect people buying the product on DVDs, although it

  12   might affect the question of whether they are interested in

  13   watching it in other windows of release.

  14            MR. GARBUS:  This will just be the last question I

  15   think, although I'm not sure.

  16   Q.  I presume no one ever told you that there was one single

  17   sale that's been lost thus far as a result of DeCSS.

  18   A.  Sir, is it a question whether somebody ever told me that?

  19   Q.  Yes.

  20   A.  No, nobody ever told me that.

  21   Q.  Did you ask anyone at the Proskauer firm before you

  22   testified here today whether or not you could see any studies

  23   or any statistics that the movie industry had put together

  24   concerning illegal copying and sales?

  25            MR. GOLD:  I object, your Honor.  It lacks




                                                                598



   1   foundation.

   2            THE COURT:  Overruled.  Answer if you can, please.

   3   A.  No, I didn't.  I saw no need for that.

   4   Q.  Now, with respect to the first affidavit, how was the

   5   affidavit signed?  In person?  In fax?

   6   A.  I signed it -- first of all there is only one.

   7   Q.  Yes.

   8   A.  I signed it in person, I sent a faxed copy to Mr. Hart,

   9   and then I sent by I think it's express mail the entire

  10   affidavit and the original signature of Mr. Hart.

  11   Q.  So that was three hours.  And you say you have worked a

  12   total of I think 16 hours?

  13   A.  Yes.

  14   Q.  Tell me where the other 16 hours come from?

  15   A.  Well, I good deal.

  16            MR. GOLD:  The mathematics are wrong.

  17   Q.  Where did the other 13 hours come from?

  18   A.  Well, I spent a good many of them with you at the

  19   deposition.

  20   Q.  It was a pleasure.

  21   A.  It was for me.  And I spent some time in preparation for

  22   that deposition.

  23   Q.  How much time did you spend in preparation for the

  24   deposition?

  25   A.  A couple hours.  The question -- I'm sorry.




                                                                599



   1   Q.  Pardon me.  That's with Mr. Hart and Mr. Proskauer?

   2            THE COURT:  Mr. Proskauer hasn't been with us for a

   3   long time.

   4   Q.  That's with Mr. Hart?

   5            THE COURT:  I thought we were getting into a new area

   6   of expertise.

   7   A.  Yes, it was with Mr. Hart.

   8   Q.  So that was how long?  Two hours for the deposition?

   9   A.  Yes, there was some travel time to get to the deposition

  10   and back.

  11   Q.  You came down from Cape Cod?

  12   A.  We like to think of it as up, but, yes.

  13   Q.  So you charged them for the time that it took you to come

  14   down from Cape Cod for your deposition, is that right?

  15   A.  Yes.

  16   Q.  And then you were prepared for your testimony here.

  17   A.  Yes.

  18   Q.  And how long did that take?

  19   A.  I had several conversations in the last couple of days,

  20   and I would say in total those took about two or three hours,

  21   maybe less, about two hours.  That was before today.

  22   Q.  Did you at any time call any other economists who had ever

  23   done any research either in the movie industry or the record

  24   industry?

  25   A.  No.




                                                                600



   1   Q.  Did you at any time buy a book that deals with sales in

   2   the movie industry?

   3            MR. GOLD:  Your Honor, that lacks foundation.  I'm

   4   not sure there is --

   5            THE COURT:  Sustained.  Sustained.

   6   Q.  Do you know of any books that deal with the question of

   7   sales in the movie industry?

   8   A.  In the sense you mean, no, I don't.

   9   Q.  Did you go to the MPAA site at any time?  By the way, do

  10   you go on the Internet?

  11   A.  From time to time.

  12   Q.  And do you know about Internet speeds?

  13   A.  I'm sorry.  "From time to time" makes it sound as though

  14   it's infrequent.  It's not infrequent.

  15   Q.  And do you know what Internet speeds are let's say with

  16   respect to whatever your computer connection is?

  17   A.  I know generally.  I don't know that I know very

  18   precisely.  Between my wife and me we have about four

  19   computers that we use for this purpose, so they are at

  20   different speeds.

  21   Q.  You are not an expert though, are you, on Internet speeds

  22   on computers or within universities.

  23   A.  Well, I know some things about them, and some of those

  24   things I know from the Microsoft case, but, no, I would not

  25   consider myself to be a specific expert on that subject.




                                                                601



   1   Q.  Thank you.  Have you ever testified in a case involving --

   2   and I'm not talking about copyright -- in a case involving

   3   illegal copying of movies, videos, cassettes or DVDs?

   4   A.  No.

   5   Q.  Have you ever testified in a case involving fair use

   6   issues?

   7   A.  I don't think so.

   8   Q.  Have you ever read any academic study -- pardon me -- are

   9   there any academic studies that you know of concerning the

  10   relationship between illegal copying and price?

  11   A.  I shouldn't think so.

  12   Q.  In any event, you haven't read any that you know of?

  13   A.  No, I do know of some issues in the Microsoft case

  14   relating to illegal copying and price, but those aren't

  15   academic studies.

  16            MR. GARBUS:  Excuse me.  Can I hear that again?

  17            (Record read)

  18   Q.  Did you look for any academic studies at any time prior to

  19   the time you came here to testify concerning the relationship

  20   between illegal copying and price?

  21            MR. GOLD:  I think that lacks foundation, your Honor.

  22            THE COURT:  I think we have pretty much exhausted

  23   this line of inquiry, Mr. Garbus.

  24            MR. GARBUS:  I will just be very brief and just ask a

  25   few other questions.




                                                                602



   1   Q.  One of the cases you are testifying in is the Walmart

   2   case, is that right?

   3   A.  Let me be precise.  I have given a deposition in the

   4   Walmart case.  Against Visa and Mastercard, a class action

   5   case, I expect to testify.

   6   Q.  And in that case the fee was $800 an hour?

   7   A.  Yes, that was my regular fee for cases up until about nine

   8   months ago.

   9   Q.  Have you -- withdrawn.  I think this will be the last.

  10            (Continued on next page)

  11

  12

  13

  14

  15

  16

  17

  18

  19

  20

  21

  22

  23

  24

  25




                                                                603



   1   Q.  By the way, do you know what a blank DVD disk costs?

   2   A.  We had some discussion of that at my deposition, other

   3   than the information exchanged there, I do not know.

   4   Q.  Do you know what a regular DVD costs that's not blank?

   5   A.  I'm told that it could cost roughly $25.

   6   Q.  Have you ever bought one?

   7   A.  No.

   8   Q.  Did you ever look at any of the license agreements in this

   9   case -- withdrawn.

  10            Were you shown any documents in this case other than

  11   the affidavits you've previously referred to?

  12            THE COURT:  Asked and answered.

  13            He described in detail earlier what he looked at.

  14            MR. GARBUS:  I have no further questions.

  15            THE COURT:  Mr. Garbus, I just want to be clear about

  16   something.  Am I to understand from you that the Court, the

  17   Ninth Circuit and the District Court in the case to which you

  18   referred, which I think was the R-I-A-A.

  19            MR. GARBUS:  R-I-O.

  20            THE COURT:  Pardon?

  21            MR. GARBUS:  R-I-O.  I call it the Rio case.  I think

  22   Rio may just have been a party --

  23            MR GOLD:  I think it's the Diamond Media case.

  24            THE COURT:  Diamond Media?

  25            MR. GARBUS:  Yes.




                                                                604



   1            THE COURT:  Now, am I to understand that it's your

   2   position that the District Court and the Court of Appeals'

   3   opinions relied on Professor Kurlantzick's express testimony

   4   in this?

   5            MR. GARBUS:  I think the Court today, I think that

   6   the Court of Appeals quoted him, but I don't remember about

   7   the trial court.

   8            THE COURT:  I would appreciate if you would cite that

   9   to me because I have just been looking on Westlaw and what I

  10   find that the Court of Appeals says there is a dispute about

  11   the effect of illegal copying on sales and it cites

  12   Kurlantzick as on one side of dispute and the record industry

  13   association on the other.  And it doesn't adopt any view of

  14   the dispute.

  15            MR. GARBUS:  Yes.

  16            THE COURT:  Well, if that's what it means to say,

  17   they adopted his view, I guess we have learned something, but

  18   if there is something else to which you are referring, I would

  19   like to know about it.

  20            MR. GARBUS:  I think I was just referring to that

  21   case and I guess my -- in any event, the case says what it

  22   says.

  23            THE COURT:  It says what it says  O.K., thank you.

  24            Anything else for this witness, Mr. Gold?

  25            MR GOLD:  No.




                                                                605



   1            MR. GARBUS:  You are very computer proficient.

   2            THE COURT:  Thank you.

   3            THE WITNESS:  Thank you, your Honor.  I apologize for

   4   the earlier comment.

   5            THE COURT:  Relax.  Everybody has got to relax.

   6            (Witness excused)

   7            THE COURT:  Mr. Gold, what's next?  Or I will tell

   8   you what, since I have another conference at 4:30, let's talk

   9   about scheduling and not call another witness now.

  10            MR. GARBUS:  May we approach the bench on scheduling?

  11            THE COURT:  Let me just find out if I really have a

  12   4:30.

  13            Let's talk about scheduling now.  I do have a 4:30.

  14            MR. GARBUS:  Do you want to do it from here?

  15            THE COURT:  We can do it from here.

  16            What have you got left, Mr. Gold?

  17            MR GOLD:  I think only one witness.  I'd have to

  18   check.  If it isn't one, it's two.

  19            THE COURT:  If it isn't one it's?

  20            MR GOLD:  It's two.  And I can find out in a minute,

  21   if you want me to.

  22            THE COURT:  Well, can't Mr. Cooper find out while you

  23   are here dealing with this?

  24            Mr. Cooper, go find out whether you have one witness

  25   left or two; O.K.?.




                                                                606



   1            MR. COOPER:  Yes, your Honor.

   2            THE COURT:  Who is the one you are sure about?

   3            MR GOLD:  McHale.

   4            THE COURT:  And who is the one you are not sure

   5   about?

   6            MR. GOLD:  The one, I'm not not sure about, I'm

   7   really not sure about.  I haven't had much to do with it.  I

   8   need to check with other people.  I'm not withholding

   9   anything.

  10            THE COURT:  Then what have we got from you, Mr.

  11   Garbus?

  12            MR. GARBUS:  I was told this was three or four days.

  13            THE COURT:  Well, tomorrow is the fourth day.

  14            MR. GARBUS:  Right.  I think we could put on people

  15   Friday morning.

  16            THE COURT:  Tomorrow, whenever the plaintiff is done

  17   tomorrow, I mean I had a conference with you folks and I

  18   alerted you that that was the rule.  We are not just going to

  19   kill a half a day because somebody is not ready to proceed.

  20            MR. GARBUS:  I don't know -- I don't know that -- I

  21   would make an attempt to do it.  I don't know as I stand here

  22   now, but I will certainly go out and make a call.

  23            THE COURT:  Well, I assume your client is going to

  24   testify and he is sitting right here now.

  25            MR. GARBUS:  Don't make that assumption.




                                                                607



   1            THE COURT:  Well, I suggest unless you are clear that

   2   Mr. Gold is going to fill the day tomorrow --

   3            MR. GARBUS:  I'm not clear.  We were supposed to be

   4   told each day what they were going to do tomorrow.

   5            MR GOLD:  Here we are.

   6            THE COURT:  Here we are.

   7            MR. GARBUS:  I was supposed to be told at 10 in the

   8   morning what they were going to be doing tomorrow.  I was

   9   never told that.  I did not know they were going to finish

  10   tomorrow.

  11            THE COURT:  Look, I have known since the first day of

  12   the trial that they expected to finish tomorrow.  Indeed I

  13   think I have known it since the pretrial on July 12th.  You

  14   could check, but I have certainly known they expected to be

  15   done on Thursday.

  16            But what do we have, one witness or two?

  17            MR GOLD:  We have one witness and the second witness

  18   we hope we are working out an arrangement.  It's the young man

  19   from Washington who will talk about his exhibits on his

  20   initial affidavits in the preliminary injunction motion.  I

  21   can't imagine --

  22            THE COURT:  Does he have a name?

  23            MR GOLD:  Bruce Boyden; B-O-Y-D-E-N.

  24            THE COURT:  Putting aside for the moment whether we

  25   get started on the defense case tomorrow, what is the defense




                                                                608



   1   case?  We now know what the plaintiff's case is, Mr. Garbus.

   2            MR. GARBUS:  I don't think it should take more than

   3   four days and I think perhaps less.  I think the direct

   4   examination should be relatively short.  So, I think, assuming

   5   that there is a -- I think we probably are going to produce

   6   about nine or ten witnesses.  I think they're short witnesses.

   7   And I think that they're the witnesses who we've identified

   8   and these are witnesses who have been deposed.  So, I think

   9   they can be short.

  10            THE COURT:  All right.

  11            MR GOLD:  Your Honor, tomorrow morning I think that,

  12   I'm assuming we'll work out this, but with respect to Boyden,

  13   we might have on direct, one, one hour and a quarter, and then

  14   it should be the end of our case.

  15            THE COURT:  All right.  Make sure we do everything

  16   possible to have testimony here tomorrow, Mr. Garbus.

  17            MR. GARBUS:  I shall.

  18            THE COURT:  Because I will not be very charitable.

  19            MR. GOLD:  Can I know the other side of that, your

  20   Honor?  I'd like to know who they're putting on tomorrow.

  21            THE COURT:  What's your plan, Mr. Garbus?

  22            MR. GARBUS:  I'll make some phone calls and I'll

  23   advise Mr. Gold by, I hope, 7 o'clock tonight.

  24            THE COURT:  All right.

  25            Now, is it going to be your expectation or desire to




                                                                609



   1   brief this at the end of the trial?  Is that what you are

   2   going to want to do?

   3            MR. GARBUS:  Whatever the Court wants.

   4            THE COURT:  I'm asking what you want and then I will

   5   decide.

   6            MR. GARBUS:  Mr. Gold?

   7            MR. GOLD:  We would like to brief it.  I have no idea

   8   whether Mr. Garbus would like to brief it.

   9            MR. GARBUS:  I'll do whatever Mr. Gold wants to do.

  10   I'm very agreeable.

  11            THE COURT:  I have commented before on how agreeable

  12   you have both been in this case.

  13            MR. GOLD:  I'll remain silent, and I expect to get

  14   credit for it.

  15            THE COURT:  Sufficient unto the day.

  16            I will see you tomorrow morning at 9:00 o'clock.  And

  17   I warn you both that if this thing begins to run beyond the

  18   expectations I have heard about how long it's going to be, we

  19   are going to lengthen the court day.

  20            MR. ATLAS:  One other thing, tomorrow morning,

  21   Mr. Johansen, I believe, will go first pursuant to what we

  22   discussed yesterday at sidebar.

  23            THE COURT:  All right.  So, now you know No. 1, Mr.

  24   Gold.

  25            MR GOLD:  And all I need is No. 2.




                                                                610



   1            Thank you, your Honor.

   2            (Proceedings adjourned to July 20, 2000, at 9

   3   o'clock)

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   1                        INDEX OF EXAMINATION

   2   Witness                    D      X      RD     RX

   3   MARSHA KING..............416    424

   4                                   468     543     549

   5   FRANKLIN M. FISHER.......551    578

   6

   7                         DEFENDANT EXHIBITS

   8   Exhibit No.                                 Received

   9    RK ..........................................467

  10    BX ..........................................530

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