Book Publishing Industry Price Discrimination Litigation - The Intimate Bookshop, Inc. v. Barnes & Noble and Borders - Intimate's Local Rule 56.1 Statement of Disputed Material Facts in Opposition to Defendants' Joint Summary Judgment Motion - 2/11/02 Redacted Version

First Published 2/23/02; Last Revision 2/24/02 10:02


REDACTED VERSION Filed pursuant to Order
of Judge Pauley dated February 8, 2002.

[redacted material indicated by xxxx's]

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

98 Civ. 5564 (WHP)

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THE INTIMATE BOOKSHOP, INC., Plaintiff,

-against-

BARNES & NOBLE, INC., BARNESANDNOBLE.COM INC.;
BORDERS GROUP, INC.; BORDERS, INC.; and WALDEN
ACQUISITION COMPANY; Defendants.

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PLAINTIFF'S STATEMENT OF DISPUTED MATERIAL
FACTS PURSUANT TO LOCAL CIVIL RULE 56.1

Plaintiff The Intimate Bookshop, Inc. ("Intimate" or "plaintiff"), by its attorney, submits the following statement of material facts* as to which Intimate contends there are genuine material issues to be tried, in accordance with Civil Rule 56.1 of the Local Rules of the United States District Court for the Southern District of New York.

CITATIONS TO RECORD

The evidence is cited below by reference to various parts of the papers filed by Intimate or defendants, as follows:

Cite................Refers to

  1. V#1 Volume # 1, Declarations and Expert Reports Volume (submitted by Intimate)
  2. V#2 Volume # 2, Discounts and Terms Volume (submitted by Intimate)
  3. V#3 Volume # 3, Deposition Transcripts of Defendants' Experts (submitted by Intimate)
  4. CV#4 Confidential Volume # 4, Exhibits 1-280, and Pubr's Naggar Aff't (submitted by Intimate)
  5. V#5 Declaration of Carl E. Person with Exhibits A-end (submitted by Intimate)
  6. DV#7 Ex. Vol. # VII, Dep. Transcripts of Rule 30(b)(6) Witnesses Bostelman, Flanagan and O'Donnell, annexed to Metzger Decl. (submitted by defendants)
  7. DCV#8 Ex. Volume # VIII , Dep. Transcripts of Publishers' Rule 30(b)(6) Witnesses Kelly and Balog, and Aff't of Hertz (filed under seal), annexed to Metzger Decl. (submitted by defendants)

    [start of footnote]

    _________________

    * Plaintiff also presents a summary statement of material facts in dispute at pp. 46-48 below.

    [end of footnote]

    PLAINTIFF'S GENERAL OBJECTIONS TO DEFENDANTS' STATEMENT

    Intimate objects to Defendants' Joint Statement of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 ("Defendants' Statement") submitted in support of defendants' joint summary judgment motion on the grounds that it does not deal with most of the issues raised by Intimate in subparagraphs (a) through (n) of Paragraph 35 of Intimate's 2nd Amended Complaint ("complaint"), which lists the following types of price discrimination allegedly being provided by the Publishers to defendants:

    • (a) volume discounts in excess of published schedules;
    • (b) markdown (additional) discounts;
    • (c) advertising allowances;
    • (d) shortage/defective allowances;
    • (e) slotting and start-up allowances;
    • (f) services (e.g., drop shipping);
    • (g) end cap, positioning and shelf display allowances;
    • (h) deductions from and renegotiations of unpaid invoices;
    • (i) end-of-year and full-line discounts;
    • (j) promotional payments;
    • (k) expense reimbursement;
    • (l) brokerage fees; [2(c) claim was dismissed]
    • (m) free or non-invoiced books; and
    • (n) other ways of receiving discounts, rebates and refunds.

    Objection No. 1 (applicable to 1-6, 10-39, 46-47, 52, 56-57, 60, 75, 88, 90, 94 and 113)

    Furthermore, Intimate objects to defendants' repeated basis for their motion that one or both of the Kuralts testified that they were unaware of evidence, the defendants knowing that they designated the evidence "highly confidential" under Paragraph 5 of the Confidentiality Agreement to prevent the Kuralts, as competitors of defendants, from having access to such evidence. To represent to the Court that there is no evidence by reason of the Kuralts' testimony is grounds for striking defendants' motion in its entirety as made in bad faith, with the intention to deceive the Court as to material facts at issue. See discussion in Intimate's Memorandum of Law, pp. 2, 24, 27-28 and 30. Defendants have a failure of proof as to each paragraph in which they rely solely on the Kuralts' testimony as claimed proof of what evidence there is in this action as to defendants' activities (e.g., as to Paragraphs 1, 2, 3, 4, 5, 6 in Defendants' Statement).

    Objection No. 2 (applicable to 1-40, 43-48, 51-52, 54-56, 58-60, 69-70, 75, 79, 84, 94-95, 97, 99-103, 105-108, 113-114)

    Defendants failed to describe or discuss any of the voluminous evidence they produced to Intimate's attorney showing that they have been recipients of each of the above listed categories of discriminatory benefits (other than sub-Paragraph l brokerage fees) pleaded in Paragraph 35 of the complaint and failed to deny with specificity, in any of defendants' moving affidavits or declarations, that defendants were obtaining any of such alleged benefits. By not disclosing or denying that they were receiving discriminatory payments relating to the above-listed items, defendants are not putting their alleged receipt of these alleged discriminatory payments at issue in their motion, and defendants should not be able to deny such receipt or assert any otherwise applicable edefenses as to such alleged discriminatory payments. Each of the paragraphs identified by number at the outset above, under this Objection No. 2, is fatally affected by defendants' failure to disclose or deny. An exception to this objection is defendants' issue of the 2% RDC discount (which ranges from 1-4%) , related RC 1% fee on consolidated book returns, and freight paid by Publishers relating to RDC purchases. Defendants have admitted their receipt of such discounts, fees and freight payments, but argue that such amounts were lawful (through alleged defenses of cost justification, and/or functional discount).1 Thus, defendants in their motion only raise the RDC, RC and related freight issues, but not any of the other alleged discriminatory payments.

    INTIMATE'S RESPONSE, SPECIFIC OBJECTIONS AND 56.1 STATEMENT

    Without waiving the foregoing objections, Intimate responds to Defendants' Statement, as follows:

    [Beginning of 5-Page Response to Paragraph 1, set forth in Paragraphs 1A through 1P]

    ˙[Objections Nos. 1-2] Denied.

    1A. There is substantial evidence that defendants knowingly received, solicited and induced illegal discounts. Defendants fail to disclose to the Court that they designated their evidence "highly confidential" under the Confidentiality Agreement (V#1 A, Paragraphs 5, 8)2 to keep it away from the Kuralts, which accounts for the Kuralts' testimony that they did not have personal knowledge of facts to provide Intimate's action. The facts are contained in Exhibits 1-280 (designated highly confidential or confidential by defendants, set forth in CV#4, and contained in 30+ CD Roms marked "Highly Confidential" produced by defendants from the related ABA action), the deposition transcripts of the Rule 30(b)(6) witnesses for Publishers and the Defendants, and affidavits by two Publishers in response to Intimate's subpoena. See pp. 2 of Intimate's accompanying Memorandum of Law.

    [start of footnotes 1-2]

    _____________________

    1. Plaintiff notes that defendants have not raised any "meeting competition" issues in their Local Rule 56.1 Statement, whereas they do raise functional discount and cost justification issues (in Paragraphs 8-10, 91, 93 and 96).

    2. "V#! A" means that the reference, Exhibit A, is set forth in Intimate's Volume No. 1.

    [end of footnotes 1-2]

    Defendants Knew or Should Have Known

    1B. Defendants and the 14 Publishers were aware that defendants were continually requesting and even demanding additional fees, discounts, rebates, allowances, payments, invoice cancellations and reductions, and other benefits not available to Intimate (009). B&N heard charges that it was getting higher discounts and putting independents out of business, but did not investigate the charges [CV#4 Bostelman 130-3]. Defendants were being requested by the Publishers to provide evidence that that at least one of the Publishers' competitors was providing such term to Defendant (004), without looking at the price of any of the Publishers involved or the price paid by any competitors {CDV#8 Balog 34-36; CDV#8 Kelly 16-18; CV#4 Naggar 7; CDV#8 Hertz 11; CV#4 Flanagan 39-41, 50-59; CV#4 O'Donnell 13, 23-25, 47-48, 50-52, 56}. While opening new superstores (089), defendants closed some of their smaller stores because of their inability to compete (088). Defendants knew from Red Book terms [CDV#3 Bostelman 133] that Intimate had to prove actual payment of advertising expenses to ultimately obtain co-op advertising reimbursement xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (092-093, 097, 105, 108, 109p2). Defendants were aggressively negotiating co-op allocations with Publishers (CV#4 Flanagan 19, 51, 64-65, 88-89, 106-107; and defendant-submitted Robin Wagner Decl. Paragraph 7) and pushing co-op funds away from actual advertising into end-cap and other in-store "placement" programs (095). There were special promotion deals for defendants only (096).

    1C. Defendants constantly pushed Publishers with new theories for payments (V#5 O, CDV#8 Kelly 25), based on discriminatory benefits Borders received from other Publishers (CV#4 Flanagan 58) and without knowing if any of Borders' competitors received such benefits (CV#4 Flanagan 54, 56-59; CV#4 O'Donnell 25, 47-48). Borders signed confidentiality agreements with Publishers to keep the discriminatory discount secret (125). Defendant Borders' employees see different rates being given by Publishers to Borders and Walden (126, 239p1, 248p1). Defendants compare different components of Publishers' prices (248) and put upward pressure on each component, instead of looking at the overall price [see highlighted ref. p. 4 above}. Defendants put pressure or implied threats on Publishers to obtain whatever discriminatory benefits Borders (187, 188, 252) [192] is seeking:

    "We demand Houghton Mifflin recognize the efficiency and profitability of the Borders account through purchasing terms that reflect the added value we provide. If Houghton is unable to meet the discount standards established by your competitors as detailed above, we will be forced to minimize our support of your titles." (188 p. 1)
    //

    1D. H-M responded B&N several weeks later by giving in to Borders' demands (188 p. 2) even though the "demands" do not benefit H-M (187). B&N threatens similarly [171, 172, 177 - 2nd letter: "Failure to respond in kind could, as we discussed, place you in a potentially injurious position"; 192 - same; and 252 - "RH's panic about our payment deductions. I think we have a negotiating opportunity here"] (CV#4 Flanagan 46-47), and rejects Publishers' newly-published terms and use other terms without the Publisher's consent [146]. Defendants had "negotiating teams" to regularly request and obtain additional discriminatory terms [174, 178] (CV#4 Flanagan 51, 88-89; and defendant-submitted Robin Wagner Decl. Paragraph 7) and had such extensive negotiations and agreements [183] that defendants started referring to the Publishers as "partners" (122, ranking HC as the easiest as to coop) [175, 163 RH, 267 BDD], marketing programs not available to Intimate or other independents {V#1 WKuralt 31}.

    1E. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx [176, 177]. Defendants attempted to induce Publishers to make regular payments to defendants for services for which no Publisher ever gave compensation to any bookseller [177], which were not published in the Red Book (CV#4 Flanagan 56-57; CV#4 O'Donnell 41).

    1F. Defendants were in the business of inducing Publishers to give defendants better terms, across the board, as to all of the Publishers' terms, which were non-negotiable as to Intimate [183]. Even the largest Publisher (RH) is clearly subordinate to defendants (212) and has to get defendants' permission to discontinue one of the terms (216), being unable to resist defendants' demands.

    1G. Even industry analysts understand that defendants' "purchasing volume ... provide[s] an advantage in negotiating with suppliers" [V#5 L]. B&N proclaimed in its 1/31/98 10-K "Barnes & Noble's buyers negotiate terms, discounts and cooperative advertising allowances with publishers for all of the Company's bookstores" [V#5 F p12], admitting it does not purchase at the published terms. Forbes referred to bullying of suppliers as "being squeezed by discount chains like Wal-Mart" {V#5 O}. xxxxxxxxx xxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (219). Defendants induce any one Publisher to be the first to make a new or increased category of payment to defendants, then push each Publisher in turn to pay the same amount (222), which some do and some do not (223p6). //

    1G. Publishers Weekly recognizes that co-op advertising has become a "profit center" for defendants [while independents are required by Red Book terms to prove actual expenses to try to get cooperative reimbursement]; that independents often do not use co-op funds because "many publishers' policies [are too] complicated to fill [and] their verification requirements can be onerous"; and that "some publishers admitted privately that they would go broke if every bookseller demanded to use all their co-op money" {V#5 P}.

    1H. Even today, while lying to the press ["Because of the court cases, for the last seven years, we haven't even spoken to publishers about terms"] [V#5 R p1], B&N's CEO Leonard Riggio told industry analysts during November, 2001 "that B&N might take unspecified "decisive actions" to "persuade our suppliers to be fair to us", possibly as soon as early 2002 [V#5 R, S]. Publishers Weekly told the industry that Riggio was threatening action (in 2002) against the book publishers [V#5 S]. Specifically, Riggio was complaining that Wal-Mart, which stocks fewer titles and has higher returns, is getting a higher discount from book publishers [V#5 R p2]. Industry analysts expected the ABA case "would help free Barnes & Noble to use its market power to win lower prices from publishers" [V#5 R p2], and indicated that it sounded like Riggio was threatening book publishers [V#5 R p1,3]. New York magazine 7/19/99 states "the bad Len Riggio, bludgeoning publishers, strangling independent bookstores" ... "accused of breaking antitrust laws, closing down thousands of independent bookstores, bullying publishers, and flattening the literary landscape".

    1I. Also, "Despite B&N's argument that its superstores have expanded the market for books, the number of copies of adult trade books sold in the U.S. has grown in the past ten years at a rate of less than one percent annually. During that time, the number of Barnes & Noble superstores has grown from a handful to more than 500, tripling the amount of shelf space devoted to selling books in some markets. Unlike mall chains, B&N and its rival Borders invaded the urban centers and college towns - the independents' turf - and small stores folded in droves. Membership in the independent stores' ABA fell from 5,500 in 1994 to 3,400 in 1999." {V#5 U p27}.

    1J. Defendants hid their gross profit margins from public scrutiny by including store rental expense as a cost of goods (231), and did not reduce book costs by the amount of co-op end-cap and other display rebates, for example {CV#4 Bostelman 35-36, 122-125] (CV#4 Flanagan 16-17) but reported decreased advertising expenses instead (CV#4 Flanagan 16-17); and gave no warning to investors about this resulting misleading statement of profit margins and advertising expenses or that its profits were being overstated because defendants were buying books at illegally low prices in violation of the RPA {see current Enron problem equally applicable to defendants (V#5 V) "Without the accounting tricks, the company is not such a dynamo in its core business"}.

    1K. Houghton-Mifflin was aware that its co-op chargeback to B&N restored HM's margin [263]. Borders took incentive credit from Random House knowing it should not have been granted (236). Borders tells Random House that B&N is Borders' "single most ruthless competitor" (244). Defendants kept no records on the profitability of their dealings with major Publishers (CV#4 Flanagan 114-115; CV#4 O'Donnell 44-45). Defendants evaluated the impact of each term (190; and CV#4 O'Donnell 35), but did not use effective cost when demanding additional benefits from Publishers.

    1L. Substantial additional evidence described below helps to prove defendants knew and/or induced discriminatory discounts, including but not limited to defendants' deductions practices, delayed invoice payment practices, cost-imposing excessive return rates, the size of defendants' effective discounts, seeing its competitors and own stores go out of business, and the failure to compute the effective discounts at which defendants were buying books from the Publishers [CV#4 B 35-36, 122-125]. Also, defendants acquired independent bookstores and were familiar with their records (CV#4 Flanagan 112-113) [CV#4 Bostelman 77-78].

    1M. Also, it should not be overlooked that defendants acquired smaller bookstores and knew about the prices they were obtaining; that Waldenbook stores were paying a different price for books than Borders stores; that the opening of superstores had a known, anticipated adverse impact on sales and profits of defendants' own small mall-size stores (Waldenbooks and B. D. Dalton chains) (088-089), with actual percentage declines published in defendants' financials and attributed as "cannibalization" resulting from defendants' opening of their superstores. Also, most importantly, as "Category Killer" stores (115p2){V#5 C pp. 19, 22},.defendants superstores were opened with the intention of putting competitors out of business {V#3 Ordover 44-47; V#3 Shulman 52, 55}, and cannibalizing their owner smaller stores as necessary collateral damage to be suffered.

    1N. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxx xxxxxxxxxxx [149p3]. Publishers Weekly states, in its opinion, that Defendants' growth is at the expense// of independent bookstores because there is no overall growth in book sales, citing an industry report - 1996 figures {V#5 Q}. Also, see 1/12/98 U S News & World Report article saying book publishers' sales of trade books dropped in 1995 and 1996, while B&N increased its revenues by 24% between 1995 and 1996 {V#5 T p39}.

    1O. B&N's B. Dalton's stores experienced a "comparable store sales decrease of" 0.3% in 1993, 2.3% in 1994, 4.3% in YE 1/27/95 and 1.0% in YE 1/27/96, while B&N stores were experiencing comparable-store increases of 6.9% and 7.3% during the same years [V#5 F p16,25 and V#5 F Ex13.1p12]. Borders experienced similar comparable store sales decreases as to its Waldenbook stores (V#5 I p 13.1 et seq.). 1P. B&N in 1997 was able to "outdistance our competition, drawing 14% of the large, robust U.S. consumer book market." [V#5 F p4], done in part by taking sales away from B&N's B. Dalton stores [V#5 F pp. 13, 15-16], and "closing more than 50 B. Dalton stores per year since 1989" [V#5 F p13] while opening 65 B&N stores in 1997 alone [V#5 F p13]. Intimate was able to compete and prosper in spite of the B. Dalton competition, but could not compete against Defendants' superstores. B&N attributed its success to its "buying practices" [V#5 F pp. 4, 6]. This adverse effect upon B&N's B. Dalton stores continued, through 2000 [V#5 H-I Ex13.1p13], in which B. Dalton had 89 store closings. Also, as to the B. Dalton stores suffering adversely from Defendants' superstore competition, see B&N's 1999 Annual Report [V#5 G pp25, 27, 31, 32, 52], and completed the store-closing program in 1999 [Id. p52]. Borders experienced similar losses of comparable-store revenues as to its Waldenbook stores during the same period because of Defendants' superstore competition (V#5 K).

    [End of Response to Paragraph 1]

    2A. [Objections Nos. 1-2] Denied. There is evidence that defendants obtained favorable prices from publishers through coercion, intimidation, and threats. Defendants put pressure or implied threats on Publishers to obtain whatever discriminatory benefits Borders (187, 188, 252) [192] is seeking:

    "We demand Houghton Mifflin recognize the efficiency and profitability of the Borders account through purchasing terms that reflect the added value we provide. If Houghton is unable to meet the discount standards established by your competitors as detailed above, we will be forced to minimize our support of your titles." (188p1)

    2B. H-M responded B&N several weeks later by giving in to Borders' demands (188p2) even though the "demands" do not benefit H-M (187). B&N threatens similarly [171, 172, 177 - 2nd letter: "Failure to respond in kind could, as we discussed, place you in a potentially injurious position"; 192 - same; and 252 - "RH's panic about our payment deductions. I think we have a negotiating opportunity here"] (CV#4 Flanagan 46-47), and rejects Publishers' newly-published terms and use other terms without the Publisher's consent [146].

    2C. B&N's CEO Leonard Riggio told industry analysts during November, 2001 "that B&N might take unspecified "decisive actions" to "persuade our suppliers to be fair to us", possibly as soon as early 2002 [V#5 R, S]. Publishers Weekly told the industry that Riggio was threatening action (in 2002) against the book publishers [V#5 S]. Specifically, Riggio was complaining that Wal-Mart, which stocks fewer titles and has higher returns, is getting a higher discount from book publishers [V#5 R p2]. Industry analysts expected the ABA case "would help free Barnes & Noble to use its market power to win lower prices from publishers" [V#5 R p2], and indicated that it sounded like Riggio was threatening book publishers [V#5 R p1,3]. New York magazine 7/19/99 states "the bad Len Riggio, bludgeoning publishers, strangling independent bookstores" ... "accused of breaking antitrust laws, closing down thousands of independent bookstores, bullying publishers, and flattening the literary landscape".

    3A. [Objections Nos. 1-2] Denied. Defendants' have offered no admissible evidence in support of Paragraph 3.

    Defendants rely solely on testimony by WKuralt. There is evidence not reported by defendants by which a trier of fact could conclude that defendants demanded that whatever discounts they received not be offered to other booksellers. Defendants never knew the prices at which any other major bookseller was obtaining books from any Publishers [because they are negotiated - DV#7 O'Donnell 49; and defendant-submitted Robin Wagner Decl. Paragraph 7]. But defendants did know there was a price difference between their small-store and superstore chains (Walden/Borders 126, 239 p. 1, 248 p. 1). Also, defendants did know exactly what price Intimate was paying, as well as the price other independent booksellers were paying. This was the Red Book price. Intimate obtained no other terms from any of the Publishers {V#1 WKuralt 31, V#1 BKuralt 55; and V#2 ABA trial testimony}. Borders negotiated with Publishers without knowing if any of Borders' competitors received such benefits (DV#7 Flanagan 54, 56-59; DV#7 O'Donnell 25, 47-48; and defendant-submitted Robin Wagner Decl. Paragraph 7). Borders signed confidentiality agreements with Publishers to keep the discriminatory discount secret (125).

    3B. Defendants do not ask that equal prices be given to competitors (CV#4 O'Donnell 47-48); defendants do not know their competitors' costs (Id.) or defendants' own book costs (Id. at 13). Defendants have a routine for inducing higher and higher discounts, which is (i) to determine some new basis for compensation, and (ii) search for the first Publisher to pay such new compensation, and then (iii) request all other Publishers to provide the same payment by offering a "Meeting Competition Letter" [CV#4 Bostelman 105-108], [192](235), or to take a price component given to them by one Publisher and request every other Publisher to give the same component to defendants, not knowing any competitor which is also receiving such requested component (CV#4 Flanagan 57-59). Defendants do not know the effective discount at which they are buying books {see highlighted ref. p. 4 above},

    4. [Objections Nos. 1-2] Denied. Defendants' have offered no admissible evidence in support of Paragraph 4. They rely solely on testimony by WKuralt, who defendants prevented from learning about the evidence by designating the produced evidence "Highly Confidential". There is evidence by which a trier of fact could conclude that defendants conspired with publishers to engaged in illegal activity. See Paragraphs 1-3 above.

    5. [Objections Nos. 1-2] Denied. Defendants' have offered no admissible evidence in support of Paragraph 5. They rely solely on testimony by WKuralt. There is evidence by which a trier of fact could conclude that defendants caused one or more publishers to change their business policies. See Paragraph 1-3 above. Defendants induced Publishers to give RDC and RC and related freight allowances to defendants (and at the same time not make them available to Intimate and other independents on the same terms); the terms for RDC's and related RC and freight allowances were not published; Publishers resisted as much as possible through continual negotiations with defendants, but could not stand up to defendants because of their increasing size and decreasing size of the independent segment.

    6. [Objections Nos. 1-2] Denied. Defendants' have offered no admissible evidence in support of Paragraph 6. They rely solely on testimony by WKuralt. See Paragraphs 1-5 above. Thus defendants, as with the other designated paragraphs, have not proven their statement. There is evidence by which a trier of fact could conclude that defendants knew they were receiving discounts not generally available in the industry or not being made available to plaintiff. Defendants knew that Intimate and other independents were getting only Red Book discounts and terms {V#1 WKuralt 31, V#1 BKuralt 55; and V#2 ABA trial testimony}, and that the more favorable discounts and terms defendants were getting were not in the Red Book [DV#7 O'Donnell 49], and that such more favorable discounts and terms did not wind up in the Red Book for others to get. Defendants admit that the RDC (and related) terms obtained by them were not published in the Red Book [Id.].

    7. [Objection No. 2] Denied. See Paragraphs 1-6 above. Defendants' have offered no admissible evidence in support of Paragraph 7. They rely solely on testimony by WKuralt. Defendants did have reason to believe that their vendors (i) were not bargaining with Intimate and other independent booksellers and (ii) did not extend the same discounts to Intimate and other independent booksellers [Id.]. Defendants even had confidentiality agreements to prevent disclosure of their negotiated terms (125), which is an express agreement not to use the terms for "meeting competition" purposes with other customers, and to make sure the terms were not published in the Red Book for competitors to see and obtain. Because they knew that Intimate and independents believed that the Red Book rate was all they could get, and that was what they were getting, defendants knew that Intimate and other independents were not negotiating with Publishers to obtain rates more favorable than Red Book rates.

    8A. [Objection No. 2] Denied as to all parts. As to all discounts received by defendants other than relating to RDC's and RC's, defendants have shown no proof as to any discounts or any cost justification or any functional discounts. There is nothing for Intimate to rebut. Makes no effort to show that end-cap allowances (millions of dollars per year paid by each Publisher to each of the defendants, for defendants to display books in their retail bookstores) are "cost justified" (because defendants incur no out-of-pocket cost, and in fact recognize that end-cap allowances are 100% pure profit to them) and are not a "function" performed by defendants for the Publishers which is not also being performed by Intimate as a book retailer.

    8B. As to all discounts received by defendants relating to RDC's, RC's and related freight payments by Publishers, Intimate has shown that defendants' claim to a functional discount and cost justification defense is without merit. Defendants could not reasonably believe there was any legitimate cost justification in light of the evidence offered by Intimate to refute the cost-justification and functional-discount defenses. See Paragraphs 85-93 below, and V#1 WKuralt 35, which incorporates by reference the facts set forth at pages 38-42 and 53-62 of WKuralt's expert report annexed thereto.

    9A. [Objection No. 2] Denied as to all parts. As to all discounts received by defendants other than relating to RDC's and RC's, defendants have shown no proof as to any discounts or as to any claimed cost justification or functional discounts. There is nothing for Intimate to rebut. Defendants' experts did not deal with these other discounts. See Paragraphs 85-93 below.

    9B. See response above in Paragraph 8B and see Paragraphs 85-93 below. The experts do not know defendants' costs, and have not even considered the additional costs imposed on defendants by reason of defendants' excessive deductions and returns practices, among other costs. In addition, the Publishers do not know whether their dealings with defendants are profitable, and defendants do not know the prices at which they buy books from the Publishers. It would be impossible to analyze actual RDC costs without knowing these basic factors. See Paragraphs 1-8 above.

    10A. [Objections Nos. 1-2] Denied as to all parts. See Paragraphs 8-9 above. As to all discounts received by defendants other than relating to RDC's and RC's, defendants have shown no proof as to any discounts or any cost justification or any functional discounts. There is nothing for Intimate to rebut. For example, defendants have not disclosed in their moving papers that their endcap advertising allowances and other display allowances are 100% profit for defendants, and have not made any effort to cost justify endcap allowances or to argue that they are entitled to endcap and other display allowances because of some function they perform which Intimate does not. Also, once again, defendants rely solely on WKuralt's testimony, who has no knowledge of admissible evidence provided by defendants to disprove defendants' statement in Paragraph 10.

    10B. As to RDC's, RC's and related freight, which defendants' experts did discuss, and as to which defendants do admit they obtained discounts and rebates not received by Intimate, Intimate has provided evidence in its opposing papers which show that the discounts and rebates are not cost justified, and are not being used to compensate defendant for functional activities different from the activiities which were being performed by Intimate. WKuralt and BKuralt are competent expert witnesses, who no more about the retail chain bookselling industry than any of defendants' experts. See V#! WKuralt Decl. and Expert Report; V#1 BKuralt Decl. and Expert Report; and see Paragraphs 85-93 below.

    11. [Objections Nos. 1-2] Denied. Defendants cite only the inadmissible testimony of the Kuralts, who had no access to the prices at which defendants purchased books. Accordingly, there is no proof of defendants' statement. The prices paid by defendants were designated highly confidential. An analysis of the numerous ways in which defendants obtained lower prices than those published in the Red Book are contained in Exhibits 1-280 and in the testimony of various witnesses designated highly confidential, and defendants' effective discount can be calculated by reference to about 100 elements described at pp. 2-18 of the accompanying Memorandum of Law, with references to the record in support thereof. Intimate and other independents, on the other hand, were restricted to Red Book prices, which was available for all to see, including defendants {V#1 WKuralt 31, V#1 BKuralt 55; and V#2 ABA trial testimony}.

    12.[Objections Nos. 1-2] Denied. See response to Paragraph 11 above. Intimate has testified that it always paid Red Book prices {V#1 WKuralt 31, V#1 BKuralt 55}, and was never allowed to deviate from the Red Book. The prices defendants received lower than Red Book prices are contained in defendants' highly confidential documents described at pp. 2-18 of Intimate's accompanying Memorandum of Law. See Exhibits 1-280 and Naggar Aff't (CV#4) and deposition testimony from 30(b)(6) representatives of the Defendants and two Publishers {V#3 and DCV#8}.

    13. [Objections Nos. 1-2] Denied. See response to Paragraphs 11-12 above. Defendants cite only WKuralt testimony, which is inadmissible because defendants' evidenceof withheld by defendants from WKuralt. Accordingly, defendants have no admissible proof with respect to their statement in Paragraph 13. Also, as to all discriminatory benefits other than RDC, RC and related freight, defendants have chosen not to make an issue of the discriminatory benefits. Nevertheless, the discriminatory benefits are set forth in Exhibits 1-280 and in the 30(b)(6) depositions of defendants and two Publishers and the Hertz and Naggar affidavits of two Publishers {V#3, CV#4, DCV#8} and described in pages 2-18 and at other pages of Intimate's Memorandum of Law.

    14. [Objections Nos. 1-2] Denied. See response to Paragraphs 11-13 above. Once again, defendants rely only on WKuralt testimony to attempt to prove that there is no evidence that defendants received discriminatory purchase discounts larger than published discounts. This evidence is inadmissible and defendants fail to prove their statement. Nevertheless, see WKuralt's testimony that Intimate only obtained Red Book discounts and terms (V#1 WKuralt 31A - 31AA) and see Exhibits 1-280 and 30(b)(6) depositions of representatives of defendants and publishers and two Publishers' affidavits to show that defendants negotiated better purchase discounts with all Publishers than published in the Red Book.

    15. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, substituting the phrase "markdown (additional) discounts" for "purchase discounts".

    16. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, substituting the phrase "discriminatory advertising allowances given outside of publishers' policies" for "purchase discounts".

    17. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    18. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    19. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    20. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    21. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    22. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    23. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    24. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    25. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    26. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    27. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    28. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    29. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    30. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    31. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    32. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    33. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    34. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    35. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    36. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    37. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution.

    38. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution. Each defendant has received a variety of discriminatory discounts, rebates, fees, allowances, credits, deductions, services, other benefits and not a specific price set forth in any document. The effective discount when taking all of such discriminatory benefits into account ranges from 60% to 70% effective discount for each defendant, whereas Intimate's discount, as set forth in the Red Book, ranges from 40-46%, and averages 42% (Mem. of Law, p. 3).

    39. [Objections Nos. 1-2] Denied. See answer to Paragraphs 14 and 38 above, making the same type of substitution.

    40. [Objection No. 2] Denied. See answer to Paragraph 14 above, making the same type of substitution. No defendant receives the same effective discount from Publishers. Each effective discount is derived from what plaintiff herein calls a "DNA Code" (V#1 WKuralt 33 and Mem. of Law pp. 7-8) and is changed by continual negotiations with all of the Publishers (defendant-submitted Robin Wagner Decl. Paragraph 7), conducted separately and in secret, with defendants keeping the information "highly confidential" in this litigation to prevent Borders from seeing the prices at which B&N is makings its book purchases from each of the book publishers, and vice versa (125).

    41. Denied. Defendants make no showing that any RDC discount in the early 1970's was substantially the same in conditions, discount or terms as the RDC discount given by Publishers to defendants during the 1990's. WKuralt testified that Intimate was not permitted by any of the Publishers to obtain an RDC discount during the 1990's (V#1 WKuralt 31-D, 31-E, 36-42), and that Intimate was performing the activities of an RDC for the Publishers without obtaining the RDC discount (V#1 WKuralt 51-60; V#! WKuralt Expert Report pp. 54-60}.

    41A. Intimate did not have information sufficient to say that Intimate refused to accept any Publisher's RDC terms. For several years, ending approximately during 1995 and 1996, defendants were obtaining a secret RDC discount from all of the Publishers, even though the Red Books were not indicating that all Publishers were providing an RDC allowance. Intimate was unaware of any such RDC discount program involving all Publishers until 1995 or 1996, but by that time, even if the RDC allowance theoretically was being offered to Intimate, it would still have taken a one-year period to prepare plaintiff's system, including software changes and physical plant changes, to convert to an RDC system to obtain the Publishers' RDC discount. The few Red Book disclosures about RDC allowances came as a result of the ABA's action in New York, but the Red Book disclosures generally imposed requirements including "qualifications" and "conditions". What the RDC';s were being given was not disclosed, except in some instances there was the disclosure of a 1% or 2% additional discount. This disclosure was false and misleading and failed to tell Intimate and other independent booksellers the full extent of discounts, fees, deductions, penalties, returns, delayed payment, freight rebates and other benefits being given to defendants through their unique RDC accounts.˙Accordingly, Intimate never was offered and never received any RDC discount or related Return Center (RC) discounts, fees, or other benefits as stated in this paragraph above.

    42. Denied. The RDC discounts were not available to Intimate and other independents from the 14 Publishers during 1994-1996, and for those several Publishers during this period which did state in the Red Book that they had a RDC program, there was no disclosure of the amount of discounts, fees, deductions, rebates, return rate and other benefits given by such Publishers to defendants during this period. See Paragraph 41 above and (V#1 WKuralt 51-60; V#! WKuralt Expert Report pp. 54-60}. Also, see the defendant-submitted Exhibit to the Robin Wagner Declaration which contains Red Book provisions for some of the Publishers. A complete quotation of the RDC provisions in said exhibit follows (in the order appearing in said exhibit):

    a-1. HarperCollins, 1992-1993: "Retail Distribution Center Discount: Retailers may qualify for a 48% discount where shipments are designated for pre-approved distribution center, orders are in carton quantities, and the retailer agrees to warehouse and distribute a standard frontlist and backlist assortment.

    a-2. HarperCollins, 1993-1994: [same as 1992-1993]

    a-3. HarperCollins, 1994-1995: "A retail distribution center discount is available to qualifying retailers for both trade books and for advanced media. For terms and conditions, contact sales rep or Trade Sales Dept. at (212) 207-7684. A retail distribution center discount is also available for qualifying retailers for Harper paperbacks, for terms and conditions, contact Harper Paperbacks sales dept. at (212) 207-7352.

    a-4. HarperCollins, 1995-1996: [same as 1994-1995 except for change of telephone number]

    a-5. HarperCollins, 1997: "A retail distribution center discount is available to qualifying retailers for both trade books and for advanced media. For terms and conditions, contact sales rep or Trade Sales Dept. at (212) 207-7684.

    a-6. HarperCollins, 1998: [same as 1997]

    b-1. Harcourt Brace, 1992-1993, "Retail Distribution Center Discount: Retailers may qualify for a 48% discount where shipments are designated for pre-approved distribution centers; orders are in carton quantities; and the retailer agrees to warehouse and distribute a standard frontlist and backlist assortment.

    b-2 Harcourt Brace, 1994-1995, "Incentive Discount. A 48% incentive discount is available to qualifying retailers with pre-approved distribution center outlets. In addition, account maintains net volume sales at least equal to prior year adjusted to fluctuations in Harcourt Brace's national net sales billings."

    b-3. Harcourt Brace, 1995-1996: [same as 1994-1995 except added at end: "Contact [Harcourt Brace] for details"]

    b-4 Harcourt Brace, 1997: "RETAIL DISTRIBUTION INCENTIVE DISCOUNT: Accounts with 3 or more outlets that maintain a distribution center may purchase trade titles at a 48% discount with free freight. Beginning Sept. 1, 1996, publisher no longer requires distribution centers to be maintained separately from retail facilities. To qualify, an account must order in carton quantities only. For details and approval to establish a distribution center account, contact [Harcourt Brace]."

    c-1. Penguin USA, 1994-1995: "Retail Distribution Center. Distribution centers must be pre-approved by Penguin USA's sales dept. The distribution center must have loading dock facilities that can handle carton and skid quantities. It may not be situated as part of a retail outlet and must be set up as a separate account with the intent of supplying stores with a broadly based representation of Penguin USA frontlist and backlist titles. Orders must be in carton quantities.

    c-2 Penguin USA, 1995 [page no. ABA-133883] No RDC or warehouse terms indicated.

    c-3. Penguin USA, 1995-1996: "Retail Distribution Center. A distribution center (DC) must be PRE-APPROVED by Penguin USA's sales dept. A DC must have a ship-to location acceptable for delivery by long distance carriers and be set up as a separate account with the intent of supplying more than one store with a broadly based representation of frontlist and backlist titles. There will be no sub-shipments (requiring separate packaging) within any order. Orders must be in carton quantities. Penguin reserves the right to round up or down. DC orders will be shipped free freight; orders failing to meet the order minimums will be billed at standard retail terms.

    c-4. Penguin USA, 1997: same as 1995-1996 but "PRE-APPROVED" changed to "pre-approved"

    c-5. Penguin USA, 1998: RETAIL DISTRIBUTION CENTER PLAN: A distribution center (RDC) must be set up as a separate account and must supply more than one retail outlet. RDC must be at a separate location and must be able to accept LTL shipments. Publisher is not responsible for inside delivery charges. Orders will be rounded to carton quantity for each title. Orders may be for assorted titles.

    d-1. Bantam Doubleday Dell, 1995: Retail Distribution Center: Retailers who order hardcover, trade paper, or mass market books in carton quantities into a distribution center will receive a 48% discount provided the following conditions are met: a) the distribution center is a freestanding operation with dock loading facilities capable of receiving full skids of merchandise; b) the distribution center's primary function is warehousing and distribution of books and contains no retail outlet. Any books ordered in less than carton quantities are subject to a quarterly charge back to appropriate base discount. Skylark, Yearling, Loveswept, and Classics titles are exempt from charge back. Returns from accounts with a Retail Distribution Center will be credited at a 48% discount, and adjusted each quarter to account's actual year-to-date average purchase discount.

    d-2. Bantam Doubleday Dell, 1997-1998: [same as 1995]

    e-1 Simon & Schuster Trade, 1995-1996: "Retail Distribution Center Program: 48% of off suggested retail (cover) price, plus free freight for purchased shipped to the retailer's distribution center. ICalendars. Free Press/Langdon Books Short Discount titles, Hudson River editions are excluded) Orders must be in carton quantities, minimum of 10 cartons per order. Retailer must maintain a distribution center with truck-height loading and receiving dock capable of receiving multiple cartons on skids. The center can service any number of retail locations. Publisher bills by statement.

    e-2. Simon & Schuster Trade, 1997: [same as 1995-1996]

    e-3. Simon & Schuster Trade, 1998: [same as 1997, except added the following sentence at the end of the preceding paragraph: "Retailers also have the option of supplementing retail distribution center orders with orders at publisher's standard terms.

    e-4. Simon & Schuster Trade, 1999: [same as 1998]

    f-1. Houghton Mifflin Company, 1995: "Retail Warehouse Returnable: 1 copy, 20%; 16 copies, 49%."

    f-2. Houghton Mifflin Company, 1997: "RETAIL WAREHOUSE: Warehouse accounts must be pre-approved by publisher's sales department and must conform to following a) Single ship-to location which can receive pallets delivered by long distance carriers b) Orders in carton quantities only. Publisher reserves right to round up or down to carton quantities or to bill unaltered non-carton orders at non-warehouse discounts. Specific rounding schedule available from publisher.) c) Orders will contain no special packing or sub-shipment requirements.

    f-3. Houghton Mifflin Company, 1998: [same as 1997]

    g-1. Random House Trade, 1997: RETAIL DISTRIBUTION CENTER PLAN FOR SD [SELECTIVE DISTRIBUTION] CUSTOMERS: All qualifying orders for Trade titles shipped to a Retail Distribution Center (RDC) will receive 49% discount except for higher discount lines, which will receive their standard terms. The following criteria must be met: 1) RDC must be set up as a separate ship-to account; 2) Have a ship-to location acceptable for delivery by long-distance carriers. RDC need not be free standing: It can be physically part of a retail outlet it serves 3) Each purchase order must include a minimum of 150 books, which may be assorted, provided that title orders of each designated frontlist title with a printing of 75,000 or more must be in carton quantities. Publisher reserves the right to round up or down to the nearest carton quantity. 4) There will be no sub-shipments (requiring separate packing) within any order. 5) Retailers with an RDC also have the option of having orders shipped direct to their retail stores at standard SD retail trade discount. 6) Retailers with an RDC order may order books available under special promotional offers rather than under the RDC discount. For example, if a particular promotion offers a discount of 48% plus freight prepaid, RDC accounts would be eligible to order participating titles for shipment to their RDC by designating the order either on the promotional terms offered or on the RDC terms. 7) Each account who wishes to receive RDC terms must sign an annual certification that it will meet the above criteria.

    Returns Policy:

    Retail Distribution Center -- Adjustment will be made to account's returns credits based on the average blended discount of direct-sto-store and RDC shipments to an account for the 3 month period between 9/26/96 through 12/26/96. The average blended discount calculated for 6/3/96 through 12/26/96 will be used to calculate the credits for all of an accounts returns in 1997. After 12/26/97, adjustment will be made to an account's returns credits based on the average blended discount of direct-to-store and RDC shipments made during 1997. The average blended discount is calculated by the following formula. (Invoiced amount of direct to store purchases + Invoiced amount of RDC purchases) divided by (Suggested Retail Value of all direct to store purchases + Suggested Retail Value of all RDC purchases) = Percentage at which returns will be credited.

    g-2. Random House Trade, 1998: RETAIL DISTRIBUTION CENTER PLAN. Minimum order is 150 units (includes assorted titles for the applicable product line). SD Customers Trade Paper and Hardcover: 49% discount, FOB. All orders which qualify under plan and are shipped to an RDC receive the applicable RDC discount except for higher discount lines which receive their stated discounts. To qualify for Random House RDC discounts on any order, each of the following criteria must be met (otherwise standard applicable retail discount will apply on that order). RDC must meet following criteria: 1) Account must supply more than one retail store; 2) RDC must be set up as a separate ship-to account; 3) RDC must have a ship-to location acceptable for delivery by long-distance carriers. It need not be freestanding and it can be physically part of one of the retail outlets it serves. 4) Each purchase order for each division must include a minimum of 150 books, which may be assorted titles, provided that Random House may designate in advance carton titles whose initial orders must be ordered in carton quantities in order to qualify for RDC discounts. Publisher reserves the right to round up to down to nearest carton quantitywhen carton quantities are required to qualify. 5) There will be no sub-shipments (requiring separate packing or billing) within any order. 6) Retailers with an RDC also have the option of having orders shipped direct to their retail stores at applicable standard retail discount. 7) Retailers with an RDC may order books available under special promotional offers at terms of those offers rather than under the RDC discount. For example, if a particular promotion offers a discount of 50% plus freight prepaid, RDC accounts would be eligible to order participating titles for shipment to their RDC by placing the order based on the promotional terms offered or on the RDC terms. 8) Each account that wishes to receive RDC terms must sign an annual certification that it will meet the above criteria.

    h-1. St. Martin's Press, 1997: "SCHEDULE III --Retail Distribution Center, Returnable To be entitled to the discounts in this schedule a retailer must have a retail distribution center account. (Retailers with retail distribution center accounts may also retain a regular account for purchases that do not qualify.) The requirements for a retail distribution center account are: (a) available only for shipments to a facility that can receive shipments of books from SMP delivered by long distance carrier (including on pallets). (b) each trade title in an order must be ordered in multiples of 20 (unless another quantity is designated as the "carton quantity" for the title), (c) mass market titles must be ordered in carton quantities only, (d) the minimum order quantity is 100, and (d) no sub-shipments (requiring separate packing within any order) are permitted. Trade Books: Single or Assorted Titles: 100 copies, 48% (frontlist), 49% (backlist) 500 copies, 49% (frontlist), 50% (backlist); Mass Market Books: (Excluding Tor Classics) Single or Assorted Titles: 100 copies, 48% (frontlist), 50% (backlist); Tor Classics: Single or Assorted Titles: 100 copies, 54%. SCHEDULE IV -- Retail Distribution Center, Nonreturnable: To be entitled to the discounts in this schedule, a retailer must have a retail distribution center account. (Retailers with retail distribution center accounts may also retain a regular account for purchases that do not qualify.) The discounts in this schedule include additional discount given in exchange for a waiver of the retailer's right to return books. The discounts in this schedule are available only for (retail distribution center) purchases by retailers who agree that all their purchases from SMP will be without return rights. The requirements for a retail distribution center account are specified in Schedule III. Trade Books: Single or Assorted Titles: 100 copies, 50%; 350 copies, 52.5%, 500 copies, 55%. Mass Market Books: Single or Assorted Titles: Monthly Order Quantity: 100 copies, 50%; 350 copies, 52.5%; 500 copies, 55%.

    h-2. Houghton Mifflin Company, 1998 [same as 1997]

    i-1. Little, Brown and Company, 1997: "Customers meeting requirements for Retail Distribution Centers may earn an additional 1% discount. Contact sales rep for details."

    i-2. [same in 1998]

    42A. Robin Wagner's Red Book excerpts (analyzed above) provided no RDC Red Book provisions prior to 1992-1993; had 1992-1993 provisions for only 2 Publishers (a-1, b-1, for a total of about 8 lines of the smallest possible type size in a 750 page manual requiring magnification to decipher); had 1993-1994 provisions for only 1 Publisher (a-2, in the same unreadable type, a total of 4 lines out of the 75,000 lines of type in the Red Book (estimated at 750 pages x 100 lines per page); had 1994-1995 provisions for only 3 Publishers (a-3, b-2 and c-1, a total of 15 lines out of the 75,000 lines in the Red Book); and in the period when Intimate was attempting to save its business, had 1995-1996 provisions for only 6 Publishers (a-4, b-3, c-3, d-1, e-1 and f-1, a total of 36 lines out of 75,000. For the period when Intimate was no longer purchasing substantial quantities of books, starting in 1997, defendants had 1997 provisions for 9 Publishers (a-5, b-4, c-4, d-2, e-2, f-2, g-1, h-1 and i-1), a total of 98 lines out of 75,000; and for Red Book 1998 defendants had provisions for 8 Publishers (a-6, c-5, d-2, e-3, f-3, g-2, h-2, i-2), a total of 88 lines out of 75,000; and for Red Book 1999 defendants had provisions for 1 Publisher (e-4), for a total of about 9 lines out of 75,000.

    42B. Defendants' attempt to prove "general availability" of RDC provisions in the Red Book during 1992-1996 fails completely. Although defendants themselves were obtaining RDC discounts and other fees, allowances, rebates, deductions, penalties, services and other benefits during this period from all of the Publishers, there were only 1-3 which admitted the existence of any RDC program, which number was insufficient for any bookseller to use. An RDC can only be used if all or most Publishers provide the RDC discount; otherwise, extra expenses are incurred (upon repacking and reshipment back to the stores) which are not recovered out of the RDC discount for such missing Publishers.

    43. [Objection No. 2] Denied. It is unfortunate that defendants did not first describe to the Court what co-op benefits they have been receiving, and then point out to the Court and Intimate where such benefits are set forth in the Publishers' respective Red Book entries, and how defendants qualified for such payments pursuant to such published descriptions. Although all Publishers did have Red Book or other published statements about their cooperative advertising policies, they had conditions preventing their use by Intimate and other independents, which conditions were not imposed on defendants by the Publishers. Also, there were many cooperative programs not spelled out in the written statements, which programs were available to defendants and not to Intimate, such as endcap, pocket and other display allowances which gave defendants a 100% profit on the allowance, whereas all advertising allowances paid to Intimate were solely in reimbursement, much belatedly, for amounts actually expended by Intimate. Also, defendants did not have to comply with the published requirements such as making and proving expenditures, whereas Intimate had to actually expend money, apply for a refund of moneys expended, and wait a long time to receive the money, if it every received the money at all. xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx(092-093, 097, 105, 108, 109p2).

    43A. Defendants were aggressively negotiating co-op allocations with Publishers (DV#7 Flanagan 19, 51, 64-65, 88-89, 106-107) and pushing co-op funds away from actual advertising into end-cap and other in-store "placement" programs (095). Publishers Weekly recognizes that co-op advertising has become a "profit center" for Defendants [while independents are required by Red Book terms to prove actual expenses to try to get cooperative reimbursement]; that independents often do not use co-op funds because "many publishers' policies [are too] complicated to fill [and] their verification requirements can be onerous"; and that "some publishers admitted privately that they would go broke if every bookseller demanded to use all their co-op money" {V#5 P}.

    43B. Within "Advertising and Promotion", there are discriminatory Discounts and Rebates: advertising and promotional allowances without accountability (i.e., without proof of expenditure) (036, 042, 053, 100, 102-103, 105, 109p5) [105a] [DV#7 Bostelman 28-29] (DV#7 Flanagan 66); using Defendants' own contract forms with terms and penalty provisions for Defendants (001-003, 101, 260 - with S&S providing counter co-op form; 275 - Purchase Order provisions); display allowances (001-003, 103, 105) for "displaying" a// Publisher's books in the Defendants' stores (called end-cap allowances (037, 052, 054-060, 063-064, 073, 094, 104) {CDV#8 Balog 64-66; CDV#8 Kelly 18-19}, rack or pocket allowances [155, 164, 180, 181], display allowances (031, 034-035, 039, 040), table allowances (033), placement allowances, catalogs (032)), including payment for rental of non-specified floor space in Defendants' retail stores for display of books (similar to a slotting allowance) [180-181, DV#7 Bostelman 93-94]; setting up and paying for (279) author's appearances, and giving extra discounts to Defendants for the author's books; providing co-op advertising money exceeding Defendants' costs for such advertising; allowing Defendants to spend co-op (pooled) advertising allowances for books and in geographic areas not creating the allowance [DV#7 Bostelman 20-24] {CDV#8 Balog 61-62} (DV#7 Flanagan 22-23); giving additional discounts to Defendants on convention book orders; new-store "grand opening" allowances and benefits (105); providing promotional payments upon Defendants' request and/or Publishers' whim {CDV#8 Balog 69}. The totality of these amounts is substantial. Borders policy is to convert co-op advertising to non-cost in-house programs (078) such as end-cap, pocket and other display allowances, for which Defendants' actual expense was negligible (092-093, 097) {CDV#8 Balog 64-66}.

    43C. Defendants "negotiate" co-op payments [DV#7 Bostelman 13-14] instead of qualifying under industry-wide Publishers' programs (085Paragraphs 6, 13, 249; DV#7 Flanagan 19, 64-65, 106-107) and even promise not to carry a competing line of books (e.g., Idiot line) if Dummies' Publisher gives additional discounts and co-op advertising allowance requested by Defendants (085Paragraph22). Defendants were not required to spend money to obtain co-op funds (DV#7 Flanagan 102).

    43D. Defendants recognize they have the market power to "effectively eliminate" a publisher (competing for sales to Defendants) by this practice and intend to do so (085 Paragraph22). xxxxxxxxxxxxxxxxxxxx xxxxxx xxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx (094).

    43E. Defendants used co-op advertising for TV, newspapers, direct mail and in-house display programs as a profit center with profit margins on the co-op revenues they received (097, 108, 109p2, 120, 250p1 "placement"). Defendants' profit margin on end-cap allowances, racks, pocket allowances and other display co-op "advertising" is 100%, because Defendants incur no expenses [CDV#8 Balog 64-66]. B&N sees in-store placement as a 1998 major marketing opportunity [268]. Also, Defendants sometimes fail to put up the promised displays [162], and BDD caught Borders "red handed" failing to put up the promised co-op displays (243). xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx// xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx {CDV#8 Balog 96}. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxxxxxx. Also, see (250).

    44. [Objection No. 2] Admitted. See Paragraphs 14 and 43 above. The Publishers' advertising allowance policies for defendants were not spelled out in any publishers' written cooperative advertising policies, and WKuralt had no access to Exhibits 1-280 (CV#4) because of their highly confidential designation made by defendants to ensure that WKuralt did not know what arrangements the defendants had with the Publishers, and obviously as a way to have a strawman say he knows of no evidence to use in virtual total support of this summary judgment motion.

    45. [Objection No. 2] Denied. Proof of compliance with a discriminatory rebate policy does not make the policy any less discriminatory. Defendants negotiated for a discriminatory rebate policy uphemistically referred to as a "cooperative advertising" program, and then adhered to it because it was so discriminatory, and even sought more and more of the discriminatory policy of endcap allowances (100% profit margin allowances without any costs to defendants). Furthermore, defendants did not comply with the Red Book co-op policies requiring actual expenditure by the bookseller and proof of such expenditure (exhibit to defendant-submitted Wagner Decl., Red Book entries a-1 HC ("100% of the actual cost"), b-1 HB ("100% of the actual cost"), e-2 S&S ("50% of the cost of advertising and promotions"), h-2 H-M ("All expenditures must be approved in writing"),i-2 RH ("Reimbursement, upon verification of promotion and expenses"), See analysis of Wagner exhibit at pp. 16-20 above for Red Book provisions cited herein. See Paragraphs 14 and 43-44 above.

    46. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution. Also, see Paragraphs 43-45 above for evidence of the discrimination, showing what defendants were obtaining in excess of Red Book terms; and V#1 WKuralt 31 showing that Intimate was limited to Red Book terms.

    47. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution. The assumption made by WKuralt have been borne out by the evidence contained in Exhibits 1-280 and 30(b)(6) depositions as described in Paragraphs 43-45 above.//

    48. [Objection No. 2] Denied. See answer to Paragraph 14 above, making the same type of substitution. The assumption made by WKuralt have been borne out by the evidence contained in Exhibits 1-280 and 30(b)(6) depositions, and WKuralt's familiarity with Intimate's own financial statements and WKuralt's various analyses of them. WKuralt was not permitted to see defendants' evidence designated highly-confidential and was forced to rely upon counsel-provided assumptions of fact as a result.

    49. Denied. Intimate's "gross profit margins" are based on the Red Book, and are calculable by reference to the Red Book, with complete accuracy for any specific order. The order of a single book is at a much lower rate than the order for 100 books. Typically Intimate ordered books which provided a Publisher's Red Book discount between 40 and 46% (precise rates), and averaging 42%. Defendants, on the other hand, were ordering the same books at effective discounts of about 60% or more (Mem. of Law, p. 3).

    50. Admitted, except as to plaintiff the price was calculable from the Red Book, whereas the price paid by defendants for the same book could not be calculated using the Red Book, and was not even known to the selling Publisher or the purchasing defendant. Each publisher had terms published in the Red Book which provided a range of discounts (from the Publisher's suggested retail price) depending on the number of copies purchased at one time, and stated the terms under which payment was due (e.g., payment within 60 days EOM or 60 days ROG). Each of the Publishers had Red Book listings (V#2 B-D) for purchases which were to be shipped directly to a retail store (called "drop shipment"). For many years, the Red Book had no listings for RDC discounts and RC fees, and other terms of the RDC transaction. These various RDC terms generally were not ever published in the Red Book (DV#7 O'Donnell 49, compare to RDC text in Paragraph 42 above). Defendants bought books at effective discounts substantially lower than the Red Book discounts received by Intimate. See pp. 2-18 in the accompanying Memorandum of Law for a description of the different elements of effective discount being received by defendants and the proof thereof, which constitutes the defendants' "DNA Code" required to be broken to determine the effective price at which defendants are buying books from the Publishers (V#1 WKuralt 9).

    51. [Objection No. 2] Denied. There is no evidence supplied by defendants that wholesalers "provide greater selection" of books than the Publishers. Each Publisher has 100% of the books it is offering (frontlist and backlist) and a wholesaler can do no more than offer up to 100% of such Publisher's books. Although ordering from a wholesaler usually reduces the wait in comparison to a Publisher's drop shipment, any bookseller can order from a wholesaler, and pay the additional cost. Defendants have been unable to order , receive RDC and reship from RDC to superstores as fast as a Publisher can ship the book directly to a bookstore. Wholesalers are used to obtain faster delivery of immediately needed books, but generally in small quantities.

    52. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution. Defendants cannot know what plaintiff has determined about whether "the defendants purchased their books directly from publishers or at higher prices from wholesalers." Intimate had provided defendants with its invoices, and defendants have failed to present in its moving papers, from Intimate's invoices and defendants' invoices, any evidence in support of defendants' contention. Therefore, defendants have no evidence to prove their statement. Borders testified that it "did precious little purchasing from Ingram" (DV#7 Flanagan 26 lin. 20-21) and from 1994-1998 Borders made "Very little" use of wholesalers (DV#7 Flanagan 36 lin. 18-21). B&N used wholesalers to purchase from smaller publishers ("Vendor of Record Program", purchase out-of-stock books needed for immediate delivery (DV#7 Bostelman 115 lin. 2-6), and for store openings (DV#7 Bostelman 116-120). Intimate is not challenging defendants' wholesale purchasing arrangements; Intimate is challenging defendants' purchasing arrangements with the 14 Publishers.

    53. Admitted. Defendants' statement is correct, but irrelevant. The price paid by Intimate upon its purchase of books from each Publisher is calculable to the penny, from Intimate's invoices (which give the discount), and from the Red Book, at which the Publisher's discount for Intimate and other independents is set forth.

    54. [Objection No. 2] Admitted. This statement is correct, but irrelevant. See Paragraph 53 above.

    55. [Objection No. 2] Denied in part and Admitted in part. Also, defendants's statement is irrelevant. See Paragraph 53 above. Denied to the extent of any implication that "different discounts" means that defendants and Intimate were buying the same books from the same Publishers at the same discount. Admit that plaintiffs were buying books at lower discounts than being paid by defendants for the same books from the same Publishers. Further admit that published Red Book discounts often differ within a single Publisher according to product line and frontlist or backlist, and differ among various Publishers as to similar product lines, and frontlist and backlist.

    56. [Objection No. 2] Denied. Defendants know what percentage of titles are frontlist and backlist and have not demonstrated that plaintiff did not receive that information in discovery. Many of the discriminatory payments to defendants (such as return center fee, freight payment, deductions, pooled advertising allowance, endcap and other display allowances, freight rebate to name a few were based on suggested retail price, not the amount of defendants' discount).

    57. [Objection No. 1] Denied. WKuralt's expert report compares Intimates' bookstores with defendants bookstores (V#1 Kuralt, Expert Report). Also, see V#1 WKuralt 86 for his declaration testimony that Intimate's bookstores were categorized in the industry as "general trade bookstores" meaning that the store sold mainly books of a general trade-book nature, as distinguished from specializing in text books or highly specialized or technical books. As a general trade bookstore of significant size Intimate created different types of book areas such as for children, juvenile, fiction, non-fiction, reference, paperbacks. The small mall stores of defendants had substantially fewer titles and less depth (i.e., number of copies per title) than Intimate; whereas defendants' superstores carried substantially more titles and somewhere in their organization had more depth (although often not readily available to put out onto the selling floor). Defendants' superstores and Intimate's bookstores carried all New York Times bestsellers, non-fiction and fiction, hardcover and paperback. Over the years WKuralt observed that defendants' mall-size bookstores did not carry a full line of bestsellers. All bookstores, WKuralt has observed, do attempt to carry some books of local interest. Intimate carried about 40,000-50,000 titles in each store; defendants claim they have about 175,000 titles (in their annual report); and the mall-size stores carried about 12,000 titles, based on my observation. You can estimate the number of titles by the number and size of book display fixtures. Each fixture of the size used by Intimate could display about 500 books, and there would have to be an adjustment to reflect the depth of the displayed nventory. Intimate layed its racks out in angles, somewhat scientifically, with adjacent rows catering to women, men or children, and Intimate separated its paperbacks out from hardcover because the customers differed (and Intimate therefore had more books per shelf with this type of display). Defendants' superstores mixed paperbacks and hardcovers and therefore got about 20%-30% less display space with their mixed shelving arrangement.

    58. [Objection No. 2] Admitted, except that not all stock offers are made available to all retailers. Some offers were not made to Intimate, including markdowns in place (V#1 WKuralt 31-O) and see Paragraph 60 below as to other Publisher stock offers not made to all booksellers.

    59. [Objection No. 2] Admitted that seasonal promotions were a factor in what Intimate bought, but it could not, of course, restrict its buying to seasonal promotions, to the exclusion (for example) of bestselling books.

    60. [Objections Nos. 1-2] Denied. See answer to Paragraph 14 above, making the same type of substitution. Defendants were provided with Intimate's records and of course defendants have their own records, and they make no effort to demonstrate from these combined records to demonstrate "the extent to which the defendants' took advantage of seasonal offers by the publishers" and whether defendants "took advantage of the same stock offers that plaintiff did.' Instead, they rely upon testimony by someone (WKuralt) who was not permitted access to defendants' records and of course would not be able to supply the requested information. Intimate has testified that it took advantage of occasional special deals and stock offers made to the entire industry {V#1 BKuralt 54, 56}. Intimate did not receive a special deal or stock offer of 3 Dr. Seuss children's books for the price of 2 (V#1 BKuralt 56}.

    61. Denied in Part; Admitted in Part. Plaintiff continued to buy books into 1996 (the last year of major book purchasing) and 1997 {V#1 WKuralt 82}, and the loss of credit from some of the Publishers was a consequence of defendants' alleged activities. Plaintiff did have credit problems with some Publishers in 1996, which resulted from the Publishers' cutting back of dating terms to Intimate and other independents because the Publishers were permitting defendants to take much longer periods in which to pay for books and Publishers chose to discriminate against independents to try to get money not being paid on time by defendants˙{V#1 WKuralt Expert Report p. 11} and see Paragraphs 77 and 82 below. Intimate could always purchase books by paying for them upon delivery, and to such extent defendants' statement is not accurate. Publishers did not refuse non-credit transactions.

    62. Admitted, but deny that Putnam's refusal to sell extended beyond 1994. Intimate continued buying books from Putnam directly during 1994, and prior thereto Intimate bought Putnam books from one or more wholesalers {V#1 WKuralt 81}. Defendants also had numerous small book publishers refuse to sell to them because of defendants' slow payment practices (072, 076).

    63. Denied. Intimate's last year for major book purchases was 1996, but Intimate did make some book purchases from Publishers in 1997. Intimate delivered its invoices and complete computer records to defendants showing that Intimate made some book purchases from Publishers during 1997). Defendants know that this allegation is not supported by the evidence.

    64. Admitted.

    65. Admitted.

    66. Admitted. Plaintiff's economist gave his opinion that based on the assumptions provided by plaintiff's attorney, there were too many variables involved to be able to use an econometrics analysis of the effect of the alleged price discrimination (V#1 Einhorn Expert Report), and defendants' experts have no opinion to the contrary {V#3: Tr: Ordover 14-15; Shulman 4-5; Johnson 7; Peacock 33; Blattberg 31-33; Cox 8-9 and O'Connell 4-5}. Defendants do not offer any economist to examine or testify about the relevant geographic markets or the alleged discriminatory pricing scheme (other than as to RDC, FC and related freight).

    67. Admitted. But Intimate has shown with evidence that the discrimination took place prior to 1994 and continued throughout the relevant period . Intimate's expert economist testified that the number of variables involved made it virtually impossible to have a meaningful econometric analysis of the effect of the superstores opening up in Intimate's marketing areas (V#3 Einhorn, Decl. and Expert Report) and none of defendants' experts disagreed with Einhorn {V#3: Tr: Ordover 14-15; Shulman 4-5; Johnson 7; Peacock 33; Blattberg 31-33; Cox 8-9 and O'Connell 4-5}. Intimate has supplied substantial other evidence to show that defendants caused damages to Intimate.

    68. Denied in Part and Admitted in Part. Plaintiff's economist Einhorn only gave his opinion that an economist could not render a meaningful opinion in this case because of the large number of variables involved. He assumed that such variables existed. He did not assume for purposes of his opinion that Intimate was hurt by the alleged variables (components of the alleged price discrimination). Expert Campos did assume that Intimate was damaged by the alleged activities {V#1 Campos Expert Report p. 1}; Expert Kursh assumed that Intimate and defendants would have been on an equal competitive footing but for the alleged violations {V#1 Kursh Expert Report p. 3}; and WKuralt (not an economist but an experienced businessperson in the industry in question) has assumed that the alleged facts are true {V#1 WKuralt Expert Report p. 38}.

    69. [Objection No. 2] Denied. Defendants offer no proof of this statement, other than a statement by WKuralt, who was not permitted to see the financial evidence or documentation produced by defendants to Intimate. WKuralt did examine defendants' financial statements obtained from SEC filings, the ABA trial record, and other financial information as set forth in various parts of his Expert Report (V#1 WKuralt Expert Report). WKuralt based his expert report on 40 years of experience in creating, financing, growing and managing a chain of general bookstores which maintained market share (of 1/10th of 1% of all book sales in the United States as reported each year by the ABA) and had annual increases in sales of $1,000,000 against everyone except defendants.

    [start of response to Paragraph 70 Statement]

    70. [Objection No. 2] Denied. Intimate's experts and other testimony and exhibits link lost sales, lost profits, and various costs to defendants' receipt of discriminatory prices, as follows: Intimate has been damaged by incurring expenses as consequences of defendants' violations of Section 2(f) of the RPA, and Intimate's business was destroyed by reason of such unlawful competition. Intimate offers proof of such elements of damages through declarations by Intimate's primary stockholder/C.E.O. {V#1 WKuralt 49 and Expert Report p. 72-88}, and through a variety of other experts. See {V#1} for the declarations and expert reports of Intimate's experts, and supporting declarations of many of Intimate's former customers who testify that they started buying from defendants' superstores while Intimate's bookstores were still in business. Also, see the Kardon survey and expert report to the same effect (V#1 Kardon, Expert Report).

    70A. Intimate has provided a substantial amount of evidence showing damages {V#1 WKuralt 17-30, V#1 BKuralt 10-17, 25-29; V#1 CKuralt.; V#1 Sease, V#1 PKardon, V#1 BKardon; and the expert reports of WKuralt (V#1 pp. 75-88), Sam Kursh, Chris Campos and Bruce Kardon}; and accompanying declarations in V#1 of various former customers of Intimate. Also, see page 37 below.

    70B. Intimate was enjoying business success (maintaining market share, and increasing sales) as against all competitors until defendants opened up their superstores in Intimate's areas. The superstores increased the square footage devoted to bookselling by 600,000 square feet (c.f. Intimate's 65,000), and the stores were designed as "Category Killers" (115p2){V#5 C 19, 22}, to put smaller bookstores out of business. The superstores were placed near Intimate's stores, offered 20-40% discounts, and additional services increasing the effective discounts to 30-50% or more. The superstores predictably took sales away from Intimate, until Intimate could no longer remain in business, and Intimate lost the value of its business as a result. Also, Intimate suffered other losses including across-the-board discount of 10% to customers, additional discounts 20% on bestsellers to club members, the costs of creating and maintaining the club, and the costs of closing various stores, among other items of expense. Defendants also saw that their own smaller stores suffered significant declines in sales during the same period, which defendants attributed to the competition of their own superstores.

    70C. Experts are not required to give an opinion on the obvious. There is no expertise needed for a jury to conclude that defendants caused Intimate to suffer these losses. About 85% of Intimate's sales were of books published by the Publishers {V#1 WKuralt 31A}. This is not the situation where there is any complicated allocation required. Defendants were operating illegally by inducing and knowingly receiving their excessive discounts, and returning them to consumers in Intimate's marketing areas by 20% to 40% discounts, coupled with valuable services to increase the quality of defendants' offerings to consumers. The only other superstore chain (BAM) was insignificant (2 stores were distant); and Media Player ("MP") was a non-traditional discounter similar to Wal-Mart and not significant competitively; only 1 MP store was local (in Raleigh), but as stated it was not a pure bookstore {V#1 WKuralt 7}.

    70D. The numerous features used to draw customers from Intimate (resulting from startup of defendants' stores with many competitive variables) make it impossible to use econometric modelling to determine to what extent Intimate's customers went to defendants. A Charlotte NC owner testified in the ABA trial (V#2 G 3512-end & V#2 H 80-3834) it had sales increases for 17 straight years ending 9/93; B&N opened in 9/93; and immediately after sales declined, starting in FY 9/30/94 (V#2 H 218-231). The overall market for books did not increase significantly during this period. Defendants' sales jumped from 0 to tens of millions of dollars per year in Intimate's marketing area, while Intimate's sales declined (identical to the Charlotte bookstore's experience in Charlotte-{V#2 G 3512-end & V#2 H 80-3834}, and required Intimate to stop its competition with defendants.

    70E. Econometric modelling with regression analysis is useful when competitors are competing in a given market, and one of them is given a larger discount (all of which is passed on to customers); the analysis can estimate how much business was lost by reason of the discriminatory price. But in the current situation, with new superstores offering high discounts and an array of costly services (amounting to higher quality of services), econometric analysis is unable to do more than guess at what a jury would readily be able to reasonably conclude. See Einhorn Decl. and annexed Expert Report {V#1}.

    70F. Intimate has provided a substantial amount of proof that it was damaged by the activities of defendants, and the dollar amounts of such damages. V#1 WKuralt 9-30 is anecdotal evidence of Intimate's damages, including various types of losses resulting from defendants' activities: communications with customers and former customers showing that they are now buying from defendants (Id. 22-26), buying out leases and repaying landlord loans upon closings of Intimate's stores {Id. 17}, litigation costs regarding amounts owed or possibly owed by Intimate {Id. 17}, loss in value of fixtures upon store closings {Id. 18}, and various other anecdotal items (Id. 9-30). These amounts are further listed at Id. 67-75. Also, see Kuralt's expert report at pp. 72-88.

    70G. Intimate has provided expert reports of Sam Kursh (V#1) and Chris Campos (V#1) to show the value of Intimate's business in 1996, which was lost by reason of defendants' activities. See V#1 WKuralt 68-75 and expert report (V#1) for the facts and opinion showing that defendants' caused this loss, by causing a percentage reduction in sales which finally caused Intimate's stores to be closed, as unable to compete. Id. 68-75. Defendants' attempts to undermine the quality of Intimate's experts witnesses are shown to be without basis in Intimate's transcripts of their depositions at V#3 (Blattberg, Coughlan, Cox, Johnson, O'Connell, Ordover, Peacock, Shulman), and their surprising lack of knowledge about defendants' effective discounts.

    70H. Bruce Kardon's expert report (V#1 p. 7) shows that 83.2% of Intimate's 8,000 or more book club customers started buying books from B&N and Borders after they opened their superstores in Intimate's marketing areas. Also, see the expert report of BKuralt V#1 pp. 4-5), which provide additional opinions to show that defendants' caused Intimate to go out of business. Defendants knew that their activities would be taking business away from Intimate {V#3 Ordover 44-47; V#3 Shulman 52, 55}. They knew that what they were doing was causing their B. Dalton and Waldenbooks mall stores (smaller book stores) to go out of business, as well.

    70I. Intimate has substantial evidence showing that the new competition added by the opening of defendants' superstores caused Intimate (and other bookstores in the U.S.) to be unable to compete any longer, because of the substantial price discrimination which defendants extracted knowingly from the 14 Publishers.

    Intimate has provided a substantial amount of anecdotal evidence in V#!, including declarations from many former Intimate customers stating that they started buying from defendants' superstores during the time that Intimate's bookstores were still in business, and Sease, PKardon and BKardon (including expert report) {V#1}.

    70J. Defendants have rummaged through Intimate's financial past and brought up events which cost Intimate money. This is not what Intimate seeks. Intimate instead seeks damages attributable to the discriminatory prices enjoyed by defendants, which caused Intimate to (a) offer all books at lower prices, (b) create a club for customers, at a specified cost to Intimate, with higher discounts as an additional cost, (c) close various stores with related closing costs (such as paying off leases), and (d) go out of business when Intimate's sales declined and its profit margins could no longer pay Intimate's overhead expenses. These are examples of the losses caused by defendants for which Intimate seeks recovery. The only new competitive factor not being met by Intimate was defendants' superstores, which even injured their own mall-size bookstores. Intimate's survey shows that the vast majority (83.2%) of Intimate's 8,000 club customers started buying from defendants after they opened up in competition with Intimate. Intimate competed successfully (and kept increasing annual sales) in its competition with all others, including Wal-Mart, Sam's Club, Media Player, and other non-traditional bookstores and Defendants' mall-size bookstores and independent Little Professor, enjoying a steady 1/10th of 1% of market share {V#1 Campos Expert Report p. 2 and Sched. 1} until Defendants' "Category Killer" superstores opened up, which were designed to put smaller stores such as Intimate out of business, through obtaining substantially lower, illegal book prices from the Publishers. [end of response to Paragraph 70 Statement]

    71. Admitted.

    72. Denied. Defendants' reference to WKuralt's deposition testimony does not support this sweeping conclusion. He merely stated that sales were down by 35% at one a single Intimate bookstore for 3 months subsequent to the grand opening of Media Play in Charlotte, ""then sales mostly return" (WKuralt 3/12/01 Tr. 279).

    73. Admitted, but defendants' statement is materially misleading. It fails to state that Intimate competed with B&N and Borders; and it fails to state that as against the competitors named by defendants Intimate was able to hold its own and maintain market share of 1/10th of 1% of ABA annual book sales {V#1 Campos Expert Report p. 2 and Sched. 1}; and increase its sales steadily until B&N and Borders opened their superstores; and that the opening of defendants' superstores also adversely affected Little Professor as well as defendants' own mall-size bookstores.

    74. Denied on the basis of use of ambiguous term "near". The specific locations of all of defendants' bookstores, including the distance from each of Intimate's competing bookstores, was provided by Intimate in answer to Borders' interrogatories. The response is Exhibit B to WKuralt's opposing declaration herein (V#1, immediately before page 1 of the Brenda Kuralt declaration). Defendants' use of the term "near" makes the statement too vague for meaningful use.

    75. [Objections Nos. 1-2] Denied. Intimate knows from a survey commissioned by Intimate (V#1 BKardon Expert Report p. 7 of 17), the declarations of the surveying persons (V#1, PKardon and Sease), from declarations executed by a number of Intimate's former customer (V#1, Customers, A-Z, AA-ZZ, AAA-end) that Intimate's bookstores lost sales to defendants' bookstores. Intimate's customers reported that 83.2% of them were buying from defendants' bookstores while Intimate was still in business (V#1 BKardon Expert Report p. 7 of 17). Also, Intimate has substantial other evidence showing that Intimate was losing customers to defendants. See Paragraph 70 above. Intimate cannot prove any specific percentage shifting to defendants because the number of variables is too many for econometric analysis (V#1, Einhorn Expert Report), and only a small percentage of loss of Intimate's business was required by 1966 to force Intimate to close its bookstores (see Paragraph 70 above).

    76. Denied. Intimate did not suffer any financial loss because it was covered by insurance. Intimate's destroyed data processing system was up and running in one week; Intimate obtained a loan and rebuilt the bookstore building while waiting for the insurance proceeds (which took 1.5 years to obtain), and Intimate was fully covered by business interruption insurance as well as fire insurance. {V#1 WKuralt 83}.

    77. Denied. The testimony specifically related to November, 1996, by which time Intimate was suffering from the competition of defendants' superstores. Intimate's business was already adversely impacted by November, 1996 a variety of discriminatory practices which favored defendants and disfavored Intimate and other independent bookstores. The reduction of payment schedules "during the mid-1990's" or in November, 1996 did not apply to defendants {V#1 WKuralt 12, 14, 24-26}, which continued to defer payment for many months, even up to 2-3 years, and then defendants were able to compromise the unpaid ("disputed") amounts, often for 50% on the dollar, without any factor built in for interest during the period of withheld payment. Defendants benefitted from such practices by obtaining the use of the books without payment for a long period, delayed payment of invoices without compensating interest payments to the publishers, and payment of only a portion of the invoices amount, creating a massive discriminatory benefit to defendants while at the same time the Publishers were tightening up credit arrangements with Intimate and the other independents to try to obtain the needed moneys which they were not receiving from defendants.

    78. Admitted, but irrelevant. WKuralt purchased Intimate in 1965 (VW1 WKuralt 3) and opened and closed many stores during the period prior to 1994 (see Intimate's Answers to Interrogatories, V#1, exhibit prior to p. 1 of Brenda Kuralt Decl..). Defendants do not indicate any date range applicable to their statement, and there was no Atlanta bookstore in existence during the damages period (Id.). During the period through 1995, Intimate was maintaining its market share and increasing sales at the rate of $1,000,000 per year in spite of (or should Intimate say because of) the opening and closing of stores. Defendants opened and closed stores too. Some worked out, others did not. By putting a bookstore in "horrible inner city areas", Intimate was bringing the power of books to a segment of the population which by implication the defendants say was not worth their while to serve.

    79. [Objection No. 2] Denied and defendants' statement is materially misleading. The Atlanta Renaissance Mall bookstore is explained in the preceding Paragraph 78. Defendants' Paragraph 79 statement cites the Renaissance Mall testimony but otherwise fails to identify any specific decisions and the dates thereof; and it fails to state that regardless of these decisions Intimate was able to hold its own and maintain market share of 1/10th of 1% of ABA annual book sales {V#1 Campos Expert Report p. 2 and Sched. 1}; and increase its sales steadily (against independent bookstores such as Little Professor and defendants mall-stores and non-traditional sellers of books such as Wal-Mart) until B&N and Borders opened their superstores. The quality of Intimate's business decisions had no bearing on Intimate's destruction. Nobody can compete against a competitor which gets its book inventory essentially for free, and returning the unsold books at higher than cost and only paying for the sold inventory at a 60% discount, in comparison to Intimate's 42% discount.

    80. Denied. During 1993, Intimate did not have significant delays in payment. Intimate wanted to expand with more inventory and went to Random House and made a deal that if Random House shipped all the books Intimate wanted, Intimate would pay within the regular dating terms, and if not Intimate promised to pay interest on any delayed payment. Intimate paid on time and made no interest payments. It is true that as to Intimate the Publishers required Intimate to pay on time or would stop further book shipments to Intimate. This was not true for defendants. The 14 Publishers (except for Little Brown, as a notable exception) did not stop shipments to any of the defendants when they refused to pay invoices, or delayed in paying invoices (134, 226, 228) {CDV#8 Balog 73-74}. The statement is also for a period prior to Intimate's damages period and therefore irrelevant.

    81. Admitted, and see Intimate's response in Paragraphs 80 and 62. Defendants do not identify any specific "other publishers [which] refused to sell to plaintiff under any terms" and the dates of any such refusals. If the dates are prior to the damage period, the statement is irrelevant. If the dates occurred after opening of any of defendants' superstores in competition with Intimate, the event could be evidence of additional damage to Intimate.

    82. Denied. WKuralt also testified at the same time: "Q. Did you weather the new competition remarkably well? A. Well, we had 22 new stores in our market area ... and until 1995, our sales had continued growing at a rate of a million dollars a year". * * * The publishers did not stop shipping us books. They reduced our credit lines and reduced the books that we got." {WKuralt 3/1 Tr. pp. 18-19}. The credit issue is explained in Paragraph 77 above. The opening of defendants' superstores adversely affected Intimate, causing reduced financial capacity (the truth, and not a rumor), which caused Publishers to reduce their credit lines to Intimate, as a consequence. This is part of Intimate's damages caused by defendants.

    83. Admitted, but Intimate's auditors were pointing out perceived "management problems" for years, and in spite of such perceived problems, Intimate was growing in sales at the rate of $1,000,000 per year and maintaining market share, until defendants opened up their superstores in competition with Intimate {V#1 WKuralt 85}.

    84. [Objection No. 2] Denied. Intimate did not reject available new store opening allowances {V#1 WKuralt 31-S}. They were not offered to Intimate. As to cash discounts for early payment, Publishers were generally not offering cash discounts {V#1 WKuralt 31-C}, and by 1996 Intimate did not have the extra cash to take advantage of any cash discounts. As to discounts for electronic ordering: ˙ Intimate's data processing system was more advanced than wholesaler Baker & Taylor during 1986 and the computer networks were not good enough for accurate ordering; and Intimate continued printing out Intimate's orders and sending them by Federal Express to the Publishers. The Publishers' systems through the early 1990's failed to use check digit techniques with ISBN book numbers (which Intimate had developed for itself and was using to prevent ordering errors), so Intimate chose not to get involved with electronic ordering until the Publishers changed their software to inhibit ordering errors. Defendants plunged into electronic ordering prematurely and because of the poor state of the electronic ordering system (failing to use check digits with ISBN numbers properly), created many ordering errors with resulting higher costs for the Publishers which injured them badly from a financial standpoint. By the time these software problems had been corrected, during the mid-1990's, Intimate was fighting for survival and could not make use of any electronic ordering opportunities, and none was offered to Intimate in any event during the relevant period (until it became too late to take advantage of them). Because of the rate of ordering errors, and the costs entailed by the Publishers to cure them, the 1% electronic ordering discount paid to defendants was not cost justified from the Publishers' standpoint. {V#1 WKuralt 84}

    85. Denied. Defendants make no showing that any RDC discount in the early 1970's was substantially the same in conditions, discount or terms as the RDC discount given by Publishers to defendants during the 1990's. WKuralt testified that Intimate was not permitted by any of the Publishers to obtain an RDC discount during the 1990's (V#1 WKuralt 31-d, 31-e, 36), and that Intimate was performing the activities of an RDC for the Publishers without obtaining the RDC discount. [See Paragraph 41 above, a substantially similar statement.] For many years, the Red Book had no listings for RDC discounts and RC fees, and other terms of the RDC transaction. These terms generally were not ever published in the Red Book (DV#7 O'Donnell 49). Defendants obtain substantially more from Publishers than the 2% (or 1-4%) RDC discount, 1% RC fee and free freight. They also generate massive deductions for "vendor shipping violations", delays in payment, excessive returns imposing substantial costs on Publishers without any expense or penalty to defendants. Defendants' RDC operations are no more than extra compensation for doing what Intimate and the other independent were already doing without extra compensation. {V#1 WKuralt 31-D, 31-E, 35-42, 46-E, 52-60, and WKuralt Expert Report pp. 55-65, 71}

    86. Denied. See answer to Paragraph 85 above. Also, there is the following evidence to the contrary: xxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxx xxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxx xxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxx The publishers set forth requirements generally for RDC's making it possible only for the major book-selling chains to obtain the additional 2% (RDC) discount, and related 1% RC fee (see "Return Center" below.) These requirements were usually four in number, as follows: (i) ordering in carton quantities for a specific title; (ii) having a separate warehouse not part of a bookstore; (iii)// having a docking area where large trucks could unload pallets; and (iv) usually having a minimum number of bookstores being serviced by a single RDC (006) {CDV#8 Kelly 11-13}.

    86A. Intimate met all 4 requirements (but was never offered or given a RDC or RC discount) {V#1 WKuralt 37-41}. A non-discriminatory policy by the Publishers would have been to eliminate the 2nd (separate warehouse) and 4th requirements (at least 5 bookstores), and charge an additional fee for shipments where there was no docking facility {V#1 WKuralt 41}. But instead of doing this, the Publishers created a 2% RDC discount and related 1% RC fee only for defendants (and other major bookstore chains, such as Books-a-Million - "BAM"). Publishers (e.g., Penguin and S&S) did not require defendants to buy in carton quantities, in spite of the published conditions (004, 211, 220, 238), which exception was requested by Borders (194) and Morrow and Avon did not require carton purchases (090). Borders always achieved a "flat" RDC discount, not dependent on the quantity of books ordered (255); also defendants sought and obtained lower carton quantities on initial frontlist orders (10 copies) , to reduce drop shipments, which "will have a material impact on 1998 returns" (256). Thus, defendants obtained a 50% discount on small orders while Intimate was getting a discount of only 20-40% for small orders {see Red Book terms in Discounts Volume}.

    86B. Defendants obtain early shipment of books by Publishers because the use of RDC's results in delays upon reshipping new books to defendants' retail stores (099, 107), thereby imposing additional costs and discriminatory services on the Publishers over and above the RDC 2% fee. The RDC's are not effective for defendants and need improvements (116) [CV#4 Bostelman 70-72]. RDC's are taking 8 days to get books to retail stores (132, 139). xxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxx (136). Borders has no idea in 1995 of its RDC costs (139). Defendants' own shippers (costing less) are causing some of the shipping delays and problems (215). Defendants' RDC and RC analyses for negotiating purpose are made from defendants' standpoint (additional revenue), not the Publishers' standpoint (cost savings) (223). RDC discounts are negotiated, sometimes "This is a nasty negotiation process...dragging out for a year" (280p3). Price negotiations are an established element of determining effective price (CV#4 Flanagan 19, 51, 54-65, 88-89).

    86C. Also, the exclusivity of the RDC to the major chains enabled the Publishers to provide additional, exclusive discounts to defendants, such as "Extra 3% discount - free freight - offer expires December 31, 1996 - RDC Accounts Only (200) and additional 3% on all backlist (218) or "extra 1% discount on all backlist ordered into the RDC [271] (189). The RDC's and RDC/RC fees are no more than extra compensation to// defendants for failing to employ skilled employees at their bookstores and data systems to do the work done by independents at their bookstores {V#1 WKuralt 54-60} and (254).

    87. Denied. The actual RDC terms applicable to defendants, as negotiated by them (defendant-submitted Robin Wagner Decl. Paragraph 7), were not disclosed, and were not available to Intimate during the damages period. The Red Book terms did not disclose the terms being given to defendants. The Publishers did not want independent to obtain RDC terms and made no effort to try to achieve more "savings" by having independent do the same RDC things defendants were doing .See citations in Paragraphs 85-86 above.

    88. [Objection No. 1] Denied. Defendants cite only WKuralt testimony, which is inadmissible because defendants' evidence was withheld by defendants from WKuralt. Accordingly, defendants have no admissible proof with respect to their statement in Paragraph 88. Defendants have made no effort to prove that they did not provide such evidence to Intimate. Accordingly, they have not proven that Intimate has no evidence. All they have shown is that WKuralt was not able to learn about such evidence because of the Confidentiality Agreement (V#5 A Paragraph 5). Intimate proves that defendants were buying books through RDC's during all or part of the damages period. Exhibits 1-280 provide substantial evidence of defendants' RDC negotiations and dealings with the Publishers, during 1995-1996 {006, 150, 160, 171, 183, 189, 198, 200, 230, 278} (defendant-submitted Robin Wagner Decl. Paragraph 7).

    89. Denied. See Intimate's answers to Paragraphs 85-87 above. Shipping to an RDC does not result in cost savings to the Publishers, because the Publishers do not take into account the additional cost of defendants' delayed payments, deductions, error-ridden electronic ordering system, and excessively high return rate, among other things. Also, the defendants' analysis does not take into account that the RDC's are not working as envisioned, cause additional expenses to Publishers (such as the need by LB to expand its warehouse to accomodate defendants' RDC demands - CDV#8 Balog 93-95), do not replace the Publishers' systems because the Publishers still have to work with all other systems of persons which order books from them; and that the RDC's are only doing for compensation what Intimate with a better system was doing for no compensation. Accordingly, there is little or no support for any functional discount for defendants, and there is no cost justification for the RDC's, related RC fee, and related freight expenses paid by the Publishers. See Intimate's answers to Paragraphs 85-87 above. Defendants' reliance upon Kelly's deposition testimony is not helpful: Kelly did not consider the above-listed RDC costs; she testified that "Man hours for pickers and packers" (Kelly Tr 15 at lines 9-11 and Kelly Tr 16 lines 8-10) were the only costs as far as she knew; she testified that her Publisher (H-M) did not calculate the profitability of doing business with B&N or Borders (Kelly Tr 17 lines 6-14).

    90. [Objection No. 1] Denied. See Paragraphs 87-89 above. Defendants' cost justification evidence fails to take into account various costs relating to RDC operations as discussed above and should be rejected. Also, defendants have the burden of proof on the issue of cost justification.

    91. Denied and inadmissible hearsay. The identities of the Publishers are not given. The studies discussed were all theoretical, and did not take actual cost experience into account.˙See Paragraphs 88-89 above. Also, the costs of vendor shipping penalties assessed against Publishers by defendants' RDC's and the deductions taken for a variety of alleged vendor shipping errors, and the extremely high return rate, as well as the costs of Publisher expansion of its facilities to accomodate defendants, as well as the increased costs relating to defendants' poor electronic ordering software, for example, were not taken into account, making the so-called studies worthless, other than a cover for giving defendants additional discounts and fees. Defendants have no reasonable basis for any such stated belief.

    92. Denied. See Paragraphs 87-91 above.

    93. Denied. See Paragraphs 87-89 above. Defendants' RDC were performing the booksellers' functions normally performed at the bookstore level, which accounts for increased costs. Booksellers such as Intimate were not compensated for their bookselling expense other than through the published applicable Red Book discount. Defendants, on the other hand, by moving these functions into something called an "RDC" were able to obtain compensation for doing what was already being done more effectively by Intimate, at no additional cost to the Publishers.

    94. [Objections Nos. 1-2] Denied. Defendants cite only WKuralt testimony, which is inadmissible because defendants would not permit WKuralt to learn about the evidence defendants produced in this case. Accordingly, defendants have no admissible proof with respect to their statement in Paragraph 94. Defendants have made no effort to prove that what discounts they have been receiving (other than RDC, RC matters) and therefore defendants have not met their burden as to such statement. Defendants produced about 35 CD Roms of relevant records, and have made no effort to extract from such CD Roms and advise the Court in their moving papers what additional discounts, rebates, fees, payments, services and other benefits they were receiving from the Publishers (as alleged in Paragraphs 35(a)-35(m) of the complaint). Instead, they merely claim that someone who was not able to learn about defendants' produced records has no knowledge of defendants' discounts, which is improper, misleading and a waste of a lot of time for many persons involved in this case. As to Intimate's evidence, see its answers in Paragraphs 1-9 above.

    95. [Objection No. 2] Denied. Defendants do not state what discounts they are receiving (other than the RDC, RC, and related freight amounts). Any statement that "defendants believe that the discounts they received were lawful" has no foundation because there is no statement by defendants of what discounts they were receiving. Also, the statement is not believable, in light of the evidence that Intimate has provided in its opposing papers (see answers to Paragraphs 1-9 above) showing that defendants knew or should have known that the discounts they received were unlawful.

    96. Denied as to RDC discounts for reasons set forth in Paragraphs 87-91 above, and denied as to all other types of discounts (including deductions, endcap and other in-house placement allowances, returns, delayed payments, and various other means, which Intimate refers to as a DNA code, by which defendants are able to obtain a much higher effective discount than the Red Book published discounts. Defendants cannot credibly assert a cost-justification defense when neither they nor the Publishers know the price at which defendants have been buying books from the Publishers {CDV#8 Balog 34-36; CDV#8 Kelly 16-18; CV#4 Naggar 7; CDV#8 Hertz 11; DV#7 Flanagan 39-41, 50-59; DV#7 O'Donnell 13, 23-25, 47-48, 50-52, 56}; defendants kept no records on the profitability of their dealings with major Publishers (DV#7 Flanagan 114-115; DV#7 O'Donnell 44-45); and the Publishers did not know the profitability or cost of their dealings with defendants {DCV#8 Kelly 16-18; CV#4 Naggar 7; DCV#8 Hertz 11}.

    97. [Objection No. 2] Denied. The survey shows that 83.2 % of a large group of plaintiff's customers also bought from defendants while Intimate's stores were operating (V#1 BKardon Expert Report p. 7 of 17), convincing evidence to a trier of fact that at least a small percentage of Intimate's sales was lost to defendants (about the same as defendants lost in their own mall stores), which loss was sufficient to cause Intimate to close its stores. The higher discounts enabled defendants to obtain better locations, better ambience, lower prices, higher selection of goods, free reading, free public areas, free bathrooms, free magazine reading, coffee and snack area, free parking and various other amenities to provide a demonstrably lower price and higher quality of book-buying experience against which Intimate and other competitors obviously had to lose business, something which defendants recognized as "cannibalizing" their own smaller stores by the newly-opening superstores and by having their superstores fall within the "Category Killer" ambit, referring to the admitted intention of putting competing smaller stores out of business by the opening of such superstore Category Killers (115p2){V#5 C pp. 19, 22}. xxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxx xxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxx[149p3]. B&N in 1997 was able to "outdistance our competition, drawing 14% of the large, robust U.S. consumer book market." [V#5 F p4], done in part by taking sales away from B&N's B. Dalton stores [V#5 F pp. 13, 15-16], and "closing more than 50 B. Dalton stores per year since 1989" [V#5 F p13] while opening 65 B&N stores in 1997 alone [V#5 F p13]. Intimate was able to compete and prosper in spite of the B. Dalton competition, but could not compete against Defendants' superstores. B&N attributed its success to its "buying practices" [V#5 F pp. 4, 6]. This adverse effect upon B&N's B. Dalton stores continued, through 2000 [V#5 H-I Ex13.1p13], in which B. Dalton had 89 store closings. Also, as to the B. Dalton stores suffering adversely from Defendants' superstore competition, see B&N's 1999 Annual Report [V#5 G pp25, 27, 31, 32, 52], and completed the store-closing program in 1999 [Id. p52]. Borders experienced similar losses of comparable-store revenues as to its Waldenbook stores during the same period because of Defendants' superstore competition (V#5 K).

    98. Admitted, except that the survey shows that 83.2% of Intimate's customers started buying from defendants after defendants opened their superstores (V#1 BKardon Expert Report p. 7 of 17). The survey together with Intimate's other evidence (e.g., see information in preceding, Paragraph 97) would enable any trier of fact to find in favor of Intimate as to defendants' statement in this Paragraph 98.

    99. [Objection No. 2] Denied in part, admitted in part. See Intimate's response in Paragraphs 97-98 above. Admit that the survey does not show any passed through price discounts with specificity, but it does show that the persons responding bought at defendants' stores because of lower prices as well as higher quality of bookstore services, which is another form of discriminatory discount passthrough. Deny that the survey does not establish that plaintiff's customers would have shopped at plaintiff's stores but for defendants' stores. Intimate was shoing sales increases and maintenance of market share against all other competitors until defendants entered the market.//

    100. [Objection No. 2] Admitted, but ranking is not required because the passthrough took place both with defendants' discounts as well as defendants' higher quality of bookselling services (such as free parking, larger selection of titles, free reading, coffee/snack area, larger stores, higher-quality ambience and overall bookbuying experience). V#1 Einhorn Expert Report gives the opinion that it is impossible to have a meaningful econometric analysis with so many variables, and defendants' experts have no opinion to the contrary (V#3: Tr: Ordover 14-15; Shulman 4-5; Johnson 7; Peacock 33; Blattberg 31-33; Cox 8-9 and O'Connell 4-5).

    101. [Objection No. 2] Denied. The survey clearly meant discounts on books, not on coffee or parking.

    102. [Objection No. 2] Admitted. Einhorn testified "A survey alone is not guaranteed to do anything. It can help." Intimate has provided additional evidence in support of the survey. For example, customer declarations showing that they bought from defendants' stores; evidence that defendants' own mall-size stores suffered similar losses in sales after defendants opened their superstores; the proximity of defendants' stores to plaintiff's stores, among other evidentiary items supplied by plaintiff. Also, defendants do not testify they have no evidence on this causation issue. How do defendants know that there stores are "Category Killers" without some type of causation proof?

    103. [Objection No. 2] Denied., for the reasons set forth in the preceding paragraph. Also, defendants disregard Exhibits 1-280 being presented by Intimate (CV#4).

    104. Admitted, but this is not necessary. For whatever ranking of the 35 challenged inducements to purchase from defendants, the defendants took plaintiffs' customers because of the lower prices and higher quality of services which defendants were able to offer using the discriminatory discounts. V#1 Einhorn Report shows that econometric analysis cannot be used because of the number of variables involved; and defendants' experts have no opinion to the contrary (V#3: Tr: Ordover 14-15; Shulman 4-5; Johnson 7; Peacock 33; Blattberg 31-33; Cox 8-9 and O'Connell 4-5).

    105. [Objection No. 2] Admitted, but deny that this makes any difference. Defendants were able to obtain a substantially higher effective discount from each of the Publishers, and the variations in amount are insignificant and were not quantified by any of the Publishers or Defendants, all of whom are unaware of the effective prices at which they are selling books to any of the defendants [DV#7 Bostelman 35-36, 122-125] {CDV#8 Balog 34-36; CDV#8 Kelly 16-18; CV#4 Naggar 7; CDV#8 Hertz 11; DV#7 Flanagan 39-41, 50-59; DV#7 O'Donnell 13, 23-25, 47-48, 50-52, 56}.

    106. [Objection No. 2] Admitted, but plaintiff allege (in Paragraphs 46-47 of the complaint) that defendants conspired with each other and the Publishers to obtain these unlawful discounts, which would make them jointly liable or at least joint contributors to the damages. Also, defendants fail to testify that there is no such evidence which they produced to Intimate.

    107. [Objection No. 2] Admitted, but this is inherent in real estate locations, each of which is unique, and present different issues as to each other location competing therewith. No competition is identical, even as to Intimate's competition with two stores of one of the defendants.

    108. [Objection No. 2] Denied. Intimate's experts assumed explcitly or implicitly that the alleged conduct was illegal. See Intimate's expert reports at V#1 of WKuralt, BKuralt, Kursh, Campos, Einhorn, and Kardon.

    109. Admitted. Plaintiff's valuation experts placed a value on plaintiff's business as of 1996, and assumed that plaintiff closed its last bookstore in early 1998 because of the alleged conduct of defendants. Kursh and Campos were not asked to give an opinion as to why Intimate closed its bookstores. Intimate's damages model eliminated losses prior to 1996 by having a valuation as of a date in 1996. Specific losses such as costs of store closings, loss of profit margin due to higher discounts to Intimate's customers, litigation costs, and cost of book-club maintenance do not require an economic model to calculate.

    110. Admitted, but denies that this has any application to either of the two valuations by Kursh and Campos. Also, the fire loss (including lesses relating to business interruption) were fully covered by insurance and did not affect Intimate's earnings or net worth (see answer in Paragraph 76 above). Furthermore, Intimate has provided significant evidence to show that Intimate was able to maintain market share and increase sales as against independent bookstores and as against non-traditional booksellers such as Wal-Mart, but Intimate has also shown that Intimate lost sales after defendants opened their superstores, and that independent Little Professor bookstore as well as defendants' own small mall-size bookstores suffered the same decline in sales. There is no other explanation for what happened to plaintiff, at least this is what a jury would readily conclude.

    111. Denied. Although plaintiff's bookstores closed, Intimate has continued selling books as a non-traditional bookseller under the trade name Past Perfect Antiques & Books (V#1 WKuralt 63-63A; V#1 BKuralt 32-33), located in a commercial property owned by the Kuralts, in Carrboro, NC. Intimate is selling new, used and rare books, including books left over in plaintiff's inventory from its closed bookstores. It has an inventory (as distinguished from displayed titles) of about 8,000 hardcover titles (more than 2,000 different titles) and many titles are ones "that are the subject of this action" (V#1 WKuralt 63-63A). Intimate continues to maintain the personnel, equipment, computers, programs, know-how, desire and experience to compete with defendants but is unable to own and operate any traditional (general) bookstores in competition with defendants until the unlawful discrimination in price is ended. Intimate has 40 book display fixtures (designed by Intimate) capable of displaying about 12,000 books; also, Intimate has a 1990 Mack semi tractor trailer with a 28 foot pup trailer, a forklift, and 2 pallet jacks. Intimate has the personnel and equipment to own and operate one or more bookstores, but doing this in competition with defendants at this time, without the requested relief, would be a futile, money-losing act.

    112. Denied. The appropriate year is 1996. See Paragraph 61 above.

    113. [Objections Nos. 1-2] Denied. Defendants failed in their obligation to deny under oath that they are now receiving any of the specific discriminatory benefits alleged in Paragraphs 35(a)-35(m) of the complaint or, in the alternative, to describe specifically when they are receiving, for the Court to determine if what they are admitted receiving today could be triable. had the obligation to See transcript from the 4/01 ABA trial; see Red Book for 2001 (the currently Red Book edition); see various exhibits dated in 2000; and defendants' failure to announce that they has withdrawn from the alleged conspiracy. B&N's CEO Leonard Riggio told industry analysts during November, 2001 "that B&N might take unspecified "decisive actions" to "persuade our suppliers to be fair to us", possibly as soon as early 2002 [V#5 R, S]. Publishers Weekly told the industry that Riggio was threatening action (in 2002) against the book publishers [V#5 S]. Specifically, Riggio was complaining that Wal-Mart, which stocks fewer titles and has higher returns, is getting a higher discount from book publishers [V#5 R p2]. Industry analysts expected the ABA case "would help free Barnes & Noble to use its market power to win lower prices from publishers" [V#5 R p2], and indicated that it sounded like Riggio was threatening book publishers [V#5 R p1,3]. New York magazine 7/19/99 states "the bad Len Riggio, bludgeoning publishers, strangling independent bookstores" ... "accused of breaking antitrust laws, closing down thousands of independent bookstores, bullying publishers, and flattening the literary landscape". Membership in the independent stores' ABA fell from 5,500 in 1994 to 3,400 in 1999." {V#5 U p27}.

    114. [Objection No. 2] Denied. See preceding answer.

    115. Denied. See answer in Paragraph 111 above. Intimate has been selling new books obtained from one of the 14 Publishers (Random House) and from a wholesaler (Baker & Taylor), and through continuing sales of about 3,000 new books which remained after Intimate closed its chain of bookstores. Although Intimate has reduced its bookselling operations, it does continue to sell books, and has the trained personnel (Wallace Kuralt and Brenda Kuralt and Carole Hay, former manager at Intimate's Eastgate bookstore), contacts, know-how, experience, assets, equipment (computer in storage), heavy-duty truck, storage space, history of business transactions (numerous tapes of computer transactions), computer personnel, and computer software capable of running the operations of a single bookstore or a chain of bookstores. {V#1 WKuralt 63; V#1 BKuralt 32-33}.

    116. Denied in part. See answer in preceding paragraph. Plaintiff has computers, software, programming expertise, software applications expertise, book purchasing experience, and WKuralt and BKuralt own the building in which they are now conducting Intimate's business, under the name Past Perfect Antiques & Books, 73 Hillsboro St., Pittsboro NC {V#1 WKuralt 63-63A; V#1 BKuralt 31-33}. Intimate has the ability to return to the bookstore business if it is able to compete with defendants on a level playing field (i.e., without defendants receiving unlawfully high effective discounts from the Publishers). Admitted that Intimate has an insufficient number of fixtures (i.e., book shelves and tables) for the operation of a general bookstore, but they can be built or acquired for a comparatively small amount. WKuralt has substantial experience in designing and contracting for installation of fixtures. {DV3 Ex. 12, WKuralt 030101 Dep. Tr. 64-66}.

    117. Denied. Defendants' suggest that Intimate's credit problems with publishers were not caused by defendants. Intimate has demonstrated that defendants' unlawfully high effective discounts caused Intimate to lose customers, sales, profits and property, creating credit problems as defendants' activities caused Intimate's financial condition to progressively worsen. See V#1 Kuralt 82.

    Plaintiff's Summary Statement of Material Fact Issues in Dispute

    Because of the manner (117 paragraphs mostly without evidentiary support) in which defendants presented their statement, the Court has no clear, succinct statement of the issues in this case. To supply this, plaintiff respectfully submits a summary statement of the material facts as to which Intimate contends there are genuine material issues to be tried (supported by the evidence cited above):

    118. Each of the Defendants has induced and/or knowingly received discounts, rebates, allowances, fees, payments, services and other benefits ("Discriminatory Discounts") giving defendants an effective discount on their book purchases from the 14 Publishers amounting to about 60% or more.

    119. These Discriminatory Discounts have been received by defendants during the period starting in 1993 or earlier up to and including the present, and have steadily increased throughout this period.

    120. During this same period, Intimate and other independent booksellers have received discounts from the same Publishers as to purchases of the same books at the discounts set forth in the Red Book, ranging between 40% and 46%, and averaging 42% in the case of Intimate.

    121. Defendants have used these Discriminatory Discounts to take away (and actually did succeed in taking away) customers from Intimate by offering to pass on such Disriminatory Discounts to persons buying books from defendants in the form of higher discounts from the Publishers' suggested retail prices and in the form of higher quality of bookselling services, such as free parking, better location, substantially higher number of book titles, free reading of books, large magazine selection with free reading thereof, coffee and snack area for reading of books and magazines, more advertising of information about the availability of lower prices and higher quality of services, public restrooms, space set aside for community events, more spacious areas for convenience of customers, higher quality ambience, greater depth of inventory, greater subdivision of book areas for convenience of customers.

    122. Intimate and other independent booksellers in the United States were operating in a highly competitive marketplace at a low level of pre-tax profits, based on Red Book discounts, and highly vulnerable to a loss of a small percentage of business to a competitor enjoying substantially higher Publisher discounts.

    123. Defendants established their superstores as Category Killer stores designed to injure and then eliminate the competition, even the mall-size stores owned by defendants.

    124. Defendants' superstores were effective in causing a loss of more than 10% of the overall business of Intimate, as well as defendants' own mall-size stores over the period from 1994 to 1996.

    125. Such loss of sales suffered by Intimate was attributable to defendants and not to pre-existing competitors such as Little Professor (an independent bookstore competing with Intimate), or non-traditional booksellers such as Wal-Mart and Sam's Club or specialized booksellers such as Home Depot, hardware stores and pet stores.

    126. Prior to defendants' superstores, Intimate was able to maintain its market share of about 1/10th of 1% of all booksales in the U.S. as reported by the ABA, and increase its sales by about $1,000,000 per year.

    127. Only after the opening of defendants' superstores was Intimate unable to maintain its market share and sales increases, and instead suffered immediate substantial declines in sales during the period that defendants went from zero sales to many tens of millions of dollars of sales with about 17 superstores in Intimate's marketing area.

    128. Intimate was buying the books of the same title, at the same time, from the same Publishers in interstate commerce.

    129. Intimate continues in the bookselling business as a non-traditional bookseller, unable to compete with defendants as a general trade bookseller because of defendants' activities as described throughout.

    130. Defendants' RDC discounts, RC fees and related freight payments and rebates are not justified functionally because defendants' RDC's are performing exactly what Intimate and other booksellers were performing for Publishers at no additional discount.

    131. Defendants' RDC discounts, RC fees and related freight payments and rebates are not cost justified because defendants' studies fail to take into account additional costs imposed by defendants on the Publishers, such as higher, ruinous return rates, defendant-imposed shipper penalty violations, delayed payment for books having the effect of free inventory and Publisher financing of defendants' businesses, non-payment of a significant percentage of the Publishers' RDC invoices to further reduce the invoices to a much higher effective discount; imposition of additional costs on Publishers to make them conform to defendants' ordering systems while the Publishers have to continue paying the costs of maintaining their system for all other types of booksellers ordering books from the Publishers (such as Wal-Mart, Intimate, other independent booksellers, and others who do not need or choose to employ a so-called "RDC").

    132. Plaintiff was never offered the opportunity to obtain the RDC discounts, RC fees and related payments and rebates, and additional benefits provided by the Publishers to the defendants during 1994-1998.

    133. Defendants enjoyed the additional, discriminatory revenues from their RDC and RC activities for years before any significant number of the Publishers published any notice about the possibility of RDC discounts, RC fees and related freight payments and rebates to booksellers in the ABA Red Book.

    134. Defendants' activities, as described in Paragraphs 1-133 above, continue up to the present.


    Dated: New York, New York
    . . . .February 11, 2002

    Carl E. Person (CP 7637)
    Attorney for the Plaintiff
    325 W. 45th Street - Suite 201
    New York NY 10036-3803
    (212) 307-4444



    Copyright © 2002 by Carl E. Person