Oracle Corporation et al v. SAP AG et al

Filing 884

Declaration in Support of 883 Reply re Motion No. 3 to Exclude Testimony of Defendant's Expert David Garmus filed by Oracle International Corporation, Oracle USA Inc., Siebel Systems, Inc.. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C)(Related document(s) 883 ) (Alinder, Zachary) (Filed on 9/16/2010) Modified on 9/17/2010 (vlk, COURT STAFF).

Oracle Corporation et al v. SAP AG et al

Doc. 884 Att. 2

EXHIBIT B
Dockets.Justia.com

Expert Report o f Stephen K. Clarke. May 7, 2010 Oracle USA, loc., et aI v. SAP AG, et al

Meyer's statement, all SAP gains by infringing the Subject IP is the ability to provide " a level o f support services" comparable to that provided by TomorrowNow, yet he refers the reader to "level o f service" as provided by Oracle in footnote 276 to paragraph 105. Therefore, it is not clear what Mr. Meyer is assuming as regards actual use allegedly made o f the Subject IP and the difference between the two makes a major difference on the analysis. In addition, the evidence in this case is overwhelming that Oracle believed the services provided by TomorrowNow were in many ways inferior to those provided by Oracle. Yet Mr. Meyer ignores his client's statements and claims to be basing his analysis on the assumption that the support services provided by TomorrowNow were equivalent to those provided by Oracle. He cannot have it both ways. Either the support services provided by the two companies were equivalent or they were not. Mr. Meyer also ignores other evidence that indicates TomorrowNow did not provide the same level o f service as Oracle. Industry media coverage, which has the potential to affect customer perceptions o f the capabilities o f third party support vendors, reported the differences between Oracle and TomorrowNow support. For example, a Forbes article reported that: TomorrowNow readily acknowledges, that it's not offering the same level o f services... "Tomorrow ow offers no implementation services or training. They d o n ' t have a full·service services organization to duplicate Oracle's. They're doing [maintenance] for h a l f the cost . . . a much more minimal level o f support, but an acceptable level o f support for some customers.,,14S Another industry article describes third party support: Third-party support for enterprise software is entirely legal. It is, for the most part, very similar to buying a new BMW from an authorized BMW dealership, but taking it to an independent auto repair shop for servicing. l46 Oracle, however, has an obvious problem with the way in which TomorrowNow and Rimini Street have gone about offering their services and their individual "business models." . . . the world o f maintenance and support is unglamorous as it gets inside t e d a y ' s business . . . . For the software vendors, however, the fees are a lucrative cash cow that keep on giving all year long. As I discuss in more detail later in my report, third party support was reported by industry analysts to be a viable option for certain customers, especiaUy those on old, stable, customized releases that are not interested in receiving upgrades.
M r . Meyer implicitly assumes that to provide support services to the TomorrowNow customers, Tomorrow ow would need a license to all o f the "cofyrighted materials in suit." However, based on information provided by Mr. David Gannus,14 it was not necessary for TomorrowNow

'"

'"

'"

DiCarlo, Lisa. "Computer Hardware & Software: Hining Oracle Where it Hurts," September 1 6 , 2 0 0 5 . http://wwwforbes.com. Wailgum, Thomas. "ERP Support: How Far will Oracle Go to Protect Golden Egg?" February 26, 2010. An expert retained by the Defendants in this case.

Subject to Protective O r d e r

34

Highly C o n f i d e n t i a l Information Attorneys' Eyes O n l y

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

to have access to the entirety o f O r a c l e ' s software in order to provide the actual support service to the TomorrowNow customers. Based on Mr. G a n n u s ' report, Mr. Meyer's Value o f Use should incorporate an adjustment to allow for the lack o f access to those portions o f Oracle's software that TomorrowNow did not actually support. The only license Defendants would need in the Negotiation is one that allowed them to: maintain copies o f the customer's environment on their computers; use solutions developed for one customer to be promulgated to other customers; and download the Subject IP from O r a c l e ' s website to support its customers. According to testimony in this case, customers have access to modify necessary software source 148 code. Matthew Bowden at TomorrowNow, also explained how such modification occurs: . . . customers have many programs that have been provided to them by PeopJeSoft. They d o n ' t all work as they need to work. They d o n ' t necessarily work as designed, so they may have to modify them to correct bugs. They also may want to extend the functionality and prove the functionality to be more suitable to their business needs. So they may modify the programs for that reason. They may actually add additional programs to it for that reason. So, to me, this is common practice open source behavior - in the IT world. 149 . . . PeopleCode is a language t h a t ' s provided to the customers for their use in modifying and managing programs. T h e y ' r e - t h e y ' r e encouraged to write their own PeopleCode programs. I t ' s common, done all the time. There is - many GSC [Oracle's Global Support Center] cases are resolved by telling the customer, 'Well, you can write a PeopleCode program to do that.,lso
.. . I have to use PeopleTools to change -

PeopleTools to change

PeopleCode.

151

Mr. Bowden further explained that PeopleSoft provided its customers with a lot o f the source code that employees and consultants needed for modification:
Q. [s it your understanding that people who had never purchased PeopleSoft could change these files? A. No. I would not expect someone who had never purchased PeopleSoft to be able to do that, no. I mean, as an employee o f a company who had purchased them, that, yes, they would. As a consultant, i t ' s been done, you know, many times, but the - ultimately, there is someone that purchased

...
,
'"

.

'"

Mr. Bowden, a primary support engineer who did not have a [onnal title at TomorrowNow. Matthew Bowden deposition dated December 5 , 2 0 0 8 , page 26. Matthew Bowden deposition dated December 5, 2008, pages 104-105. Matthew Bowden deposition dated December 5, 2008, page 105. Matthew Bowden deposition dated December 5, 2008, page lO7.

Subject to Protective Order

35

Highly Confidential InformationAllorneys' Eyes Only

Expen R.eport o f Stephen K. Clarke. May 7, 2010 Oracle USA. Inc., el al v. SAP AG, et al

assumptions, Mr. Meyer then states t h a t in his opinion SAP avoided development expenditures with a " . . . fair market value o f no less than $225.7 million:,247

Mr. M e y e r references 243 S A P ' s expenditures o f " . . . ove RE:~~~OT o n support d e v e l o p m e n t . . . " t o b u t t r e s s h i s a r g u m e n t t h a t S A P w o u l d have b e e n " a w a r e 0 t e s i g n i f i c a n t c o s t a s s o c i a t e d w i t h providing support to . . . " its customers. T h e argument d o e s not appear to add anything to Mr. M e y e r ' s argument as there is no doubt that both Oracle a n d SAP were aware that support development requires significant expenditures. The problem is that Mr. M e y e r has failed to take the support related portion o f such costs into account in his Oracle lost profits and Value o f Use analyses.
In addition, my analysis o f the testimony in this case indicates t h a t T o m o r r o w N o w created some o r most o f its own fixes, updates and o t h e r materials. Accordingly, to the extent my understanding is correct, Mr. M e y e r ' s damage analysis is inappropriate because it charges TomorrowNow for a portion o f the Subject lP it did not use. Furthermore, as Mr. G a r m u s reports, (later) the Subject 1P T o m o r r o w N o w used did not include the entire suite o f software at issue. To the extent the Subject iP was only a subset o f the software at issue, Mr. M e y e r should have reduced his Value o f Use for all approach measures (i.e., market, income and cost) accordingly. 6.3. P i n t o C o s t E s t i m a t e Mr. Meyer next deals with the cost SAP would have had to incur to independently develop the Oracle copyrighted materials a t issue. In doing so, he references a report prepared by Mr. Paul Pinto, an expert retained by Oracle in this case. Mr. M e y e r states, " . . . Mr. Pinto has concluded that it would have cost Defendants approximately $1.275 billion with a range o f $ 9 3 6 million to $2.903 billion to develop 7 specific PeopleSoft a n d J.D.Edwards software applications.,,249 Mr. Meyer states, " . . . o n e o f Mr. P i n t o ' s conclusions addresses avoided development costs o f [between] $198 million and $573 million,,2so for Siebel. The practical application o f Mr. M e y e r ' s opinion in this regard is unclear. I understand from Mr. Garmus, that to be suitable for Mr. M e y e r ' s purposes (i.e., a replacement for Oracle software that would allow TomorrowNow to support its customers without using the Subject IP) the independently developed software would have to exactly replicate the Oracle software.251 With m i l l i o n s o f l i n e s o f s o f t w a r e c o d e a t issue, s t a t i s t i c a l l y s p e a k i n g , t h e p r o b a b i l i t y o f SAP e x a c t l y replicating the Oracle software without actually copying Oracle software code is essentially zero. an assessment Mr. G a n n u s confirmed. In addition. i f SAP duplicated the fOUf suites o f software applications Mr. Meyer references the cost o f replication would c o n f e r total ownership o f the software on SAP which is not a n appropriate measure o f the Value o f Use in this c a s e Therefore, what Mr. M e y e r a n d Mr. Pinto are opining o n makes no practical o r e c o n o m i c sense in the context o f this case. In addition, from an economic point o f view, Mr. P i n t o ' s cost
Meyer Report, page 191, paragraph 287. Meyer Report, page 99, paragraph 149. Meyer Report, page 99, paragraph 150. Meyer Report, page 192, paragraph 288. Gannus Report.

ZSl

Subject to Protective Order

58

Highly C o n f i d e n t i a l l n f o r m a l i o n Attorneys' Eyes Only