Oracle Corporation et al v. SAP AG et al

Filing 781

MOTION No. 1: To Exclude Testimony of Defendants' Expert Stephen Clarke filed by Oracle EMEA Limited, Oracle International Corporation, Oracle USA Inc., Siebel Systems, Inc.. Motion Hearing set for 9/30/2010 09:00 AM in Courtroom 3, 3rd Floor, Oakland. (Attachments: # 1 Proposed Order)(House, Holly) (Filed on 8/19/2010)

Oracle Corporation et al v. SAP AG et al

Doc. 781

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

BINGHAM MCCUTCHEN LLP DONN P. PICKETT (SBN 72257) GEOFFREY M. HOWARD (SBN 157468) HOLLY A. HOUSE (SBN 136045) ZACHARY J. ALINDER (SBN 215695) BREE HANN (SBN 215695) Three Embarcadero Center San Francisco, CA 94111-4067 Telephone: [phone] Facsimile: 415.393.2286 [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] BOIES, SCHILLER & FLEXNER LLP DAVID BOIES (Admitted Pro Hac Vice) 333 Main Street Armonk, NY 10504 Telephone: [phone] [e-mail] STEVEN C. HOLTZMAN (SBN 144177) 1999 Harrison St., Suite 900 Oakland, CA 94612 Telephone: [phone] [e-mail] DORIAN DALEY (SBN 129049) JENNIFER GLOSS (SBN 154227) 500 Oracle Parkway, M/S 5op7 Redwood City, CA 94070 Telephone: [phone] Facsimile: 650.506.7114 [e-mail] [e-mail] Attorneys for Plaintiffs Oracle USA, Inc., et al. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION ORACLE USA, INC., et al., v. Plaintiffs, No. 07-CV-01658 PJH (EDL) NOTICE OF MOTION AND MOTION NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE Date: Time: Place: Judge: September 30, 2010 9:00 a.m. Courtroom 3 Hon. Phyllis J. Hamilton
Case No. 07-CV-01658 PJH (EDL)

SAP AG, et al, Defendants.

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

Dockets.Justia.com

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 IV. V. VI. VII. VIII. IX. X. I. II. III.

TABLE OF CONTENTS Page INTRODUCTION AND SUMMARY OF RELIEF REQUESTED ................................. 1 LEGAL STANDARDS...................................................................................................... 3 CLARKE'S AFFIRMATIVE ROYALTY RATE CALCULATIONS SHOULD BE PRECLUDED .............................................................................................................. 5 A. Clarke's Royalty Rate Approach Is Contrary to the Law, Ignores Undisputed Facts and Has No Scientific Basis ...................................................... 5 1. Clark's Royalty Rate Is Based On His Unsubstantiated Speculation and Factual Inventions ............................................................................... 5 2. Using SAP TN's Revenues As A Royalty Cap Is Contrary to the Law and to Undisputed Facts..................................................................... 7 3. Clarke's Royalty Ignores SAP TN Use Beyond Generating Service Revenues .................................................................................................... 9 4. Clarke's Scope of Use Is Premised on His Own Inexpert Infringement Analysis.............................................................................. 11 B. Clarke's "Georgia-Pacific" Analysis Is Not "Rebuttal" and Should Be Barred Under Fed. R. Civ. Proc. 37 ..................................................................... 11 CLARKE IS NOT QUALIFIED TO TESTIFY TO LEGAL OPINIONS ...................... 13 CLARKE'S DATABASE FMV LICENSE BASES ARE PREMISED ON IMPROPER LEGAL OPINIONS AND UNRELIABLE METHODOLOGY ................ 15 CLARKE'S LOST PROFITS AND INFRINGERS' PROFITS CAUSATION METHODOLOGY IS UNSCIENTIFIC AND UNRELIABLE ...................................... 17 CLARKE'S THIRD PARTY MARKET SURVEY IS BEYOND CLARKE'S EXPERTISE, UNRELIABLE AND NOT REBUTTAL................................................. 20 CLARKE'S UNRELIABLE REGRESSION ANALYSES SHOULD BE EXCLUDED .................................................................................................................... 22 CLARKE'S RELIANCE ON LATE PRODUCED CUSTOMER DECLARATIONS ARE BARRED BY RULE 37.......................................................... 24 CONCLUSION ................................................................................................................ 25

i

Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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 CASES

TABLE OF AUTHORITIES Page

Abuan v. Gen. Elec., 3 F.3d 329 (9th Cir. 1993)...................................................................................................... 16 Aguilar v. Int'l Longshoremen's Union Local No. 10, 966 F.2d 443 (9th Cir. 1992).................................................................................................. 14 Bowling v. Hasbro, Inc., 2008 WL 717741 (D.R.I.) .................................................................................................. 7, 17 Burnham v. U.S., 2009 WL 2169191 (D. Ariz.)........................................................................................... 12, 13 Cabrera v. Cordis Corp., 134 F.3d 1418 (9th Cir. 1998)................................................................................................ 10 Carnegie Mellon Univ. v. Hoffman-LaRoche, Inc., 55 F. Supp. 2d 1024 (N.D. Cal. 1999) ............................................................................... 3, 19 Claar v. Burlington Northern R.R., 29 F.3d 499 (9th Cir. 1994)...................................................................................................... 4 Daubert v. Merrell Dow Pharm. Inc., 43 F.3d 1311 (9th Cir. 1995).................................................................................................. 19 Daubert v. Merrell Dow Pharm. Inc., 509 U.S. 579 (1993) ................................................................................................................. 4 DePaepe v. General Motors Corp., 141 F.3d 715 (7th Cir. 1998).................................................................................................. 22 Diviero v. Uniroyal Goodrich Tire Co., 114 F.3d 851 (9th Cir. 1997).................................................................................................... 6 Energy Oils, Inc. v. Montana Power Co., 626 F.2d 731 (9th Cir. 1980).................................................................................................. 16 Freeland v. AT&T Corp., 238 F.R.D. 130 (S.D.N.Y. 2006) ........................................................................................... 24 General Electric Co. v. Joiner, 522 U.S. 136 (1997) ............................................................................................................. 4, 5 Guidroz-Brault v. Mo. Pac. R.R. Co., 254 F.3d 825 (9th Cir. 2001).................................................................................................. 10 ii
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

TABLE OF AUTHORITIES (continued)

Page

Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075 (Fed. Cir.1983)................................................................................................. 8 Hebert v. Lisle Corp., 99 F.3d 1109 (Fed. Cir. 1996)........................................................................................ 8, 9, 16 Heller v. Shaw Indus., 167 F.3d 146 (3d Cir. 1999)..................................................................................................... 5 IBM Corp. v. Fasco Industries, Inc., 1995 WL 115421 (N.D. Cal.)................................................................................................. 12 In re Ready-Mix Concrete Antitrust Litig., 2009 U.S. Dist. LEXIS 82043 (S.D. Ind.) ............................................................................. 12 In re REMEC Inc. Secur. Litig., 2010 WL 1676741 (S.D. Cal.) ............................................................................................... 24 In re W. Asbestos Co., 416 B.R. 670 (N.D. Cal. 2009) .............................................................................................. 16 Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371 (Fed. Cir. 2001)................................................................................................ 8 Kilgore v. Carson Pirie Holdings, Inc., 2006 WL 3253490 (6th Cir.).................................................................................................. 21 Madani v. Equilon Enter. LLC, 2009 WL 2148664 (C.D. Cal.)............................................................................................... 24 Maionchi v. Union Pacific Corp. 2007 WL 2022027 (N.D. Cal.)......................................................................................... 13, 25 Matrix Motor Co. v. Toyota Jidosha Kabushiki Kaisha, 290 F. Supp. 2d 1083 (C.D. Cal. 2003) ................................................................................. 21 McNamara v. Kmart Corp., 2010 WL 1936268 (3d Cir.)................................................................................................... 11 Metabolife Int'l, Inc. v. Wornick, 264 F.3d 832 (9th Cir. 2001).................................................................................................... 6 Monsanto Co. v. McFarling, 488 F.3d 973 (Fed. Cir. 2007)................................................................................................ 16

iii

Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

TABLE OF AUTHORITIES (continued)

Page

Mukhtar v. California State University, 299 F.3d 1053 (9th Cir. 2002), as amended, 319 F.3rd (9th Cir. 2003) .................................................................................... 4 Nationwide Transport Finance v. Cass Information Systems, Inc., 523 F.3d 1051 (9th Cir. 2008).................................................................................................. 8 Nuveen Quality Income Mun. Fund Inc. v. Prudential Equity Group, LLC, 262 Fed. Appx. 822 (9th Cir. 2008) ....................................................................................... 11 On Davis v. The Gap, 246 F.3d 152 (2d Cir. 2001)..................................................................................................... 6 Perry v. Schwarzenegger, 2010 WL 3025614 (N.D. Cal.)............................................................................... 4, 17, 19, 21 Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700 (9th Cir. 2004).................................................................................................. 14 Powell v. Carey Intern., Inc., 2007 WL 1068487 (S.D. Fla.).................................................................................................. 9 Radio Steel & Mfg. Co. v. MTD Products, Inc., 788 F.2d 1554 (Fed. Cir. 1986)................................................................................................ 8 Rambus, Inc. v. Hynix Semiconductor, Inc., 254 F.R.D. 597 (N.D. Cal. 2008) ..................................................................................... 19, 20 Redfoot v. B. F. Ascher & Co., 2007 WL 1593239 (N.D. Cal. (PJH)) .................................................................................... 11 Regents of Univ. of Cal. v. Montsanto Co., 2006 WL 5359055 (N.D.Cal. (PJH)) ..................................................................................... 15 Robinson v. G.D. Searle & Co., 286 F. Supp. 2d 1216 (N.D. Cal. 2003) ................................................................................... 9 Salinas v. Amteck of Kentucky, Inc., 682 F. Supp. 2d 1022 (N.D. Cal. (PJH) 2010) ............................................................... 4, 6, 11 Snellman v. Ricoh Co., Ltd., 862 F.2d 283 (Fed. Cir. 1989).................................................................................................. 8 U.S. v. Eastern Mun. Water Dist., 2008 WL 4755420 (C.D. Cal.)............................................................................................... 14 iv
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

TABLE OF AUTHORITIES (continued)

Page

United States v. Chang, 207 F.3d 1169 (9th Cir. 2000).......................................................................................... 11, 20 United States v. Jawara, 474 F.3d 565 (9th Cir. 2007).................................................................................................... 4 Wall Data, Inc. v. Los Angeles County Sheriff's Dept., 447 F.3d 769 (9th Cir. 2006).................................................................................................. 10 Wong v. Regents of the Univ. of Cal., 410 F.3d 1052 (9th Cir. 2005).......................................................................................... 13, 14 RULES Fed. R. Civ. P. 26 ................................................................................................................... 12, 24 Fed. R. Civ. P. 37 ................................................................................................................... 22, 24 Fed. R. Civ. P. 104 ......................................................................................................................... 4 Fed. R. Evid. 702 ................................................................................................................. 3, 4, 24

v

Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

PLEASE TAKE NOTICE that on September 30, 2010, at 9:00 a.m., in the courtroom of the Honorable Phyllis J. Hamilton, of the above-entitled Court, Plaintiffs Oracle USA, Inc. (predecessor to Oracle America, Inc.), Oracle International Corporation, Oracle EMEA Limited, and Siebel Systems, Inc. (collectively, "Oracle") shall and hereby do move for an order excluding opinions and testimony of Stephen A. Clarke ("Clarke") designated by Defendants SAP AG, SAP America, Inc., and TomorrowNow, Inc. ("SAP TN") (collectively "Defendants") as an expert witness in this matter, on the grounds that Clarke's proposed expert opinion testimony is inadmissible on the basis of the authorities and evidence set forth herein and in the accompanying Declarations of Holly House and Dr. Daniel Levy. I. INTRODUCTION AND SUMMARY OF RELIEF REQUESTED On November 16, 2009, Oracle's damages expert, Paul Meyer, provided his report showing his methodologies, calculations and support for Oracle's alternate available copyright damages approaches and amounts as well as Oracle's other damages claims under state law. Declaration of Holly A. House ("House Decl.") ¶ 3.1 On March 26, 2010, Defendants' damages expert, Stephen Clarke, provided his first purported "rebuttal" report to Meyer's report. Id. ¶ 4. Clarke had submitted no affirmative expert report by the deadline for doing so. Clarke later revised or supplemented his "rebuttal" report on May 7, June 4, and August 4, 2010. Id. Oracle examined Clarke regarding the May 7, 2010 version of his report on June 8-10, 2010. Id. ¶ 6 and Ex. A (Clarke Report). Clarke's report and deposition reveal that Clarke intends to offer a number of opinions which are not permissible under the rules governing appropriate expert testimony. Clarke's Unreliable, Unfounded and Untimely Affirmative Royalty Rate Calculation. In addition to critiquing Meyer's analyses, Clarke prepared an affirmative damages royalty rate calculation. Clarke should be barred from presenting testimony regarding this calculation for several independent reasons. First, Clarke's affirmative royalty rate calculation must be rejected Because discovery was ongoing and to incorporate errata, Meyer provided supplemental reports on December 4, 2009 and February 23, 2010. Id. After receiving Stephen Clarke's expert report, Meyer provided certain supplemented schedules to his report on May 9, 2010. Id. 1
Case No. 07-CV-01658 PJH (EDL) 1

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

as an unreliable, unscientific result-driven approach. Among other things, Clarke simply invents the royalty rate (50%) used in his affirmative calculations and restricts his hypothetical license's funding to SAP TN's revenues, thereby ignoring the undisputed fact that SAP actually acquired and then funded SAP TN as a loss leader, not to generate support revenues. Second, Clarke's approach is contrary to the law in numerous ways, including that it (1) does not consider the parties' actual contemporaneous projections and stated goals at the time of the hypothetical negotiation, but instead is based on ­ and incorrectly uses as a ceiling to damages ­ SAP TN's subsequent revenues, and (2) values only a subset of Defendants' infringement. Third, his reports were not filed by the required deadline for affirmative expert reports. Because Clarke's affirmative opinions are not based on sufficient facts or data, not the product of reliable principles and methods, not based on accurate legal assumptions, and not timely disclosed, they should be excluded. Clarke's Impermissible Legal Opinions. Clarke improperly ­ and without any expert qualification ­ interprets copyright cases and court orders in this case, and argues that the expert opinion of Meyer does not comply with his version of the law. Clarke's inexpert (and inaccurate) legal musings should not be allowed to be presented to the jury. Clarke's Unreliable Database FMV. Clarke's analysis of the fair market value (FMV) of Defendants' infringement of Oracle's database software relies on his improper legal interpretation of Oracle's standard database end user license (and of his own Microsoft Excel software license, which has no relevance to this case) to conclude that SAP TN's use of Oracle's database software to support its customers was no different than the use permitted for any ordinary end user. Because they are based on inexpert and impermissible legal opinion, Clarke's database FMV calculations are unreliable and should not be permitted to go to the jury. Clarke's Unprecedented Lost and Infringers' Profits Customer Exclusion Formulae. In calculating lost profits and infringers' profits, Clarke excludes customers from Oracle's damages for lack of causation based on criteria and a formula he invented for this case. SAP's purported industry expert, Brian Sommer, flatly disagrees with two of Clarke's exclusion criteria. Clarke's unreliable approach merits exclusion. 2
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

Clarke's Third Party Providers "Market Study." Though Clarke, an accountant, is admittedly not an enterprise software or support expert, he proffers what he calls a "market study" of purported alternative third party vendors that SAP TN's customers could have gone to instead of SAP TN in the 2004-2008 time period. This study reflects nothing more than Clarke's reading of marketing materials on the internet in 2010. Such uninformed regurgitation is not expert opinion. Clarke's lack of industry experience and expertise undermines his ability to testify to the availability and competitiveness of different support offerings. The jury can and should make those determinations based on assessment of the facts, not inexpert interpretations of websites. Clarke's Flawed Regression Analyses. Perhaps because he has no expertise and little experience in regression analysis, Clarke offers deeply flawed regression analyses to derive profit margins that are significantly understated as a result of his errors. In contrast, Oracle's expert, Dr. Daniel Levy, does have that expertise, and his accompanying declaration shows why Clarke's unreliable regression analyses cannot be presented to the jury. Clarke's Reliance on Late-Produced Customer Declarations. Finally, Clarke relied on customer declarations that SAP's counsel secured months after the discovery cut-off and even after Clarke's March 26, 2010 rebuttal expert report due date. Oracle has been prejudiced by not being able to follow up, and accordingly requests that Clarke not be allowed to rely on them. II. LEGAL STANDARDS Federal Rule of Evidence 702 requires exclusion of expert testimony unless (1) the testimony is based upon sufficient facts or data, (2) the testimony is the product of reliable principles and methods, and (3) the witness has applied the principles and method reliably to the facts of the case. Fed. R. Evid. 702. As the Court made clear in Carnegie Mellon Univ. v. Hoffman-LaRoche, Inc., 55 F. Supp. 2d 1024, 1035 (N.D. Cal. 1999): The Ninth Circuit has repeatedly stated that where evidence of pre-litigation research or peer review is not available, the experts must (1) "explain precisely how they went about reaching their conclusions" and (2) "point to some objective source ­ a learned treatise, the policy statement of a professional association, a published article in a reputable scientific journal or the like ­ to show that they have followed the scientific method as practiced by (at least) a recognized minority of the scientists in their field. [quoting Daubert v. Merrell Dow Pharm. Inc., 43 F.3d 1311, 1319 (9th Cir. 1995) 3 Case No. 07-CV-01658 PJH (EDL)
NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

("Daubert II")]. The party proffering an expert opinion must demonstrate it meets the Rule 702 admissibility standards by a "preponderance of proof." Daubert v. Merrell Dow Pharm. Inc., 509 U.S. 579, 593 (1993); see also Salinas v. Amteck of Kentucky, Inc., 682 F. Supp. 2d 1022, 1029 (N.D. Cal. (PJH) 2010); Perry v. Schwarzenegger, 2010 WL 3025614, at *21 (N.D. Cal.) ("The party proffering the evidence `must explain the expert's methodology and demonstrate in some objectively verifiable way that the expert has both chosen a reliable . . .method and followed it faithfully.'") (quoting Daubert II, 43 F3d at 1319 n.11). Absent an explicit finding by the court that a challenged opinion is admissible, the opinion may not properly be offered at trial. Fed. R. Civ. P. 104(a) ("Preliminary questions concerning the qualifications of a person to be a witness. . .shall be determined by the court."); United States v. Jawara, 474 F.3d 565, 583 (9th Cir. 2007) ("failure to make explicit reliability finding was an error"); Mukhtar v. California State University, 299 F.3d 1053, 1066-68 (9th Cir. 2002) (district court prejudicially erred by admitting expert testimony without explicit reliability determination), as amended, 319 F.3rd 1073 (9th Cir. 2003); Claar v. Burlington Northern R.R., 29 F.3d 499, 501 (9th Cir. 1994) (courts are both "authorized and obligated to scrutinize carefully the reasoning and methodology underlying" expert testimony). As the Supreme Court has made clear, "the trial judge must ensure that any and all [expert] testimony . . .is not only relevant but reliable." Daubert, 509 U.S. 579, 589. This role "entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is . . .valid and of whether that reasoning or methodology properly can be applied to the facts in issue." Id. at 592-93. While the Daubert reliability analysis focuses on an expert's methodology, the Supreme Court has also noted that "conclusions and methodology are not entirely different from one another." General Electric Co. v. Joiner, 522 U.S. 136, 146 (1997). Trained experts commonly extrapolate from existing data. But nothing in either Daubert or the Federal Rules of Evidence requires a district court to admit opinion evidence that is connected to existing data only by the ipse dixit of the expert. A court may conclude that there is simply too great an analytical gap between the data and the opinion offered. 4
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

Id.; accord Heller v. Shaw Indus., 167 F.3d 146, 153 (3d Cir. 1999) ("a district court must examine the expert's conclusions in order to determine whether they could reliably follow from the facts known to the expert and the methodology used"). III. CLARKE'S AFFIRMATIVE ROYALTY RATE CALCULATIONS SHOULD BE PRECLUDED The key affirmative opinion Clarke offers is that the FMV hypothetical license for the infringed PeopleSoft, J.D. Edwards and Siebel materials should be calculated as a running royalty of 50% of SAP TN's actual support revenues plus 50% of SAP's profits from SAP license sales to the two customers that remain after Clarke does his causation analysis. House Decl., Ex. A (Clarke Report) at 202-205.2 This opinion is a results-driven exercise, untethered to the applicable "Georgia Pacific" factors that Clarke claims to have applied, and ignores the appropriate legal constructs for the FMV license amount and scope. In addition, Clarke's affirmative opinion was improperly and belatedly disclosed as rebuttal testimony. For these reasons, Clarke should be precluded from testifying about his alternative royalty rate calculations. A. Clarke's Royalty Rate Approach Is Contrary to the Law, Ignores Undisputed Facts and Has No Scientific Basis 1. Clark's Royalty Rate Is Based On His Unsubstantiated Speculation and Factual Inventions

The fundamental premise of Clarke's royalty damage estimate is a 50% royalty rate on SAP TN's subsequent revenues and a separate 50% of SAP's profits on a limited number of application sales. Id. Clarke admits the 50% rates he uses are not based on any "quantitative analysis" or "specific facts" and are not anything he has "ever come across before." In fact, they were plucked out of the air, and based just on his "judgment."3 Based on this methodology, Clarke's license amounts are approximately $32 million for SAP TN's royalty contribution and $2 million for SAP's. Id., Ex. A (Clarke Report) at 203, 205. 3 Id., Ex. B (Clarke Depo.) at 377:6-8 ("50 percent of revenues, I've really never come across that before."); 398:15-400:17 ("Q: What's the basis for the 50/50 split? That's my judgment that it is an appropriate and very high royalty that will be paid on sales that SAP almost certainly would have made anyway."; "Q: Do you have any quantitative analysis that demonstrates 50 percent is the right royalty for SAP? A: There isn't a table that you can go to that would look ­ you could look that up in.". . . "Q: Can you point me to any specific facts that support a 50 percent royalty rather than a 40 or 60 percent royalty? A: I don't think there's a particular fact that I could point to that would say it should be 40 percent or it should be 60 percent."); 378: 6-14, 380:16-22 ("Q: What's the basis for your conclusion that the maximum [price any customer would pay for TN (Footnote Continued on Next Page.) 5 Case No. 07-CV-01658 PJH (EDL)
NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE
2

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

Clarke attempts to justify his 50% SAP TN revenue-based royalty rate by asserting that, in order to pay a royalty, SAP TN would have to raise its price of providing support services. Id., Ex. A (Clarke Report) at 202-203. This change of facts is problematic in itself, because, as Clarke concedes, the law requires him "to assume in the `but for' world that TomorrowNow and SAP would continue to operate exactly as they did, except that they would have to pay a license fee to Oracle." Id., Ex. B (Clarke Depo.) at 364:1-6; On Davis v. The Gap, 246 F.3d 152, 166 n.5 (2d Cir. 2001). Clarke then postulates, without analysis, that the most SAP TN could raise its price is to increase from 50% of Oracle's price to 75% of Oracle's price, the 25% difference then funding the royalty. Id., Ex. A (Clarke Report) at 202-203; Ex. B (Clarke Depo.) at 367:16-22; 378:11380:7; 385:8-12. Clarke's Report does not even attempt to describe why he chose 50% of SAP's profits, as opposed to any other rate, as the royalty for SAP's additional applications sales. Id., Ex. A (Clarke Report) at 202-203. Such unfounded "junk science," in which a purported expert invents a crucially important number and then adjusts the facts to support it, has no place before a jury. Salinas, 682 F.Supp.2d at 1029 ("the court must determine whether an expert's testimony reflects `scientific knowledge,' whether the findings are `derived by the scientific method,' and whether the work product is `good science'- that is, whether the testimony is reliable and trustworthy") (citing Daubert, 509 U.S. at 590 & n.9). "Scientific evidence is reliable if it is based on an assertion that is grounded in methods of science - the focus is on principles and methodology, not on conclusions." Id. at 1030 (citing Metabolife Int'l, Inc. v. Wornick, 264 F.3d 832, 841 (9th Cir. 2001)). Mere speculation and subjective beliefs are impermissible foundations of purported expert opinion. See, e.g., Diviero v. Uniroyal Goodrich Tire Co., 114 F.3d 851, 853 (9th Cir. 1997) ("Rule 702 demands that expert testimony relate to scientific, technical, or other (Footnote Continued from Previous Page.) support] is 75 percent [of Oracle's price]? A: To a very large extent, that's my judgment."; "Q: Now, the 75 percent maximum selling price is the [reason] you settled on a 50 percent royalty. Right? A: I think that's the right way around to look at it.") 6
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

specialized knowledge, which does not include unsubstantiated speculation and subjective beliefs"). Courts can and do reject patently flawed hypothetical reasonable royalty opinions such as Clarke's. The court in Bowling v. Hasbro, Inc., 2008 WL 717741, at *4 (D.R.I.) did so on remarkably similar facts, rejecting as unreliable royalty rate opinion where the expert applied "no rigorous analysis" but "engaged in a superficial and results oriented application of the GeorgiaPacific methodology" without "apply[ing] available information and data in order to approximate the outcome of [the hypothetical] negotiation." As with Clarke's unsupported selection of a 50% royalty rate, the precluded analysis in Bowling "begins and ends with [the expert's] reliance on and reference to his own expertise." Id. As with Clarke, the precluded expert could not cite anything to support a key assertion on the scope of the license and, as with Clarke, in the face of a "major discrepancy between the facts and statements in his report" he "backpedaled" "without substantiation." Id. at *5. Critically, as with Clarke's application of his random 50% rate on only SAP TN's minimal revenues, the FMV was just "a simple mathematical conclusion" which was "patently result oriented" toward his client. Id. at *6. That, as here, the expert "superficially analyzed" the Georgia-Pacific factors in his report was irrelevant: "[M]ere reference to the Georgia-Pacific factors cannot change the sow's ear of rank speculation into a silk purse of reliable expert opinion." Id. at *7. 2. Using SAP TN's Revenues As A Royalty Cap Is Contrary to the Law and to Undisputed Facts

As the Court has confirmed, "[t]he Ninth Circuit endorses a `fair market value' retroactive license fee as one measure of actual damages," and .Oracle is "permitted to present evidence regarding the fair market value of the copyrights that SAP allegedly infringed, including expert testimony based on established valuation methodology." Dkt. 628 (Order Denying Def. Hypo License MSJ) at 3:15-16; 5:5-7. Those damages are "`what a willing buyer would have been reasonably required to pay a willing seller for the plaintiff's work.'" Id. at 3:18-19 (quoting Jarvis v. K2, Inc., 486 F.3d 526, 533 (9th Cir. 2007)). Clarke's approach doesn't measure the actual FMV of the copyrighted materials in suit to the parties at the time of the negotiation; 7
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

indeed he ignores information that was available at the actual time of the hypothetical negotiation and substitutes in its place hindsight about SAP's TN's subsequent revenues.4 This tactic puts an artificial, unwarranted ceiling on the FMV, guaranteeing that no matter the FMV to the parties at the time of the negotiation, the fee due Oracle could never be greater than half of the revenues SAP TN earned. Clarke's analysis is contrary to "the rule that recognizes sales expectations at the time when infringement begins as a basis for a royalty base as opposed to after-the-fact counting of actual sales." Interactive Pictures Corp. v. Infinite Pictures, Inc., 274 F.3d 1371, 1384-85 (Fed. Cir. 2001).5 Because Clarke's approach is inconsistent with the law, it is inherently not helpful to the trier of fact and therefore irrelevant and inadmissible. See, e.g., Nationwide Transport Finance v. Cass Information Systems, Inc., 523 F.3d 1051, 1055-64 (9th Cir. 2008) (affirming preclusion of expert testimony that was based on "erroneous or inapplicable legal theories" in part because it "may confuse or mislead the jury"); Hebert v. Lisle Corp., 99 F.3d 1109, 1117 (Fed. Cir. 1996) ("We encourage exercise of the trial court's gatekeeper authority when parties proffer, through purported experts, not only unproven science, see Daubert, but markedly

See, e.g., House Decl., Ex. A (Clarke Report) (In pages 90-205 of Clarke's report, he makes no mention of Oracle's valuation of the PeopleSoft customer base SAP and SAP TN were attacking in doing his FMV analysis, does not rely on SAP's many projections for SAP TN and Safe Passage); at 49 ("It is inappropriate for an economic damages expert to rely on a presentation with no verifiable support for the broad estimates . . . ."); at 54 ("It is inappropriate for Mr. Meyer to . . .base his speculation on the number of sales SAP hoped to make . . . ."); at 80 ("SAP's aspirations regarding new customers are not a useful metric for calculating damages"); id., Ex. B (Clarke Depo.) at 185:4-18 (Clarke didn't rely on either SAP's or Oracle contemporaneous projections for his FMV analysis). 5 See also, e.g., Model Patent Jury Instructions for the Northern District of California, Instruction 5.7 ("In considering the nature of this negotiation, the focus is on what the expectations of the patent holder and infringer would have been had they entered into an agreement at that time and acted reasonably in their negotiations."); Hanson v. Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1081 (Fed. Cir.1983) ("The issue of the infringer's profit is to be determined not on the basis of a hindsight evaluation of what actually happened, but on the basis of what the parties to the hypothetical license negotiations would have considered at the time of the negotiations."); Snellman v. Ricoh Co., Ltd., 862 F.2d 283, 289-90 (Fed. Cir. 1989) (upholding recovery amount based on an infringer's expected sales even though it far surpassed the infringer's actual sales); Radio Steel & Mfg. Co. v. MTD Products, Inc., 788 F.2d 1554, 1557 (Fed. Cir. 1986) ("The determination of a reasonably royalty, however, is based not on the infringer's profit, but on the royalty to which a willing licensor and a willing licensee would have agreed at the time the infringement began."). 8
Case No. 07-CV-01658 PJH (EDL)

4

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

incorrect law. Incorrect statements of law are no more admissible through `experts' than are falsifiable scientific theories."). Using SAP TN's revenues as an automatic ceiling rather than looking to SAP's assets to fund the FMV license also ignores the undisputed evidence that SAP treated SAP TN as a loss leader and otherwise funded SAP TN.6 Clarke has no basis to assert that the royalty would be limited to 50% of SAP TN's support revenues, given that SAP did not intend to use, and did not use, SAP TN to generate such support revenues and anticipated and got more than just financial benefit from Defendants' ongoing infringement. Clarke's SAP TN-based royalty cap also contradicts his own position that SAP would fund even his limited FMV license fee. Id., Ex. A (Clarke Report) at 91; Ex. B (Clarke Depo.) at 390:16-392:2. This too makes Clarke's royalty rate opinions inadmissible. See, e.g., Robinson v. G.D. Searle & Co., 286 F. Supp. 2d 1216, 1221 (N.D. Cal. 2003) (expert's testimony inadmissible when based on factual premise directly contradicted by evidence on the record). 3. Clarke's Royalty Ignores SAP TN Use Beyond Generating Service Revenues

Clarke's royalty result is premised on a scope of use contrary to what the law says must be valued, and should be excluded for that faulty premise. See, e.g., Powell v. Carey Intern., Inc., 2007 WL 1068487, at *3 (S.D. Fla.). Specifically, Clarke's royalty amount does not value all of Defendants' infringement7 and further restricts the scope to only SAP TN's use of infringed House Decl., Ex. K (Ziemen Depo.) at 154:23-155:17 re Ex. N (Depo Ex. 454) (SAP board decided to offer SAP TN support for free even though meant projected losses in 2007 of 5 million euros and no SAP TN profitability for 2007); at 305:7-23 re Ex. M (Depo Ex. 450) ("though [SAP TN] was operating at a loss" in update presentations to SAP board, SAP concluded SAP TN was "a strategic investment that served as a strategic weapon against Oracle"; "Its value was not only related to [] becom[ing] a profitable revenue -- a revenue unit."); Ex. F (Hurst 30(b)(6) Depo.) at 211:11-21 (SAP America reimbursed SAP TN for zero dollar deals); Ex. D (Brandt Depo.) at 533:19-534:18 (SAP America initially funded SAP TN $25 million after SAP TN closed); Ex. G (A. Nelson Depo.) at 138:8-139:11 (describing oversight and funding of SAP TN by SAP); Ex. B (Clarke Depo.) at 385:21-386:13; 388:22-389:13; 392:10-393:1 (SAP TN zero dollar deals were SAP loss leaders; because SAP "absorbed [SAP TN] losses [Clarke]. . .presume[s]they had business reasons for doing what they did"; up-sales potential motivated SAP to offer SAP TN support at no cost). 7 House Decl., Ex. A (Clarke Report) at 116 ("the only [infringing] activities TomorrowNow would need a license for would be the difference between the authorized and unauthorized uses of the Subject IP (`Delta')" and defining that limited "delta" as (1) keeping copies of customer environments on SAP TN computers; (2) using fixes developed in one customer's environment (Footnote Continued on Next Page.) 9 Case No. 07-CV-01658 PJH (EDL)
NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE
6

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

materials to support SAP TN's actual customers.8 As a result, he fails to value all of SAP TN's infringement, which includes infringement that did not result in actual customer revenue (e.g., SAP TN's infringing internal use of software and support materials to create a master library and perform training and SAP's and SAP TN's reliance on the same to market SAP TN's ability to provide comprehensive support across Oracle's acquired product families) as he must under the law. During his deposition, Clarke attempted to reverse course and expand the limited use description in his report used to create his royalty, but he never amended his report's approximately $34 million royalty calculation to account for that scope expansion. House Decl., Ex. B (Clarke Depo.) at 140:12-143:4; at 174:2-176:17. That calculation, based as it clearly is on a fraction of the scope of infringing use, cannot be presented to the jury. "An opinion based on such unsubstantiated and undocumented information is the antithesis of the scientifically reliable expert opinion admissible under Daubert and Rule 702." Cabrera v. Cordis Corp., 134 F.3d 1418, 1423 (9th Cir. 1998); accord, Guidroz-Brault v. Mo. Pac. R.R. Co., 254 F.3d 825, 830-31 (9th Cir. 2001) (affirming exclusion of multiple experts because conclusions based on factually (Footnote Continued from Previous Page.) for other SAP TN customers; (3) downloading from Oracle any material SAP TN needed for a customer prior to that customer terminating support with Oracle). As Clarke explained: "I think in terms of defining the license that we're talking about, it is a very limited license to do really not very much." Id., Ex. B (Clarke Depo.) at 169:11-13. Clarke's assumed scope of infringement "delta" is far less than Oracle alleged and than Defendants conceded at summary judgment and more recently in the press. See Id., Ex. P (Depo. Ex. 3204, listing Meyer's broader scope of infringing use definition); Dkt. 670 (SAP's Opp. to Oracle's MSJ) at 4:28-5:7 (conceding infringement of six Oracle registrations related to hundreds of copies of Oracle's PeopleSoft HRMS and Database Software); Dkt. 748 (SAP 8/5/2010 Press Release) at Ex. A (SAP taking "decisive step" and "would not contest . . . liability . . . for copyright infringement and downloading conduct alleged in Oracle's complaint"); Dkt. 727 (8/5/2010 Defs.' Trial Brief) at 1:27-2:8 (same, but purporting to preserve various defenses). 8 House Decl., Ex. A (Clarke Report) at 2 n.10 ("I define Subject IP as the portion of the Software and Support Materials allegedly infringed and actually used by TomorrowNow") (emphasis added); see also id., Ex. B (Clarke Depo.) at 147:10-17 (the value of SAP TN's use is best measured by the actual revenues generated from customers); 178:8-18 (Clarke's value of use limited to SAP TN's revenues from customers that purportedly did not benefit from the accused conduct). But Clarke is required to value all infringement, and must do so whether SAP TN used the infringed material with a customer. See, e.g., Wall Data, Inc. v. Los Angeles County Sheriff's Dept., 447 F.3d 769, 775 n.3, 786-87 (9th Cir. 2006) (upholding damages award based on 3,962 infringing software copies where the evidence showed that some of these copies of the "software would remain installed, but unused" in the defendant's workstations). 10
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

unsupported assumptions); Nuveen Quality Income Mun. Fund Inc. v. Prudential Equity Group, LLC, 262 Fed. Appx. 822, 824-25 (9th Cir. 2008) ("An expert opinion is properly excluded where it relies on an assumption that is unsupported by the evidence in the record and is not sufficiently founded upon the facts"). 4. Clarke's Scope of Use Is Premised on His Own Inexpert Infringement Analysis

Clarke's valuation of the infringement also is premised on his own analysis of the scope of infringement,9 which he admittedly has no expertise to do.10 For that independent reason his royalty analysis must be excluded. See, e.g., United States v. Chang, 207 F.3d 1169, 1172-73 (9th Cir. 2000) (expert "qualified" in one topic excluded from testifying on topic where did not have expertise); Salinas, 682 F.Supp.2d at 1030 (rejecting opinions on warnings by proffered expert who had no "professional training or expert qualifications to opine on the formulation or design of warning or safety labels," had never "investigated a case with similar facts" and never "testified as a warnings expert"); Redfoot v. B. F. Ascher & Co., 2007 WL 1593239, at *10-11 (N.D. Cal. (PJH)) (rejecting testimony on medical subjects and conclusions of what caused victim's autism for which expert had neither training nor qualifications to opine).11 B. Clarke's "Georgia-Pacific" Analysis Is Not "Rebuttal" and Should Be Barred Under Fed. R. Civ. Proc. 37

Clarke's Georgia-Pacific analysis yielding his estimate of the fair market value of the Id., Ex. B (Clarke Depo.) at 126:16-127:10 ("I did my own analysis of elements of how much of the intellectual property was infringed and for how long, and the manner in which it was used . . . [S]o I have assumed that there is liability, but I've not assumed that everything you say in the complaint is true."; "Q: You did your own analysis of how much IP was infringed and for how long and the manner in which it was used. Yes or no? A: That's correct."); at 130:13-132:4 (describing his infringement analysis and that it yielded the "delta" in his report). Clarke also (improperly) conducted legal interpretation of customer contracts to arrive at this definition. Id. at 158:24-161:10, 162:4-10. 10 Id. at 56:16-57:4, 57:15-20 (Clarke is Certified Public Accountant with training and education in accounting and economics); at 250:10-12, 159:14-15 (admits he is "not a technical expert" and takes "technical input from technical people who are other experts in the case"). 11 Clarke also relies on SAP experts David Garmus and Stephen Gray to support his conclusion that SAP TN did not need a license for all the copyrights in suit and that Meyer's scope of infringing use assumptions were overbroad. House Decl., Ex. A (Clarke Report) at 34-35, 224. Garmus's and Gray's analyses are unreliable and unsupported and are thus the subject of separate exclusion motions by Oracle. If granted, Clarke's reliance on their opinions must also be precluded. See, e.g., McNamara v. Kmart Corp., 2010 WL 1936268, at *4 (3d Cir.). 11
Case No. 07-CV-01658 PJH (EDL) 9

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

infringement at issue should be precluded because it is admittedly "affirmative opinion," not rebuttal.12 The parties agreed, and the Court ordered, that experts submit reports with all affirmative opinions by November 16, 2009, and rebuttal reports by March 26, 2010. Clarke provided the first version of his almost 300 page single-spaced expert report on March 26, 2010. House Decl., ¶ 4. His admittedly affirmative hypothetical royalty rate analysis and amounts are independent of his criticisms of Meyer's damages analyses. Id., Ex. A (Clarke Report) at 90, 205 (affirmative Georgia-Pacific analysis with resulting FMV royalty rate). Accordingly, Clarke's affirmative calculation of a FMV estimate of $34 million (and the basis for it) is contrary to the expert scheduling order and should be excluded. There is no excuse for this delay; indeed, Clarke provided a declaration on July 13, 2009 saying he had been retained since December 2007, had already billed SAP $4.4 million, and to date, his "work has focused on the analysis of Plaintiffs' alleged lost profits, Defendants' unjust enrichment and reasonable royalty." Dkt. 345 at ¶¶ 3, 4, 28 (emphasis added). Fed. R. Civ. P. 26(a)(2)(C)(ii) allows the admission of rebuttal testimony only that is "intended solely to contradict or rebut evidence on the same subject matter identified by another party. . . ." A rebuttal expert "must restrict his testimony to attacking theories offered by the adversaries' experts"). IBM Corp. v. Fasco Industries, Inc., 1995 WL 115421, at *3 (N.D. Cal.) (granting in part motion to exclude "rebuttal" opinions); accord In re Ready-Mix Concrete Antitrust Litig., 2009 U.S. Dist. LEXIS 82043, at *20-21 (S.D. Ind.) (rebuttal report must rebut not offer affirmative opinions); Burnham v. U.S., 2009 WL 2169191, at*5 (D. Ariz.) ("Rebuttal experts shall be limited to responding to opinions stated by initial experts.").

12

House Decl., Ex. B (Clarke Depo.) at 20: 8-19, 22:13-23:7 ( "Q: Well, what was the purpose of the March 26, 2010 report? A: It was to comment upon Mr. Meyer's report, and also to do my own analysis and convey, or report, the elements of that analysis and the results of that analysis.; Q: Now you understood that your March 26, 2010 report was a rebuttal report. . . . And by that, you were responding to Mr. Meyer's; you weren't providing affirmative opinions of your own. Correct?. . . A: I don't think that is correct. . . . Well, while it was a rebuttal report, as a general proposition, and a decent way to describe it, that wasn't the sole purpose, as I indicated in my previous answer. I did do my own analysis of what I thought the damages were in the case and included those, and I -- you're using the term, an affirmative opinion. I think that would count as an affirmative opinion.") 12
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

In Burnham, as here, the precluded rebuttal expert "affirmatively opine[d]" based on long known case evidence on a "key issue" in the case (causation) that he "could have evaluated before the initial disclosure deadline." Id. As here, "[t]he expert deadlines in this case provided [the parties] ample time to produce an [initial] expert report." Id. at *6. The court noted that, as here, the opposing expert had no opportunity to prepare a rebuttal to the expert's affirmative opinions and allowing for that would require extending long-set case deadlines and re-opening expert discovery. The requirement that rebuttal experts be restricted to responsive opinions "prevent[s] parties from hiding the ball ­ from introducing initial experts in the guise of rebuttal experts and thereby frustrating their opponents' opportunity to respond to those experts" ­ as defendants did here. Id. at *5. Citing Wong v. Regents of the Univ. of Cal., 410 F.3d 1052, 1060 (9th Cir. 2005), the court admonished: "'Parties must understand that they will pay a price for failure to comply strictly with scheduling and other orders[.]'" The court completely barred the expert from testifying and that failure meant summary judgment for failure of proof against plaintiff. Id.13 Here the appropriate result is less draconian. Clarke would be allowed to present any otherwise non-objectionable rebuttal opinions to Meyer's damages analysis. But he would not be allowed to present the affirmative royalty rate opinions and analysis that he could and should have made on November 16, 2009, when such affirmative opinions were due. IV. CLARKE IS NOT QUALIFIED TO TESTIFY TO LEGAL OPINIONS In his report and at his deposition Clarke repeatedly offered legal opinions, including the "Copyright Law and Analysis" section of his report summarizing copyright cases, his opinions on this Court's rulings based on his reading of those cases and orders, and opinions on how Meyer's

Maionchi v. Union Pacific Corp. 2007 WL 2022027 (N.D. Cal.) reaches a similar result. The defendant designated as a rebuttal expert, someone whose opinions rebutted no initial witness. Id. at *1. As here, the defendant could not show "it was substantially justified in waiting 30 days after the expert disclosure deadline to disclose an expert who is not a rebuttal expert." Id. As here, the case schedule had been extended twice, and there was insufficient opportunity for the opposing party to rebut the report. Id. Citing the "wide latitude in imposing sanctions under Rule 37(c)(1)," Magistrate Trumball recommended the mis-designated "rebuttal" expert report and testimony be excluded for these reasons. Id. 13
Case No. 07-CV-01658 PJH (EDL)

13

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

approach violates the law as Clarke understands it.14 In addition, despite the Court's MSJ Order allowing Oracle to pursue infringement damages in the form of a FMV license (Dkt 628), and its recent MSJ Order confirming that pursuing lost profits copyright damages "is often impractical because of the difficulty of proving such lost profits with specificity" (Dkt 762 (8/17/2010 Order re Mtns. For Part. SJ at 20:22-24), Clarke nonetheless opines that "Because the profits Oracle may have lost as a result of the Alleged Actions can be determined with a high degree of precision, [] there is no need to estimate a reasonable royalty." Id., Ex. A (Clarke Report) at 22. Likewise, though the Ninth Circuit has held: "Common sense dictates that an expert may confer with the copyright holder and that the background data may be factored into calculations of actual damages," Polar Bear Prods., Inc. v. Timex Corp., 384 F.3d 700, 709 (9th Cir. 2004), Clarke erroneously opines that Meyer was "inappropriate" in doing so. House Decl., Ex. A (Clarke Report) at 40, 45, 86. Perhaps most significantly, in his hypothetical royalty calculation Clarke justifies his exclusive focus on Defendants' after-the fact results on his erroneous interpretation of the law as requiring reliance on actual results over SAP's and Oracle's own contemporaneous projections. See Section III.A.2 above. Clarke should be precluded from providing all such testimony because he is admittedly not a legal expert. House Decl., Ex. B (Clarke Depo.) at 57:5-9 ("I don't have any training as a lawyer."); at 87:23-90:1 ("Q: What expertise do you have, if any, on copyright law?" "A: Well, of course, I'm not a lawyer, so some people would claim I didn't have very much expertise in that"; "I would not hold myself out as an expert on the law of any kind"; "I would not hold myself out as an expert legal researcher, no."). See, e.g., U.S. v. Eastern Mun. Water Dist., 2008 WL 4755420, at*1 (C.D. Cal.) ("testimony that calls for a legal conclusion is inappropriate matter for expert testimony") (citing Aguilar v. Int'l Longshoremen's Union Local No. 10, 966 See, e.g., House Decl., Ex. A (Clarke Report) at Section 15 "Copyright Law and Analysis" at 284-293; Ex. B (Clarke Depo.) at 94:20-95:17; 107:2-8; 108:19-111:6 (based on his own research, Clarke gathered cases he deemed applicable and intends to offer summaries and conclusions at trial about how Meyer purportedly does not comply with law); Ex. A (Clarke Report) at 3 (interprets Court's Rule 37 order and opines how bars parts of Meyer's analysis); Ex. B (Clarke Depo.) at 294:8-25; 295:24-296:16) (same); 297:8-18 (confirming his opinions on Court's Rule 37 Order based on his "reading of them to see what they mean"). 14
Case No. 07-CV-01658 PJH (EDL) 14

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

F.2d 443, 447 (9th Cir. 1992)); Regents of Univ. of Cal. v. Montsanto Co., 2006 WL 5359055, at *1 (N.D.Cal. (PJH)) ("Where an expert proposes to testify, however, to legal issues that may contradict the law to be presented to the trier of fact, such testimony cannot purport to aid the trier of fact"). V. CLARKE'S DATABASE FMV LICENSE BASES ARE PREMISED ON IMPROPER LEGAL OPINIONS AND UNRELIABLE METHODOLOGY In response to Oracle's FMV license for SAP TN's infringing use of Oracle's database software program, Clarke computes two alternative FMV licenses. One of Clarke's methods is to price a single license based on the then current configuration of SAP TN's multi-processor servers, which results in a $1.9 million FMV license fee. House Decl., Ex. A (Clarke Report) at 206-208. Alternatively, Clarke uses a fictitious configuration of TN's servers as if they were one single-processor server to price an alternative $1.9 million FMV license. Id. at 208-209. Both of Clarke's database FMV computations should be excluded. In his Report and during deposition, Clarke initially premised his database FMV license analysis on the erroneous belief that there is a legally operative "established royalty" for SAP TN's infringing use that he could use to compute his FMV license fee. He opined that Oracle's standard database License and Services Agreement ("OLSA") and associated price lists, pursuant to which Oracle licenses Oracle database software to customers to run their internal business operations (like their accounting software), provide an established royalty for Defendants' infringing use.15 However, SAP TN's corporate representative admitted that SAP TN did not use Oracle's database software for any internal business operations. Id., Ex. J (Thomas 30(b)(6) Depo.) at 7:6-16. Thus, Clarke's opinion ignores that SAP TN's use of Oracle's Database software could never comply with an OLSA.

House Decl., Ex. A (Clarke Report) at p. 205-206 ("The Oracle database is readily available at a known price to any customer that wishes to use it"; "the price is known and well established in the marketplace"); Ex. B (Clarke Depo.) at 452:23-453:18 ("Q. The market price that you refer to is the price paid to obtain an end-user full-use Oracle database license for Oracle. Correct? . . . A: I actually used two different prices in doing my analysis, but . . . they were for licenses that were end-user licenses."); 477:13-22 (Clarke made no adjustments, for any purpose, to the Oracle database price to customers). 15
Case No. 07-CV-01658 PJH (EDL)

15

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

Clarke testified that he believed the legal test for an "established royalty" was "sufficient evidence in the marketplace that assets similar to the ones at issue trade at a certain price." Id., Ex. B (Clarke Depo) at 465:12-25. In fact, the legal test for an established royalty requires that the owner "has consistently licensed others to engage in conduct comparable to the defendant's." Monsanto Co. v. McFarling, 488 F.3d 973, 979 (Fed. Cir. 2007)(emphasis added). An expert opinion premised on the wrong legal standard cannot be presented. Abuan v. Gen. Elec., 3 F.3d 329, 332 (9th Cir. 1993); Hebert, 99 F.3d at 1117. When faced at his deposition with his misunderstanding of "established royalty," Clarke back-tracked and claimed he actually based his FMV fee on his reading of the OLSA, which was never referenced either in the text or footnotes of his Report.16 Clarke then testified that he derived comfort in his never-before disclosed legal interpretation of Oracle's OLSA by comparing it to his own Microsoft Excel software license.17 This purported comparison also was not listed as a basis for Clarke's opinion in his Report and Clarke had not previously produced the Excel license.18 Clarke testified that this license comparison and the legal interpretations he made from it were his alone.19 Clarke may not provide legal opinions on license terms. See, e.g., In re W. Asbestos Co., 416 B.R. 670, 704 (N.D. Cal. 2009) (PJH) (expert cannot offer opinion on interpretation of contract terms); Energy Oils, Inc. v. Montana Power Co., 626 F.2d 731, 737 n.11 (9th Cir. 1980) (expert testimony allowed to show custom and usage in industry but not allowed to give opinion on effect of contract terms). Moreover, even if it were not impermissible legal opinion, Clarke's undocumented use of his own Excel license as a legal check of his interpretation of the OLSA (if it happened at all) is hardly the sort of scientific method that supports presenting his FMV fee to House Decl., Ex. B (Clarke Depo.) at 453:19-454:8, 459:18-25; Ex. A (Clarke Report) at 205209. 17 House Decl., Ex. B (Clarke Depo.) at 469:8-473:8. 18 Id., Ex. A (Clarke Report) at 205-209; Ex. B (Clarke Depo.) at 473:14-16. 19 Id., Ex. B (Clarke Depo) at 470:5-12 ("Q. Is your understanding based on anything other than your interpretation of the agreement? A. I've not been given any guidance by anyone else. I read it, I think I understood it. I find it to be parallel to many other agreements that I've read and signed or accepted with a click-through."); 473:14-474:3, 475:4-10 (Clarke's only support for his opinion in his report is his "own words"). 16
Case No. 07-CV-01658 PJH (EDL) 16

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

a jury. See, e.g., Perry, 2010 WL 3025614 at *21 ("The party proffering the evidence `must explain the expert's methodology and demonstrate in some objectively verifiable way that the expert has both chosen a reliable . . .method and followed it faithfully.'") (quoting Daubert II, 43 F.3d at 1319 n.11). And his blatant backpedalling makes his numbers even more unreliable. Compare Bowling, 2008 WL 717741 at *4. Clarke's database FMV opinions should also be rejected because Clarke arrived at them by admittedly revising how SAP TN actually used Oracle's database software (namely, changing how SAP TN installed Oracle database software on its multi-processor servers to pretend SAP TN instead had one single processor server, and then claiming without basis that the installation would allow for Oracle's less expensive Standard Edition license) to minimize damages.20 Again, the law requires Clarke to value SAP TN's actual infringing use. See, e.g., n.8 above. Clarke's manipulation of the facts to drive down damages merits rejection of his opinion as unreliable. Compare Bowling, 2008 WL 717741 at *6. VI. CLARKE'S LOST PROFITS AND INFRINGERS' PROFITS CAUSATION METHODOLOGY IS UNSCIENTIFIC AND UNRELIABLE To reduce Oracle's lost profits and infringers' profits damages for purported lack of causation, Clarke employs an extraordinary causation formula invented by him just for this case. He excludes SAP TN customers from damages calculations on the basis of assigning them certain "customer-specific exclusion criteria" (which result in the automatic exclusion of the customer from damages) and/or "joint exclusion criteria" (whereby customers are excluded from damages if they have a combination of (a) either of two specific attributes, and (b) at least one of another group of exclusion criteria). House Decl., Ex. A (Clarke Report) at 213-217, 221-235; Ex. B (Clarke Depo.) at 661:3-662:2 (confirming automatic exclusion criteria); at 739:20-740:7-16 (confirming "joint exclusion criteria" formula is "A or B plus at least one of Cs"). Clarke can cite no treatise (or anything else) that supports his "exclusion criteria"

20

House Decl., Ex. A (Clarke Report) at 208-209; Ex. B (Clarke Depo) at 478:4-16, 478:25479:3 ("Q: So this method is based on what TomorrowNow could have done rather than what they actually did? A: That's correct."). 17
Case No. 07-CV-01658 PJH (EDL)

NOTICE OF MOT. AND MOT. NO. 1: TO EXCLUDE TESTIMONY OF DEFENDANTS' EXPERT STEPHEN CLARKE

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

methodology; the entire approach is a self-creation based on his judgment.21 Nor has Clarke ever before employed his "joint exclusion criteria" methodology. Id., Ex. B (Clarke Depo.) at 647:310. He did not create or vet the criteria with Defendants' own purported enterprise software and support expert, Brian Sommer. Id. at 657:9-12.22 Sommer's testimony confirms that Clarke's automatic exclusion criteria are improper.23 Clarke's "exclusion criteria" methodology is also rendered unreliable by improper assumptions he draws about the nature of flawed work performed by another SAP expert witness, Stephen Gray. Clarke relies solely on Gray to exclude 51 SAP TN customers from Oracle's lost profits on the basis that there purportedly was "no accused conduct" related to those customers. Id., Ex. A (Clarke Report) at 224; Ex. B (Clarke Depo) at 727:12-21; 729:21­730:4. Despite being confronted by Gray's testimony that, in developing the list of 51 "non accused conduct" customers he did not make a determination that these customers were not supported by SAP TN in an infringing or improper manner,24 Clarke continues to this day to rely on Gray's work to exclude these 51 customers from Oracle's lost profits.25 He should be precluded from doing so. Id., Ex. B (Clarke Depo.) at 663:11-19 (the 11 "Customer-Specific Exclusion Criteria" are not identified in any publication, but were groupings based on Clarke's own analysis); 636:19­637:3, 641:4-22 (Clarke cannot identify any treatise that specifies the use of his "Possible Exclusion Criteria" methodology); 666:3-20 ("Q: Well, there's also judgment in deciding whether it's an automatic exclusion or a potential exclusion. Correct? A: There's no question that at that level, that's a judgment call . . . . So there's a judgment involved in that, and there's a judgment involved in deciding whether they're specific or automatic exclusions versus possible exclusions."); 743:10-744:4 (chose his formula over other possible combinations because he "felt [it] was the real viable combination"). 22 Clarke did rely on Sommer for his exclusion o