Oracle Corporation et al v. SAP AG et al

Filing 865

Declaration of Elaine Wallace in Support of 851 Memorandum in Opposition, Declaration of Elaine Wallace in Support of Defendants' Opposition to Plaintiffs' Motion No. 1 to Exclude Expert Testimony of Stephen K. Clarke [AMENDED] 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, # 26 Exhibit 26, # 27 Exhibit 27, # 28 Exhibit 28, # 29 Exhibit 29, # 30 Exhibit 30, # 31 Exhibit 31, # 32 Exhibit 32, # 33 Exhibit 33, # 34 Exhibit 34, # 35 Exhibit 35, # 36 Exhibit 36)(Related document(s) 851 ) (McDonell, Jason) (Filed on 9/10/2010)

Oracle Corporation et al v. SAP AG et al

Doc. 865 Att. 22

EXHIBIT 22

Dockets.Justia.com

TEXT REMOVED - NOT RELEVANT TO MOTION

V.

Quantification of SAP's "Value of Use" of Oracle's Copyrighted Property ­ Overview and Methodology A. Overview

91. I understand that in matters of copyright infringement, a plaintiff's available damages remedies include the plaintiff's actual damages, as well as the disgorgement of the infringer's profits, to the extent they are not taken into account in the computation of plaintiff's actual damages. In the alternative, the plaintiff may seek statutory damages.258 A plaintiff's actual damages resulting from copyright infringement can be measured in alternate ways: "Actual damages are usually determined by the loss in the fair market value of the copyright, measured by the profits lost due to the infringement or by the value of the use of the copyrighted work to the infringer."259 One articulation of the "value of use" measure of damages is explained as:

TEXT REMOVED - NOT RELEVANT TO MOTION

Nimmer on Copyrights, August 2009, Volume 4, Chapter 14 "Infringement Actions ­ Remedies", at §14.01[A] and 14.01[B] (pgs. 145, 146 and 149).
258

See Polar Bear Prods. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004) (quoting McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557, 566 (7th Cir. 2003)). See also Nimmer on Copyrights, at §14.02 (pgs. 1413 and 1420.1 through 14
259

Page 64 of 281

Subject to Protective Order Highly Confidential Information ­ Attorneys' Eyes Only

"It amounts to a determination of what a willing buyer would have been reasonably required to pay to a willing seller for plaintiff's work. That is a different measure than the determination of defendant's actual profits from the infringement. An author might license the use of his copyright either for a lump sum based on the reasonable value of the work or for a royalty derived from the licensee's profits, or for a combination of both."260 92. I understand that courts, including the Ninth Circuit, have held that the actual damages for the defendant's "value of use" may be determined on the basis of a fair market value license fee paid for use of the plaintiff's work.261 I understand that the Ninth Circuit Model Civil Jury Instruction on actual damages in copyright infringement matters states, "The reduction of the fair market value of the copyrighted work is the amount a willing buyer would have been reasonably required to pay a willing seller at the time of the infringement for the actual use made by the defendant of the plaintiff's work."262 As noted in Nimmer on Copyrights, the similarities between the

31). See also Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir. 2002); Frank Music Corp. v. MetroGoldwynMayer, Inc., 772 F.2d 505, (9th Cir. 1985); and Jarvis v. K2, Inc., 486 F.3d 526, 533 (9th Cir. 2007). The decision of the U.S. Court of Appeals for the Ninth Circuit acknowledges, "This same distinction is recognized in patent cases." Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, (9th Cir. 1977).
260

Polar Bear Prods. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004); Jarvis v. K2, Inc., 486 F.3d 526, 533 (9th Cir. 2007); Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir. 2002); Frank Music Corp. v. MetroGoldwynMayer, 772 F.2d 505, (9th Cir. 1985); and Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, (9th Cir. 1977); January 28, 2010 Order of Judge Hamilton, Order Denying Defendants' Motion for Partial Summary Judgment, pg. 3. Relevant case law may refer to the standard of measurement as the "fair market value" or "market value," which can be terms of art in the context of valuation of particular assets, and with respect to financial reporting. For purposes of my analysis, references to "fair market value" throughout this declaration refer to the amount at which property would exchange between a willing buyer and willing seller, in an arm's length transaction, neither being under compulsion, and each having reasonable knowledge of the relevant facts. This definition is consistent with guidance of the American Institute of Certified Public Accountants (AICPA) and relevant treatises on the valuation of intellectual property. See, e.g., the June 2007AICPA Statement on Standards for Valuation Services No. 1, "Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset", pg. 44; see also Intellectual Property, Valuation, Exploitation, and Infringement Damages, by Gordon V. Smith and Russell L. Parr. 2005 Edition, pg. 143.
261 262

Ninth Circuit Model Civil Jury Instruction 17.23 ­ Copyright ­ Damages ­ Actual Damages.

Page 65 of 281

Subject to Protective Order Highly Confidential Information ­ Attorneys' Eyes Only

"value of use" theory of copyright damages and the reasonable royalty rule in patent law are apparent.263 B. Methodology

93. What a willing buyer would have paid a willing seller for use of the infringed PeopleSoft/J.D. Edwards, Siebel and Oracle Database copyrighted software and software support materials ("copyrighted materials in suit") can be determined based on analyses indicating the fair market value of the copyrighted materials in suit to the parties at the time of first infringement. I have determined what Oracle, as a willing seller, would have accepted from SAP, as a willing buyer. I understand from Judge Hamilton's January 28, 2010 ruling Denying Defendants' Motion for Partial Summary Judgment, "Oracle in the present instance is not required to prove that it would have successfully negotiated a license with SAP, nor is it precluded from seeking license damages simply because it has never before licensed what SAP infringed."263A The copyrighted materials in suit are set forth in Oracle's Fourth Amended Complaint and are also summarized in Oracle's technical expert reports.264 94. SAP's "value of use" is measured as it impacts Oracle's consolidated operations and family of entities, although the successor in interest to the relevant copyright owners or exclusive licensees at the time of the valuation is Oracle International Corporation. In entering into a license with SAP, Oracle International Corporation would act on behalf of its predecessors in interest,

263

Nimmer on Copyrights, at §14.02[B][1] (pgs. 1422).

January 28, 2010 Order of Judge Hamilton, Order Denying Defendants' Motion for Partial Summary Judgment, pg. 4.
263A

See Oracle USA, Inc. et al v. SAP AG et al, Fourth Amended Complaint in Case No. 07CV01658 dated August 18, 2009, pgs. 6 and 5155; November 16, 2009 Expert Report of Paul Pinto, pg. 2; February 12, 2010 Supplemental Expert Report of Kevin Mandia, pgs. 10 and 9899.
264

Page 66 of 281

Subject to Protective Order Highly Confidential Information ­ Attorneys' Eyes Only

affiliates, and ultimate parent and SEC Registrant, Oracle Corporation. I understand this approach is consistent with the Union Carbide Chemicals and Plastics Technology Corporation, et al., v Shell Oil Company et al., matter.265 95. As addressed below, I have determined SAP's "value of use" of the copyrighted materials in suit based on commonly accepted valuation methodologies: the market approach, income approach and cost approach. I have also evaluated relevant financial, economic and other factors, consistent with determination of the fair market value under the framework of the well known patent case, GeorgiaPacific Corp. v. U.S. Plywood Corp. ("Georgia Pacific"), for determining the outcome of a hypothetical license negotiation for the copyrighted materials.
TEXT REMOVED - NOT RELEVANT TO MOTION

Union Carbide Chemicals & Plastics Technology Corp., et al., v. Shell Oil Company, et al., 425 F. 3d 1366. Union Carbide is a patent case where the federal circuit upheld the district court's admission of evidence regarding the impact of infringer's sales on the parent of a holding company that holds the title to the intellectual property. The federal circuit found "Simply put, the holding company would not enter any negotiation without considering the competitive position of its corporate parent."
265

Page 67 of 281

Subject to Protective Order Highly Confidential Information ­ Attorneys' Eyes Only

TEXT REMOVED - NOT RELEVANT TO MOTION

157. I understand that Oracle alleges that TomorrowNow began downloading

PeopleSoft enterprise software applications and support materials starting in early 2002, prior to SAP's acquisition of TomorrowNow.356 Consequently, a hypothetical negotiation would also take place between PeopleSoft and TomorrowNow in the early 2002 timeframe, before the alleged infringement first occurred. The license fee resulting from this hypothetical negotiation would reflect the value that TomorrowNow and PeopleSoft would have willingly agreed upon for TomorrowNow's use of PeopleSoft's copyrighted property between 2002 and January 2005.357 However, I also understand that, as a legal matter, SAP would have had to negotiate with Oracle concerning a hypothetical license allowing TomorrowNow to use the PeopleSoft intellectual property, because SAP purchased TomorrowNow and nonexclusive copyright licenses are personal and nonassignable without the consent of the licensor (in this case, Oracle PeopleSoft's successor in interest).358 Therefore, a separate hypothetical negotiation would have occurred between Oracle and SAP at or around the time SAP acquired TomorrowNow in January 2005.

TEXT REMOVED - NOT RELEVANT TO MOTION

356 Oracle USA, Inc. et al v SAP AG et al, Fourth Amended Complaint in Case No. 07CV01658 dated August 18, 2009, pg. 7.

For purposes of this report, I have not determined the amount that PeopleSoft and TomorrowNow would have negotiated for a license for TomorrowNow's use of PeopleSoft's intellectual property since the license would not have covered the same scope of use and would not be transferrable to an acquiring entity.
357

See, e.g., Everex Sys., Inc. v. Cadtrak Corp. (In re CFLC Inc.), 89 F. 3d 673 (9th Cir. 1996); SQL Solutions, Inc. v. Oracle Corp., 1991 U.S. Dist. LEXIS 21097 (N.D. Cal. 1991).
358

Page 104 of 281

Subject to Protective Order Highly Confidential Information ­ Attorneys' Eyes Only

158.

I have considered the opinions and relevant information of Oracle Senior

Executives as to what Oracle would be willing to consider for a license fee paid by SAP to license the copyrighted materials in suit and understand, as a matter of law, that this is appropriate.359 I also understand that although these parties are direct competitors, and even though Oracle has not before licensed the infringed material to a competitor, a fair market value for a license is an available damage remedy. This remedy is based on establishing the appropriate consideration given up and received by both sides under the relevant factors.360
TEXT REMOVED - NOT RELEVANT TO MOTION

See Polar Bear Prods., Inc. v. Timex Corp. 384F.3d 700 (9th Cir. 2004). I understand that some of the relevant factors that would be considered by Oracle executives are stated in the declarations of Larry Ellison and Safra Catz in support of Oracle's Opposition to Defendants' Motion for Partial Summary Judgment [Declaration of Larry Ellison in Support of Oracle's Opposition to Defendants' Motion for Partial Summary Judgment Regarding Plaintiffs' Hypothetical License Damages Claim, September 22, 2009; Declaration of Safra Catz in Support of Oracle's Opposition to Defendants' Motion for Partial Summary Judgment Regarding Plaintiffs' Hypothetical License Damages Claim, September 22, 2009].
359 360 That Oracle and SAP could have reached an agreement on the fair market value for the license to the PeopleSoft/J.D. Edwards copyrighted materials at issue is supported by the fact that, although Oracle is aware that SAP promotes other database vendors such as Microsoft and IBM, and sells its own database product, Oracle and SAP have had a longstanding license for SAP to resell Oracle's database products. See Reseller Sublicense Addendum between SAP and Oracle Corporation dated November 30, 1999, ORCL00669957964; Reseller Agreement Between Oracle Deutschland GmbH and SAP AG dated August 1, 1994, ORCL0067007687; Declaration of Larry Ellison in Support of Oracle's Opposition to Defendants' Motion for Partial Summary Judgment Regarding Plaintiffs' Hypothetical License Damages Claim, September 22, 2009, pg. 3.

TEXT REMOVED - NOT RELEVANT TO MOTION

Page 105 of 281

Subject to Protective Order Highly Confidential Information ­ Attorneys' Eyes Only

EXT REMOVED - NOT RELEVANT TO MOTION

66.

First, the timing of the license would be critical to both parties: Oracle

w had just agreed to pay multiple billions of dollars to acquire PeopleSoft; SAP anted to take advantage of the fear, uncertainty and doubt of PeopleSoft customers at that time, and knew that it had to strike quickly, which the 1 TomorrowNow acquisition allowed them to do. 67i . Second, Oracle would consider and extract a price for the financial

d pact on Oracle of licensing to a competitor that has abundant resources to m irectly compete with Oracle in providing a level of PeopleSoft and J.D. Edwards serviceTthat has little, to no other, competition.

TEXT REMOVED - NOT RELEVANT TO MOTION

TEXT REMOVED - NOT RELEVANT TO MOTION

P

S

age 111 of 281

H bject to Protective Order u ighly 1 Confidential Information ­ Attorneys' Eyes Only

EXT REMOVED - NOT RELEVANT TO MOTION

52a .

SAP is Oracle's most significant competitor in enterprise applications

nd, under the contemplated database license, would be using Oracle's database software to compete for Oracle's application support business at critical junctures in the two companies' histories (at the time of Oracle's T acquisition of PeopleSoft and Siebel, and at the time of SAP's acquisition of domorrowNow and launch of support service for Oracle applications, as is escribed elsewhere in my report). However, the effects of Defendants'

actions on Oracle's PeopleSoft, J.D. Edwards, and Siebel customer bases have lready been taken into account in my quantification of the value of use of c licenses for those applications. Thus, I have limited SAP's value of use of the t opyrighted database materials in suit to the measure of the lost license fees hat SAP would have had to pay Oracle had it purchased a license (similar to a p separate OLSA) for each relevant customer for which TomorrowNow rovided application maintenance services using an Oracle database.
T
TEXT REMOVED - NOT RELEVANT TO MOTION
P

For

S

age 164 of 281

H bject to Protective Order u ighly 2 Confidential Information ­ Attorneys' Eyes Only

m rposes of determining SAP's value of use of the copyrighted database u aterials in suit, I have applied Oracle's pricing for its standard OLSA licensing terms assuming a particular configuration of TomorrowNow hardware. I have not included any fees for options or upgrades that may have been needed by TomorrowNow for each customer in order to emulate its customers' environments. These additional fees could be considerable. For example, some options have additional license fees of 25% 50% of the

U enterprise edition license fees. I understand that for an Oracle Standard (Full E se) license, Oracle would price the database license using its Enterprise dition, utilizing the count of processors (or cores on each processor, for r multi core processors) on the servers with Oracle database installed or unning.526 specifications: x E Oracle's list price per processor for the basic Enterprise 2 dition license and support was consistent between 2004 and 008 at $40,000/processor for the license and $8,800/processor per year for support.527 Therefore, I have used $40,000 per c ustomer per processor as the one time perpetual license fee y and $8,800 per processor per customer as the support fee per 5 ear. In pricing this license, I have considered the following

Discussion with Richard Allison. Oracle Software Investment Guide, TN OR 01765697 752, at 709 and 714. For c urposes of this analysis, a "processor" refers to either the CPU itself for single core chips or each core, for multi p ore processors.
52 B7 Oracle December 2004 E Business Global Price List, ORCL00704411 433, at 412; Oracle September 2006 E Lusiness Global Price List, ORCL00704381 410, at 382; US$ Pricing Oracle Database filename: ePL071708 JDE ocalisable Price lists.xls, ORCL00213686. Oracle's price lists also show options including Enterprise Edition Options such as Real Application Clusters, Partitioning and OLAP. Enterprise Edition Options are priced in a oddition to the license fees and the listed options range from an additional $10,000 to $20,000 per processor per ption. See Oracle December 2004 E Business Global Price List, ORCL00704411 433, at 412.

26

P

S

age 165 of 281

H bject to Protective Order u ighly Confidential Information ­ Attorneys' Eyes Only p

o TomorrowNow installed and ran Oracle database software s n numerous servers that had 2 to 4 processors which were single to quad core, or effectively 2 to 16 processors per cerver when considering Oracle's pricing practices, which o w nsiders each core for a multi core processor.528 The server r ith the majority of TomorrowNow local environments aunning on Oracle database was purchased in January 2005 end was a 4 processor Unix server with dual cores, or ffectively 8 processors, based upon which Oracle would f price a license for 6 processors (Oracle applies a .75 processor tactor to Unix processors, so 8 * .75 = 6 processors priced in x he license).529 w Per discussion with Richard Allison, I understand that Oracle ould have priced the license based on the largest server configuration. Therefore, I have assumed that Oracle would
5
2 F 8 Defendant TomorrowNow, Inc.'s Eighth Amended And Supplemental Response to Plaintiff Oracle Corporation's irst Set of Interrogatories (Set One), December 4, 2009, Interrogatory No. 11 pgs. 42 55. (Identifying TomorrowNow servers with Oracle database related files). Defendant's First Supplemental Responses And Objections To Plaintiffs' Fifth Set of Interrogatories To Defendant TomorrowNow, inc. and Fourth Set of I nterrogatories to Defendants SAP AG and SAP America, Inc., December 4, 2009, pgs. 7 32. (Identifying a omorrowNow servers with Oracle database related files and confirming that customer local environments T ccessed Oracle database files). Email from Joshua Fuchs (Jones Day) to Nitin Jindal (Bingham McCutchen), February 19, 2010 identifying the number of processors, number of cores and the date of purchase for each server i L entified in interrogatories as having an Oracle database installation. See also, October 28, 2005 email from George d t ester to Jennifer Mrak (SAP), TN OR01020812 818 at 812 (G. Nelson Exhibit 1831), indicating that, "I have been rying to procure a license for Oracle Standard Edition on two of our internal servers, which each have 4 CPU's."; a mail from Alex La Mar (TomorrowNow) to Greg Nelson (TomorrowNow) on March 20, 2006, TN OR01040829 34 E t 829 (G. Nelson Exhibit 1832), indicating "we need to obtain Oracle Standard Edition for a 4 CPU machine running AIX and a 4 CPU machine running Windows." 5 29Email from Joshua Fuchs (Jones Day) to Nitin Jindal (Bingham McCutchen, February 19, 2010 identifying the number of processors, number of cores and the date of purchase for each server identified in interrogatories as having an Oracle database installation. TomorrowNow PeopleSoft Growth Projections, TN OR02171843 848, at 844, identifying Quad Processor Unix Database Server as the location for the majority of PeopleSoft environments r 0unning on Oracle Database software); Discussion with Richard Allison; Oracle Software Investment Guide, TN OR 1765697 752, at 709 and 714 (identifying the Unix processor factor as .75).

P

S

age 166 of 281

H bject to Protective Order u ighly Confidential Information ­ Attorneys' Eyes Only x

eequire SAP to purchase no less than a license that covered ach customer accessing Oracle database priced at 6 processers per license. A 6 processor Enterprise Edition

Oracle database license would be priced at 6 processors times the license fee of $40,000 per customer, or $240,000 per customer, and an annual support fee of $8,800 times 6 5 processors, or $52,800 per year per customer.530

EXT REMOVED - NOT RELEVANT TO MOTION

r30 Oracle Software Investment Guide, TN OR 01765697 752, at 713 714. I am not aware of any technological reason d lated to Oracle's database or applications to explain why TomorrowNow built environments on servers with e ifferent processor configurations.T

TEXT REMOVED - NOT RELEVANT TO MOTION

P

S

age 167 of 281

H bject to Protective Order u ighly Confidential Informrtion ­ Attorneys' Eyes Only a