Oracle Corporation et al v. SAP AG et al

Filing 404

Declaration of Stephen K. Clarke in Support of 402 Reply Memorandum In Support of Defendants' Motion to Compel Production of Financial Information of Plaintiffs filed bySAP AG, SAP America Inc, Tomorrownow Inc. (Attachments: # 1 Exhibit A)(Related document(s) 402 ) (McDonell, Jason) (Filed on 8/4/2009)

Oracle Corporation et al v. SAP AG et al

Doc. 404

Case4:07-cv-01658-PJH Document404

Filed08/04/09 Page1 of 7

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 26 27 28

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: [phone] Facsimile: [phone] [e-mail] [e-mail] [e-mail] Tharan Gregory Lanier (SBN 138784) Jane L. Froyd (SBN 220776) JONES DAY 1755 Embarcadero Road Palo Alto, CA 94303 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] Scott W. Cowan (Admitted Pro Hac Vice) Joshua L. Fuchs (Admitted Pro Hac Vice) JONES DAY 717 Texas, Suite 3300 Houston, TX 77002 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] Attorneys for Defendants SAP AG, SAP AMERICA, INC., and TOMORROWNOW, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION ORACLE CORPORATION, et al., Plaintiffs, v. SAP AG, et al., Defendants. Case No. 07-CV-1658 PJH DECLARATION OF STEPHEN K. CLARKE IN SUPPORT OF DEFENDANTS' MOTION TO COMPEL PRODUCTION OF FINANCIAL INFORMATION OF PLAINTIFFS REDACTED Date: August 18, 2007 Time: 2:00 p.m. Courtroom: E, 15th Floor Judge: Hon. Elizabeth D. Laporte
CLARKE DECL. ISO OF MOT.TO COMPEL Case No. 07-CV-1658 PJH

Dockets.Justia.com

Case4:07-cv-01658-PJH Document404

Filed08/04/09 Page2 of 7

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 26 27 28

I, STEPHEN K. CLARKE, declare: 1. I am a Certified Public Accountant (Accredited in Business Valuation) in the State

of Arizona; a Certified Fraud Examiner; and a Chartered Accountant in England & Wales. A copy of my resume is attached as Exhibit A. I have been engaged as a testifying economic damages expert in dozens of intellectual property disputes over the last 20 years. Such disputes have related to copyrights, patents, trade secrets, trade dress and unfair competition, and have involved aggregate claims well in excess of $100 billion (prior to this matter). I have provided testimony as an economic expert in many venues including Federal and State Courts, arbitration panels, and bankruptcy hearings in the United States, and the Crown Courts in Great Britain. I have valued over $20 billion worth of businesses in the same 20 year period. My degree is in Management Sciences from the University of Manchester in England. I taught economics at Arizona State University for several years. 2. otherwise. 3. I have read the Declaration of Paul K. Meyer in Support of Oracle's Opposition to I have personal knowledge of the matters discussed herein, except where indicated

Defendants' Motion to Compel. 4. I have made an effort to obtain and review the financial information Plaintiffs have

produced in discovery that bears on the calculation of the profits that would have been earned by Plaintiffs from the customers allegedly lost as a result of the actions of Defendants. Thus far, I have received no detailed corporate level financial information for Oracle USA, Inc. ("OUSA"), Oracle International Corporation ("OIC"), and Oracle EMEA Limited ("OMEA", and collectively, "Plaintiffs") . Plaintiffs have not produced company level general ledgers, detailed financial statements or trial balances for any entity. 5. The financial information provided so far lacks the level of detail needed for a

proper quantification of Plaintiffs' profits related to the allegedly lost sales. This is because the expenses related to earning the sales revenues are not identified in sufficient detail. /// /// 2
CLARKE DECL. ISO OF MOT.TO COMPEL Case No. 07-CV-1658 PJH

Case4:07-cv-01658-PJH Document404

Filed08/04/09 Page3 of 7

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 26 27 28

6.

Oracle has provided quarterly financial reports by geography (e.g., reports for the

"Americas," which I understand includes more business than OUSA) from Quarter One 2000 through Quarter Four 2007. However, these are high level income statements that do not allow for a detailed analysis of the costs associated with the allegedly lost revenue streams in the plaintiff entities and none of the provided financial information appears to relate to OIC. In addition, many of these reports are illegible. Accordingly, it is not possible, without relying on assumptions, to quantify the allegedly lost profits of the plaintiff entities based on this information. 7. I have the various SEC filings that Oracle Corporation (which is not a plaintiff

entity and now known as Oracle Systems Corporation) makes, like any public company, including 10-Ks and 10-Qs. While the Oracle Corporation 10-Ks provide aggregate data for revenues and direct expenses by segment (e.g., New Software Licenses, Software License Updates and Product Support), they contain insufficient information to allow a computation of the profits that would have been earned by the plaintiff entities related to the products and services at issue for the periods in question. Accordingly, it is not possible, without relying on assumptions, to quantify any lost profits for Plaintiffs, or to do so for the portion of the plaintiff entities revenues at issue in this case. 8. In addition, for the period prior to Oracle's acquisition of PeopleSoft, Plaintiffs

have provided little detailed PeopleSoft financial information (Plaintiffs provided certain PeopleSoft financial reports as well as PeopleSoft 10-Ks and 10-Qs). After the acquisition, the only statements showing PeopleSoft profitability provided by Plaintiffs is for the five months ending on May 31, 2005. 9.
REDACTED

Plaintiffs state that any ad hoc reports are of uncertain provenance and may be inaccurate but that it will produce them. In assessing these reports, it will be important to also have the source documents that reveal how the reports were created. I will be in a better position to comment on these ad hoc reports after I see them. 3
CLARKE DECL. ISO OF MOT.TO COMPEL Case No. 07-CV-1658 PJH

Case4:07-cv-01658-PJH Document404

Filed08/04/09 Page4 of 7

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 26 27 28

10.

Mr. Meyer characterizes my purposes in asking for detailed financial information

when he states that I seek "excessive" general ledger information in order to identify relevant costs. While the detailed financial information is relevant to the identification of costs (as discussed above), I also seek the information in order to trace the flow of profits from allegedly lost revenues through the various plaintiff entities.
REDACTED

11.

Without the detailed financial information, it may be possible for me to rely on

various inter-company agreements between the Oracle entities to quantify the flow of some of the revenues Plaintiffs receive from end-user customers. To do so, however, would likely result in omission of certain transactions because they are not subject to an inter-company agreement. For example, if the plaintiff OEMEA receives funds from revenues generated by non-plaintiff Oracle France, and remits some of those funds to a non-plaintiff like Oracle Technology Corporation, I need to know how much was remitted in each case for the purposes of quantifying damages. Absent the detailed information, any assessment of the profit retained by any Oracle entity in the chain of ownership would likely be incomplete. Following the funds through from initial contracting party to a plaintiff in this action will be necessary to quantify any lost profits potentially generated by the actions alleged in Plaintiffs' Third Amended Complaint for Injunctive Relief (D.I. 182). To date, I do not believe that Plaintiffs have produced sufficient records for this determination to be completed. 12. I am not aware of information produced by Plaintiffs in discovery in this case that

allows for a calculation of revenues, expenses and profits to plaintiff entities in connection with the alleged lost sales. 13. A company's general ledger typically contains a great deal of detail including the

accounts that are the building blocks for financial reporting. The advantage of general ledger detail is that it allows detailed analysis of a company's financial position and results of operations which will assist in quantifying lost profits. 4
CLARKE DECL. ISO OF MOT.TO COMPEL Case No. 07-CV-1658 PJH

Case4:07-cv-01658-PJH Document404

Filed08/04/09 Page5 of 7

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 26 27 28

14.

If I had access to the detailed general ledger information, I could perform analyses

that may identify which accounts are appropriate to include in a lost profits analysis and which should be excluded. By its very nature, such an exercise requires review of a broad group of accounts in order to determine which should be included and which should be excluded. 15. I recognize the complex nature of the Plaintiffs' businesses. For this reason, I

requested a copy of Plaintiffs' charts of accounts so I could tailor my information request to accounts that might affect the calculation of alleged damages. Plaintiffs eventually produced thousands of pages of charts of accounts for OUSA, OIC and OEMEA and the consolidated company Oracle Corporation. When I saw the overall structure of the charts of accounts I was able to reduce my list of requested accounts to those conveyed to Plaintiffs in an email from Elaine Wallace dated April 29, 2009. While this request has been characterized as an overly broad 73 page list of irrelevant accounts, that characterization is misleading. I only requested accounts I thought might affect the quantum of damages and the total of 73 pages included requests for multiple years (the requested list of accounts for each year was just a few pages long). Upon receipt of the underlying general ledger information, I likely would determine that I do not need some of the accounts and I may need to request still others that were not requested. 16. The specific items Mr. Meyer points out as being "...unlikely to vary..." with the
REDACTED

level of revenue are easily explained.

T&E accounts almost always vary with the level of sales in a company but not every component of the total T&E spend varies in the same way. My effort to 5
CLARKE DECL. ISO OF MOT.TO COMPEL Case No. 07-CV-1658 PJH

Case4:07-cv-01658-PJH Document404

Filed08/04/09 Page6 of 7

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 26 27 28

procure the details was made to ensure I did not overstate or understate the variable costs associated with a varying level of sales. 17. Mr. Meyer states, "In my opinion, much of the detailed general ledger information

requested by Defendants may not be relevant to their evaluation of lost profits in this case." Such a statement begs the question, "Which portion of the document request is relevant?" 18. While it is certainly true that Defendants have been seeking in their requests

information that relates to the profits of each product line at issue in this case, as Mr. Meyer asserts, the requests were also designed to quantify the profits by plaintiff entity. In my view, it is impractical to parse the requested information between the two data sets. As a result, I consider them jointly . 19. The extent to which Mr. Meyers has been "required" to rely on information from

the general ledger to determine revenues in other cases does not bear upon the information I may need for my analyses here. I also understand Mr. Meyer's assertion to be consistent with the possibility that he has previously used general ledger or other detailed information in order to quantify damages in an intellectual property case. Furthermore, even if he has not previously relied upon such detailed information, I cannot conclude from that assertion that I should ignore Plaintiffs' general ledger or that it is generally appropriate to ignore such information. By comparison, for example, I have reviewed general ledger information and/or detailed financial statements in numerous cases, including intellectual property cases. 20. I have reviewed the Declaration of Alex San Juan in Support of Oracle's

Opposition to Defendants' Motion to Compel. In his declaration, Mr. San Juan identifies what he perceives as the burdens that may be borne by the Plaintiffs if compelled to produce information from Oracle's general ledger. Mr. San Juan's concerns do not indicate to me that an analysis of the general ledger will create an unnecessary burden that may outweigh the benefit of a more complete understanding of Plaintiffs' alleged damages. For example, the issues he raises include:
REDACTED

6

CLARKE DECL. ISO OF MOT.TO COMPEL Case No. 07-CV-1658 PJH

Case4:07-cv-01658-PJH Document404

Filed08/04/09 Page7 of 7