Oracle Corporation et al v. SAP AG et al

Filing 1022

Declaration of Tharan Gregory Lanier in Support of 1021 Response filed by SAP AG, SAP America Inc, Tomorrownow Inc. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, # 8 Exhibit 8, # 9 Exhibit 9, # 10 Exhibit 10, # 11 Exhibit 11, # 12 Exhibit 12, # 13 Exhibit 13, # 14 Exhibit 14, # 15 Exhibit 15, # 16 Exhibit 16, # 17 Exhibit 17, # 18 Exhibit 18, # 19 Exhibit 19, # 20 Exhibit 20, # 21 Exhibit 21)(Related document(s) 1021 ) (Froyd, Jane) (Filed on 12/23/2010) Modified on 12/27/2010 (kc, COURT STAFF).

Oracle Corporation et al v. SAP AG et al

Doc. 1022 Att. 4

EXHIBIT 4

Dockets.Justia.com

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA BEFORE THE HONORABLE PHYLLIS J. HAMILTON, JUDGE ) ) PLAINTIFFS, ) ) VS. ) ) SAP AG, ET AL., ) ) DEFENDANTS. ) ____________________________) ORACLE CORPORATION, ET AL. JURY TRIAL NO. C 07-01658 PJH VOLUME 6 PAGES 947 - 1187 OAKLAND, CALIFORNIA TUESDAY, NOVEMBER 9, 2010

CERTIFIED COPY
TRANSCRIPT OF PROCEEDINGS APPEARANCES: FOR PLAINTIFFS: BY: BINGHAM MUCCUTCHEN LLP THREE EMBARCADERO CENTER SAN FRANCISCO, CALIFORNIA 94111-4607 ZACHARY J. ALINDER, HOLLY A. HOUSE, GEOFFREY M. HOWARD, DONN P. PICKETT, ATTORNEYS AT LAW BOIES, SCHILLER & FLEXNER LLP 1999 HARRISON STREET, SUITE 900 OAKLAND, CALIFORNIA 94612 DAVID BOIES, STEVEN C. HOLTZMAN, ATTORNEYS AT LAW

BY:

(APPEARANCES CONTINUED NEXT PAGE)

REPORTED BY:

RAYNEE H. MERCADO, CSR NO. 8258 DIANE E. SKILLMAN, CSR NO. 4909

RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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MEYER - DIRECT (RESUMED)/ PICKETT BY MR. PICKETT: Q. LET'S GO ON, THEN, TO FACTOR NO. 2, WHAT WOULD BE IN THE

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MIND OF SAP. ON ORACLE.

WE'RE MOVING FROM THEIR GOALS TO EXPECTED IMPACT

CAN YOU REMIND THE JURY WHAT THAT FACTOR INVOLVES? A. YES, THIS WAS IN THE -- FROM THE PERSPECTIVE OF THE SAP

NEGOTIATORS, HOW USING THE SOFTWARE WOULD THEN IMPACT ORACLE. AND AS YOU RECALL FROM THE DISCUSSION YESTERDAY, THAT WAS AN ISSUE, TO LAUNCH RIGHT AFTER THE ORACLE COMBINATION WITH PEOPLESOFT. AND SO WE'RE GOING TO SEE SOME OF THESE DOCUMENTS,

I THINK, IN A MOMENT. I THINK THAT -- THAT THE FIRST ITEM THERE IN THE FAR RIGHT-HAND SIDE, WE'LL SEE THAT THIS WAS PRESENTED TO OR RECEIVED BY MR. AGASSI, MR. OSWALD, AND MR. MACKEY. AND WITH

THIS PROGRAM, IT SAYS, "MAY FORCE ORACLE TO CHANGE ITS BEHAVIOR OR PLANS AROUND PRICING OR POSITIONING." AND THEN THE NEXT ONE, IT'S PRETTY IMPORTANT, "AFFECTING ORACLE'S ABILITY TO MAINTAIN THIS REVENUE STREAM COULD IMPACT THE ROI ASSUMPTIONS" -- THAT MEANS RETURN ON INVESTMENT -- "OF THE ORACLE/PEOPLESOFT DEAL." SO THAT MEANS

THAT IT WOULD IMPACT THE ABILITY FOR ORACLE TO MAKE RETURN ON THE $11 BILLION INVESTMENT. Q. SO IF -- THAT -- THE IDEA IS THAT IF SAP WAS SUCCESSFUL IN

CONVERTING CUSTOMERS, IT WOULD DIVERT FUNDS THAT WOULD PAY FOR THE PEOPLESOFT $11 BILLION ACQUISITION?
RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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A.

974 MEYER - DIRECT (RESUMED)/ PICKETT THAT'S RIGHT. WHICH WOULD THEN IMPACT CASH FLOW TO ORACLE

AND PEOPLESOFT, WHICH WOULD IMPACT DEVELOPMENT. Q. AND SAP WOULD VIEW THAT HOW ENTERING THE NEGOTIATION TABLE? HOW WOULD THAT FACTOR IMPACT ITS THINKING? A. THAT CREATES ADDITIONAL VALUE FOR SAP IN THE NEGOTIATION.

IT'S A REASON WHY THEY WOULD PAY MORE FOR THE LICENSE. (EXHIBIT PUBLISHED TO JURY.) BY MR. PICKETT: Q. ALL RIGHT. LET'S GO TO FACTOR NO. 3 IN SAP'S MIND ON THIS AND THAT'S THE SAP'S EXPECTED

NEGOTIATION OF A LICENSE. FINANCIAL GAINS.

THAT'S PRETTY OBVIOUS WHAT THAT IS.

WHAT HAVE YOU SUMMARIZED HERE? A. WHAT I'VE SUMMARIZED HERE ARE SOME OF THE KEY DOCUMENTS OR

IMPORTANT DOCUMENTS IN THIS TIME FRAME OF DECEMBER 2004 AND JANUARY 2005. AND SIMILAR TO THE OTHER CHARTS, IT'S SET UP

SHOWING WHO RECEIVED OR WAS PRESENTED THE DOCUMENTS AND -- AND YOU'LL SEE EXECUTIVE BOARD MEMBERS IN THAT COLUMN. AND I'VE NOTED IN RED SOME OF THOSE PROJECTION FIGURES ABOUT THE -- POTENTIAL CONVERSION OF CUSTOMERS FROM PEOPLESOFT OVER TO THE SAP APPLICATION. SO YOU SEE 3,000

MAINTENANCE CUSTOMERS, YOU'LL SEE 1375 CUSTOMERS TO SAP BY 2007. SO THAT'S BY THE END OF 2007, A SHORT PERIOD OF TIME. AND THEN DOWN THE PAGE, YOU'LL SEE CONVERT THE MAJORITY -- I THINK IT'S IMPORTANT TO NOTE ON ITEM 2 THERE ABOUT THE TIMING ISSUE. THIS WAS PART OF A JANUARY 16TH, 2005, SORT

RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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Q.

MEYER - DIRECT (RESUMED)/ PICKETT WHY DID YOU FOCUS ON JANUARY -- ON DECEMBER 2004 --

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DECEMBER 2004, JANUARY 2005? A. WELL, AS I MENTIONED TO THE JURY YESTERDAY, THAT WHEN YOU

VALUE THE FAIR MARKET VALUE OF THE PROPERTY, THE -- PROPERTY IN THIS CASE, YOU FOCUS ON WHAT'S KNOWN AT THE TIME. THE EXPECTATIONS OF THE PARTIES. AND WHAT WERE

AND I'M LAYING OUT FOR YOU THE

EXPECTATIONS OF ONE PART OF THAT NEGOTIATING GROUP, AND THAT'S SAP. Q. ALL RIGHT. NOW, BASED ON ALL THE EVIDENCE YOU REVIEWED,

MR. MEYER, DID YOU CALCULATE SAP'S EXPECTED FINANCIAL GAINS FROM THE LICENSE, HOW MUCH THEY WOULD EXPECT TO GAIN FROM THIS LICENSE? A. Q. A. YES, I HAVE. AND HOW DID YOU DO THAT? WELL, I DEVELOPED A FINANCIAL MODEL. AND FROM THAT, I WAS

ABLE TO COME UP WITH CERTAIN FINANCIAL DATA THAT I'LL TALK TO YOU ABOUT AND SHOW YOU, AND THEN CAME UP WITH WHAT I'LL CALL THE -- SORT OF THE PRESENT VALUE OF -- OF THE GAINS THAT SAP WOULD -- WOULD COME INTO IF THEY WERE TO ACQUIRE THE SOFTWARE IN THIS NEGOTIATION. SOURCES. MR. PICKETT: LET'S SHOW THE NEXT -SO I HAVE A SLIDE THAT SHOWS THOSE REVENUE

(EXHIBIT PUBLISHED TO JURY.) MR. PICKETT: Q. THERE WE GO.

THIS IS EXHIBIT 12 AGAIN, BUT YOU'VE ADDED SOME ANALYSIS TO

RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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IT. A.

MEYER - DIRECT (RESUMED)/ PICKETT WHAT DOES THAT SHOW? RIGHT. SO WHEN YOU MENTIONED DID I DO A CALCULATION.

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YES,

I DEVELOPED A MODEL. FROM SAP.

AND I WENT BACK TO THE -- THE DOCUMENTS

AND WHAT I FOCUSED ON WAS THE REVENUE THAT THEY WOULD AND THE BLUE THERE, I'VE

GAIN FROM THREE MAJOR SOURCES.

HIGHLIGHTED, THEY'D HAVE MAINTENANCE REVENUES THAT THEY WOULD EARN FROM SERVICING PEOPLESOFT. SECONDLY, THEY WOULD HAVE SALES OF OTHER SAP PRODUCTS. I MENTIONED A MOMENT AGO. THAT WOULD BE THE

CROSS-SELL ITEMS LIKE NETWEAVER AND, ULTIMATELY, IN THE GREEN THERE, THAT'S THE CONVERSION REVENUE THAT THEY WOULD EARN FROM SELLING THEIR PRODUCTS TO THE SAP APPLICATIONS. AND SO I WENT BACK TO THEIR PLANNING DOCUMENTS, AND I BUILT A FINANCIAL MODEL TO TAKE THOSE REVENUES, PROJECT OUT -TAKE THE CUSTOMERS AT THE AMOUNT OF -- THEY WOULD BE CHARGED PER YEAR FOR THE VARIOUS PRODUCTS, PROJECT IT OUT OVER TIME, LOOK AT THE COST THAT THEY WOULD HAVE TO SPEND TO -- TO MAKE THOSE REVENUES, CAME UP WITH PROFITS AND BROUGHT THAT BACK. CALLED DISCOUNTING TO JANUARY 2005. AND IT PROVIDES BASICALLY THE NET PRESENT VALUE PROFIT OR GAIN THAT SAP WOULD EARN IF THEY WERE TO USE THE SOFTWARE. Q. ALL RIGHT. LET'S GO TO THE NEXT SLIDE, THEN. (EXHIBIT PUBLISHED TO JURY.) IT'S

RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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YEAR.

996 MEYER - DIRECT (RESUMED)/ PICKETT THAT WAS 3.5 PERCENT, AND THAT CAME FROM SOME EXPECTED

ATTRITION RATES WE SAW YESTERDAY. Q. LET ME GO BACK FOR A MOMENT, MR. MEYER, TO THE CUSTOMERS. WHY DO YOU --

YOU SAID YOU START WITH THE NUMBER OF CUSTOMERS. WHAT'S THE SIGNIFICANCE OF THAT? A.

BECAUSE THE CUSTOMERS REPRESENT POTENTIAL REVENUES.

SO IF

YOU HAVE A CUSTOMER THAT YOU'RE PROVIDING MAINTENANCE SERVICE TO OR LICENSE PRODUCT TO, YOU CHARGE THEM FOR THE LICENSE, OR YOU CHARGE THEM FOR THE MAINTENANCE. SO IT STARTS WITH A NUMBER OF CUSTOMERS, AND THEN YOU LOOK AT HOW MANY WILL LEAVE PER YEAR BASED ON HISTORICAL TRENDS, AND YOU PUT A VALUE ON THOSE CUSTOMERS PER YEAR, AND THAT GIVES YOU YOUR REVENUE. SO IT'S CUSTOMERS, AVERAGE AMOUNT PER YEAR IN

REVENUE, TOTAL REVENUES, AND THEN YOU DEDUCT COSTS FROM THAT. Q. AND DID YOU SEE EVIDENCE THAT SAP'S TOP MANAGEMENT WAS

THINKING ABOUT THIS DEAL IN TERMS OF THE NUMBER OF CUSTOMERS IT COULD CONVERT? A. Q. YES. AND SO HOW DID YOU BASE YOUR ESTIMATES IN YOUR FINANCIAL

MODEL, THE 3,000, AND THEN THE CONVERSIONS TO MYSAP APPLICATIONS AND THE CROSS-SELLS? A. Q. A. Q. I USED THEIR PROJECTIONS. SAP'S OWN PROJECTIONS? THAT'S CORRECT. ALL RIGHT. GO AHEAD.

RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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A.

MEYER - DIRECT (RESUMED)/ PICKETT SO I STARTED WITH THEIR PROJECTIONS. I WENT TO THE

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ATTRITION RATES.

AND THEN THE THIRD ROW THERE, I MULTIPLIED THE

AVERAGE REVENUE PER CUSTOMER BASICALLY TIMES THE NUMBER OF CUSTOMERS. AND SO FOR MAINTENANCE, IT WAS $68,000 A YEAR. THAT'S THE AVERAGE YOU GET FOR EACH CUSTOMER THAT'S TAKING MAINTENANCE. AND THAT WAS PER SAP'S BUSINESS RECORDS. AND THEN

FROM THERE, I WENT AND IT CAME UP WITH -- AND THEN ON THE RIGHT-HAND SIDE, I DEALT WITH -- WHEN THEY CONVERT A CUSTOMER, THEY MAKE $358,000 IN A CONVERSION AND THEN FOR THE OTHER SALES WHICH IS THE CROSS-SELL ITEM, THEY MAKE $86,000 PER CROSS-SELL. SO I USED THOSE ITEMS TO COME UP WITH THE AVERAGE REVENUE PER YEAR AND THEN MULTIPLIED THAT TIMES THE NUMBER OF CUSTOMERS AND CAME UP WITH TOTAL REVENUE. NEXT ROW. AND SEE, THAT'S THE AND AS YOU WORK

SO THAT'S YOUR CALCULATIONS THERE.

DOWN, YOU THEN HAVE TO DEDUCT COSTS, AND I SAW FROM SAP'S FINANCIAL RECORDS THAT THEY BASICALLY WOULD HAVE PROFIT MARGINS OF 70 PERCENT. SO I DEDUCT COST OF 30 PERCENT, AND THAT LEAVES

70 PERCENT THERE FOR THE PROFIT THAT -- THAT SAP WOULD MAKE. Q. A. Q. A. THAT'S SAP'S PROFIT AS PROJECTED BY WHOM? THAT'S BASED ON SAP'S OWN RECORDS. UM-HMM. AND THEN IT'S MULTIPLIED BY A DISCOUNT FACTOR, BECAUSE I RUN SO THEY'RE DISCOUNTED

THE CALCULATIONS FROM 2005 OUT TO 2008.

BACK TO JANUARY 2005, WHICH BECOMES -- THAT'S THAT 14 PERCENT,
RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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MEYER - DIRECT (RESUMED)/ PICKETT AND THAT'S FROM SAP VALUATION DOCUMENTS.

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AND THEN I BRING IT BACK TO JANUARY 2005, AND THAT SAYS "AS CALCULATED." OF THOSE CUSTOMERS. AND THEN ONCE I DO THAT, I KNOW THE VALUE

THEN I RUN IT OVER, REALLY, TWO PERIODS,

THROUGH THE END OF 2007, RIGHT -- BASED ON HOW THEY DID IT FOR THE FIRST THREE YEARS. AND I ALSO RUN IT OUT THROUGH THE END OF

OCTOBER 28, WHICH WAS THE END OF THE LICENSE PERIOD. AND THEN I HAD ONE MORE ITEM TO ADD TO THAT, AND I KNOW THAT ONCE A CUSTOMER IS CONVERTED, IT HAS FUTURE VALUE. SO

I DO A CALCULATION SAYING THAT -- THAT A CONVERTED CUSTOMER HAS VALUE OUT INTO THE FUTURE, AS MS. CATZ TESTIFIED TO YESTERDAY, CAN BE FOR DECADES ONCE YOU CONVERTED. AND SO I SAY WHATEVER CUSTOMERS CONVERT, I LOOK AT THAT VALUE, AND I DO IT TWO WAYS. ONE IS CALLED A REVENUE

MULTIPLE, WHICH YOU MULTIPLY THE LAST YEAR'S REVENUE BY FOUR TIMES, AND THAT'S THE FUTURE VALUE OF HAVING THAT CUSTOMER. AND THEN, SECONDLY, A PER-CUSTOMER VALUE, WHICH MEANS THAT FOR EVERY CUSTOMER, YOU HAVE -- YOU -- THERE'S A PRESENT VALUE OF THAT, AND THEN I USED $1 MILLION. AND SO I TAKE ALL

THOSE ITEMS, AND I PRESENT THEM AS OF JANUARY 2005, AND THAT'S HOW DO I MY FINANCIAL GAIN CALCULATIONS. Q. SO YOU CAN CALCULATE, BASED ON SAP'S THINKING AT THE TIME,

HOW MUCH MONEY THEY THOUGHT THEY WERE GOING TO PROFIT FROM DOING THAT? A. THAT'S RIGHT. FROM MAINTENANCE AND CONVERTING CUSTOMERS.

RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

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1022 MEYER - DIRECT (RESUMED)/ PICKETT PROFIT NUMBER. AND THEN THE INFRINGER (SIC) PROFIT'S NUMBER IS $288 MILLION. AND THAT REFLECTS NOT ALL THE CUSTOMERS THAT --

THAT WERE SAP CUSTOMERS AND ALSO TOMORROWNOW CUSTOMERS BUT A SUBSET, SO I THINK IT'S ABOUT 60-SOME CUSTOMERS ARE IN THE 288 MILLION. AND THEN THERE'S THREE CUSTOMERS, I THINK IN THAT GROUP OF THE 288,000,000 WHERE THERE'S SOME ISSUES STILL THAT SORT OF EXIST ABOUT THE ROLE OF TOMORROWNOW IN CONVERTING THOSE CUSTOMERS TO SAP. AND SO IF I LOOK AT THE IMPACT OF THOSE THREE CUSTOMERS, I THINK THE NUMBER WOULD BE 236 MILLION. SO MY

INFRINGER PROFIT'S (SIC) NUMBERS, 288 MILLION, AND THEN RANGES DOWN TO 236 MILLION DEPENDING ON THESE THREE CUSTOMERS. AND SO THAT'S WHERE I'VE COME OUT WITH THOSE CALCULATIONS. Q. SO IF I COMBINE THE 120 MILLION IN LOST PROFITS WITH THE 288

MILLION IN INFRINGER'S PROFITS, WHAT DO WE GET? A. Q. A. I THINK IT'S 408,000,408. BUT DOES THAT FULLY COMPENSATE ORACLE IN THIS CASE? NO, IT WOULD NOT. IT WOULD NOT COMPENSATE FOR THE VALUE OF

INTELLECTUAL PROPERTY. Q. A. WHAT COMPENSATES ORACLE FOR THE VALUE OF WHAT SAP TOOK? THE ONLY WAY TO DO IT IS THE FAIR MARKET VALUE OF THE

LICENSE APPROACH AT THE 1.5 BILLION. Q. SO THAT'S THE ANALYSIS YOU DID WITH THE 1.5 BILLION OR MORE,

RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR [phone]

1187 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WEDNESDAY, NOVEMBER 10, 2010 ___________________________________ DIANE E. SKILLMAN, CSR, RPR, FCRR ___________________________________ RAYNEE H. MERCADO, CSR, RMR, CRR, FCRR, CCRR CERTIFICATE OF REPORTER WE, RAYNEE H. MERCADO AND DIANE E. SKILLMAN, OFFICIAL REPORTERS FOR THE UNITED STATES COURT, NORTHERN DISTRICT OF CALIFORNIA, HEREBY CERTIFY THAT THE FOREGOING PROCEEDINGS IN C07-01658PJH, ORACLE USA, INC., ET AL. V. SAP AG, ET AL., WERE REPORTED BY US ON, TUESDAY, NOVEMBER 9, 2010, CERTIFIED SHORTHAND REPORTERS, AND WERE THEREAFTER TRANSCRIBED UNDER OUR DIRECTION INTO TYPEWRITING; THAT THE FOREGOING IS A FULL, COMPLETE AND TRUE RECORD OF SAID PROCEEDINGS AS BOUND BY US AT THE TIME OF FILING. THE VALIDITY OF THE REPORTER'S CERTIFICATION OF SAID TRANSCRIPT MAY BE VOID UPON DISASSEMBLY AND/OR REMOVAL FROM THE COURT FILE.

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