Oracle Corporation et al v. SAP AG et al
Filing
1061
EXHIBITS re 1045 Declaration in Support,,,, Corrected Exhibit 38 to the Declaration of Tharan Gregory Lanier iso Defendants' Renewed Motion For Judgment as a Matter of Law and New Trial Motion [CORRECTION OF DOCKET #[1045-38]] filed bySAP AG, SAP America Inc, Tomorrownow Inc. (Related document(s) 1045 ) (Froyd, Jane) (Filed on 4/14/2011)
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Robert A. Mittelstaedt (SBN 060359)
Jason McDonell (SBN 115084)
Elaine Wallace (SBN 197882)
JONES DAY
555 California Street, 26th Floor
San Francisco, CA 94104
Telephone:
(415) 626-3939
Facsimile:
(415) 875-5700
ramittelstaedt@jonesday.com
jmcdonell@jonesday.com
ewallace@jonesday.com
Tharan Gregory Lanier (SBN 138784)
Jane L. Froyd (SBN 220776)
JONES DAY
1755 Embarcadero Road
Palo Alto, CA 94303
Telephone:
(650) 739-3939
Facsimile:
(650) 739-3900
tglanier@jonesday.com
jfroyd@jonesday.com
Scott W. Cowan (Admitted Pro Hac Vice)
Joshua L. Fuchs (Admitted Pro Hac Vice)
JONES DAY
717 Texas, Suite 3300
Houston, TX 77002
Telephone:
(832) 239-3939
Facsimile:
(832) 239-3600
swcowan@jonesday.com
jlfuchs@jonesday.com
Attorneys for Defendants
SAP AG, SAP AMERICA, INC., and
TOMORROWNOW, INC.
UNITED STATES DISTRICT COURT
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NORTHERN DISTRICT OF CALIFORNIA
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OAKLAND DIVISION
ORACLE USA, INC., et al.,
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Plaintiffs,
v.
SAP AG, et al.,
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Defendants.
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Case No. 07-CV-1658 PJH (EDL)
CORRECTED EXHIBIT 38 TO THE
DECLARATION OF THARAN GREGORY
LANIER ISO DEFENDANTS’ RENEWED
MOTION FOR JUDGMENT AS A MATTER OF
LAW AND NEW TRIAL MOTION
CORRECTION OF DOCKET ITEM NO. 1045-38
Date:
July 13, 2011
Time:
9:00 a.m.
Courtroom: 3, 3rd Floor
Judge:
Hon. Phyllis J. Hamilton
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SVI-91864v1
CORRECTED EXHIBIT 38 TO LANIER DECL. ISO DEFS’ RENEWED
MOTION FOR JMOL AND NEW TRIAL MOTION
Case No. 07-CV-1658 PJH (EDL)
EXHIBIT 38
Amended Trial Stipulation and Order No. 1 (November 2, 2010) &
Trial Stipulation and Order Regarding Contributory Infringement
Liability (November 2, 2010)
‐1‐
Work Steps
1
2
Information
Reviewed
• Legal Filings
• Company and Industry
Research
• Financial and Other Company
Documents
3
Analysis
Determination of
Damages
Approach /
Amount
• Analyzed Strategic Goals/
Expectations of Oracle and SAP
• Reviewed Oracle and SAP
Licenses / Acquisition History
• Analyzed ERP Market Shares
• Expert Reports
• Analyzed Oracle and SAP
Financial Records / Models
• Trial Testimony
• Interviewed Oracle Personnel
• Stipulations
• Considered Input From Other
Experts
• Depositions
‐2‐
Copyright License Negotiation
The Reduction of the Fair Market Value of the Copyrighted Work is the
Amount a Willing Buyer (SAP) Would Have Been Reasonably Required
to Pay a Willing Seller (Oracle) at the Time of the Infringement
Oracle’s Negotiating
Perspective
What is Oracle
Giving Up?
SAP’s Negotiating
Perspective
What is SAP
Gaining?
‐3‐
Fair Market Value License Negotiation Framework
Oracle’s
Negotiating
Perspective
What is Oracle
Giving Up?
Negotiation Factors*
Scope and Duration of the License
Need for the Copyrighted Works
Risk Acceptance
Competitive Relationship of the Parties
SAP’s
Negotiating
Perspective
What is SAP
Gaining?
Goals/Business Plans Related to the Copyrighted
Works
Expected Financial Benefits/Impacts
Values not Quantified
Amount That SAP Would be Reasonably Required to Pay Oracle at
the Time of the Infringement
* Consistent with Georgia-Pacific Corp. v. U.S. Plywood Corp.
‐4‐
Fair Market Value of Copyrighted Works - Concept
Before License to SAP
(Exclusive Rights)
After License to SAP
(Non-Exclusive Rights)
$
License Value
Original Value to Oracle
Value to Oracle After License
Value to SAP with License
Customer Relationships
Customer Revenues
Market Share
Other Value
‐5‐
Why Fair Market Value License Approach
Measures fair market value of what Oracle would have been paid at
the time, based on total scope of infringing activities
Reflects Oracle’s upfront investments for PeopleSoft ($11.1B) and
Siebel ($6.1B), including exclusive use of software and materials
Reflects SAP’s need for the software and materials prior to launching
PeopleSoft and Siebel maintenance services
Substitutes negotiation for infringement
‐6‐
Fair Market Value License – Information Considered
Considers events and circumstances known at the valuation date
• SAP documents indicate expectations at the time
• As ERP software market leader, SAP was experienced in
projecting customer conversions and revenues
Not appropriate to determine fair market value in hindsight
• Value not impacted by events not known at the time
• Value not dependent on SAP execution after January 2005
• Value not affected by Oracle’s filing of lawsuit (March 2007)
Approach consistent with recognized valuation theory
‐7‐
Why Upfront License Fee
Protects Oracle’s upfront investment of $11.1B and $6.1B just
spent to acquire PeopleSoft and Siebel
SAP was aware that Oracle paid upfront to acquire PeopleSoft and
Siebel software and support materials
Only way to balance the risk between Oracle’s upfront investments
and SAP’s execution of its business plans
Common payment structure for technology licenses between direct
competitors
Avoids future disputes over what are royalty-bearing customers or
revenues – especially between competitors
‐8‐
Why Not Running Royalty
Places the entire risk of the $11.1B and $6.1B upfront investments
on Oracle
Does not value software and support materials at the time of the
negotiation
Greater SAP success (customer conversions) equals greater
impact to Oracle revenue / direct competitors
Lower SAP maintenance price equals lower royalty paid / increased
chance of SAP converting the customer
‐9‐
From SAP’s Opening Statement
‐10‐
Scope of PeopleSoft Copyrighted Works Valued
105 PeopleSoft Copyright
Registrations
Oracle Copyrighted Works
• At Least Hundreds of Thousands of
Software Files
• At Least Thousands of Copies of Entire
Applications
• At Least Hundreds of Thousands of
Downloads
Oracle Software Engineers and Developers
‐11‐
Timing of PeopleSoft License Negotiation
January 18, 2005
January 19, 2005
Oracle Announces Plans
for Combined
Oracle/PeopleSoft
Organization
($11.1B Acquisition)
SAP Acquisition of
TomorrowNow /
Launch of Safe Passage
/ Public Announcement
License Negotiation: January 19, 2005
‐12‐
“Safe Passage: Winning Customers and Markets from OraclePeopleSoft-J.D. Edwards” – January 16, 2005
PX0141
‐13‐
Oracle and SAP ERP Worldwide Market Share
2004 Worldwide Market Share
Post PeopleSoft Acquisition Market Share
* Oracle paid $11.1 billion to acquire 11% market share
Source: SAP Document - “The Truth About Oracle’s Claims” (PX0157)
‐14‐
“Clear Sailing: Sustaining Our Momentum in Competitive Waters”
– February 3, 2005
PX0171
‐15‐
PeopleSoft License – SAP Negotiation Factors
Negotiation Factor
Analysis
Offering
Offering PeopleSoft Maintenance is Step 1 of “3Step Plan” to Convert Customers to SAP
SAP’s Expected Impact
on Oracle
Impact Oracle’s Return on $11.1B Investment by
Taking PeopleSoft Customers
1 SAP’s Goals for New
2
SAP Increased Revenue Equals Oracle Revenue
Impact
3
SAP’s Expected
Financial Gains
$897 Million in Only 3 Years
Expected Customer Conversions of 2,000 to 6,000
SAP Expected Gains of $881M to $2.69B
January 19, 2005
‐16‐
PeopleSoft License – Key SAP Documents
SAP NEGOTIATION FACTORS
1
Date
Document
SAP
Goals
2
3
Presented To /
Received By
Impact on Financial
Oracle
Gains
1
12/15/2004
Executive Board Meeting Minutes
(PX0003)
X
2
12/20/2004
“PeopleSoft 1-2-3” (PX0006, PX0008)
X
3
12/23/2004
“A Roadmap For PSFT Customers to
SAP” (PX0012)
X
4
1/5/2005
“PeopleSoft 1-2-3” Version 1.2 (PX0015)
X
X
5
1/16/2005
“Safe Passage: Winning Customers and
Markets from Oracle-PeopleSoft-JD
Edwards” (PX0141)
X
X
X
Apotheker, Agassi, Oswald,
Homlish, Ziemen, Mackey and
Others
6
1/19/2005
SAP Conference Call (PX0023)
X
X
X
Public
7
1/20/2005
Executive Board / “Safe Passage:
Winning Customers and Markets from
Oracle-PeopleSoft-JD Edwards” (PX0024,
PX0151)
X
X
X
SAP Executive Board
8
1/25-26/2005
“TomorrowNow Integration Meeting”
(PX0161)
X
X
Oswald, Ziemen, Nelson, Ravin
and Others
SAP Executive Board
X
Agassi, Oswald, Mackey
X
Agassi, Apotheker,
Kagermann, Oswald
Agassi, Oswald, Shenkman,
Mackey and Others
‐17‐
PeopleSoft License - SAP’s Goals For New Offering
(Factor 1 )
Document
1
Executive Board Meeting Minutes
– 12/15/2004 (PX0003)
2
“PeopleSoft 1-2-3” – 12/20/2004 &
1/5/2005 (PX0006, PX0008,
PX0015)
3
“A Roadmap for PSFT Customers
to SAP” - 12/23/2004 (PX0012)
4
“Safe Passage: Winning
Customers and Markets from
Oracle-PeopleSoft-J.D. Edwards”
– 1/16/2005 (PX0141)
Presented To /
Received By
SAP’s Goals (quotes)
SAP Executive
Board
• “The Executive Board agrees to make a special offer to
PeopleSoft/SAP customers to take over responsibility
for the maintenance of their PeopleSoft HR installations
and for potentially upgrading to mySAP BS”
Agassi, Oswald,
Mackey
• “Step 1: Provide current SAP customers PeopleSoft
support”
• “Freezing a PeopleSoft customer ‘forever’ is not an end
goal of SAP. SAP ultimately wants to sell more
software and upgrade a customer to mySAP.”
Agassi, Apotheker,
Kagermann,
Oswald
Apotheker, Agassi,
Oswald, Homlish,
Ziemen, Mackey
and Others
• “SAP provides ongoing support for PSFT software until
2009”
• “Safe Passage features 3 fundamental elements: 1.
Maintenance of PeopleSoft and J.D. Edwards
applications”
‐18‐
PeopleSoft License - SAP’s Goals For New Offering
(Factor 1 ) – cont.
Document
Presented To /
Received By
SAP’s Goals (quotes)
Public
• “To accelerate this offering, SAP has acquired
TomorrowNow”
• “Our Safe Passage program has three key
components. One: a maintenance offering on existing
investments customers have made in PeopleSoft and
JDE.”
• “This offer is a global offer.”
6
Executive Board / “Safe Passage:
Winning Customers and Markets
from Oracle-PeopleSoft-JD
Edwards” – 1/20/2005 (PX0024,
PX0151)
SAP Executive
Board
• “Our Offering: SAP will offer full product maintenance
and support for all PeopleSoft and J.D. Edwards
products, and provide that support through
TomorrowNow.”
7
“TomorrowNow Integration
Meeting” – 1/25-26/2005 (PX0161)
Oswald, Ziemen,
Nelson, Ravin and
Others
• “Tnow will serve as major cornerstone of our Go-to –
market strategy as our key Service-delivery unit”
5
SAP AG Phone Conference –
1/19/2005 (PX0023)
‐19‐
PeopleSoft License - SAP’s Expected Impact on
Oracle (Factor 2 )
Document
Presented To /
Received By
SAP’s Impact on Oracle (quotes)
• “May force Oracle to change its behavior or plans
around pricing or positioning” (PX0006, PX0015)
• “Affecting Oracle’s ability to maintain this revenue
stream could impact the ROI assumptions of the
Oracle/PeopleSoft deal“ (PX0015)
1
“PeopleSoft 1-2-3” - 12/20/2004 &
1/5/2005 (PX0006, PX0008, PX0015)
Agassi, Oswald,
Mackey
2
“Safe Passage: Winning Customers
and Markets from OraclePeopleSoft-JD Edwards” –
1/16/2005 (PX0141)
Apotheker, Agassi,
Oswald, Homlish,
Ziemen, Mackey and
Others
3
SAP AG Phone Conference 1/19/2005 (PX0023)
4
“Safe Passage: Winning Customers
and Markets from OraclePeopleSoft-JD Edwards” –
1/20/2005 (PX0024, PX0151)
• “Contain Oracle’s potential growth in the next
generation application market.”
• “SAP will siphon off the cash flow that Oracle
needs to build or acquire it’s next generation
applications.”
Public
• “The value was estimated by Oracle, rightfully or
wrongly, as $10 billion.”
• “This customer base is not necessarily captive by
Oracle.”
SAP Executive
Board
• “Disrupt Oracle’s ability to pay for the acquisition
out of cash flow”
• “Shrink their share of the application market”
• “Discredit their efforts to create a next-generation
application platform”
‐20‐
PeopleSoft License - SAP’s Expected Financial Gains
(Factor 3 )
Document
Presented To /
Received By
SAP’s Expected Gains
1
“A Roadmap For PSFT Customers to SAP” 12/23/2004 (PX0012)
Agassi, Apotheker,
Kagermann, Oswald,
Homlish
• 3,000 maintenance customers by 2007
• Convert 1,375 customers to SAP by 2007
• $897 million in first 3 years
2
“Safe Passage: Winning Customers and
Markets from Oracle-PeopleSoft-J.D.
Edwards – Executive Overview” – 1/16/2005
(PX0141)
Apotheker, Agassi,
Oswald, Homlish,
Ziemen, Mackey and
Others
• “Our goal is to convert the majority of the
PeopleSoft and J.D Edwards customer base
to SAP”
• “Aggressively convert” 450 of Global 1000
“over the next 30 days”
3
SAP AG Phone Conference – 1/19/2005
(PX0023)
4
“Safe Passage: Winning Customers and
Markets from Oracle-PeopleSoft-JD
Edwards” – 1/20/2005 (PX0024, PX0151)
5
“TomorrowNow Integration Meeting” – 1/2526/2005 (PX0161)
6
Deposition Testimony of Shai Agassi,
Former SAP Executive Board Member
Public
SAP Executive Board
Oswald, Ziemen,
Nelson, Ravin and
Others
N/A
• Target 4,000 joint SAP customers
• Two common customer scenarios
• Convert 50% of PSFT/JDE customers
(100% of shared customers) to SAP
• 9,920 x 50% = 4,690
• 2,000 to 4,000 TomorrowNow customers by
2009
• 60% of PSFT/JDE customers
• 9,920 x 60% = 5,952
‐21‐
Executive Board Meeting Minutes
– December 15, 2004 (Factor 1 )
PX0003
‐22‐
“PeopleSoft 1-2-3”
- December 20, 2004 (Factor
1
)
PX0006
‐23‐
“A Roadmap For PeopleSoft Customers to SAP”
- December 23, 2004 (Factor 3 )
2007
Upswitch Total: 1,375
3,000
Cross Sell Total:
2,250
$897 Million
$897 Million
PX0012
‐24‐
“PeopleSoft Attack Program”
- December 23, 2004 (Factor
3
)
PX4814
‐25‐
“Safe Passage: Winning Customers and Markets from OraclePeopleSoft-J.D. Edwards” – January 16, 2005 (Factors 2 & 3 )
PX0141
‐26‐
SAP AG Phone Conference
- January 19, 2005 (Factor 2 )
PX0023
‐27‐
“Safe Passage: Winning Customers and Markets from OraclePeopleSoft-J.D. Edwards” – January 20, 2005 (Factors 2 &
3
)
PX0024
‐28‐
“TomorrowNow Integration Meeting”
– January 25-26, 2005 (Factor 3 )
PX0161
‐29‐
“TomorrowNow Integration Meeting”
– January 25-26, 2005 (Factor 1 )
PX0161
‐30‐
PeopleSoft License - SAP’s Expected Financial Gains
(Factor 3 )
Document
Presented To /
Received By
SAP’s Expected Gains
1
“A Roadmap For PSFT Customers to SAP” 12/23/2004 (PX0012)
Agassi, Apotheker,
Kagermann, Oswald,
Homlish
• 3,000 maintenance customers by 2007
• Convert 1,375 customers to SAP by 2007
• $897 million in first 3 years
2
“Safe Passage: Winning Customers and
Markets from Oracle-PeopleSoft-J.D.
Edwards – Executive Overview” – 1/16/2005
(PX0141)
Apotheker, Agassi,
Oswald, Homlish,
Ziemen, Mackey and
Others
• “Our goal is to convert the majority of the
PeopleSoft and J.D Edwards customer base
to SAP”
• “Aggressively convert” 450 of Global 1000
“over the next 30 days”
3
SAP AG Phone Conference – 1/19/2005
(PX0023)
4
“Safe Passage: Winning Customers and
Markets from Oracle-PeopleSoft-JD
Edwards” – 1/20/2005 (PX0024, PX0151)
5
“TomorrowNow Integration Meeting” – 1/2526/2005 (PX0161)
6
Deposition Testimony of Shai Agassi,
Former SAP Executive Board Member
Public
SAP Executive Board
Oswald, Ziemen,
Nelson, Ravin and
Others
N/A
• Target 4,000 joint SAP customers
• Two common customer scenarios
• Convert 50% of PSFT/JDE customers
(100% of shared customers) to SAP
• 9,920 x 50% = 4,690
• 2,000 to 4,000 TomorrowNow customers by
2009
• 60% of PSFT/JDE customers
• 9,920 x 60% = 5,952
‐31‐
PeopleSoft License – SAP’s Expected Financial Gains
- Calculation Inputs – Revenue Components (Factor 3 )
Example
Conversions to SAP Apps
+
Sales of Other SAP Products
+
Maintenance
Source: PX0012
‐32‐
PeopleSoft License – SAP’s Expected Financial Gains
– Calculation Approach (Factor 3 )
Based on SAP’s Expectations at the Time of the Negotiation
1
2
TomorrowNow
Maintenance
Customers
+
Other Customer
Sales / Conversions
3
Expected Renewal
Rates
Expected Revenues per
Customer
SAP Profit Margins
Total Expected
Financial Gains
Future Value of
Converted Customers
‐33‐
PeopleSoft License – SAP’s Expected Financial Gains
– Calculation Inputs (Factor 3 )
INPUTS
Category
TN Maintenance
Other Revenues
(PX0012, PX0023, PX0024, PX0161,
PX0141)
3,000
Conversions: 1,375 - 2,000
Other Sales: 2,250 - 3,000
Minus: Customer Attrition
Expected Attrition for PSFT
3.5% (per year)
3.5% (per year)
Multiplied By: Average
Revenue per Customer
“SAP Business Opportunity”
$68,000 (per year)
Number of Customers
= Total Revenue
Multiplied By: Profit
Margin
Multiplied By: Discount
Factor
= Expected Profits
(as of 1/05)
Plus: Future Value of
Customers
Source
SAP Projections 12/04 – 1/05
(PX0012)
Calculated
SAP Financial Records
(PX1760, PX1761)
SAP Valuation Documents
(PX0533)
Calculated
70%
70%
14%
14%
Calculated
Calculated
PeopleSoft Acquisition
(PX0013, PX1762)
Conversions: up to $358K
Other Sales: up to $86K
N/A
= SAP EXPECTED FINANCIAL GAINS
Revenue Multiple: 4
Per Customer Value: $1M
‐34‐
PeopleSoft License – SAP’s Expected Financial Gains
– Example Calculation (Factor 3 )
3,000 Maintenance Customers / 2,000 Converted to SAP
2005 - 2008
SAP Expected Gains as of January 2005
(in $ millions)
Customer
Base
259.1
3,000
187.9
(56.3)
131.6
90.6
222.2
2,000
427.9
(128.3)
299.6
440.4
740.0
690.3
$ 531.0
$1,221.3 $
3,000
Expected Additional Product Sales
Expected License Revenue / Converted Customers
$
Less:
Costs
Total
Expected
Profits
$ 985.9 $ (295.6)
$
N/A
Total
Expected
Gains as of
January
2005
370.1 $ (111.0 ) $
Expected SAP Maintenance Revenue
Total Expected Gains as of January 2005
Total
Expected
Revenue
Future
Financial
Gains from
Converted
Customers
$
259.1
Sources: PX0012, PX013, PX0193, PX0533, PX1760, PX1762
‐35‐
PeopleSoft License – SAP’s Expected Financial Gains
– Calculation Results (Factor 3 )
Calculation A
Calculation B
TomorrowNow Maintenance
Customers
3,000
3,000
Other SAP Product
Customers
2,250
3,000
Converted Customers
1,375
2,000
SAP’s Expected Gains
(as of January 2005)
$881 Million
$1.22 Billion*
$2.69 Billion**
* Future value based on revenue multiple
** Future value based on value per customer
Sources: PX0012, PX013, PX0193, PX0533, PX1760, PX1762
‐36‐
PeopleSoft License – SAP Negotiation Factors
Negotiation Factor
Analysis
Offering
Offering PeopleSoft Maintenance is Step 1 of “3Step Plan” to Convert Customers to SAP
SAP’s Expected Impact
on Oracle
Impact Oracle’s Return on $11.1B Investment by
Taking PeopleSoft Customers
1 SAP’s Goals for New
2
SAP Increased Revenue Equals Oracle Revenue
Impact
3
SAP’s Expected
Financial Gains
$897 Million in Only 3 Years
Expected Customer Conversions of 2,000 to 6,000
SAP Expected Gains of $881M to $2.69B
January 19, 2005
‐37‐
PeopleSoft License – Oracle Negotiation Factors
Negotiation Factor
1 Oracle’s Goals for
PeopleSoft Acquisition
Analysis
Maintenance revenue stream from 9,920
customers
Doubles Oracle ERP worldwide market share
2 Risk to Oracle’s
Investment in PeopleSoft
$11.1B investment including software and support
materials
Loss of exclusive rights to copyrighted works
3 Oracle’s Expected
Financial Impacts
At least 3,000 expected maintenance customer
losses
Oracle expected financial impact
January 19, 2005
‐38‐
Oracle’s Goals / Plans for PeopleSoft (Factor
1
)
Double worldwide market share in enterprise applications
Obtain “Best of Breed” software
Obtain PeopleSoft customer base (approx. 10,000)
– Maintenance relationships using copyrighted works
– On-going customer relationships
Retain annual $1.3B maintenance revenue stream to fund further
innovation
Earn a return on $11.1 billion investment
‐39‐
Oracle “Rating Discussion”
– January 2005 (Factor 1 )
Charles Phillips / Safra Catz
Presentation
PX4811
‐40‐
Oracle Corporation Presentation
– January 26, 2005 (Factor 1 )
PX4809
‐41‐
PeopleSoft Acquisition - Summary (Factor 2 )
January 18, 2005
January 19, 2005
ORACLE
ORACLE
Exclusive Rights to PSFT
Software and Materials
~ 10,000 Customers
11% Increase in ERP Market
Share
$1.3B Annual Maint. Revenue
Non-Exclusive Rights to
PSFT Software and Materials
Expected Loss of Customers,
Market Share and Revenue
SAP
Non-Exclusive Rights to
PSFT Software and Materials
Expected Gain of Customers,
Market Share and Revenue
‐42‐
PeopleSoft License - Oracle’s Expected Financial Impact
– Calculation Approach (Factor 3 )
Based on Oracle’s Expectations at the Time of the Acquisition
1
2
3,000 Expected
Maintenance
Customers Lost to
TN/SAP
3
Annual Renewal Rates
Expected Revenues per
Customer
Expected Financial
Impact
Oracle Profit Margins
Over a 10‐Year Period
‐43‐
PeopleSoft License - Oracle’s Expected Financial Impact
– Calculation Inputs (Factor 3 )
Category
Source
SAP Projections 12/04 – 1/05
Inputs
3,000 (10/08)
1,375 – 3,000 (post-10/08)
Number of Lost Customers
(PX0012, PX0023, PX0024, PX0161,
PX0141)
Minus: Customer Attrition
Expected Attrition for PSFT
3.5% (per year)
Multiplied By: Average Revenue per
Customer
Oracle Valuation Documents
$130,000 (per year)
= Total Revenue
Multiplied By: Profit Margin
Multiplied By: Discount Factor
= Expected Profits (as of 1/05)
Plus: Future Value of Customers
(PX0615)
Calculated
Calculated
Oracle Financial Records
80%
(PX0013, PX1758)
Oracle Valuation Documents
(PX0013)
10%
Calculated
Calculated
Oracle Valuation Documents
8.3% Capitalization Rate
(PX0658)
= ORACLE EXPECTED FINANCIAL IMPACTS
‐44‐
PeopleSoft License - Oracle’s Expected Financial Impact
– Example Calculation (Factor 3 )
3,000 Maintenance Customers / 1,375 (Post 10/08)
2005 - 2014
Oracle Financial Impacts as of January 2005
(in $ millions)
Impacted Oracle Maintenance (1/05 – 10/ 08)
(Impacted 1,375 Customers 10/08 – 12/14)
Customer
Base
3,000 /
1,375
Total
Impacted
Revenue
Less:
Costs
$ 1,082.9 $ (216.6 )
Total
Impacted
Profits
$ 866.3
Future
Financial
Impact of
Converted
Customers
$ 519.9
Total
Expected
Impact as of
January
2005
$ 1,386.2
Sources: PX0012, PX0013, PX0615, PX0658, PX1758
‐45‐
PeopleSoft License - Oracle’s Expected Financial Impact
– Calculation Results - (Factor 3 )
Calculation A
Oracle’s Expected Impact
(as of January 2005)
Calculation C
3,000
(1,375 post-10/08)
PSFT/JDE Maintenance
Customers Lost to
TomorrowNow
Calculation B
3,000
(2,000 post-10/08)
3,000
$1.36 Billion
$1.82 Billion
$2.46 Billion
Sources: PX0012, PX0013, PX0615, PX0658, PX1758
‐46‐
PeopleSoft License – Oracle Negotiation Factors
Negotiation Factor
1 Oracle’s Goals for
PeopleSoft Acquisition
Analysis
Maintenance revenue stream from 9,920
customers
Doubles Oracle ERP worldwide market share
2 Risk to Oracle’s
Investment in PeopleSoft
$11.1B investment including software and support
materials
Loss of exclusive rights to copyrighted works
3 Oracle’s Expected
Financial Impacts
At least 3,000 expected maintenance customer
losses
Oracle expected financial impact
January 19, 2005
‐47‐
PeopleSoft Fair Market Value Damages - Summary
$3B
$2.7B SAP Gain
$2.5B Oracle Impact
$2B
$1.8B Oracle Impact
$1.4B Oracle Impact
$1.2B SAP Gain
$1B
$0.9M SAP Gain
1,375 Customers
Converted to SAP
2,000 Customers
Converted to SAP
3,000 Customers
Converted to SAP
‐48‐
Why Not Oracle Lost Customer Profits + SAP Profits
Does not measure full fair market value of copyrighted works
• Does not measure total impact to Oracle
• Does not capture all acknowledged benefits of infringement to
SAP
Specifically does not measure value beyond lost customer revenues
and profits
Dependent on SAP’s execution, not the value of the copyrighted
works
Lost profits only available measure of damages for non-copyright
legal claims
‐49‐
Timing of Siebel License Negotiation
September 12,
2005
Oracle and Siebel
Execute Merger
Agreement
January 31, 2006
May 15, 2006
September 29,
2006
Oracle Acquires
Siebel
($6.1 Billion)
SAP Announces
Extension of
TomorrowNow
Service to Siebel
Customers
First
TomorrowNow
Contract for Siebel
Service
License Negotiation: September 29, 2006
‐50‐
Oracle and SAP Worldwide CRM Segment Market Share
2004 Market Share by Revenue
Post Siebel Acquisition Market Share
Source: PX0680
‐51‐
“CRM Review II”
– October 24, 2005
PX0245
‐52‐
Siebel License – SAP Negotiation Factors
Negotiation Factor
Analysis
1 SAP’s Goals for Siebel
Goal to convert customers to mySAP CRM
2 SAP’s Expected Impact
$110M to $220M related to Siebel maintenance
3 SAP’s Expected Financial
200 customers by 2008
Maintenance Offering
TomorrowNow is enabler for future license revenue
on Oracle
Gains
Expected future gains of $97M to $247M
September 29, 2006
‐53‐
Siebel License – Key SAP Documents
Document
1
“Siebel Safe Passage Program
Playbook” – October 2005
(PX0960)
2
“Business Case: TomorrowNow
2006” – 10/17/2005 (PX0958)
3
Email: “TN Standalone deals to
Safe Passage” – 3/26/2006
(PX0037)
SAP Negotiation
Factor(s)
1
2
1
3
3
2
SAP Statements (quotes)
• “The opportunity is to move the 300+ SAP customers
SAP and Siebel have in common and migrate them to
mySAP CRM.”
• “Program Objectives & KPI’s: Keep Oracle out of our
customer base. Provide an incentive to Siebel customers
who have a SAP footprint to migrate from Siebel CRM to
mySAP CRM.”
• “The Siebel customer base consists of 4,000 customers,
(including large number of join SAP/Siebel customers)
and presents a huge market opportunity.”
• “The maintenance offering – a key part of the Safe
Passage Program and provided by TomorrowNow – can
be used as enabler for future license revenue”
• “Biz Planning – TNow Offering for Siebel”: 200
customers (cumulated) in 2008
• “Over the long term, every $1 of TN Stand-alone revenue
this year represents $18 of originally expected Oracle
revenue”
‐54‐
“Siebel Safe Passage Program Playbook”
– October 2005 (Factors 1 & 3 )
PX0960
‐55‐
“Business Case: TomorrowNow 2006”
– October 17, 2005 (Factors 1 & 3 )
PX0958
‐56‐
“Business Case: TomorrowNow 2006”
– October 17, 2005 (Factor 3 )
Customers
(cumulated)
PX0958
200
‐57‐
Nelson Email, “TN Standalone deals to Safe Passage”
– March 26, 2006 (Factor 2 )
PX0037
‐58‐
Siebel License – SAP’s Expected Impact on Oracle
- Calculation Results (Factor 2 )
If 50% of
Oracle’s
Price
SAP Expected TN 2007 Siebel Revenue
$7.19M
$14.38M
18
18
$130M
$259M
85%
85%
$110M
$220M
$1 of TN Revenue = $18 of Oracle Revenue
Impact to Oracle Revenue
Oracle Profit Margin
Impact to Oracle
Impact to Oracle
If 100% of
Oracle’s
Price
Sources: PX0037, PX0958, PX0658
‐59‐
Siebel License - SAP Expected Financial Gains
– Example Calculation (Factor 3 )
200 Maintenance Customers / 200 Converted
2006 - 2008
SAP Expected Gains as of September 2006
(in $ millions)
Customer
Base
Total
Expected
Revenue
$ (5.1 )
130
8.3
(2.5)
5.8
4.4
10.2
200
41.4
(12.4)
29.0
45.6
74.6
Total Expected Gains as of September 2006
$ 66.7
$ (20.0)
$ 46.7
$ 50.0
200
Expected Additional Product Sales
Expected License Revenue / Converted Customers
$
11.9
N/A
Total
Expected
Gains as of
September
2006
17.0
Expected SAP Maintenance Revenue
$
Less:
Costs
Total
Expected
Profits
Future
Financial
Gains of
Converted
Customers
$
11.9
$96.7
$
Sources: PX0012, PX0193, PX0533, PX0615, PX1760, PX1762
‐60‐
Siebel License – SAP’s Expected Financial Gains
– Calculation Results (Factor 3 )
TomorrowNow
Maintenance Customers
200
Other SAP Product
Customers
130
Converted Customers
200
SAP’s Expected Gains
(as of September 2006)
$97 Million*
$247 Million**
* Future value based on revenue multiple
** Future value based on value per customer
Sources: PX0012, PX0193, PX0533, PX0958, PX1762, PX1760
‐61‐
Siebel License – SAP Negotiation Factors
Negotiation Factor
Analysis
1 SAP’s Goals for Siebel
Goal to convert customers to mySAP CRM
2 SAP’s Expected Impact
$110M to $220M related to Siebel maintenance
3 SAP’s Expected Financial
200 customers by 2008
Maintenance Offering
TomorrowNow is enabler for future license revenue
on Oracle
Gains
Expected future gains of $97M to $247M
September 29, 2006
‐62‐
Siebel License – Oracle Negotiation Factors
Negotiation Factor
Analysis
1 Oracle’s Goals for Siebel
Acquired maintenance revenue stream for 4,000
customers
Acquisition
Establishes Oracle as leader in CRM market
2 Risk to Oracle’s
Investment in Siebel
$6.1B investment including software and support
materials
Loss of exclusive rights to copyrighted works
3 Oracle’s Expected
Financial Impacts
At least 200 expected maintenance customer losses
Oracle expected financial impact
September 29, 2006
‐63‐
Siebel Acquisition – Summary (Factor
January 31, 2006
2
)
September 29, 2006
ORACLE
ORACLE
Exclusive Rights to Siebel
Software and Materials
~ 4,000 Customers
Increased CRM Market Share
$500M Annual Maint. Revenue
Non-Exclusive Rights to
Siebel Software and Materials
Expected Loss of Customers,
Market Share and Revenue
SAP
Non-Exclusive Rights to
Siebel Software and Materials
Expected Gain of Customers,
Market Share and Revenue
‐64‐
Siebel License - Oracle’s Expected Financial Impact
- Calculation (Factor 3 )
Based on Oracle’s Expectations at the Time of the Acquisition
1
2
3
Annual Renewal Rates
Lost Maintenance
Customers
Expected Revenues per
Customer
Oracle’s Expected
Financial Impact
Oracle Profit Margins
Over a 10‐Year Period
‐65‐
Siebel License - Oracle’s Expected Financial Impact
– Example Calculation (Factor 3 )
200 Maintenance Customers / 200 (Post -10/08)
2006 - 2015
Oracle Financial Impacts as of September 2006
(in $ millions)
Impacted Oracle Maintenance (9/06 – 12/15)
Customer
Base
200
Total
Impacted
Revenue
$ 109.4
Less:
Costs
$ (16.4 )
Total
Impacted
Profits
$ 93.0
Future
Financial
Impact of
Converted
Customers
$ 71.0
Total
Expected
Impact as
of Sept.
2006
$ 164.0
Sources: PX0012, PX614, PX0615, PX0658, PX0958 PX1758
‐66‐
Siebel License – Oracle Negotiation Factors
Negotiation Factor
Analysis
1 Oracle’s Goals for Siebel
Acquired maintenance revenue stream for 4,000
customers
Acquisition
Establishes Oracle as leader in CRM market
2 Risk to Oracle’s
Investment in Siebel
$6.1B investment including software and support
materials
Loss of exclusive rights to copyrighted works
3 Oracle’s Expected
Financial Impacts
At least 200 expected maintenance customer losses
Oracle expected financial impact
September 29, 2006
‐67‐
Siebel Fair Market Value Damages - Summary
$300M
$200M
$247M
to
$100M
$164M
$97M
SAP’s Expected
Financial Gains
Oracle Expected
Financial Impacts
‐68‐
Database License Negotiation
Oracle’s Negotiating
Perspective
Database licensing
practices
Database pricing
Competitive relationship
with SAP and
TomorrowNow
SAP’s Negotiating
Perspective
Negotiated
Database
License Fee
Goals for database
software
Need for database
copyrighted works
Competitive relationship
with Oracle
‐69‐
Database License – Calculation Approach
1
Oracle Database Licensing Practices
2
TomorrowNow Hardware Configuration
3
Oracle Enterprise Edition Database Pricing
4
# of TomorrowNow Customers Benefiting
5
Total Database License Fee
‐70‐
Database Licenses Needed
– Number of TomorrowNow Customers
Source
Number of
Customers
SAP Discovery Response
71
Confirmed Cross-Use With Oracle Local Development
Costs of
Fixes Developed in Oracle
Database
Database Environments
Costs of Development Environments
43
Benefit from Oracle Database
Local Oracle Database Environments
Additional Cross-Use
PeopleSoft HRMS
Customers
TOTAL
58
172
Sources: PX0583, PX0602, PX2822, PX2827
‐71‐
Database Fair Market Value Damages - Summary
172 Customers
$240,000
License
Fee/Custome
r
+
(
$52,800
Maintenance
Fee/Custome
r
x
Number of
Years Under
TN Service
)
$55.6 Million
Sources: PX0097, PX0269, PX0583, PX0602, PX0653, PX0984, PX0996, PX2822, PX2827
‐72‐
Oracle’s Damages - Summary
Damages Category
PeopleSoft / JDE Software & Support Materials
Costs of Development
Siebel Software & Support Materials
Costs of Development
Database Software Materials
Total Damages
Amount
at least $1.5 Billion
at least $100 Million
$55.6 Million
at least $ 1,655,600,000
‐73‐
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