Oracle Corporation et al v. SAP AG et al

Filing 1146

Declaration of Nitin Jindal in Support of 1145 MOTION in Limine filed byOracle International Corporation. (Attachments: # 1 Exhibit A, # 2 Exhibit B)(Related document(s) 1145 ) (Howard, Geoffrey) (Filed on 4/26/2012)

EXHIBIT B

Oracle USA, Inc., et al
v.
SAP AG, et al

Stephen K. Clarke
Expert Report

May 7, 2010

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Expert Report of Stephen K. Clarke, May 7, 2010
Oracle USA, Inc., et al v. SAP AG, et al

Ajinomoto Co., Inc.
SAP Support Revenue On Or After TomorrowNow Service Start Date
Less Ongoing Revenue

2006
Total Revenues
Ongoing Revenue
Corrected Revenues

2007

2008

Total

$1,581,414

$1,658,883

$2,118,256

$5,358,553

($1,271,624)

($1,271,624)

($1,271,624)

($3,814,872)

$309,790

$387,259

$846,632

$1,543,681

As reflected in the table, Mr. Meyer’s accused revenue for Ajinomoto was overstated by
$3,814,872. The Ajinomoto error demonstrates the enormity of Mr. Meyer’s failure to exclude
Ongoing Revenue from his calculations. In total, I determined that Mr. Meyer failed to exclude
$100 million1082 of Ongoing Revenue from the $575 million of accused revenue.
I deducted Ongoing Revenue from my analysis. As shown in Appendix N-3, total revenue “On
or After TN Start Date” is $900 million. However, as shown on Appendix N-4, Ongoing
Revenue during that period was $196 million, 21.8% of total revenue.1083
12.1.4. BOBJ Revenue
SAP purchased BOBJ in January 2008.1084 I understand that BOBJ was not part of SAP’s Safe
Passage program and had no connection to TomorrowNow. Therefore, it is inappropriate for Mr.
Meyer to include BOBJ revenue. Had Mr. Meyer properly excluded BOBJ, he would have
removed $10.6 million1085 in revenue from the $575 million he accused.
12.2. Excluded Expenses
According to the Litigation Services Handbook:
Neither accounting jargon nor a prior court’s categorization of a cost as
variable or fixed should prejudice the analysis: any cost, however named,
that varies as a function of increased sales should be deducted to the extent
that it varies in the range between the actual sales and the but-for sales…a
change in sales volume will always increase strictly variable costs. The
same change in volume, however, has a different impact on semi variable
1082

1083
1084

1085

Arrived at by summing the revenue adjustments in Appendix N-4 for Mr. Meyer’s non-excluded
customers.
$195,831,380 (Appendix N-4) ÷ $899,564,161 (Appendix N-3).
SAP.com. “SAP Acquires Business Objects in Friendly Takeover.” <http://www.sap.com/about/investor/
bobj/index.epx>.
Appendix N-2.

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Oracle USA, Inc., et al v. SAP AG, et al

costs, depending on how that cost changes in specific range or increased or
decreased volume.1086
The courts have considered the question of overhead1087 allocation in a number of cases. My
reading of relevant cases leads me to understand that overhead costs may be deducted, provided
they can be properly ‘attached’ in some meaningful way to the accused revenues. The following
case illustrates the point:
The 1999 copyright infringement case Hamil v. GFI states:
The court thus concluded that certain categories of general overhead expenses – in
this case, those relating to creating and maintaining a ‘supervising staff and
organization’ – were appropriately deducted from gross revenue. The court then
considered various methods of allocating those overhead expenses to the
production of the infringing movie, and selected the method that was most fair,
accurate, and practical in light of the infringing company’s structure and products.
Given the impossibility of determining the overhead costs that were directly
related to the production of the infringing motion picture, the court permitted a
deduction of a portion of overhead expenses based on the cost of production of
the motion picture.1088
Sheldon [Sheldon v. Metro-Goldwyn Pictures Corp.] thus contemplates a twostep procedure for deducting overhead expenses from an infringer’s profits. The
first step is to determine what overhead expense categories (such as rent, business,
entertainment, personnel and public relations) are actually implicated by the
production of the infringing product. Once a sufficient nexus is shown between a
category of overhead and the production or sale of the infringing product, a court
need not scrutinize for inclusion or exclusion particular items within the overhead
category. For example, if ‘entertainment expenses’ is a category of overhead
implicated in the line of business that produced or sold the infringing product,
then country club dues included within that category should not be singled out for
exclusion as they were by the district court here. Rather, the court should limit its
inquiry to the sufficiency of the nexus between the expense category and
production of the infringing product.1089
Neither Mr. Meyer nor I can say with certainty how much expense SAP incurs as a result of
servicing a particular customer’s needs. The evidence I have reviewed suggests that there are
customers that take a lot of time and effort (and, therefore, expense) to service and some not so
1086

1087

1088

1089

Weil, Roman L., et al. Litigation Services Handbook: The Role of the Accountant as Expert. 2nd ed. New
York, NY: John Wiley & Sons, Inc., 1995. Section 33.2, page 7.
Throughout this report I refer to overhead to maintain consistency with the support and Mr. Meyer’s report.
However, the relevant usage of “overhead” in the context of this analysis is as “variable overhead” because
Oracle’s and SAP’s accounting methods do not classify all variable expenses above the gross margin line.
Even though certain expenses are accounted for as overhead below the gross margin line, if they vary with
the level of revenue, they should be deducted from the accused revenues.
Hamil America, Inc. v. GFI, 193, 218 F.3d 92 (2nd Cir. 1999) (citing, Sheldon v. Metro-Goldwyn Pictures
Corporation).
Hamil America, Inc. v. GFI, 193, 218 F.3d 92 (2nd Cir. 1999).

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Oracle USA, Inc., et al v. SAP AG, et al

much. The customers may be difficult because their in-house IT staff lack necessary skills to
solve problems, because their software is convoluted by heavy customization or for other
reasons. However, because it is not possible to determine what the added costs of SAP servicing
any of the accused customers would have been (or in Oracle’s case what the added costs of
servicing the customer would have been if they had stayed with Oracle), I deduct the variable
costs of servicing the relevant customer base from the relevant customer revenue.
To do so, I quantified the costs incurred to generate the identified disgorgeable revenues by
determining the relationship between SAP’s historical costs and revenue based on SAP’s
historical quarterly income statements from 2002 to 2008. Relevant costs include overhead
expenses as well as direct and indirect costs.
I identified the following revenue producing functional areas as being subject to
disgorgement:1090
1.

Components1091

2.

Other SW [software] Services

3.

Other

4.

Projects

5.

Rental

6.

Support

7.

Training

8.

Hosting

9.

Documentation

10.

Not assigned

11.

Other services

SAP’s historical accounting records do not contain revenue categories for each of the above
functional areas (i.e. certain of the functional areas are grouped in the same revenue category as
another and may not have the identical description). The revenue categories included in SAP’s
income statements include the following:
1.
2.
1090
1091

Software
Support
SAP Revenue Report.
SAP refers to its applications and portion of applications as “components” which I also refer to as
“applications” or “software” in this report.

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Oracle USA, Inc., et al v. SAP AG, et al

3.

Subscriptions

4.

Consulting

5.

Training

6.

Other Services

7.

Intercompany Services1092

8.

Other Revenue

I mapped the functional areas to SAP’s revenue categories based on discussions with SAP
management as follows:
1.

Software (Components, Documentation, Other)

2.

Support (Support)

3.

Subscriptions (Rental, Other SW Services)

4.

Consulting (Projects)

5.

Training (Training)

6.

Other Services (Other Services, Hosting)

7.

Other Revenue (Not Assigned)

SAP’s expense accounts are not specific to the product level. The Litigation Services Handbook
states:
Where accounting records are not specific to the individual-product level, as
is usually the case with overhead costs, courts have accepted allocating
these costs to the infringed work based on the infringed work’s share of
total sales. For example, in Aitken, Hazen, Hoffman, Miller, P.C. v. Empire
Construction Co., the defendant divided its overhead expenses by net sales
to yield a pro rata share. This share was applied to the infringing sales to
yield the attributable overhead costs.
The difficulty with this approach is that it measures the average cost per
sales dollar rather than the marginal cost. A better alternative uses
regression analysis to measure the variability of overhead costs as a
function either of all sales or of the smallest sales category encompassing
the infringing sales. This approach better estimates the variable component

1092

Intercompany Services does not appear as a functional area in relation to revenues associated with the 86
customers on the SAP Revenue Report.

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Oracle USA, Inc., et al v. SAP AG, et al

of overhead costs and conforms more to the legal standard of using costs
that would not have been incurred but for the infringement.1093
Accordingly, I analyzed SAP’s produced financial information using regression techniques to
determine the fixed versus variable expense components in order to determine the deductible
expenses to apply to the relevant revenues.
12.2.1. Regression Analysis
SAP’s total costs include variable costs and fixed costs. The fixed costs are the costs the firm
incurs regardless of the level of sales and variable costs change with the level of sales.
In the long run, all costs are variable.1094 Theoretically, the total cost function is a multivariate
non-linear equation1095 in the form of:

TC = a + b1Q + b2Q2 + b3Q3
Where: TC represents total cost; the intercept ‘a’ theoretically represents fixed costs; Q is the
level of output; and the ‘b’ coefficients represent measured constants (see Figure 1 below).
Figure 1
250
200
150
100
50
0
1

1093

1094

1095

3

5

7

9

11

13

15

17

19

21

23

25

27

29

31

Weil, Roman L., et al. Litigation Services Handbook: The Role of the of Accountant as Expert. 2nd ed.
New York, NY: John Wiley & Sons, Inc., 1995, pages 33.9-33.10.
For example, in the case of a manufacturing operation, even the plant becomes a variable expense if
production demands exceed capacity or if the level of demand no longer requires such a large facility.
Most basic microeconomic textbooks describe the total cost curve as a simple linear function in the form of
TC = a + bQ which may be a reasonable fit in the short run. Note that the total cost curve is close to a
linear function after the initial (fixed cost) start up period (see graph in the range of Q = 9 to Q = 20).

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12.2.2. Regression Analysis to Apportion Fixed and Variable Costs
I assume that as revenues increase costs also increase. In practice it is not always possible to
identify which of the cost categories tracked in the accounting records are fixed and which are
variable. Therefore, I performed a regression analysis to allow discrimination between the two.
To estimate the fixed and variable components of total SAP costs I used single variable nonlinear
regression analysis. The functional format I employed was a double log model using the natural
logarithm (Ln). My specific equation was:

Ln(Total Cost) = Ln(a) + (b)Ln(x) (where x = revenues)
My equation above differs from a simple linear regression (i.e. TC = a + bx) in that it calculates
the statistical relationship between costs and revenues using a double log format. Double log
models to measure nonlinear relations and incremental changes (i.e., elasticities) are well suited
to my current purpose. I considered other functional formats and determined my double log
model provided the best fit for the SAP cost data. Given the functional format I used, fixed costs
are approximated by the ‘a’ coefficient and the expected variable cost is estimated using the ‘b’
coefficient.
I analyzed quarterly costs and revenues for SAP subsidiaries with 2002 to 2008 data setting the
dependent variable as total cost and the independent variable as total revenue.1096 In all, this
approach allows for 448 observations in my model and would typically be referred to as
“pooled” cross-section/time series analysis (or panel data). I selected the 2002 to 2008 period to
increase the number of observations and improve the accuracy of my model and to determine
whether there is a fundamental change in the relationship between costs and revenues in the
(alleged) “pre” and “post” period of disgorgeable revenues.1097 My model is designed to
apportion the fixed and variable costs on a percentage basis (i.e., I did not directly estimate the
fixed and variable dollar amounts before and after the relevant period). Prior to estimating my
regressions, I adjusted all dollars for inflation using the U.S. CPI (1982-1984 base year) as
reported by the Bureau of Labor Statistics.1098
I summarize the results of my regression model in Appendix M-9 (Figure 1) and conclude that
approximately 42% of total costs are fixed (i.e. costs that are theoretically incurred at zero
revenue). My R2 of 99% indicates that 99% of the change in costs is statistically explained by the
change in revenue.1099

1096

1097
1098
1099

This includes the U.S. (multiple subsidiaries), Germany (multiple subsidiaries), Japan, France, Switzerland,
Canada, Netherlands, Italy, Australia, Singapore, Sweden, New Zealand, and Croatia.
Appendix M-5. and Appendix M-9 (Figure 1).
<ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt>.
Two traditional measures of association are the coefficient of correlation (r) and the coefficient of
determination (r2). “The coefficient of determination (r2)… represents a true measure of strength between a
dependent and independent variable. It measures the proportion of total variation in the dependent variable
(Y) that is explained or accounted for by the total variation in the independent variable (X).” Applied
Statistics for Public Policy, Macfie and Nufrio, p. 398.

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I checked for the effect of autocorrelation in the regression using a Durbin-Watson test.1100 The
Durbin-Watson statistic of 2.07 showed my model was not affected by autocorrelation. The
result of my regression is shown in Appendix M-9 (Figure 1).
12.2.3. Tests for Robustness
I tested my model for robustness to ensure the model results were stable (i.e. robust) to simple
changes in functional format. The tests were to (1) apply a semilog format to the 2002 to 2008
data; (2) apply a double log format to the 2005 to 2008 data; and (3) apply a double log format to
the 2002 to 2004 data. The results of my robustness tests are as follows:
1. Test 1 showed approximately 48% of total costs is estimated to be fixed costs. Although my
semilog model is not as statistically strong as my double log model, the R2 is still reasonably
significant at 55%.1101
2. Test 2 analyzed 256 observations from 2005 to 2008 and showed 31% of total costs to be
fixed.1102
3. Test 3 analyzed 192 observations from 2002 to 2004 and showed 51% of total costs to be
fixed.1103
My checks for robustness suggest that there is no functional change in the relationship between
costs and revenues when using a double log or semilog format, nor is there is a fundamental
change in the relationship prior to or after 2005. This leads me to conclude that approximately
42% of total costs are fixed.
12.2.4. Calculation of Relevant Margin
I applied the fixed cost estimate of 42% to total cost by country (see Appendix M-1) to derive
variable costs by revenue function across countries then allocated variable costs according to the
proportion of revenue by account (shown on Appendices M-2 and M-3). For example, because
Support revenue is 34.7% of all revenue, I allocated 34.7% of variable costs to support revenue
account.
I made one additional adjustment to Appendix M-1 regarding the allocation of costs to specific
revenue accounts for Subscriptions, Training, and Other Services. As shown on Appendix M-3,
these are the three smallest accounts of the eight revenue accounts that I analyzed (i.e. 1.8%,
3.4%, and 0.6%, respectively). Due to the skewness of various account balances (e.g. the
difference between the average and median expenses), if costs for a particular revenue function
for a given country were less than one percent of total costs, I simply allocated variable costs
equal to the amount of revenue for that account to reduce the incidence of negative balances. I
then took the remainder and allocated it to either Software or Consulting, effectively reallocating

1100
1101
1102
1103

The Durbin-Watson statistic is explained in Applied Statistics for Public Policy, Macfie and Nufrio, p. 471.
Appendix M-9, Figure 2.
Appendix M-9, Figure 3.
Appendix M-9, Figure 4.

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some costs from Subscriptions to Software and some costs from Training and Other Services to
Consulting.1104
As an example (as shown on Appendix M-3), while 1.8% of variable costs are allocated to
Subscriptions overall, Subscription revenue for France is only 0.1% of total revenue. So I
allocated 0.1% of variable cost to France Subscription revenue and reallocated the remaining
1.7% to France Software revenue.
I estimate the relevant margin by revenue function, by subsidiary (country), as shown in
Appendix M-4. I also repeated my analysis for Oracle data.
12.2.5. SAP Variable Expense Conclusion
Based on my analysis of the data, I determined that there is a substantial portion of variable
expense embedded in the “below-the-line” accounts maintained by SAP (and Oracle). I have,
therefore, included adjustments to the overall profitability of each company to reflect the variable
component of total costs. The effect of my inclusion of the variable component of cost is shown
in the analysis of each company’s results for Lost Profits and Disgorgement.
12.3. SAP Disgorgement Damages
I calculated disgorgement damages as follows:
1. Used SAP Revenue Report for the List of 861105 to determine the total revenues earned by
SAP from the 86 SAP customers from 2002 through 2008.
2. Excluded revenues earned prior to SAP’s acquisition of TomorrowNow to arrive at total
SAP revenues for the List of 86 from 2005 through 2008.1106
3. Excluded revenue related to BOBJ.1107
4. Excluded revenues earned prior to each of the customers’ TomorrowNow support start
date to arrive at total relevant revenues for the List of 86.1108
5. Excluded revenue related to Ongoing Revenue.

1104

1105

1106

1107
1108

This allocation is consistent with how SAP reports and categorizes their revenues and expenses. They
categorize Software and Software-related Services (Software, Support, and Subscriptions) together and
Services (Consulting, Training, and Other Services (Hosting)) together (based on SAP Annual Reports, and
discussions with SAP Corporate Controlling.)
Including Nextiraone Europe B.V. and Nextiraone Management, S.A.S, which Mr. Meyer omitted from his
calculation of disgorgement damages.
$1.37 billion, Meyer Report, page 273, paragraph 445. $1.35 billion, Appendix N-1. Revenues differ due to
exclusion of BOBJ and inclusion of Nextiraone entities.
Appendix N-7.
$898 million, Meyer Report, page 273, paragraph 445. $885 million, Appendix N-1. Revenues differ due to
exclusion of BOBJ and inclusion of Nextiraone entities.

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6. Excluded revenues related to the customers excluded by Mr. Meyer on Schedule 42.SU
as well as those customers that should have been excluded for other reasons, as described
elsewhere in this report.
7. Applied annual relevant margins for the remaining revenues according to the “functional
area” and “company name” from the revenue report.
8. Added interest at an appropriate risk free rate to compensate Oracle for the delay in
receiving profits. 1109
The three customers1110 from the List of 86 that I have not excluded spent $8.1 million on
purchases of applications, support and other services,1111 which resulted in disgorgeable profits
of $3.9 million and disgorgement damages of $4.3 million after interest, as shown in the table
below:

Summary of Disgorgement of SAP Profits1112
Total revenues from 2002 – 2008

$1,632,807,583

Excluding revenues prior to the acquisition

$1,368,728,122

Excluding BOBJ revenues

$1,353,938,789

Excluding revenues prior to the TN start date

$884,774,828

Excluding Ongoing Revenues

$688,943,449

Excluding revenues for excluded customers
After applicable relevant margins

1110

1111
1112

$3,862,031

After interest

1109

$8,093,877

$4,344,212

I applied a risk-free interest rate from the mid-point of the year in which the revenues were earned through
the estimated trial end date of December 10, 2010 (six weeks after the trial start date of November 1, 2010).
I matched the number of years from the mid-point of each year through December 10, 2010 to the Federal
Reserve treasury constant maturities as shown on Appendix N-8.
Of the three remaining disgorgement customers (PCI Limited, Rotkaeppchen Sektkellerei and Syngenta
Crop Protection), one of them (Rotkaeppchen Sektkellerei) earned a Safe Passage credit (which at least
suggests it was a Safe Passage customer - I have been unable to determine whether the other three
customers were Safe Passage). Any significant concessions as part of a Safe Passage deal would have
reduced the margins which would indicate lower, rather than higher, profits on Safe Passage deals.
Appendix N-1.
From Appendix N-3 and Appendix N-1.

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13. Disgorgement of TomorrowNow Profits
13.1. TomorrowNow Revenue
Mr. Meyer quantified TomorrowNow support revenue as follows:
According to the customer-level revenue data produced by Defendants,
excluding the reductions in revenue for settlement payments made to
customers due to TomorrowNow’s shutdown due to this litigation,
TomorrowNow received $54.1 million in revenue since 2002, $48.5 million
(90%) of which was received since TomorrowNow was acquired by SAP in
January 2005. Net of revenue reductions for settlement payments made,
TomorrowNow received $41 million in net revenue from the Relevant
TomorrowNow Customers since 2002, $35.4 million of which was received
since it was acquired by SAP in January 2005.1113
Mr. Meyer’s analysis has errors. He shows TomorrowNow revenues by customer from 2002 to
20091114 on Schedule 41.1, which is based on financial records contained in a QuickBooks file
from 2002 to 2005 and a customer-specific report containing revenues by customer, titled
“TN_Customer_Report-Revised.xls”1115 (“TN Revenue Spreadsheet”) for 2005 to 2009.
QuickBooks contains some revenue information for 2005 that is duplicative of the TN Revenue
Spreadsheet in 2005. Mr. Meyer properly removed some duplicate revenue information, but he
failed to account for all of the duplicate information. I identified 12 additional items that were
double counted between QuickBooks and the TN Revenue Spreadsheet and removed them from
my analysis. The total revenue was corrected from $41,046,1171116 to $40,577,617, a difference
of $468,500, as corrected in Appendix Q-3. Additionally, for certain customers, Mr. Meyer
attributed revenue to the incorrect customer, and attributed revenue to the incorrect product line
supported by TomorrowNow for certain customers. I have corrected for these errors in
Appendix Q-3.
Although Mr. Meyer and Mr. Mandia both conclude that all of TomorrowNow’s activities are
infringing (which would mean all of TomorrowNow’s costs would be properly deductible), I
disagree. Analysis1117 shows there were numerous customers that were not the recipient or
beneficiary of any of the accused activity identified by Mr. Mandia. Therefore, there is
TomorrowNow revenue that is not subject to disgorgement. The total revenue generated by the
customers with no accused conduct (i.e. the No Accused Conduct Customers) was
$1,356,006.1118
1113
1114

1115

1116
1117
1118

Meyer Report, page 268, paragraph 438.
Although the underlying report upon which the data are based states it is revenue by customer through
2009, the reality is that there were no earned revenues from customers after TomorrowNow ceased
operations. The company was, however, still accounting for discounts/refunds given to customers at the
end of their support at TomorrowNow.
TN-OR06125333. It is unclear why revenues for one customer, Transfield Services New Zealand were
allocated to 2009 when TomorrowNow wound down its operations in October 2008.
Meyer Report, Schedule 41.1.
I base my analysis and conclusion on Mr. Gray’s report.
Found by summing the TomorrowNow revenues (Appendix Q-2) for the No Accused Conduct Customers
(Appendix E-2 and Appendix E-3).

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Therefore, the correct TomorrowNow revenue figure for analysis of disgorgement (before
customer exclusions) is $39,221,611.1119
Although Plaintiffs are not entitled to recover Lost Profits for customers that terminated Oracle
support for reasons other than the Alleged Actions, if those customers went to TomorrowNow
for support, then there may be disgorgeable profits at TomorrowNow. Therefore, I calculated
disgorgement of TomorrowNow profits for customers that are excluded from the Lost Profits
calculation. I excluded No Accused Conduct customers from all of my damages models.
13.2. Deductible TomorrowNow Expenses
Defendants are allowed to deduct expenses that were incurred in generating the accused revenues
in order to quantify a defendant’s total disgorgeable profit or loss. Deductible costs include the
direct costs incurred to produce the infringing revenue and a portion of overhead expenses when
the defendant “can demonstrate that [the overhead expense] was of actual assistance in the
production, distribution or sale of the infringing product.”1120 Additionally, non-willful infringers
may deduct income taxes paid on the infringing profits.1121
In his report, Mr. Meyer states,
I also understand that Oracle’s expert, Kevin Mandia, has concluded that
TomorrowNow’s entire business model relied upon the alleged
infringement and misuse of Oracle’s Software and Support Materials, and
the unauthorized downloading and copying of Oracle’s intellectual
property. Therefore, Defendants have been unjustly enriched by every sale
of TomorrowNow support services.1122
Based on Mr. Mandia’s conclusion that “TomorrowNow’s entire business model relied upon the
alleged infringement,”1123 and Mr. Meyer’s conclusion that “Defendants have been unjustly
enriched by every sale of TomorrowNow support services,”1124 it is arguable that every expense
TomorrowNow incurred would be attributable to producing the infringing revenues and,
therefore, deductible.
TomorrowNow’s net income/(loss) for the years ended December 31, 2002 through October 31,
2008 was as follows:

1119
1120
1121
1122
1123
1124

$40,577,617 minus $1,356,006.
Frank Music Corporation v. MGM Grand Hotel, Inc., 772 F.2d 505, 516 (9th Cir. 1985).
Three Boys Music Corp. v. Bolton, 212 F.3d 477, 487 (9th Cir. 2000).
Meyer Report, page 267, paragraph 436.
Meyer Report, page 267, paragraph 436.
Meyer Report, page 267, paragraph 436.

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Table: TomorrowNow Net Income/(Loss)1125 In Thousands
2002

2003

2004

2005

2006

2007

2008

$(160.6)

$(155.4)

$20.2

$(4,003.3)

$(10,781.9)

$(23,975.3)

$(50,709.4)

Because there are 51 No Accused Conduct customers for which damages do not apply, I assume
that TomorrowNow’s entire business model is not infringing. I identified variable expenses and
fixed expenses by analyzing TomorrowNow’s income statements from 2002 to the third quarter
of 2008, as shown on Appendices P-2 and P-3.1126 I determined that the relevant margins are
negative in 2002, positive from 2003 to 2004, and negative from 2005 to 2008, as shown in
Appendix P-1. I applied the relevant margin to the relevant revenues. Total disgorgement after
interest is $1,054,474, as shown in Appendix Q-1.1127

14. Lost Profits Claim
As an alternative to the “Value of Use” damages, Mr. Meyer refers to a category of damages as
“Oracle’s lost profits” which includes profits related to the support of PeopleSoft, J.D.Edwards,
and Siebel products that Mr. Meyer opines Oracle would have received absent the Alleged
Actions (“Lost Profits”).
14.1. Damage Claim Confusion
Mr. Meyer discusses several types of damage claims. In footnote 657, Mr. Meyer states that
Lost Profits is an available damages remedy as an alternative measure to his Value of Use
methodology. However, he fails to: explain how the various damage claims relate to one
another; how damages for one claim may offset damages in another claim; and present a unified
damages conclusion.
The Court’s Order precludes evidence related to lost up-sell and lost cross-sell opportunities.
Because Oracle had already made the license sale, and was therefore only generating revenue
from support, the only relevant revenues for its lost profits claim are revenues related to support.
Some of my comments in the following sections of this report reference SAP and as such, may
seem irrelevant from a lost profits point of view. However, I make the comments in response to
Mr. Meyer’s report notwithstanding their relevance to Oracle’s lost profits claim.

1125
1126

1127

Appendix O.
I did not rely on a regression analysis of the TomorrowNow revenues and expenses due to the existence of
both intercompany revenue and expense accounts that were material in nature and could not be analyzed
with the available information.
Revenue of $816,059 plus interest of $238,415 through the estimated trial end date of December 10, 2010.

Subject to Protective Order

250

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Attorneys' Eyes Only