Oracle Corporation et al v. SAP AG et al

Filing 775

Declaration of Tharan Gregory Lanier in Support of 774 MOTION Defendants' Notice of Motion and Motion to Exclude Expert Testimony of Paul C. Pinto filed bySAP 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, # 22 Exhibit 22, # 23 Exhibit 23, # 24 Exhibit 24, # 25 Exhibit 25)(Related document(s) 774 ) (Froyd, Jane) (Filed on 8/19/2010)

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Oracle Corporation et al v. SAP AG et al Doc. 775 Att. 3 EXHIBIT 3 Dockets.Justia.com ORACLE U S A , INC., ET AL v. S A P A G , ETAL CASE N o . 0 7 - C V - 0 1 6 5 8 S U P P L E M E N T A L E X P E R T R E P O R T O F P A U L K. M E Y E R TM FINANCIAL FORENSICS, LLC. FEBRUARY 23, 2010 TEXT REMOVED - NOT RELEVANT TO MOTION 15. In addition to software code, Defendants allegedly provided illegally obtained Oracle instruction manuals, guides, notes and other support documentation to customers including rebranded "essentially identical" and "virtually verbatim with small changes" Oracle documentation.10 TEXT REMOVED - NOT RELEVANT TO MOTION Oracle USA, Inc. et al v SAP AG et al, Fourth Amended Complaint in Case No. 07CV01658 dated August 18, 2009, pgs. 89. 10 TEXT REMOVED - NOT RELEVANT TO MOTION TEXT REMOVED - NOT RELEVANT TO MOTION Page 12 of 281 Subject to Protective Order Highly Confidential Information Attorneys' Eyes Only TEXT REMOVED - NOT RELEVANT TO MOTION c. Estimated Costs To Independently Create PeopleSoft/J.D. Edwards Copyrighted Materials in Suit 150. I understand that Oracle's expert Paul Pinto was retained to estimate the costs that Defendants would have had to incur to independently develop the Oracle copyrighted materials in suit that Defendants allegedly illegally accessed, copied and misused. I understand that Mr. Pinto has concluded that it would have cost Defendants approximately $1.275 billion with a range of $936 million to $2.903 billion to develop 7 specific PeopleSoft and J.D. Edwards software applications.348 151. Additionally, I understand that Mr. Pinto has concluded that, if it were possible to be completed in two years, it would take Defendants 2,374 appropriatelytrained personnel to complete the development of the 7 PeopleSoft/J.D. Edwards software applications he analyzed.349 As explained in section IV.B.2 of this Report, the timing of SAP's offering of TomorrowNow support services was critical to its overall strategy to disrupt Oracle's business and convert Oracle's PeopleSoft, J.D. Edwards and Siebel customer base over 348 TEXT REMOVED - NOT RELEVANT TO MOTION Discussion with Paul Pinto (Sylvan VI, Inc.); November 16, 2009 Expert Report of Paul Pinto, pg. 43 ($320 million for JDE Enterprise One + $707 million for PeopleSoft + $248 million for JDE World = $1.275 billion. $221 million + $543 million + 172 million = $936 million. $749 million + $1,573 million + 581 million = $2.903 billion). Discussion with Paul Pinto (Sylvan VI, Inc.); November 16, 2009 Expert Report of Paul Pinto, pgs. 42 and 44. 67,863 total person months effort, less 10,890 Siebel person months, divided by 24 months = 2,373.9. According to Mr. Pinto, "A development effort of this scope and complexity would be an extremely large project, very aggressive, and of highrisk to be pursued within this timeframe." [November 16, 2009 Expert Report of Paul Pinto, pg. 7]. 349 Page 99 of 281 Subject to Protective Order Highly Confidential Information Attorneys' Eyes Only to SAP (i.e., it was critical for SAP to announce its offering of support on Oracle products immediately following Oracle's acquisitions of PeopleSoft and Siebel). If faced with a multiyear development timeframe in lieu of using Oracle's copyrighted property, SAP may have determined that offering TomorrowNow support services as an integral part of its Safe Passage program was not an attractive business decision. Therefore, SAP would likely be willing to pay more than the cost to independently develop the intellectual property in order to receive a time to market advantage and to avoid the risk of unsuccessful development. d. Summary: Fair Market Value Using Cost Approach 152. In my opinion, the cost approach would indicate a fair market value of SAP's use of Oracle's copyrighted materials in suit of no less than $936 million, with other considerations indicating that development costs, and the risks of development failure, would be much higher. I am relying on Mr. Pinto, who has estimated the costs to independently develop certain software applications that were accessed by TomorrowNow and SAP.350 B. 153. Summary: "Value of Use" of PeopleSoft/J.D. Edwards Copyrighted Materials Based on Market, Income and Cost Approaches Table 8 summarizes the fair market values of the PeopleSoft/J.D. Edwards copyrighted materials in suit based on the market, income and cost approaches. In my opinion, these metrics and the valuation analysis previously described indicate that no less than $2 billion is the fair market value for the PeopleSoft/J.D. Edwards copyrighted materials in suit. Discussions with Paul Pinto; November 16, 2009 Expert Report of Paul Pinto (see Mr. Pinto's explanation of his assignment and summary of opinions at pgs. 12). 350 Page 100 of 281 Subject to Protective Order Highly Confidential Information Attorneys' Eyes Only Table 8: Copyrighted Software and Support Materials PeopleSoft/J.D. Edwards Fair Market Values With Projections of Up To 3,000 Oracle Lost Customers ($ In Millions) Market Approach Based on PeopleSoft Acquisition $1,780 $2,670 Income Approach Oracle Potential Losses SAP Potential Gains SAP Projected Impact On Oracle Profits Cost Approach Avoided Development Costs (Mr. Pinto) Fair Market Value TEXT REMOVED - NOT RELEVANT TO MOTION $1,979 $3,762 $881 $2,690 $1,468 $ 936 $2,903 No less than $2,000 Page 101 of 281 Subject to Protective Order Highly Confidential Information Attorneys' Eyes Only TEXT REMOVED - NOT RELEVANT TO MOTION iii. Profitability Credited to the Copyrighted Materials In Suit As Opposed to Elements Contributed by SAP/TomorrowNow 228. I understand that neither SAP nor TomorrowNow made significant improvements to the copyrighted materials, relying instead on Oracle's copyrighted materials to create derivative TomorrowNowbranded support materials."489 3. 229. Hypothetical Negotiation Approach Summary (Georgia Pacific Factor 15) My conclusions and opinion as to the outcome of a hypothetical negotiation based on consideration of the financial, economic and other relevant factors discussed above is set forth in the following section. TEXT REMOVED - NOT RELEVANT TO MOTION 489 Oracle USA, Inc., et al v. SAP AG, et al, Fourth Amended Complaint in Case No. 07CV01658, August 18, 2009, pgs. 59. Page 142 of 281 Subject to Protective Order Highly Confidential Information Attorneys' Eyes Only TEXT REMOVED - NOT RELEVANT TO MOTION b. Summary: Fair Market Value Using The Market Approach 274. SAP was projecting obtaining 200 Siebel support customers, or approximately 5%, of Siebel's 4,000 customers.568 After considering the transactions described above, and providing particular focus on the Siebel acquisition, in my opinion, the market approach indicates a fair market value of SAP's use of Oracle's Siebel copyrighted materials in suit of no less than TEXT REMOVED - NOT RELEVANT TO MOTION "Apollo Competitive Program Office Program Playbook," SAPOR00790353387 (Hurst Exhibit 1597), at 355; Email from Christian Klein to Thomas Ziemen and Bernd Welz (Vice President System Service Solution Management), dated October 25, 2005 with attached Business Case files, SAPOR00250204225, (Hurst Exhibit 1601), at 223 and 225. 568 Page 185 of 281 Subject to Protective Order Highly Confidential Information Attorneys' Eyes Only $170 million, computed as 5% of the $3.4 billion in intangible asset value related to support revenues, customer relationships and goodwill.569 Additionally, using the $1.525 million average cost per customer resulting from the Siebel acquisition described above, extended to the 200 potentially lost customers, indicates a value of $305 million. 2. Income Approach 275. In determining SAP's "value of use" of the Siebel copyrighted material in suit, I have employed the income approach by determining the incremental net cash flows Oracle would expect to lose to SAP as a result of licensing the copyrighted materials. I have also considered analyses performed contemporaneously by SAP or TomorrowNow indicating the revenues they expected to receive and/or the amount of Oracle's business they expected to displace. TEXT REMOVED - NOT RELEVANT TO MOTION 569 $3.4 billion intangible asset value times 5% (200/4,000 customers = 5%). $3.4 *5% = $170 million. Page 186 of 281 Subject to Protective Order Highly Confidential Information Attorneys' Eyes Only

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