See related files:
http://www.eff.org/IP/Video (EFF Archive)
http://jya.com/cryptout.htm#DVD-DeCSS (Cryptome Archive)
http://www.2600.com/dvd/docs (2600 Archive)
http://cyber.law.harvard.edu/openlaw/dvd/ (Harvard DVD OpenLaw Project)
1 1 UNITED STATES DISTRICT COURT 2 SOUTHERN DISTRICT OF NEW YORK 3 UNIVERSAL CITY STUDIOS, INC.; ) PARAMOUNT PICTURES CORPORATION; ) 4 METRO-GOLDWYN-MAYER, INC.; ) TRISTAR PICTURES, INC.; ) 5 COLUMBIA PICTURES INDUSTRIES, ) INC.; TIME WARNER ENTERTAINMENT ) 6 CO., L.P.; DISNEY ENTERPRISES, ) INC.; and TWENTIETH CENTURY ) 7 FOX FILM CORPORATION, ) ) 8 Plaintiffs, ) ) 9 vs. ) No. 00 Civ. 277 ) (LAK) (RLE) 10 SHAWN C. REIMERDES; ERIC ) CORLEY A/K/A "EMMANUEL ) 11 GOLDSTEIN"; ROMAN KAZAN; and ) 2600 ENTERPRISES, INC., ) 12 ) Defendants. ) 13 --------------------------------) 14 15 DEPOSITION OF MICHAEL EINHORN 16 New York, New York 17 Friday, July 14, 2000 18 19 20 21 22 23 Reported by: 24 Philip Rizzuti JOB NO. 111053 25 2 1 2 3 4 July 14, 2000 5 3:15 p.m. 6 7 Deposition of MICHAEL EINHORN, held at 8 the offices of Proskauer Rose LLP, 1585 9 Broadway, New York, New York, pursuant to 10 notice, before Philip Rizzuti, a Notary 11 Public of the State of New York. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 2 A P P E A R A N C E S: 3 4 PROSKAUER ROSE, LLP 5 Attorneys for Plaintiff 6 1585 Broadway 7 New York, New York 10036-8299 8 BY: CHARLES S. SIMS, ESQ. 9 10 11 FRANKFURT GARBUS KLEIN & SELZ, PC 12 Attorneys for Defendants 13 488 Madison Avenue 14 New York, New York 10022 15 BY: EDWARD HERNSTADT, ESQ. 16 MARTIN GARBUS, ESQ. 17 18 19 20 21 22 23 24 25 4 1 2 IT IS HEREBY STIPULATED AND AGREED, 3 by and between counsel for the respective 4 parties hereto, that the filing, sealing and 5 certification of the within deposition shall 6 be and the same are hereby waived; 7 IT IS FURTHER STIPULATED AND AGREED 8 that all objections, except as to the form 9 of the question, shall be reserved to the 10 time of the trial; 11 IT IS FURTHER STIPULATED AND AGREED 12 that the within deposition may be signed 13 before any Notary Public with the same force 14 and effect as if signed and sworn to before 15 the Court. 16 17 18 19 20 21 22 23 24 25 5 1 Einhorn 2 M I C H A E L E I N H O R N, called as a 3 witness, having been duly sworn by a Notary 4 Public, was examined and testified as 5 follows: 6 EXAMINATION BY 7 MR. SIMS: 8 Q. State your name and address for the 9 record? 10 11 12 13 CONFIDENTIAL 14 15 16 17 Q. Have you ever been deposed before, 18 Mr. Einhorn? 19 A. No. 20 Q. Have you ever testified in court before? 21 A. No. 22 Q. Why don't you me through your academic 23 degrees from college onward? 24 A. I have a BA from Dartmouth, sum cum 25 laude 1974. I have got a masters in economics from 6 1 Einhorn 2 Yale that I earned in 1976. I have a Ph.D. that I 3 completed in 1981. 4 Q. Ph.D. from? 5 A. Yale. [deleted] 4 Q. Have you undertaken any study in 5 connection with your agreement to testify here 6 today or at trial over the next few weeks? 7 MR. HERNSTADT: Objection to form. 8 Vague. 9 Q. Have you undertaken any research with 10 respect to your testimony here today? 11 A. Could you explain what research means? 12 Q. Yes. Have you conducted any survey of 13 any type? 14 A. I have conducted no survey. 15 Q. Let me ask it a different way: What 16 have you done to prepare for your deposition today? 17 A. I read through the depositions -- the 18 declarations. 19 Q. Which ones? 20 A. All of the ones on our side. I read 21 through Professor Fisher's declaration. I read 22 through Professor Fisher's deposition. I read 23 through the professor's testimony on Microsoft. I 24 read through -- you got to give me a chance to 25 think, because I am trying to give you the full 13 1 Einhorn 2 answer. I visited web-sites related to the DVD CCA 3 and LiViD. I spoke to Mr. Pavlovich on the 4 telephone. 5 Q. Do you know whether that was before or 6 after he was deposed? 7 A. If you tell me when he was deposed, I 8 answer your question. 9 Q. Did you speak to him about his 10 deposition? 11 A. No, not about his deposition. 12 Q. Yes? 13 A. I think I have everything there. 14 Q. Did you -- 15 A. I also read through the Audio Home 16 Recording Act. 17 Q. You get an award for that. 18 A. And section 1201 of the DMCA, and I 19 think I got everything there. 20 Q. Did you read Judge Kaplan's opinion in 21 this case? 22 A. If I read it, it was at the beginning of 23 the experience when I first began to read some 24 stuff and -- if I read it. I may have read it at 25 the beginning or a couple of papers that I went 14 1 Einhorn 2 through. 3 Q. Do you believe you read it or not? 4 A. I don't think I read it. I don't recall 5 reading it. 6 Q. With respect to the items that you 7 indicated above that you read, how did you obtain 8 them? 9 A. Mr. Garbus' office Xeroxed all the 10 depositions for me. I visited the web-sites 11 myself. 12 MR. HERNSTADT: You mean declarations. 13 A. I am sorry, the declarations. They 14 Xeroxed Fisher's deposition. I visited the 15 web-sites myself where I obtained Fisher's 16 Microsoft stuff, and all the other web-site stuff I 17 visited myself and I realized the one last thing 18 that I have to tell you. 19 I also read the antitrust guidelines of 20 the U.S. Department of Justice regarding 21 intellectual property which was co-published, 22 co-produced by the U.S. Department of Justice and 23 the Federal Trade Commission. 24 Q. When you worked in the Department of 25 Justice did you work on Microsoft? 15 1 Einhorn 2 A. No. 3 Q. Do you know when the antitrust 4 guidelines to which you referred were published? 5 A. 1994, 1995 I believe. 6 Q. Did counsel advise you to read those? 7 A. No. [deleted] 20 Q. Have you done any research into the 21 harm, if any, that would befall owners from the 22 widespread copy of their works? 23 MR. HERNSTADT: Objection to form. 24 Overbroad. You can answer if you can. 25 Q. Read back the question. 16 1 Einhorn 2 (Record read.) 3 A. No, I have not. 4 Q. Have you done any research into the 5 problems of free riding? 6 MR. HERNSTADT: Objection to form. 7 A. I am sorry, when you say -- 8 Q. Are you aware of a concept economists 9 use and refer to, namely the problem of free 10 riders? 11 A. Yes. 12 Q. Have you undertaken any research or 13 study in connection with the problems of free 14 riding or free riders in various industries? 15 MR. HERNSTADT: Objection to form. 16 A. I have not published a paper. I have 17 not written a paper, this is certainly something 18 that I would have, that I thought about, and talked 19 about with people, but never sat down to do a 20 formal piece of research -- may I go back to the 21 previous question regarding the copy. 22 Q. When I am done your counsel can ask any 23 questions he wants to ask? 24 MR. HERNSTADT: Mark that question and 25 then I will ask you what the question was. 17 1 Einhorn 2 Q. Have you done any research or 3 conducted any study concerning the impact of the 4 availability of a free good on the number of 5 persons willing to pay for an identical good? 6 MR. HERNSTADT: Objection to form. 7 A. Once again I have published no papers, 8 nor did I ever submit a draft paper on that topic. 9 But these things are topics of conversation that I 10 have gotten involved in more than just a chatty 11 kind of, you know, in and out kind of way. So -- 12 Q. Sorry? 13 A. It is something that has occupied my 14 professional attention, research usually means 15 some -- can sometimes mean have you published a 16 paper. 17 Q. Have you ever read any judge Richard 18 Posner on the subject of copyright? 19 A. No. 20 Q. Have you ever read any writings by 21 Steven Breier (phonetic) on the subject of 22 copyright? 23 A. No. [deleted] 5 A. No. 6 Q. Have you published any books? 7 A. I have edited three books. They were -- 8 Q. What are the titles? 9 A. I don't remember the titles off the top 10 of my head. Do you have my CV -- 11 Q. No, do you have a CV with you? 12 A. I don't have a CV with me. 13 RQ MR. SIMS: I would call for production 14 of one. 15 MR. HERNSTADT: We will get you one. 16 A. The titles, basically I would tell you 17 the -- there was a book on price caps in 18 telecommunications. 19 Q. Yes? 20 A. There was -- 21 Q. Roughly wouldn't year? 22 A. 1986. 23 Q. Yes? 24 A. There was a book on restructure of the 25 electricity industry, and there was a book on 19 1 Einhorn 2 transmission economics in the electricity industry. 3 Q. Were those books copyrighted? 4 A. Yes much. 5 Q. Did you hold the copyright in any of 6 them? 7 A. Which I had to give them all up of 8 course, but I had them originally. 9 Q. You sold the copyrights in exchange for 10 certain benefits from the publisher? 11 MR. HERNSTADT: Objection to form. 12 A. As a matter of fact I gave the 13 copyright over to the publisher. [deleted] 3 Q. Did you ever complain to either of those 4 three publishers about the form of the contract 5 notice that appeared in those books? 6 A. No. 7 Q. Do you remember what the form of the 8 copyright notice said? 9 A. No. 10 MR. SIMS: I want to mark as Einhorn 11 Exhibit 1, the first eight pages from a book 12 titled: Price Caps and Incentive 13 Regulations in Telecommunications. First 14 eight pages minus the dedication page, which 15 I am not interested in. 16 (Einhorn Exhibit 1, first eight pages 17 from a book titled Price Caps and Incentive 18 Regulations in Telecommunications, marked 19 for identification, as of this date.) 20 Q. Am I correct Mr. Einhorn that this is 21 the first few pages from the first book which you 22 identified a few moments ago? 23 A. Yes. 24 Q. Would you read if you would the 25 copyright notice into the record on I guess the 21 1 Einhorn 2 fourth page that appears here? 3 A. "All rights reserved, no part of this 4 publication may be reproduced, stored in a 5 retrieval system or transmitted in any form or by 6 any means, mechanical photocopying, recording or 7 otherwise without the prior written permission of 8 the publisher, Kluwer Academic Publishers, 101 9 Philip Drive, Assinippi Park, Norwell, 10 Massachusetts 02061." 11 Q. From an economic point of view what was 12 the function of this copyright notice? 13 MR. HERNSTADT: Objection to form. If 14 you have an opinion as to the economic 15 purpose of it, the copyright notice. 16 A. To prevent copying. 17 Q. Am I correct that one function of a 18 notice like this would be to allow the copyright 19 owner to collect and enjoy the economic fruits of 20 its property? 21 MR. HERNSTADT: Objection to form. If 22 you have an opinion on that you can answer. 23 A. As a non-lawyer -- 24 Q. I am asking you not as a lawyer, but an 25 economist? 22 1 Einhorn 2 A. It would seem this is an appropriate 3 notice to allow them to collect for their 4 copyright. 5 Q. What was your first contact with any of 6 the attorneys at Frankfurt Garbus or any of the 7 defendants in this lawsuit? 8 A. I met -- I spoke with Robin Gross 9 sometime in the spring of this year in connection 10 with my professional research. And professional 11 interests. And in the course of time said that I 12 would try to catch up with her to see whether there 13 were any things in which -- where I could 14 justifiably cooperate with her in any manner, that 15 I felt comfortable cooperating with her. 16 I was in Washington last month and 17 stopped in to visit Terri Steel, who chatted about 18 the -- about copyright issues with me, and in the 19 course of time I learned about DeCSS. 20 Q. Who is Terri Steel? 21 A. Executive director of the Electronic 22 Frontier Foundation. 23 Q. You mentioned that you spoke with Robin 24 Gross in connection with professional research and 25 professional interest, am I correct? 23 1 Einhorn 2 A. Yes. 3 Q. What was that professional research? 4 A. I contacted her originally because I was 5 doing some research into section 112 and 114 of the 6 Digital Millennium Copyright Act, which are matters 7 that are going to go before the copyright office 8 later this year. And I just wanted to know what 9 her positions were. If she intended to do anything 10 about it. 11 Q. Briefly what do the sections pertain to? 12 A. You are going to hate me for this -- 13 Q. You got to two in two -- 14 A. Section 114 is the big one, that 15 establishes the rules for collecting royalties for 16 digital audio transmissions of sound recordings in 17 interactive and non-interactive media. That is 18 a -- that section 114 is a modification of the 19 copyright act. Section 114 -- I am giving you the 20 copyright right modification. 21 Section 112 deals with ephemeral 22 reproductions. Ephemeral reproductions are 23 reproductions made by broadcast stations, 24 non-profit institutions, and government 25 institutions for a period of six months or less as 24 1 Einhorn 2 back up reproductions that have been historically 3 exempt under the copyright act from making any 4 payments. 5 The big one is 114, because that added 6 the performance right in sound recordings. 7 Q. Does 114 provide any form of compulsory 8 license? 9 A. Yes. 10 Q. Does 112 afford any form of compulsory 11 license? 12 A. They have to figure out what they are 13 going to do with 112. 14 Q. 114 already has -- 15 A. For eligible non-interactive 16 performances. 17 Q. How did your conversation that you just 18 referred to with Terri Steel eventuate in a 19 decision by you to testify here today? 20 A. I got home to my -- I checked my E-mail 21 two or three weeks ago, and got a message to call 22 Robin Gross which I did. And she discussed in 23 very -- she outlined there was a case about CSS, 24 would I be interested in looking at it. I said I 25 would have to think about it and learn about all 25 1 Einhorn 2 the issues. 3 I thought about it for about 24 hours 4 and said there may be something here, but I have to 5 read some more, and then at that point she put me 6 in contact with Mr. Garbus and I began to read 7 about some of the issues at hand. 8 Q. Did you receive other than the materials 9 that you already identified, did you receive any 10 correspondence, letters, E-mails, from Mr. Garbus 11 or his colleagues? 12 A. I received no letters. The E-mails 13 were, if anything at all, administrative. 14 Q. Nothing about the substance of the case? 15 A. No. 16 Q. How many times have you met with 17 Mr. Garbus? 18 A. Once before today. 19 Q. When and for how long? 20 A. Monday, we physically met for maybe, oh, 21 maybe a half hour. 22 Q. Today how long did you meet with him 23 prior to the, his entrance into this room? 24 A. I don't think we met at all today, we 25 just said hello together. 26 1 Einhorn 2 Q. Which other attorneys at Frankfurt 3 Garbus have you met with, if any? 4 A. David Atlas; Edward Hernstadt, and three 5 young fellows, I don't know their last names, 6 Jeremiah and a woman named Casey. They are all 7 attorneys; and there is one more that I met with 8 actually, but I don't remember his name. 9 Q. I have been handed a declaration, it is 10 called a declaration, dated July 14th and signed by 11 Mr. Einhorn, which is roughly identical to what I 12 received yesterday at 5:30, but for a couple of 13 grammatical improvements that Mr. Einhorn has 14 provided. Let's mark this as Einhorn Exhibit 2. 15 (Einhorn Exhibit 2, declaration of 16 Einhorn, marked for identification, as of 17 this date.) 18 Q. Mr. Einhorn, who drafted this? 19 A. I did. 20 Q. Entirely? 21 A. Entirely. 22 Q. Did you discuss a previous version of 23 the text with counsel and make changes as a result 24 of those conversations? 25 A. I made one change as the result of 27 1 Einhorn 2 conversation with counsel. 3 Q. Would you identify that change, please? 4 A. Yes. The one clause that I added and I 5 feel counsel was right here, was number 7. 6 Q. The entire paragraph or some portion of 7 it? 8 A. 7 -- 9 Q. The entire paragraph 7? 10 A. Yes, the sentence. 11 Q. Were there sentences or clauses in a 12 prior version that were altered or deleted after 13 your conversations with counsel? 14 A. With counsel, no. 15 Q. You indicated before that you read what 16 you believe to be all of the declarations submitted 17 by defendants in this case? 18 A. I believe so. 19 Q. Do you know whether you read a 20 declaration of a professor -- I am sorry, a Louis 21 Kurlantzick? 22 A. Sure. 23 Q. Who gave that one to you? 24 A. All the declarations were given to me by 25 a young attorney in Mr. Garbus' office whose name 28 1 Einhorn 2 is Josh. He had them Xeroxed for me and he gave 3 them to me. I don't remember his last name. 4 Q. Did anyone at Frankfurt Garbus or on 5 behalf of the defendants ask you whether you agreed 6 with the statements in the Kurlantzick declaration? 7 A. No one asked me if I agreed with them. 8 Q. Did anyone on behalf of the defendants 9 or at Frankfurt Garbus ask you if you would include 10 any of those statements in your declaration? 11 A. No. They did not. 12 Q. Have you retained any earlier drafts of 13 your declaration? 14 A. I believe that I saved right over it and 15 kept the same name. 16 MR. GARBUS: Without being rude, how 17 long do you think you are going to go? 18 MR. SIMS: It is not rude at all to 19 ask. My guess would be an hour and a half. 20 Q. Do you plan to, as far as you know, 21 Mr. Einhorn, testify at the trial of this matter? 22 A. I believe I am going to be asked to 23 testify. 24 Q. What is the economic arrangement, if 25 any, that you have made in connection with that 29 1 Einhorn 2 testimony and your appearance here today? 3 A. I am appearing pro bono. 4 Q. What does paragraph 4 of your 5 declaration mean? 6 MR. HERNSTADT: Objection to form. You 7 can answer. 8 A. Policies that are established 9 inevitably have some strengths and weaknesses that 10 are associated with them. There is very rarely, 11 that is a perfect good or perfect bad. It is 12 appropriate in choosing the optimal policy course 13 to consider the benefits and the costs of any 14 associated alternative, and try to consider the 15 combination that maximizes what I will call net 16 social benefits. 17 Q. With respect to policies embodied in 18 legislation, who is it who is entitled, as far as 19 you understand it, to make those judgments? 20 MR. HERNSTADT: Objection to form, and 21 insofar as it calls for a legal conclusion. 22 A. Exactly right. I am speaking here as 23 an economist. I am testifying as an economist. I 24 sometimes understand that what might be the 25 economically rational policy may be a conflict with 30 1 Einhorn 2 law. 3 Q. Take a look, if you would, sir, at the 4 statement in paragraph 5 of your declaration? 5 A. Okay. 6 Q. I take it that that statement is 7 generally true of everybody; is that correct? 8 MR. HERNSTADT: Objection to form. 9 MR. GARBUS: Everybody about the world 10 geography? 11 Q. That statement is generally true of 12 plaintiff's motion pictures? 13 A. I think that statement is true of any 14 good or service. 15 Q. What did you mean by the statement that 16 appears in paragraph 6? 17 MR. HERNSTADT: Objection to form. 18 A. Okay. What I mean here is that piracy 19 or the threat of piracy cannot be evaluated simply 20 in a vacuum that suggests a hypothetical 21 possibility, piracy. Rather I would suggest that 22 there are two things we must consider when we talk 23 about the threat of piracy that go beyond that 24 simple identification. First, we have to figure 25 out what other technologies the pirate can use. 31 1 Einhorn 2 If we take away one piracy technology, 3 what else does he have at his disposal to use to 4 pirate. And where on that continuum of 5 technologies does the proscribed method lie in 6 terms of costs. 7 That is what I meant. 8 Q. I think you have testified that when you 9 worked for Bell Labs, you worked on pay telephone 10 issues; is that correct? 11 A. Primarily. 12 Q. Did the pay telephones that were -- what 13 is it that Bell Labs did with pay telephones, did 14 they build them or sell them or license, what is it 15 that Bell Labs did with respect to pay telephones. 16 MR. HERNSTADT: Objection. 17 A. They attempted to install them in 18 places that would lead to maximum amount of 19 revenue, and to determine where the right spots 20 would be to build out the infrastructure of pay 21 telephones. This is before of course the wireless 22 revolution, and they were trying to understand the 23 overall consumer demand for pay telephones, and the 24 determinates for the placement, and where the next 25 pay telephones should be. 32 1 Einhorn 2 Q. Do you have an opinion as to whether 3 people have a right to speak? 4 A. I think people have a right to speak. 5 Q. Do you believe they have a right to 6 speak to their friends and neighbors? 7 MR. HERNSTADT: Objection to form. 8 A. Yes. 9 Q. To their children and parents? 10 A. Yes. 11 MR. HERNSTADT: Objection to form. 12 Q. Are you aware of whatever Bell 13 entities at that time that were deploying pay 14 telephones, had mechanisms on those phones so that 15 you had to put in money in order to -- to obligate 16 yourself to pay in order to make those telephone 17 calls? 18 MR. HERNSTADT: Objection. 19 A. Actually even back then most calls 20 were made without dropping a coin in. 21 Q. But were they free? 22 A. No. 23 Q. It was impossible back then to make a 24 phone call without either paying up front or 25 incurring an obligation to pay the cost of the 33 1 Einhorn 2 call? 3 A. Quite right. 4 MR. HERNSTADT: Objection to form. 5 Q. Putting aside -- what were the 6 exceptions to that overall policy? 7 MR. HERNSTADT: Objection to form. 8 Q. If any? 9 MR. HERNSTADT: I think it misstates the 10 testimony. 11 A. I am not sure that Bell Telephone ever 12 gave away any free telephone calls. 13 Q. Was it your view that the imposition of 14 a charge in order to make a phone call was a 15 violation of any rights of consumers? 16 MR. HERNSTADT: Objection to the 17 question insofar as it calls for a legal 18 conclusion. You can answer it if you can. 19 A. I think that making people pay for 20 phone calls did not violate their legal rights. 21 Q. From an economic point of view did you 22 consider, did you have a judgment as to whether it 23 was rational from the point of view the phone 24 company to charge for the use of its service? 25 MR. HERNSTADT: I would like to put an 34 1 Einhorn 2 objection to this whole line of questioning. 3 Totally irrelevant. But you can answer to 4 the best of your ability. 5 MR. GARBUS: Off the record again for 6 a moment. 7 (Recess taken.) 8 A. It is quite rational for AT&T to 9 charge people for telephone calls. 10 Q. And did you have some view then as to 11 whether complex American sophisticated business 12 organizations such as AT&T generally had a pretty 13 good idea of their own best interests economically? 14 A. They certainly did. Well -- 15 Q. I mean to generalize the question; 16 wouldn't you agree as an economist that generally 17 speaking complex American business organizations 18 such as AT&T generally are a better judge of their 19 own best economic interest than outsiders? 20 MR. HERNSTADT: Objection to the 21 question as being ridiculous. But go ahead. 22 MR. SIMS: I would say it is a central 23 issue here. 24 A. I would say, what I have seen of so 25 many American organizations, they don't understand 35 1 Einhorn 2 what is in their best interests. AT&T in fact is 3 notorious for not having gotten it right. Look how 4 they broke themselves up. You are picking on -- 5 you are picking on a -- don't say AT&T, maybe 6 Microsoft understands their own interest, but AT&T 7 does not. That is the problem with AT&T. 8 Q. The question I asked was, whether 9 complex business organizations such as large 10 corporations in more than day American, generally 11 are better judges of their economic self interest 12 than consumers of their products? 13 MR. HERNSTADT: Objection to everything 14 about that question. 15 A. I can't guess on that one. 16 Q. Did AT&T and by that I mean to include 17 Bell Labs, invest in the security of the revenue 18 streams associated with the operation of the pay 19 telephones that they deployed. 20 MR. HERNSTADT: Objection to the form of 21 the question, unbelievably vague. 22 A. What I think you mean, was there some 23 kind of investment in policing, in the loosest 24 sense of the word of policing. 25 Q. Was there an investment in the physical 36 1 Einhorn 2 security of the coin box? 3 A. Yes. I believe there was. 4 Q. Was the coin box to the best of your 5 recollection opened for individuals to pull money 6 out of? 7 A. I am quite sure it was not. 8 Q. Was there investment in some level of 9 assurance that people who were promising to pay, 10 would in fact pay? 11 MR. HERNSTADT: Objection to form. 12 A. I believe that people who used the 13 telephone either dropped the coins in the box or 14 paid for phone calls by credit card, collect, or 15 collect calls or third-party. And in each of those 16 cases I think there was an implied contract that 17 people were going to pay. 18 Q. Was there investment made in deterring 19 theft of phone service? 20 MR. HERNSTADT: How much further are you 21 going to go with this, you are going to -- 22 MR. SIMS: Ten minutes. 23 MR. HERNSTADT: You are asking about 24 what Bell Labs did in 1984 to 199 -- 25 MR. SIMS: I think the witness' 37 1 Einhorn 2 declaration as I understand it is attempting 3 to say that the motion picture industry is 4 not entitled to what the phone company is 5 entitled to. I think I am entitled -- 6 MR. HERNSTADT: Ask him if that is 7 what he said. It is not in the declaration 8 at all. 9 MR. SIMS: You want to take his 10 deposition when I am done, you may try. 11 MR. HERNSTADT: I will let this go a 12 little further, but it is so completely 13 irrelevant to this case what Bell was doing 14 in '81 to '94 -- 15 MR. SIMS: I think there is a question 16 on the record. 17 (Record read.) 18 A. Yes. 19 Q. Do you think it was economically 20 rational to make that investment, as an economist? 21 A. Based on my surmise, yes, I think it was 22 rational. On a surmise, not as an economist, on a 23 surmise. 24 Q. When AT&T deployed its resources to 25 deter and defeat piracy of pay phone service, did 38 1 Einhorn 2 they consider the costs to the pirate -- 3 MR. HERNSTADT: Objection to form -- 4 Q. -- in proceeding along that course? 5 MR. HERNSTADT: Objection to form. 6 Assumes facts not in evidence. 7 A. I have no idea. 8 Q. What is the relationship of the 9 statement you make in paragraph 6 to the issues in 10 this case, as you understand it? 11 MR. HERNSTADT: Hold on a second. I 12 would like to take a look at paragraph 6 13 again, okay. 14 A. I think that some suggestion has been 15 made that the DeCSS technology facilitates piracy 16 and I think any time a charge like that is aired, 17 the next logical step is to figure out exactly how 18 that piracy is going to be done and what kind of 19 materials are going to be used to make -- to use 20 the appointed method to make the illegal copies. 21 So what I want to do here would be to go 22 through and say, well, just, what, you know, take 23 me through the steps here. What I would say to 24 myself, take me through the steps, Mr. Einhorn, of 25 how you get from this charge that there is a 39 1 Einhorn 2 possibility hypothetical possibility of piracy and 3 how you get there from that position at alpha over 4 to the omega that says this poses a realistic, and 5 I emphasize that word, realistic piracy threat. 6 Q. Have you made any study with respect to 7 whether the availability of DeCSS on the 8 plaintiff's web-site or its availability through 9 the plaintiff's web-site -- 10 MR. HERNSTADT: You mean plaintiffs or 11 defendants? 12 MR. HERNSTADT: Defendants. 13 Q. Have you made any study as to 14 the connection, if any, between the availability of 15 the DeCSS on or through defendant's web-sites, 16 whether it could or has led to the copying without 17 consent of encrypted motion pictures on DVD? 18 MR. HERNSTADT: Objection to form. 19 Facts not in evidence. 20 A. I have made no study of consumer 21 behavior. 22 Q. Have you used DeCSS? 23 A. Never. 24 Q. Have you downloaded it? 25 A. No. 40 1 Einhorn 2 Q. Why not? 3 MR. HERNSTADT: Objection to the form. 4 A. I don't have a DVD player yet. I 5 don't have a DVD player. It would serve me no 6 purpose. 7 Q. Does your background and training and 8 experience as an economist provide you with the 9 means of assessing the likelihood that the 10 availability of DeCSS on or through defendant's 11 web-site will lead to the copying of plaintiff's 12 motion pictures from encrypted DVD? 13 MR. HERNSTADT: Objection. 14 A. I don't think my ability as an 15 economist helps me at all. If I may go further 16 here, what I mean by that is I must, as I 17 understand the question, there are a number of 18 different costs and technologies that I have to 19 understand that do not come from the realm of 20 economics; that economists are not academically 21 trained to understand, and it is from this realm of 22 shall we call it telecommunications science that 23 the answers may lie. 24 I can review what telecommunications 25 folks may say and form my opinion based on what 41 1 Einhorn 2 they say. 3 Q. Focussing for a moment on paragraph 6 of 4 your declaration, do you know whether when Bell 5 Labs was assessing the threat of theft of pay 6 telephone service, they associated the cost of the 7 pirate as well as alternative technologies at the 8 pirates disposal? 9 MR. HERNSTADT: Objection to form. 10 A. I worked as an economist at Bell Labs. 11 I didn't see any of this sort of administrative 12 stuff. 13 Q. Is it your view as an economist that 14 AT&T could not properly assess the threat of piracy 15 for its pay telephone system without considering 16 the associated costs to those who they thought 17 might steal their service? 18 MR. HERNSTADT: Objection to the 19 question. You may answer. 20 A. I don't know a thing about it. I 21 didn't come near that end of the business. 22 Q. Is it your view as an economist that it 23 would have been irrational for them to take action 24 and make investments to deter phone service theft 25 without considering the associated costs to the 42 1 Einhorn 2 pirate as well as alternative technologies at the 3 pirates disposal? 4 MR. HERNSTADT: Objection. No 5 foundation. You may answer if you can. 6 A. Given my very limited understanding of 7 how I understand this kind of, this issue. The 8 nature of pay telecommunications is such that there 9 are no really good, or there were no really good 10 pay telephone technologies to pay telephone piracy, 11 and that therefore such a determination would have 12 been what a mathematician may call a null sell. 13 That is to say a pirate who wants to rip 14 off the phone company -- limited understanding 15 here -- would go to the pay telephone, and if he 16 didn't have that, he would be, I think, back then, 17 pretty much out of luck to continue long-term 18 piracy of pay telephones. 19 But again I simply don't know how these, 20 how pirate technologies work, so it is hard to 21 answer. 22 Q. Do you have any expertise with respect 23 to the cost associated with decrypting a DVD with 24 DeCSS? 25 A. Do I have any expertise? 43 1 Einhorn 2 Q. Yes, with respect to that? 3 A. To the cost? 4 Q. Yes? 5 A. No. 6 Q. Do you have any expertise with respect 7 to the cost associated with uploading that 8 decrypted file to the Internet for downloading? 9 A. All the information I have is based 10 on -- 11 Q. Things you read? 12 A. Depositions or declarations. 13 Q. So you have no knowledge yourself? 14 A. No. 15 Q. Do you have a knowledge as an economist 16 about the costs associated with downloading a 17 decrypted motion picture which is stored on the 18 Internet in digital form? 19 A. I do not have any personal expertise. 20 Q. I turn your attention to paragraph 8 of 21 your declaration? 22 MR. HERNSTADT: If we can take five -- 23 MR. SIMS: Let takes five now. 24 (Recess taken.) 25 Q. What, Mr. Einhorn, does paragraph 8 44 1 Einhorn 2 mean -- what do you mean by paragraph 8, that is 3 the question on the table? 4 MR. HERNSTADT: Objection to form. It 5 means what it says. It says what it says, 6 the words are there, if you would like him 7 to explain it. 8 A. Can I give examples of this? 9 Q. I withdraw the question. In what way 10 are copyright owners compensated in the United 11 States for illegal sales displacement? 12 MR. HERNSTADT: Read that back, please. 13 (Record read.) 14 MR. HERNSTADT: Objection in so far as 15 it calls for legal conclusion. 16 A. I said for legal and illegal sales 17 displacement, I can't distinguish between the two 18 of them. When books and professional journals are 19 sold to libraries, they are made available to 20 libraries at higher prices, including your 21 publisher, Kluwer, will sell them at higher prices 22 to libraries with the understanding that the 23 material inside will be copied by other people. 24 Now, whether the people who do the 25 copying are doing everything in a legal fashion I 45 1 Einhorn 2 don't know. But the library implicitly makes the 3 publisher whole by paying a higher price. That is 4 example number 1. 5 Example 2 is video cassettes that are 6 made available to stores like Blockbuster Video and 7 Hollywood video, are made available to these stores 8 at higher prices than they are made available to 9 the consumers who buy them for end use, because it 10 is surely understood that the rental of these 11 cassettes can displace sales, again, through either 12 rentals or illegal copying. 13 And the third example is the case of 14 digital audio recorders back in 1992 which 15 Congress -- which the Recording Industry 16 Association of America contended was going to 17 create copying that was going to displace record 18 sales, and Congress passed a law that said that we 19 will affix taxes on to the recorders and the tapes 20 for the purpose of implicitly covering the defrayed 21 or the forgone lost copyright royalties, and those 22 royalties taxes are put into an account in the U.S. 23 treasury and dispensed by the copyright office 24 under section 1004 of section 10 -- of chapter 10 25 of the title 17. 46 1 Einhorn 2 So those are three examples I think of 3 where technologies that do have the potential of 4 displacing sales through certain kinds of ways, 5 legal or illegal, in some way we make copyright 6 holders whole for their efforts. 7 Q. Is it fair to say that your position is 8 that some copyright owners are compensated for some 9 illegal sales displacement in some circumstances; 10 is that the extent of your position on that point? 11 MR. HERNSTADT: Objection to the form. 12 A. I would have to say I would be a fool 13 if I believed that copyright owners were always 14 compensated for piracy. So I have to say it is 15 some, because if I said all, I would be an idiot. 16 Q. So the statement in the first line of 17 paragraph 8 of your declaration? 18 A. As it stands on the page is a gross 19 overstatement; is that correct? 20 MR. HERNSTADT: Objection to the form. 21 A. I don't know whether it is an 22 overstatement or not, but I would be happy to 23 clarify for you. 24 Q. You don't mean, do you, that copyright 25 owners are compensated for all illegal sales 47 1 Einhorn 2 displacement in the United States? 3 MR. HERNSTADT: Objection to form. I 4 think the thing to do is to read the 5 statement in -- 6 MR. SIMS: I am going to ask 7 questions. 8 MR. HERNSTADT: Fine. I will instruct 9 you that you should probably read this into 10 the record as part of your answer, because 11 that question implied something that is not 12 in the document itself. 13 MR. SIMS: Reread the question, 14 please. 15 (Record read.) 16 A. I don't think I ever said that. 17 Q. I am not asking whether you ever said it 18 and I will phrase the question this way, do you 19 agree with me that copyright owners are not 20 compensated for all illegal sales displacement in 21 the United States? 22 A. Yes. 23 MR. SIMS: Let the record show that the 24 witness is nodding to the attorney. 25 A. Yes. 48 1 Einhorn 2 Q. You would agree with me that copyright 3 owners are probably not compensated for most 4 illegal sales displacement in the United States? 5 A. I have no way of knowing. 6 Q. Have you thought at all about what has 7 been happening over the last six months with 8 respect to Napster and -- 9 A. Yes. 10 Q. And do you believe for example, that the 11 sound recording companies, record companies, are 12 being compensated for the full amount of illegal 13 sales displacement occurring on Napster? 14 MR. HERNSTADT: Objection to form, 15 assumes a fact not in evidence. 16 A. It is a very difficult question to 17 answer. I will tell you why, because I have to see 18 and I have not seen what is the estimate of sales 19 displacement. Sales have gone down, if -- there 20 are at -- at some point sales have gone down 21 hypothetically from a hundred to something less. I 22 have to see where that displacement is, and I have 23 not. I have not seen the evidence. I have seen 24 stuff on your web-site -- 25 MR. HERNSTADT: Specify. 49 1 Einhorn 2 A. Not your web-site, either the RIAA or 3 the Proskauer web-site, from a lady, I forget her 4 name. 5 Q. Hillary Rosen. 6 A. No, a marketing analyst. I forget the 7 name, where she did some research that shows that a 8 good number of people who use Napster in her mind 9 are using it to displace record sales. This seems 10 interesting. I have not yet reviewed Mr. Latanaro 11 or Mr. Fader (phonetic) on their comparable 12 studies. I have seen some studies, some statements 13 from record store owners that purport to show that 14 Napster is displacing their sales of physical 15 records. I think that is bogus. 16 I really have not seen, you know, the 17 bottom line. I have not seen where the 18 displacement is in Napster to understand whether 19 this thing is facilitating net piracy or not. I 20 mean "net" as compared with "gross". 21 Q. You do not presently have the opinion, 22 am I correct, that the music companies have been 23 fully compensated for illegal sales displacement of 24 the recordings in the United States from all 25 causes? 50 1 Einhorn 2 MR. HERNSTADT: Object to the form. I 3 did not get the nots, read it back. 4 (Record read.) 5 A. Being familiar as best I can as an 6 economist with the legal structures of copyright, I 7 am going to tell you honestly, I am out on this 8 one. I am a agnostic. I just have not formed -- 9 done the work that I need to do. 10 Q. Are you aware that there are areas in 11 the United States and throughout the world where 12 there are unconsented sales of videotapes of 13 plaintiff's films that have been made without their 14 permission? 15 MR. HERNSTADT: Objection to the form. 16 Assumes facts not in evidence. 17 A. I have come across that statement in 18 declarations that I have read in the past week or 19 so, I have never experienced a firsthand 20 activity -- certainly I never bought any, but I 21 never seen it in the market, foreign market. 22 Q. Have you ever seen any on Eighth Avenue 23 near the bus station? 24 A. Frankly, I walk -- 25 Q. Video cassettes? 51 1 Einhorn 2 A. Die pay attention. I would be afraid to 3 go near them, because I don't trust the quality. 4 Q. There is a reference in paragraph 8 to 5 the existing rights of consumers, researchers and 6 others, what existing rights are you referring to? 7 A. This is number 8? 8 Q. Yes, the last half line or so of 9 paragraph 8? 10 A. Yes, okay. -- 11 MR. HERNSTADT: Objection to the form of 12 the question. He. 13 MR. SIMS: I was asking what he was 14 referring to. 15 A. For one thing, regarding consumer 16 rights, we are talking here about what I will call 17 first use rights; once I buy a piece of property, 18 it is my property, and how I use, how I choose to 19 dispose of that is usually something that the 20 copyright law allows me to do in my own personal 21 way, up to and including the point of being allowed 22 to resell. 23 My records -- despite the fact that that 24 resale may indeed displace the sale of a new copy, 25 and I am legally empowered to do that because there 52 1 Einhorn 2 are certain rights that I have in my embedded 3 property that the law upholds. That is what I am 4 talking about with consumers. 5 With researchers is the right of 6 computer scientists to work on open source code in 7 a way that will advance their profession, both as a 8 very narrow and technical profession, but also I 9 hope will enable the open source systems to become 10 increasingly deployable on PCs throughout the 11 world. 12 So I am talking here about, in specific, 13 the rights to do research on open source software 14 and to enable it to come to higher levels. 15 Q. Do you have an opinion as an economist 16 with respect to whether a system of property rights 17 encourages investment in the development of 18 property? 19 MR. HERNSTADT: Objection to form. 20 A. Property rights encourage investment. 21 Q. And are you familiar with economic 22 papers and analyses with respect to systems in 23 which there are no property rights and whether 24 there is sub optimal investment under those 25 systems? 53 1 Einhorn 2 MR. HERNSTADT: Objection to form. 3 A. I am quite aware of most -- most of my 4 exposure to this issue came through the reading of 5 economic history and one of the reasons why 6 economic historians believe the industrial, one of 7 the reasons why it was possible for the industrial 8 revolution to take off in England, was there 9 because there was a firm system of copyrights. 10 Without having reviewed this issue in 11 any truly scholarly fashion, let me say that I am 12 inclined to agree that you must have a system of 13 property rights to establish the structure on which 14 an economy and go forward to secure for investors 15 the right to appropriate the legitimate profits of 16 their investments. 17 Q. What is the relationship that you see 18 between what you state in paragraph 9 of your 19 declaration and the issues in this lawsuit? 20 A. Okay. Obviously when I talk about 21 legitimate computer scientist in the advancements 22 of their profession, I am talking about the people 23 who work on the open source software movement. 24 That is the legitimate work that I am talking 25 about. 54 1 Einhorn 2 When I say technology policies that 3 require them to apply for licenses, et cetera, what 4 I am talking here, if they have to go to the DVD 5 CCA and get licenses from them to license their 6 work, or license their use of descrambling 7 technology, and if there are restrictions on them 8 sharing results, and if they have to post a 9 liquidated damages clause of one million dollars 10 for any possible violation. 11 I am concerned there that in an open 12 community of researchers where people all chip in 13 their efforts pro bono, I am concerned that that 14 kind of arrangement can have a chilling effect, 15 because there is no one organizational or corporate 16 entity that is able to foot these responsibilities 17 or these tabs. 18 The movement is so open-ended, who could 19 possibly sign a contract -- who could possibly 20 oblige a group of scientist to the acceptance of a 21 liquidated damages clause; who is empowered to make 22 that kind of obligation. 23 Q. Do you know any scientist who want -- 24 who is presently engaged in studying or wants to 25 study CSS? 55 1 Einhorn 2 A. Yes, by scientist, I mean, maybe I am 3 using the wrong word here, I mean commuter science, 4 not physicist. 5 Q. Can you name one computer scientist who 6 presently wants to study a 40 bit encryption system 7 known as CSS? 8 A. Maybe I am getting something wrong here, 9 but I got the impression that people like Andrew 10 Apple and Chris DiBono and Matt Pavlovich and other 11 people whose -- Edward Felton and other people 12 whose declarations I read were all, and maybe I am 13 showing my lack of understanding of the word 14 computer scientist here, but I thought these guys 15 were -- could all be lumped together to be computer 16 scientists. 17 Q. Do you know, do you have any firsthand 18 knowledge as to whether or not they are engaged or 19 want to be engaged in the study of CSS? 20 A. The only thing that I know of them is 21 their -- is through the declarations. 22 Q. Do you know whether or not a DVD CCA has 23 licensed any consumer electronics or computer 24 companies to manufacture LINUX based DVD players? 25 MR. HERNSTADT: Objection to form. 56 1 Einhorn 2 Assumes facts not in evidence. 3 A. I made a phone call about this two 4 days ago, my understanding is that at this point 5 the DVD CCA has not licensed -- I am sorry, they 6 may have licensed one group, they may have licensed 7 a group that has a technology called LS DVD. But 8 my understanding of how far -- that this group has 9 come along is so sketchy, that I don't know if they 10 have a license. I don't if they have gone along 11 any further than just having a license, my 12 understanding is that they barely have anything 13 else organized -- think of certainly indicated that 14 they want a license. Whether they have formally 15 gone ahead and gotten a license, I don't know. 16 Q. You don't know whether anyone has a 17 license? 18 A. I believe that the group that provides 19 LS DVD now has a license. 20 Q. How do you know that or why do you 21 believe that? 22 A. I read it in some declaration that there 23 were two groups, LS DVD and LiViD, and I don't 24 remember which declaration. 25 Q. Do you know whether there are any 57 1 Einhorn 2 companies with the name of Intermedia or Intervideo 3 and Sigma that have obtained licenses for the 4 manufacture of LINUX based DVD players; the 5 question is do you know one way or the other? 6 A. I don't know of the names of any 7 particulars who became licensed. 8 Q. Do you know whether any corporations you 9 referred to groups, do you know whether any 10 business corporations have in fact obtained 11 licenses for the manufacture and production of 12 LINUX based DVD players? 13 A. I have asked if there was a corporation 14 that was behind getting licenses and I was told 15 there was a beard and there was somebody behind and 16 no one knows who it is. 17 Q. Who did you have this conversation with? 18 A. Matt Pavlovich. 19 Q. Who is he? 20 A. He is the -- he has his own organization 21 now called Debian, D-E-B-I-A-N, and his work is 22 involved primarily with bringing a LiViD player to 23 fruition. 24 Q. So other than the conversation you had 25 with Mr. Pavlovich which probably the judge will 58 1 Einhorn 2 consider to be hearsay, do you have any other 3 information about whether or not there is any LINUX 4 based DVD player that has been licensed for 5 manufacture our production? 6 A. The only other thing that I know about 7 LINUX in connection with a license provided by the 8 DVD CCA is through a technology known as LS DVD, 9 and that is where my knowledge stops. 10 I visited the CCA web-site to learn more 11 about it, and they did not list the names of their 12 licensees of the people who now license their 13 technology. 14 Q. Do you know whether any computer 15 scientist has asked the DVD CCA or any other 16 licensing agent or technology owner for permission 17 to undertake research with respect to CSS? 18 MR. HERNSTADT: Read that back, please. 19 Objection to form. 20 (Record read.) 21 A. I don't know to what -- I don't know 22 to the full -- I do not know the interactions 23 between the computer research community and the CCA 24 and what they are -- 25 Q. Okay. Focussing on paragraph 11 of your 59 1 Einhorn 2 declaration. If as a result of DeCSS, what you 3 referred to as the open source community, creates a 4 LiViD DVD player that would be freely available to 5 home PCs, what would you expect as an economist the 6 impact of that to be on the market for licensed 7 LINUX DVD players? 8 MR. HERNSTADT: Objection to form. 9 Assumes facts not in evidence. 10 A. It could go either way. It could 11 stimulate demand or it could repress it. 12 Q. If the DVD CCA concluded that the 13 availability of LINUX DVD players freely available 14 to home PCs would be harmful to the market for 15 licensed players, do you have any basis for 16 disagreeing with their conclusion? 17 MR. HERNSTADT: Objection to form. 18 Assumes facts not in evidence. Vague. No 19 foundation. You may answer if you can. 20 A. Yes. I could see reasons -- can I 21 give an example of why -- 22 Q. Can you read the question again, please. 23 The question was whether you can see reasons. The 24 question is whether you have information at present 25 to believe their judgement is incorrect? 60 1 Einhorn 2 A. Yes, I do. 3 Q. Please provide me the information you 4 have? 5 A. We are talking here about a licensed DVD 6 player, okay -- 7 Q. The question is -- we got here when I 8 asked you whether the availability of an unlicensed 9 LINUX DVD player, what effect that would have on 10 the market for licensed LINUX DVD players; you said 11 you couldn't tell, you were agnostic on that? 12 A. Yes. 13 Q. My question is if the DVD CCA is not 14 agnostic, if they have a judgment that it would be 15 harmful to the market for licensed players, what 16 information do you have that their judgment of 17 their interest is wrong? 18 MR. HERNSTADT: Objection. Not in 19 evidence. 20 A. The information that I have is my 21 judgment as an economist, and the capacity for 22 economists sometimes to perceive effects that other 23 people don't perceive. We like to think of the 24 world as being myopic. And I think people who -- 25 if they were to make, assert that position, they 61 1 Einhorn 2 perhaps would be myopic. Let me explain to you 3 why. 4 DVD players will be sold only insofar as 5 there are DVDs out there that can be used, and the 6 more DVDs that are out there, the more likely it is 7 that people will buy DVD players. The only reason 8 why you buy a player is to get your hands on the 9 DVD. So, how do I imagine this; if I had a world 10 where you had DVD players sold only by licensed 11 corporations, and these were fairly -- perhaps very 12 good machines, but fairly expensive. A very small 13 fraction of the population may buy them. 14 They may be great machines, but so 15 expensive that we may find that the DVD industry is 16 not taking off. Like Apple software not taking off 17 because they don't have the base of technology that 18 wants to use it. 19 Enter the LiViD player available for 20 free, available to people like me who wouldn't want 21 to spend a lot of money for a DVD, but might 22 download it for a cheap price. Once you have this 23 thing built out and you got penetration conceivably 24 across 100 percent of the households that have a 25 computer, if it is free, then you got a base of 62 1 Einhorn 2 people who will use DVDs and you have widened, if 3 you will, the operating system. 4 Once that operating system is widened, 5 you have what are called network effects. People 6 that make DVDs can build for the bigger operating 7 system. This could be wonderful for the LS DVD 8 business, particularly if they make a better 9 player, because then they are going to get the 10 build out from the cheap's like me, but still have 11 the high end folks who are going to run to them, 12 and more likely to buy from them because the DVDs 13 are out there. 14 Q. What in your judgment is the 15 relationship between the statement you make in 16 paragraph 12 and the claims and defenses in this 17 lawsuit? 18 MR. HERNSTADT: Objection to form. 19 A. LINUX is an operating system. It is 20 an open source operating system. It is an 21 operating system that has swept over the low end 22 server market in the past two to three years and is 23 now making its way into hand held devices as well. 24 Major problem, it ain't making it on the home PC 25 right now as I estimate it. Maybe 4 or 5 percent, 63 1 Einhorn 2 no more, of Intel powered PCs are on the LINUX 3 operating system. 4 You know, personally, the thought that 5 we will eventually go over to an open source 6 operating system is encouraging, because all 7 programmers can write to it and all software will 8 be compatible with it. So then I ask myself, what 9 do I have to do as an economist to recommend what 10 policy steps are necessary to make this operating 11 system more prevalent in American homes. 12 One thing that I would like to do is do 13 exactly what the U.S. Department of Justice is 14 doing, to work on those strategies used by the 15 monopolist here to illegally protect its power. 16 But there is something else that I want to do; that 17 is make it possible for the LINUX operating system 18 to be viable in the minds of most consumers. 19 If LINUX is going to survive in the 20 consumer market it has to have software 21 applications written to it. One of the reasons why 22 MacIntosh doesn't do as well as Windows, it is a 23 superior operating system, but it doesn't have the 24 software applications written to it that Windows 25 does. 64 1 Einhorn 2 So I regard the LINUX DVD or the LiViD 3 DVD as a very important software application that 4 would enable many consumers to make the jump over 5 from the Windows system to a LINUX system. Let me 6 say it another way. If you didn't have a DVD 7 player that was accessible to them at a low price, 8 I don't see how LINUX would make it into the home 9 PC market if Microsoft has the capacity to provide 10 that very same application. 11 Q. And am I correct that your personal 12 interest in the displacement of some of Microsoft's 13 market share in the home PC market by an open 14 source system underlies your view that it ought to 15 be permissible to decrypt videos that are presently 16 encrypted with CSS, and play them eventually on 17 LINUX based machines? 18 MR. HERNSTADT: Objection to form. 19 Refers to statements and facts not in 20 evidence, he has expressed no personal 21 view -- 22 A. No way. This requires us backing up 23 considerably more than looking at this as an 24 antitrust issue, this point that I made is, can be 25 explored here, but there are a lot of other things 65 1 Einhorn 2 that I would have to consider first that are 3 fundamentally, fundamentally part of economic 4 analysis, as I put in the first part of my 5 declaration, that have to be considered long before 6 we jump to point 12. 7 This is something that can be considered 8 at the end, but I would certainly not suggest that 9 a system -- hypothetically, if there were a system 10 that out and out displaced sales of Hollywood 11 movies, and profited illegal pirates, if there were 12 such a system and if that could be shown somehow to 13 hurt Microsoft, I would be on your side, and say 14 let -- we are going to have let Microsoft off the 15 hook here, I cannot advocate this policy solely as 16 way of taming, the, as a means of taming Microsoft, 17 we would have to rely upon other legal matters in 18 which to do it. 19 Q. Would you agree that there is some 20 relationship between the availability of decrypted 21 digital motion pictures on the Internet and the 22 revenues that plaintiff's can obtain from their 23 motion pictures? 24 MR. HERNSTADT: Objection to form. 25 Vague. 66 1 Einhorn 2 A. Theoretical relationship or empirical 3 relationship. 4 Q. First theoretical? 5 A. I can imagine in a world, sometime out 6 there, I can imagine this, a state maybe 20 years 7 from now, 30 years from now, where it is 8 conceivable that movies can be pirated in some 9 means, and that piracy will -- could hurt movie 10 studios. Whether that form of piracy -- well, I 11 will call it high tech piracy. 12 That certainly is imaginable. But at 13 the present, seeing the numbers that I have seen in 14 front of me, admittedly as an economist and not as 15 a telecommunications engineer, I don't see how it 16 is possible. 17 Q. Let me restate the question. Because I 18 don't think I got an answer to it. Do you believe 19 as an economist based on your experience that there 20 is a relationship between the availability of a 21 film in a decrypted form on the Internet, available 22 for downloading, and the revenues that the 23 copyright owner can obtain for that film? 24 MR. HERNSTADT: Objection to the 25 question, incomplete hypothetical and vague. 67 1 Einhorn 2 A. There is no relationship that I have 3 ever observed here. 4 Q. What does economic theory as you 5 understand it posit about whether or not the 6 availability of a free good has an effect on the 7 revenues that a proprietor will obtain for sales of 8 the goods? 9 A. Well, I will answer that question. 10 Economic theory says -- 11 Q. That is the question that I have been 12 posing for five minutes? 13 A. Economic theory says that if there is a 14 free good that is made available to consumers, that 15 free good may attract sales away from people who 16 would otherwise buy the more expensive good. 17 Q. And for a good that is made available 18 not only through sales, but in various ways, 19 through rentals, licenses, sales, other means as 20 well, does the relationship still hold true, namely 21 that the availability of a free good will have an 22 adverse impact on the total revenues that could be 23 obtained in the various ways that the copyright or 24 property owner obtains them? 25 MR. HERNSTADT: Objection to the form. 68 1 Einhorn 2 Misstates the testimony. 3 A. You got to distinct between having a 4 bad effect on revenues and displacement of sales. 5 Q. I didn't asked about displacement? 6 MR. HERNSTADT: You asked a question, 7 putting words into his mouth he did not 8 utter. 9 MR. SIMS: I asked a question. 10 MR. HERNSTADT: You said -- 11 A. It may hurt revenues and it may help 12 revenues. I gave you an example I think about 15 13 minutes age regarding the LS DVD of where free 14 goods can sometimes help revenues, and I will 15 reiterate that example. 16 Q. I have not asked for that. I asked as a 17 matter of economic theory, what economic theory 18 teaches about the likely impact of the availability 19 of a free good on the revenues available through 20 exploitation of the good by sale or by license? 21 MR. HERNSTADT: Is this a question on 22 economic theory? 23 MR. SIMS: Yes. 24 A. I will generally answer your question. 25 I will generally say that economic theory will say 69 1 Einhorn 2 that free goods may either hurt or harm -- either 3 harm or benefit certain companies that sell other 4 goods that are roughly in the same market. There 5 can be sales displacement; there can be economic 6 harm; there also can be under some instances 7 economic gain for the parties who are purportedly 8 displaced. They still may be better off in the 9 end. 10 Q. Paragraph 13 of your declaration refers 11 to Professor Fisher's declaration. Let me put a 12 document in front of you and ask whether this is 13 the document, I am going to mark this as Einhorn 14 Exhibit 3. Declaration of Franklin M. Fisher. 15 (Einhorn Exhibit 3, declaration of 16 Franklin M. Fisher, marked for 17 identification, as of this date.) 18 Q. Is this the declaration to which you 19 referred in paragraph 15 of your declaration? 20 A. This is the declaration. 21 Q. Why don't you direct me, if you would, 22 to statements made by Mr. Fisher, professor Fisher 23 which you believe to lack awareness of some 24 fundamentally technology and copy institutions? 25 A. I found those more in his deposition. 70 1 Einhorn 2 Q. Are there any in the declaration that 3 you found -- 4 MR. HERNSTADT: Take your time and go 5 through the declaration and tell us when you 6 find one. 7 A. Let me first focus on the declaration. 8 Q. Okay? 9 A. Professor Fisher's declaration 10 fundamentally sets out that if a good is available 11 for free, it will hurt -- displace sales and 12 provide harm -- or harm people who would otherwise 13 have made that good available at a positive price. 14 This is generally very quite often true. 15 But ignores the possibility of the network effects 16 that I described that involve the interrelationship 17 between DVD players and DVD movies. Remember that 18 by giving away the player, you do not necessarily 19 harm the people who sell the movies. And by 20 enabling the player to -- by maximizing the base of 21 people who have DVD players, you maximize the base 22 of consumers who may use the movie. 23 But he doesn't recognize here, he is 24 talking about certain products, but fails to make 25 the extension to the kind of market that we are 71 1 Einhorn 2 dealing with where you have a two part process, a 3 player and the movie. Once you deal with two 4 goods, razor blades and racers and camera and film, 5 the analysis gets tougher than merely suggesting, 6 give the stuff away for free and you are going to 7 hurt people, you are going to hurt the sellers. 8 Wonderful example from telephone. For 9 the longest time AT&T, my old company, put 10 telephones into people's houses at a reduced price. 11 They charge for the telephone less than the cost to 12 provide service. That is to say the cost of them 13 stringing in the wire, they took a loss. They took 14 a loss on the phone. But they took a loss because 15 they knew they were going to make it back in 16 telephone calls. And the same way by reducing the 17 price of one product, we may establish the economic 18 base for other products to come in for higher 19 revenues. He doesn't get into that full analysis 20 of the problem. 21 Q. Is there any statement in here that you 22 think is incorrect, or he doesn't address things 23 that you -- 24 A. I said sketchy. I didn't say that he 25 was incorrect here. The only thing that I thought 72 1 Einhorn 2 was possibly incorrect in the literal sense of the 3 board, is I don't think professor Kurlantzick, 4 number 6, professor says that -- Professor 5 Kurlantzick claims three things. My reading of the 6 Kurlantzick declaration only confirms I think that 7 Professor Kurlantzick only believes one thing. 8 That is the middle one, concludes that persons who 9 may get such material at little or no cost would 10 not necessarily have purchased the legitimate 11 product at a higher cost. 12 I don't think anything else in here is 13 factual incorrect, I think I used the word, I am 14 sure I used the word sketchy. Sketchy meaning it 15 is impressionistic, it is catchers catch can, but 16 doesn't go through the requisite analysis that I 17 would have used here on the problem. The other 18 thing that we, I also see here is a difficulty, is 19 while he does talk of this effect, he has not 20 related this to the problem at hand. 21 He has talked about the piracy, and what 22 piracy and what low prices can do, but has not 23 established in my mind a very clear connection 24 between the particular matter at hand, DeCSS and 25 the piracy issues that it poses, vis a vis piracy 73 1 Einhorn 2 in general. It would be -- people like who would 3 analogize MP3 and Napster and try to draw their 4 assessments of one technology based on their 5 assessments of the other. 6 You can establish this theory of piracy, 7 but then at some point you got to go in and apply 8 it to the particular market at hand here and the 9 particular market at hand here is a far more 10 complex market than the kind of market that says 11 push down the price of one good and you harm 12 everybody else that has the copyright. 13 Q. Do you think it is economically rational 14 to try to secure intellectual property against 15 widespread digital copying? 16 MR. HERNSTADT: Objection to the form of 17 the question. Lack of foundation. You may 18 answer if you understand what he is saying. 19 A. It would be economically rational 20 to -- sure, it would be certainly rational to worry 21 about it, sure. 22 Q. And are you aware that plaintiffs began 23 marketing motion pictures on DVDs in an encrypted 24 form sometime within the last five years? 25 A. Yes, I believe that to be correct. 74 1 Einhorn 2 Q. And as an economist, what do you expect 3 would have been the -- strike that. 4 As an economist, what do you expect 5 would be the impact on their ability to collect 6 revenues for their films made available on DVDs if 7 those DVDs had no encryption capability. 8 MR. HERNSTADT: Objection to form. Lack 9 of foundation, you may answer if you can. 10 A. I can't, because do you make the 11 pirated stuff available over the Internet. Do you 12 make it available -- where do you make it 13 available. Do you sell it on the street. 14 Q. The question I asked was, if the motion 15 picture companies had released DVDs without any 16 encryption, what as an economist do you think the 17 impact of that would be on their long-term ability 18 to collect revenues? 19 A. That would probably hurt them. 20 Q. How would it hurt them? 21 A. I said probably hurt them. 22 Q. How would it probably hurt them; what as 23 an economist are the reasons that lead you to 24 believe that would probably hurt them? 25 A. There would be two effects that would 75 1 Einhorn 2 take place. One of which is that people would make 3 copies of popular movies and sell them illegally to 4 others who would willingly buy them. And for every 5 such sale there might be, not necessarily will be, 6 but might be a displacement of an original copy, 7 and I say because, because if the original was $25 8 and the replacement is $5, if I buy the replacement 9 it doesn't mean that I would have bought the 10 original at 25. 11 So I say there might be a displacement 12 of original copy, if there is a kind of person that 13 is going to buy it originally, but gets the pirated 14 good. 15 Q. Does economic doctrine suggest to you 16 that there would also be a displacement of some 17 theatrical revenue? 18 A. Yes, but I have not have not finished my 19 point on the other side. 20 Q. Yes? 21 A. The other side is that DVD are a new 22 industry, just taking off, and one of the things 23 that really matters to someone who is selling DVDs 24 is to have the base of appliances out there that 25 use DVDs. Now, my bet is that some fraction of 76 1 Einhorn 2 DVDs were available hypothetically at 5 or $6, 3 pirated admittedly, what that would do is encourage 4 sales and what some people would do, is more people 5 might buy DVD players. 6 So in the end what you may see is a 7 displacement of specific sales in some movies, but 8 simultaneously a more rapid build out of the DVD 9 infrastructure and conceivably for all the movies 10 that you can't buy on the corner of 42nd and 11 eighth, conceivably you will have other people who 12 will buy other movies from Hollywood because they 13 have a DVD player. 14 MR. HERNSTADT: Can we take five 15 minutes. Off the record. 16 (Recess taken.) 17 Q. Do you have an opinion as an economist 18 as to whether the ability of plaintiffs to recover 19 revenues for their works are at greater risk if 20 digital copying is practicable than they were 21 earlier when only VHS copying -- when VHS copying 22 was the only mode of duplication of their works? 23 MR. HERNSTADT: Objection to form. Lack 24 of foundation. Assumes facts not in 25 evidence, you may answer. 77 1 Einhorn 2 A. When you say more at risk, you mean 3 the likelihood of a published unit is more likely 4 to be copied in a digital regime. 5 Q. No, the question is whether the 6 availability of -- let me rephrase the question. 7 Does the -- does the -- do you have an opinion as 8 an economist whether the introduction of 9 plaintiff's motion pictures in digital form poses 10 additional risk to their ability to exploit their 11 property that did not exist before the availability 12 of those films in digital form? 13 MR. HERNSTADT: Same objection. 14 A. At this point digital copying poses 15 less of a risk. 16 Q. Let me restate the question, because I 17 don't think I have gotten an answer to it. 18 The question is whether once digital 19 technology became available and plaintiff's 20 distributed their films in digital format, whether 21 that carried additional risks that they didn't 22 theretofore face. 23 MR. HERNSTADT: Same objection. 24 A. Yes. I believe there are additional 25 risks. 78 1 Einhorn 2 Q. Thank you? 3 A. Associated with digital technology, yes. 4 Q. And do you believe it is rational for 5 them to seek technological means to protect against 6 those risk and reduce those risk? 7 MR. HERNSTADT: Objection, his opinion 8 as an economist. 9 MR. SIMS: Yes. 10 A. It is rational. 11 Q. Do you understand what property rights 12 are? 13 A. Yes. 14 Q. From the point of view of economic 15 theory, not legal? 16 A. Yes. 17 Q. Is it fair to say that from the point of 18 view of economic theory, that section 1201 to 1203 19 of the DMCA, give the plaintiffs, among others, 20 property rights with respect to the ability to 21 deploy digital films in an encrypted mode? 22 MR. HERNSTADT: Objection to the form of 23 the question. Particularly since he said he 24 only read 1201, I am going to direct 25 Dr. Einhorn not to answer if the only answer 79 1 Einhorn 2 is a legal interpretation of the statute. 3 Otherwise you -- 4 MR. SIMS: I asked him from the point 5 of view of economic -- 6 MR. HERNSTADT: You said is there some 7 kind of economic conclusion that he can draw 8 from the statute. 9 A. I don't know whether section 1201 10 defines property rights. 11 Q. Have you read section 1203? 12 A. No. I read 1201 and 1202. 13 Q. From the point of view of economic 14 theory would a rule that said that someone who 15 removed the technological protection that a content 16 owner had protected their digital content with, 17 could be sued for an injunction or damages, would 18 such a rule provide a property right to the content 19 owner with respect to the maintenance of the 20 security? 21 MR. HERNSTADT: Objection. Direct you 22 to answer that only insofar as you can put 23 some kind of an economic interpretation on 24 it. 25 A. I am having a real hard time with that 80 1 Einhorn 2 one. There is a right there. I don't know if I 3 would call it a property right. 4 Q. What is DeCSS as you understand it? 5 A. DeCSS is -- well, CSS is content 6 scrambling system and DeCSS is an algorithm, if I 7 may use that word, that allows the user to strip 8 the code protection off of a DVD so that the DVD 9 can be used on some system that is not empowered to 10 interact with the code. 11 Q. Assume if you would that DeCSS allows 12 users to decrypt encrypted DVDs and make the 13 digital content available for downloading or 14 replication on to unencrypted DVD; as an economist 15 what do you believe the impact of that would be on 16 plaintiff's revenues in the short-term? 17 MR. HERNSTADT: Objection to form. That 18 is extremely vague. 19 A. It could go either way. 20 Q. What do you expect the impact would be 21 in the medium-term? 22 A. Either way. 23 Q. Long-term? 24 A. Either way. 25 Q. So that in either the short, medium or 81 1 Einhorn 2 long-term it is as likely as not that there would 3 be an adverse impact on plaintiff's revenues? 4 A. There certainly could. That is 5 certainly conceivable, though arguable. 6 Conceivable. 7 Q. In your reading of the materials in this 8 case, did you come across the concept of regional 9 coding? 10 A. Yes. 11 Q. And do you understand, do you have an 12 understanding what regional coding is? 13 A. I have an understanding of what it is. 14 Q. What is your understanding of it in 15 terms of economic theory and the ability of 16 businesses to -- 17 A. I didn't say anything about this in the 18 declaration. 19 MR. HERNSTADT: Objection to form. 20 A. This wasn't in my declaration in any 21 way, shape or form. 22 MR. HERNSTADT: You can answer it if you 23 can. 24 Q. Do you understand from your, based on 25 your knowledge and reading, do you have an 82 1 Einhorn 2 understanding of the economic purpose of regional 3 coding? 4 A. Yes. 5 Q. What is your understanding of the 6 economic purpose of regional coding? 7 A. Regional coding, the reason is to raise 8 the price in different regions of the world to 9 enjoin people from what we will say is low 10 surveillance; from getting their hands in certain 11 places where property rights are -- where piracy is 12 not as well protected against, and charging higher 13 prices for the DVD, with the understanding that 14 these places in the world are, if you will, pirate 15 havens. Where the DVD can be used to make illicit 16 copies. 17 So my understanding of regional coding 18 was that it was designed to price legitimate DVDs 19 higher in parts of the world where copying is 20 easier. 21 Q. From the point of view of economic 22 theory, what would be the practical impact; from 23 the point of view of economic theory as you 24 understand it what would be the impact of the 25 premature availability of a film on the Internet on 83 1 Einhorn 2 an unencrypted form on the motion picture company's 3 ability to extract those higher per unit prices in 4 those foreign countries? 5 MR. HERNSTADT: Objection. Based on 6 facts that are not in evidence. Lack of 7 foundation. Incomplete hypothetical. 8 A. That could go either way. Word gets 9 out, there is a hot film. Hey, did you see it on 10 the Internet, no, I did not. It is coming. 11 Q. Would you agree that the availability of 12 digital motion pictures on the Internet in 13 decrypted form, which can be downloaded without 14 permission or payment, would likely have some 15 adverse impact on the revenues that copyright 16 owners obtained on the world wide web? 17 MR. HERNSTADT: Objection. Lack of 18 foundation, incomplete hypothetical. 19 A. It is conceivable. 20 Q. Do you have a view as to whether it is 21 more or less likely than any other impact? 22 A. No, I don't have a view. 23 MR. HERNSTADT: Same objection. 24 Q. Turn back to Einhorn Exhibit 3, the 25 Fisher declaration? 84 1 Einhorn 2 A. Yes. 3 Q. Look if you would at paragraph 9, 4 Professor Fisher's declaration, do you agree with 5 that statement? 6 MR. HERNSTADT: Wait for a second until 7 I get a chance to look at it too. 8 Q. Could you eliminate the word likewise 9 in answering the question. 10 A. Let me give you my -- 11 MR. HERNSTADT: Your question is does he 12 agree with that statement. 13 Q. As a matter of economic theory do you 14 agree with the statement made in paragraph 9 of the 15 Fisher declaration that any expectation that the 16 film companies have to develop a legitimate market 17 on the Internet for the delivery of their films 18 will be significantly thwarted by the presence of 19 unauthorized product available at little or no 20 charge to the consumer. 21 MR. HERNSTADT: Objection to form. 22 Lacks foundation. You may answer. 23 A. I rather say could instead of will. I 24 think there is certainly a possibility that is 25 true. 85 1 Einhorn 2 Q. Would you agree that economic theory 3 suggests that there would be an adverse impact? 4 A. Not necessarily. 5 Q. Mr. Einhorn, what are the factors that 6 lead you to say that the availability of films 7 available on the Internet for free or little charge 8 would not impact the motion picture companies 9 ability to develop a legitimate market on the 10 Internet for the delivery of films in which they 11 would charge? 12 MR. HERNSTADT: Objection. Misstates 13 his testimony. I don't think you can answer 14 that question as it is stated. You are 15 asking him to give factors as to an answer 16 that did 23409 give you. 17 MR. SIMS: He said not necessarily. I 18 am asking him what factors lead him to that 19 judgment. 20 MR. HERNSTADT: You can answer that 21 question. 22 A. The factor that leads me to that 23 judgment is my concern right now that nobody in 24 this country has a DVD, very few people in this 25 country have DVD hooked up to computers. Very few 86 1 Einhorn 2 people in this country -- 3 Q. Go to the upper westside, every other 4 apartment has two of them? 5 A. We are not talking about the upper 6 westside though. We are talking about a country 7 where 99 percent of the population has 56 kilobit 8 modems -- 9 Q. What information do you have on the 10 percentage of computers sold by Compac or Dell or 11 anybody else that have or lack DVD players; do you 12 have any information about that? 13 A. No. Now, in answer to your first 14 question -- repeat that first question. 15 MR. HERNSTADT: The factors that lead 16 you to say not necessarily. 17 A. The issue here is that a certain 18 number -- you want to have a base of people who use 19 DVDs, and that base obliges them to buy DVD 20 players. The decision to buy a player depends in 21 large part on how many DVDs you can buy with it or 22 you can use with it. If it is the case that all 23 DVDs are priced conceivably at $30 a DVD, and that 24 only those people -- some people buy DVD players to 25 enable them to buy DVDs at $30. It is conceivable 87 1 Einhorn 2 that the network of DVD users will not build out in 3 the manner that it might build out if certain DVDs 4 were available for some people at lower prices. 5 Q. Mr. Einhorn, the answer you have just 6 given me focuses on the -- I suppose on the total 7 revenues of any given motion picture company rather 8 than on the revenues for any one motion picture; is 9 that correct? 10 MR. HERNSTADT: Objection to the form of 11 the question. 12 A. Yes. I think that the revenues might 13 wash each other out. But when I talk about total 14 DVDs, I am talking about -- I would suspect that 15 people who have DVDs are equally willing to get 16 their hands on any popular movie from any studio. 17 Q. Let's focus for a moment on any one DVD, 18 let's call it the Matrix. The question is does 19 the -- 20 MR. HERNSTADT: Are you going to provide 21 us with copies of the Matrix now? 22 MR. SIMS: No. 23 Q. From the point of view of economic 24 theory, would the availability of unauthorized 25 copies of the Matrix on the Internet in decrypted 88 1 Einhorn 2 form likely have an adverse impact on the ability 3 of its owner to realize profits if it wanted to get 4 into the business of digitally making the Matrix 5 available? 6 MR. HERNSTADT: Objection to the form of 7 the. 8 Q. Over the Internet. 9 MR. HERNSTADT: Compound, facts not in 10 evidence, incomplete hypothetical. You may 11 answer. 12 A. I am inclined to think that the 13 Matrix, which is a blockbuster movie, it would 14 be -- sales would be displaced on the Internet, and 15 I am inclined to think that if digital pirated 16 material were made available the box office 17 revenues of the Matrix and conceivably the VCR, 18 conceivably the VCR revenues on the Matrix, but 19 more so the box office would probably be hurt. 20 There would be a displacement there on 21 any one movie of a blockbuster nature. I would be 22 concerned if there were a successful pirated 23 digital technology, I would be concerned about 24 that. 25 MR. SIMS: Nothing further. 89 1 Einhorn 2 EXAMINATION BY 3 MR. HERNSTADT: 4 MR. HERNSTADT: Read back the question 5 that I marked: 6 (The following section was read.) 7 Q. Have you done any research into the 8 harm, if any, that would befall owners from the 9 widespread copy of their works. 10 MR. HERNSTADT: Objection to form. 11 Overbroad. You can answer if you can. 12 Q. Read back the question. 13 (Record read.) 14 A. No, I have not. 15 Q. Have you done any research into the 16 problems of free riding? 17 MR. HERNSTADT: Objection to form. 18 A. I am sorry, when you say -- 19 Q. Are you aware of a concept economists 20 use and refer to, namely the problem of free 21 riders? 22 A. Yes. 23 Q. Have you undertaken any research or 24 study in connection with the problems of free 25 riding or free riders in various industries? 90 1 Einhorn 2 MR. HERNSTADT: Objection to form. 3 A. I have not published a paper. I have 4 not written a paper, this is certainly something 5 that I would have, that I thought about, and talked 6 about with people, but never sat down to do a 7 formal piece of research -- may I go back to the 8 previous question regarding the copy. 9 Q. When I am done your counsel can ask any 10 questions he wants to ask? 11 (End of quoted section). 12 Q. Dr. Einhorn, the question was just read 13 to you. Is there anything that you want to add to 14 the answer? 15 A. Yes. Let me be more precise about the 16 word research. I have never published a paper. I 17 have never written a draft of a paper submitted for 18 publication on the topic. I have discussed these 19 matters in some way other than an informal chat, 20 where certain ideas were thrown about and where I 21 did read articles. But never went to the point of 22 actually writing anything up. 23 So it is usually -- usually people think 24 in academics as research when you put your pen to 25 the pad. In that respect I never wrote anything on 91 1 Einhorn 2 the issue that was posed. I certainly talked about 3 it in more than just an informal lunch time 4 conversation. 5 EXAMINATION BY 6 MR. SIMS: 7 Q. You never presented a paper? 8 A. On the harm done to copyright owners? 9 Q. Yes. 10 A. No. 11 Q. Have you been on any panels or 12 symposiums dealing with the subject of -- 13 A. There is no symposium that I have been 14 on that has examined the harm done to copyright 15 owners by copyright infringement. 16 Q. You never performed any calculations or 17 graphs on the subject? 18 A. What I have done is written some work on 19 the Digital Millennium Copyright Act, section 114, 20 which assessed the affects of various copyright 21 rules. But I have never made any kinds of 22 calculations on the effects of illegal -- on the 23 effects of illegal piracy. 24 Q. Did the writing that you just relate to 25 relate to 112? 92 1 Einhorn 2 A. No, 114. 3 MR. SIMS: Nothing further. 4 MR. HERNSTADT: One last question. 5 Two last questions. 6 EXAMINATION BY 7 MR. HERNSTADT: 8 Q. Did you read the deposition of Lou 9 Kurlantzick? 10 A. Yes. 11 Q. Do you agree with him? 12 A. He is quite correct -- 13 Q. Yes or no, do you agree with what he 14 says? 15 A. I agree, yes. 16 MR. SIMS: You agree with anything that 17 Dr. Kurlantzick said. 18 THE WITNESS: As I understand what he 19 said, is that prices -- that free goods may 20 displace the sale of goods with prices, and 21 there may be more price -- there may be more 22 goods sold at zero price than at a positive 23 price, and that that stimulation should be 24 recognized so that not every sale that is 25 zero priced necessarily equals the sale at a 93 1 Einhorn 2 positive price. 3 MR. SIMS: The deposition is over. 4 (Time noted 6:20 p.m.) 5 ____________________ 6 MICHAEL EINHORN 7 8 Subscribed and sworn to before me 9 this ___ day of __________, 2000. 10 11 _________________________________ 12 13 14 15 16 17 18 19 20 21 22 23 24 25 94 1 2 C E R T I F I C A T E 3 STATE OF NEW YORK ) 4 : ss. 5 COUNTY OF NEW YORK ) 6 7 I, Philip Rizzuti, a Notary Public 8 within and for the State of New York, do 9 hereby certify: 10 That MICHAEL EINHORN, the witness 11 whose deposition is hereinbefore set forth, 12 was duly sworn by me and that such 13 deposition is a true record of the testimony 14 given by the witness. 15 I further certify that I am not 16 related to any of the parties to this action 17 by blood or marriage, and that I am in no 18 way interested in the outcome of this 19 matter. 20 IN WITNESS WHEREOF, I have hereunto 21 set my hand this 14th day of July, 2000. 22 23 _____________________ 24 PHILIP RIZZUTI 25 95 1 2 --------------------- I N D E X ------------------- 3 WITNESS EXAMINATION BY PAGE 4 MICHAEL EINHORN Mr. Sims 5, 91 5 Mr. Hernstadt 89, 92 6 7 --------------- INFORMATION REQUESTS -------------- 8 REQUESTS: 18 9 10 ---------------------- EXHIBITS ------------------- 11 EINHORN FOR ID. 12 Einhorn Exhibit 1, first eight pages from 13 a book titled Price Caps and Incentive 14 Regulations in Telecommunications 20 15 Einhorn Exhibit 2, declaration of Einhorn 26 16 Einhorn Exhibit 3, declaration of Franklin M. 17 Fisher 69 18 19 20 21 22 23 24 25