Oracle Corporation et al v. SAP AG et al

Filing 892

Declaration of Holly A. House in Support of 882 Objections to Declaration of Stephen K. Clarke in Support of Defendants' Opposition to Oracle's Motion No.1: To Exclude Testimony of Defendants' Expert Clarke, 888 Reply , 891 Reply, 890 Objections to the Declaration of Brian Sommer In Support of Defendants' Opposition to Oracle's Motion No. 2 to Exclude Testimony of Brian S. Sommer filed by Oracle International Corporation, Oracle USA Inc., Siebel Systems, Inc.. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G, # 8 Exhibit H, # 9 Exhibit I)(Related document(s) 882 , 888 , 891 , 890 ) (House, Holly) (Filed on 9/16/2010) Modified on 9/17/2010 (vlk, COURT STAFF).

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Oracle Corporation et al v. SAP AG et al Doc. 892 Att. 1 EXHIBIT A Dockets.Justia.com Page 1 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION ORACLE CORPORATION, a Delaware corporation, ORACLE USA, INC., a Colorado corporation, and ORACLE INTERNATIONAL CORPORATION, a California corporation, ) ) ) ) ) ) ) ) Plaintiffs, ) ) vs. ) No. 07-CV-1658 (PJH) ) SAP AG, a German ) corporation, SAP AMERICA, ) INC., a Delaware ) corporation, TOMORROWNOW, ) INC., a Texas corporation, ) and DOES 1-50, inclusive, ) ) Defendants. ) ________________________________) VIDEOTAPED DEPOSITION OF STEPHEN K. CLARKE _________________________________ VOLUME 1; PAGES 1 - 323 TUESDAY, JUNE 8, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY REPORTED BY: HOLLY THUMAN, CSR No. 6834, RMR, CRR (1-427117) STEPHEN K. CLARKE June 8, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 114 12:07:49 12:07:49 12:07:52 12:07:54 12:08:00 12:08:06 12:08:11 12:08:17 12:08:22 12:08:26 12:08:31 12:08:36 12:08:41 12:08:46 12:08:50 12:08:55 12:08:59 12:09:00 12:09:03 12:09:07 12:09:11 12:09:12 12:09:18 12:09:21 12:09:32 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 Page 116 12:10:57 12:10:58 12:10:59 12:11:02 12:11:03 12:11:12 12:11:16 12:11:19 12:11:25 12:11:28 12:11:32 12:11:36 12:11:39 12:11:45 12:11:46 12:11:52 12:11:58 12:12:00 12:12:02 12:12:02 12:12:03 12:12:06 12:12:07 12:12:09 12:12:14 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 MR. McDONELL: Incomplete. You're not pointing out exactly what you're talking about in Mr. Meyer's report. THE WITNESS: I recollect that there were several places in his report where he said, this is what we think the damages might be, "we" being the senior executives of the company. I think it's inappropriate for an expert to bring that information into his report without some critical evaluation that says, this makes sense. If it doesn't make sense -- and clearly there are statements by the senior executives that make no sense whatsoever -- then I think the expert should apply his standards of control and quality, and common sense, frankly, to say, they may think that, but that's not what I'm going to put into my report. If they think it, they can testify about it at trial. But it doesn't and shouldn't form a basis for me to do my analysis in the case. MR. PICKETT: Q. So what you're saying is, it's appropriate for an expert to bring into his report, consider the senior executives' views, but he has to review them for their reasonability? A. I think that's the job of every expert in actual damages. Right? MR. McDONELL: Are you reading from his report, Counsel, and do you want to point it out to him? MR. PICKETT: No and no. THE WITNESS: It depends. It depends on whether what you're hearing makes any sense in the context of what you know as an economics expert. And if it doesn't make sense, then I don't think it is right to factor it in. You have to withstand the pressure from your client to do what they want you to do, whether that's the defense or the plaintiff. You have to do what you think is right. MR. PICKETT: Q. In considering what a willing buyer would pay for the license of what was stolen, did you talk with any SAP personnel? A. In terms of the value of use? Q. Yes. A. No. MR. McDONELL: Make -THE WITNESS: I beg your pardon. MR. McDONELL: I'm just reminding you that you can testify about discussions that you relied upon for your report. MR. PICKETT: Q. I don't think the Page 115 12:09:34 12:09:36 12:09:43 12:09:48 12:09:50 12:09:52 12:09:56 12:10:01 12:10:03 12:10:06 12:10:10 12:10:14 12:10:21 12:10:23 12:10:27 12:10:30 12:10:32 12:10:36 12:10:37 12:10:40 12:10:44 12:10:46 12:10:50 12:10:51 12:10:54 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 Page 117 12:12:14 12:12:17 12:12:18 12:12:22 12:12:22 12:12:25 12:12:27 12:12:28 12:12:30 12:12:34 12:12:36 12:12:37 12:12:40 12:12:42 12:12:48 12:12:51 12:12:53 12:12:56 12:13:00 12:13:02 12:13:05 12:13:08 12:13:12 12:13:14 12:13:16 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 every case. If -- just a moment. The defendants frequently think that there are no damages and might try to pressure an expert into giving that opinion. If the expert thinks that there are damages, I don't think it's appropriate for them to include in their report, the defendants think there are no damages here, because he doesn't believe that. So that's important. Frequently, Plaintiffs will think that the damage number is exceptionally high. In this particular case, as I recall, Ms. Catz was quoted as saying that she thought the damage would be in excess of 12 billion dollars. I don't think that was -- made any sense whatsoever. Mr. Meyer didn't actually include that, but there were statements on that vein that he did include. I don't think they belong in there. I think what belongs in the expert's report is the expert's opinion, and that's what it should be limited to. That's my view. I understand that you and he differ on that. And that's fine. Q. Well, you do agree that an expert may factor that information into the calculations of stipulation covers that. I think it's experts and counsel. MR. McDONELL: And clients. I can -MR. PICKETT: Q. Well, go ahead. "Yes" or "no," did you talk with SAP? I think you already said no. A. That's correct. Q. Why not? A. I -- on that particular question, I didn't think there was anything useful that they could give me. Q. Why not? A. Why did I not think there was anything useful they could give me? I -- I can't think what that would be. If they had said, we don't think there are any damages, I would have ignored it. Q. No, no, different -- the question is what someone would have paid in January 2005 to license the software. They would have information relevant to that, wouldn't they? A. There was significant testimony on that point, and I didn't think I needed anything else from them. Q. Well, they made projections, for example, what they thought they could do with that 30 (Pages 114 to 117) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 8, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 122 12:18:30 12:18:30 12:18:32 12:18:35 12:18:37 12:18:44 12:18:49 12:18:52 12:18:56 12:19:05 12:19:10 12:19:15 12:19:16 12:19:18 12:19:20 12:19:22 12:19:25 12:19:29 12:19:34 12:19:36 12:19:40 12:19:42 12:19:45 12:19:48 12:19:49 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 Page 124 12:20:47 12:20:48 12:20:51 12:20:52 12:20:53 12:20:55 12:20:56 12:20:59 12:21:00 12:21:04 12:21:07 12:21:10 12:21:11 12:21:13 12:21:14 12:21:15 12:21:17 12:21:33 12:21:34 12:21:35 12:21:35 12:21:35 12:21:35 12:21:35 12:21:35 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 conclusion. THE WITNESS: I want to clarify exactly what we're talking about here, because I think this is a fundamental difference between the parties, between Mr. Meyer and I. The fair market value, it sounds to me, when I listen to that question, that you're referring to, is the fair market value of the entire set of copyright materials that Oracle acquired in the PeopleSoft transaction. And I have -- well, you're shaking your head -MR. PICKETT: Q. I am shaking my head because I don't agree and I don't understand why you would think that. But go ahead. A. Well, I think where I was headed with that was, I'm interpreting your question, which is the best I can do. I apologize if I've interpreted it incorrectly. But I think we have to define -- and this is where I was headed -- what do you mean? The fair market value of what? And I think that is a -- that is a fundamental difference, and why, perhaps -- at least one explanation for why Mr. Meyer and I differ so much. Q. I would define fair market value as the MR. PICKETT: Q. Well, you understand SAP has infringed all kind of intellectual property, don't you? MR. McDONELL: Objection. Same objections. Argumentative. MR. PICKETT: Q. Please answer the question. THE WITNESS: I understand that that is an allegation. I don't have an understanding -- I didn't need an understanding as to whether the allegations will ultimately be found to be proven. MR. PICKETT: Q. Well, don't you understand -- I'm sorry, I didn't mean -MR. McDONELL: Don't interrupt, please, Counsel. MR. PICKETT: Q. Go ahead. A. Sorry, I've lost my train. Where did I end up? (Record read as follows: Answer: I understand that that is an allegation. I don't have an understanding -I didn't need an understanding as to whether the allegations will ultimately be found to be proven.) THE WITNESS: Where I was heading next is Page 123 12:19:52 12:19:56 12:19:56 12:19:59 12:20:00 12:20:02 12:20:03 12:20:04 12:20:09 12:20:10 12:20:11 12:20:15 12:20:20 12:20:21 12:20:22 12:20:25 12:20:26 12:20:27 12:20:30 12:20:31 12:20:35 12:20:40 12:20:41 12:20:43 12:20:46 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 Page 125 12:21:37 12:21:39 12:21:46 12:21:51 12:22:00 12:22:05 12:22:10 12:22:12 12:22:16 12:22:19 12:22:22 12:22:27 12:22:30 12:22:35 12:22:40 12:22:43 12:22:47 12:22:49 12:22:53 12:22:57 12:23:03 12:23:04 12:23:06 12:23:11 12:23:13 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 fair market of what SAP stole. MR. McDONELL: Assumes facts not in evidence, argumentative, vague and ambiguous. THE WITNESS: I think there is some dispute -MR. McDONELL: Incomplete hypothetical. THE WITNESS: I think there's some dispute as to what that is. And if -- if I may, if we can use -MR. McDONELL: Counsel -THE WITNESS: -- my -- if we can use my definition of the subject IP, then I'm comfortable answering your question. MR. PICKETT: Q. You think there's some dispute as to what SAP stole? MR. McDONELL: Counsel, that's -MR. PICKETT: Q. Aren't you supposed to as an expert assume liability? MR. McDONELL: Counsel, that's not your question. And I'm -- I object to your use of the argumentative term "stole." This witness has never agreed that something was stolen. You can ask him about assumptions he made. But you know very well there is no agreement on anything being stolen. that I have made certain assumptions about the liability in the case. And I have done so within the context of certain other expert reports that I've referenced in my report to try to determine what the subject IP is, because, as I understand it, what's at issue here is the value of that use of that subject IP. So without a proper understanding of that, we can't begin to do the next thing. So I didn't blindly assume, which is I think what your question implied, that all of the PeopleSoft, all of the JD Edwards, all of the Siebel software had been, to use your words, stolen by SAP. I -- that's not my area, and I don't think there are any -- there's any acceptance that that is as yet a proven fact. So I've done what I think is the appropriate economic analysis, based upon the subject IP as I've defined it, which I think is the appropriate definition to apply in this case. MR. PICKETT: Q. Tell me -A. And I understand that Mr. Meyer calculated the value of something else, and no doubt we'll argue about that over the next couple of days and possibly at trial. 32 (Pages 122 to 125) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 8, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 126 12:23:15 12:23:18 12:23:20 12:23:21 12:23:23 12:23:28 12:23:37 12:23:41 12:23:46 12:23:51 12:24:00 12:24:03 12:24:05 12:24:10 12:24:16 12:24:18 12:24:21 12:24:27 12:24:31 12:24:35 12:24:38 12:24:42 12:24:46 12:24:51 12:24:54 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 Page 128 12:26:04 12:26:09 12:26:13 12:26:20 12:26:28 12:26:30 12:26:38 12:26:42 12:26:48 12:26:51 12:26:57 12:26:58 12:27:02 12:27:04 12:27:05 12:27:07 12:27:10 12:27:15 12:27:21 12:27:29 12:27:33 12:27:38 12:27:48 12:27:49 12:27:52 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 Q. Tell me every assumption you made with respect to the liability. MR. McDONELL: Vague and ambiguous, overly broad. THE WITNESS: I assumed that the alleged actions were proven to the extent that they applied to the facts of the case. So not everything that the plaintiffs say in their complaint do I accept to be true. And one of those things, as an example, was that -- Mr. Meyer used this terminology many times -- the entire business model was infringing. I don't think that's true. And there's expert opinion on that that indicates that that's not true. I also think that 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, as I've spent 300 pages here explaining to you. And so I have assumed that there is liability, but I've not assumed that everything you say in the complaint is true. MR. PICKETT: Q. So you've done your own analysis of what SAP infringed and what they did ended at this point. It took place -- and again, I'm accepting your liability argument here -- in certain geographic territories. That use was made by TomorrowNow and SAP of that subject IP for that period of time. And those limitations mean that what I have included does not -- is not equal to the entire intellectual property that was acquired by Oracle in the PeopleSoft and the Siebel transactions. Okay. MR. PICKETT: Q. On your own analysis, when did you determine the infringement started? MR. McDONELL: Same objections. This assumes facts not in evidence, misstates the testimony. THE WITNESS: The -- the way I did my analysis was on a customer-by-customer basis. So I looked at, when a particular customer was acquired by TomorrowNow on the one hand, I had a change in that -- not in the approach, but because of the involvement of SAP, starting in January of '05, I had the same approach, but I changed -- at least considered changing the analysis to account for SAP's involvement. So that was how the damage started. It Page 127 12:24:56 12:24:58 12:24:59 12:25:01 12:25:02 12:25:03 12:25:05 12:25:08 12:25:10 12:25:12 12:25:13 12:25:15 12:25:18 12:25:20 12:25:25 12:25:29 12:25:29 12:25:30 12:25:31 12:25:32 12:25:35 12:25:43 12:25:49 12:25:57 12:26:00 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 Page 129 12:27:56 12:28:00 12:28:01 12:28:02 12:28:05 12:28:06 12:28:07 12:28:10 12:28:14 12:28:17 12:28:20 12:28:26 12:28:27 12:28:34 12:28:38 12:28:39 12:28:41 12:28:42 12:28:45 12:28:45 12:28:46 12:28:47 12:28:50 12:28:53 12:28:56 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 not infringe? MR. McDONELL: Misstates the testimony, vague and ambiguous. THE WITNESS: No. MR. PICKETT: 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? MR. McDONELL: Vague and ambiguous -THE WITNESS: That's correct. MR. PICKETT: Q. How much -- on your analysis, how much IP was infringed? MR. McDONELL: Misstates the testimony. He has not -- he stated very clearly -MR. PICKETT: No speak being objections. Go ahead. MR. McDONELL: You're trying to mislead the witness. THE WITNESS: I incorporated expert opinion, as I've indicated to you now three or four times, that suggested, indicates, that certain intellectual property owned by Oracle was not used. I have relied upon that opinion to some extent. I've also, as I said, done my own analysis that said, infringement started at this point, was formulated for each customer, one at a time. MR. PICKETT: Q. As soon as they signed on to TomorrowNow? A. As soon -MR. McDONELL: Vague and ambiguous. THE WITNESS: As soon as -- the damage start date I assumed was the last date that they were supported by Oracle. Which is not actually always the same time. MR. PICKETT: Q. And for what products did you assume the infringement occurred? MR. McDONELL: Same objections. THE WITNESS: For PeopleSoft, JD Edwards, and Siebel. MR. PICKETT: Q. This was on your own analysis, or was this something else? MR. McDONELL: Vague and ambiguous. Compound. THE WITNESS: I don't really understand your question. MR. PICKETT: Q. Well, you just said -you've testified for a few pages now about your own analysis that you did of how much IP was infringed and for how long and the manner in which it was used. And that's a quote from your testimony. 33 (Pages 126 to 129) Merrill Legal Solutions (800) 869-9132 Page 652 UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION ORACLE CORPORATION, a Delaware corporation, ORACLE USA, INC., a Colorado corporation, and ORACLE INTERNATIONAL CORPORATION, a California corporation, ) ) ) ) ) ) ) ) Plaintiffs, ) ) vs. ) No. 07-CV-1658 (PJH) ) SAP AG, a German ) corporation, SAP AMERICA, ) INC., a Delaware ) corporation, TOMORROWNOW, ) INC., a Texas corporation, ) and DOES 1-50, inclusive, ) ) Defendants. ) ________________________________) VIDEOTAPED DEPOSITION OF STEPHEN K. CLARKE _________________________________ VOLUME 3; PAGES 652 - 969 THURSDAY, JUNE 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY REPORTED BY: HOLLY THUMAN, CSR No. 6834, RMR, CRR (1-427123) STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 681 09:39:47 09:39:49 09:39:50 09:39:53 09:39:58 09:40:05 09:40:06 09:40:07 09:40:08 09:40:10 09:40:13 09:40:16 09:40:18 09:40:21 09:40:23 09:40:33 09:40:36 09:40:39 09:40:39 09:40:44 09:40:45 09:40:49 09:40:51 09:40:56 09:40:58 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 Page 683 09:42:14 09:42:17 09:42:21 09:42:23 09:42:26 09:42:27 09:42:29 09:42:32 09:42:32 09:42:35 09:42:35 09:42:38 09:42:41 09:42:59 09:43:02 09:43:09 09:43:14 09:43:18 09:43:21 09:43:24 09:43:27 09:43:30 09:43:34 09:43:39 09:43:41 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 happened, but I couldn't tell you. MR. PICKETT: Q. So if there were a notation, customer is looking at third-party service alternatives, we're worried they may leave, as long as they didn't ultimately leave, they were outside your analysis? MR. McDONELL: Asked and answered. THE WITNESS: They were outside the causation analysis. They weren't entirely outside my analysis, because they did come into my development of the attrition rate. So if they never left, that would tend to lower the attrition rate. MR. PICKETT: Q. Right. Would you agree that Oracle had some customers who would fit one or more of your automatic exclusion pools, but nonetheless, in the real world, never left? MR. McDONELL: Asked and answered several times. Object that the question is vague and incomplete without showing the witness the document you're referring to. THE WITNESS: As I say, I don't remember if that fact pattern arose. But it wouldn't surprise me if it did. But that -- that's the wrong test. The 359 customers. Correct? A. I couldn't tell you exactly, but -- so these are the included customers that I am calculating lost profits for? Q. Right. Approximately -A. I may have misheard the previous question. Q. Approximately 180, I'll say. A. Okay. Q. You're not disputing causation for those 180? A. Correct. I assumed causation for anybody who's still in the analysis. Q. All right. Let's move on. On page 223 of your report, I want to return to the service evaluation exclusion pool for a moment. You state that at the -- in the middle paragraph, in that section, you state that if a customer conducted an evaluation of named third-party vendors before choosing TomorrowNow, that was strong evidence that their decision to terminate Oracle support was not driven by TomorrowNow, but a desire to leave Oracle. Why is that strong -- why is that not strong evidence that their decision to terminate Page 682 09:41:03 09:41:06 09:41:12 09:41:15 09:41:19 09:41:24 09:41:28 09:41:33 09:41:36 09:41:37 09:41:39 09:41:43 09:41:48 09:41:50 09:41:52 09:41:52 09:41:53 09:41:53 09:41:56 09:41:59 09:42:00 09:42:01 09:42:05 09:42:07 09:42:09 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 Page 684 09:43:45 09:43:50 09:43:51 09:43:53 09:43:56 09:43:58 09:44:01 09:44:02 09:44:05 09:44:06 09:44:09 09:44:09 09:44:17 09:44:21 09:44:30 09:44:33 09:44:35 09:44:36 09:44:40 09:44:50 09:44:52 09:44:54 09:44:55 09:44:57 09:45:00 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 right test is related to the customers that did leave. And if they left and went to TomorrowNow, then we're trying to identify the behavior that caused that action. MR. PICKETT: Q. As a result of the exclusion analysis, the causation analysis, you ultimately calculated lost profits on my count as 179 of the 358 customers at issue. Does that sound about right? A. That sounds about right. Q. And at least for those 179 customers, you don't dispute that TomorrowNow caused -- you won't dispute that TomorrowNow caused the loss at the time they left Oracle? MR. McDONELL: Object to the form of the question. MR. PICKETT: Q. Correct? MR. McDONELL: Misstates the testimony. THE WITNESS: I'm -- maybe I misheard. MR. PICKETT: Q. Let me try it again. A. I thought you said that you were talking about the exclude customers. Q. No. I thought that -- let's do it again. A. Okay. Q. You calculate lost profits for 179 of the Oracle was not driven by TomorrowNow? MR. McDONELL: Vague and -MR. PICKETT: Q. Two negatives into that. A. I couldn't parse that one, I'm afraid. Q. But you're smart enough to deal with that, aren't you? I can rephrase it. You've concluded that their decision to terminate Oracle support was not driven by TomorrowNow. Correct? MR. McDONELL: It's vague and ambiguous. THE WITNESS: Correct. MR. PICKETT: Q. And you -- you're determining then, or you're using your judgment to classify them as customers whose decision to take on TomorrowNow service was not driven by TomorrowNow. Correct? MR. McDONELL: Causation. Vague and ambiguous, compound. Sorry, vague and ambiguous, compound, vague as to your use of the terms. THE WITNESS: I'm sorry, I lost the question. MR. PICKETT: Q. Why don't I just put it this way: Why isn't a decision to go to TomorrowNow driven by TomorrowNow? MR. McDONELL: Vague and ambiguous, overly 9 (Pages 681 to 684) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 905 17:18:52 17:18:55 17:18:55 17:18:58 17:19:00 17:19:01 17:19:04 17:19:07 17:19:10 17:19:15 17:19:18 17:19:19 17:19:19 17:19:29 17:19:37 17:19:42 17:19:42 17:19:44 17:19:45 17:19:50 17:19:54 17:19:56 17:19:58 17:20:03 17:20:11 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 Page 907 17:21:19 17:21:20 17:21:20 17:21:24 17:21:30 17:21:33 17:21:37 17:21:41 17:21:43 17:21:46 17:21:50 17:21:53 17:21:56 17:21:58 17:22:01 17:22:02 17:22:03 17:22:05 17:22:06 17:22:11 17:22:13 17:22:14 17:22:16 17:22:18 17:22:20 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 inclusion in the competitor evaluation exclusion pool? MR. McDONELL: Vague and ambiguous. THE WITNESS: If we knew why they chose SAP? It might not -- it might not change their inclusion in competitor evaluation. It might not even be noted in competitor evaluation, but it would be noted perhaps in other areas here, like standardization, for example, as well as functionality. MR. PICKETT: Q. Sure. Did you assume that TomorrowNow's alleged use of the subject IP played no role in SAP's winning of the customer over the competitor who was evaluated? MR. McDONELL: Object to the form of the question. Misstates the testimony, asked and answered. THE WITNESS: I didn't assume that. If I came across it, I would have gathered it. Again, I don't recall any specific examples of that. MR. PICKETT: Q. If you learned that a customer chose SAP over another vendor due to TomorrowNow's alleged activities, would that make a difference whether the customer was included in the MR. PICKETT: Q. Well, then how -- go ahead. A. What I said was that if TomorrowNow's role was called out -- I didn't use these words -- but TomorrowNow's role in their choice was the reason for their decisions, I would look at the totality of the evidence to determine whether it should be an exclude or not. But my strong inclination would be if that was the indication, and then I would -- I would not exclude it from the analysis. It would be -Q. You would leave it in the exclusion pool? A. No, no. I would not leave it in the exclusion pool. I would include it in the damage calculation. MR. McDONELL: I think -MR. PICKETT: Q. Did that ever happen? A. Not that I recall. Q. So you're telling me a methodology that you created but never utilized? MR. McDONELL: Vague and ambiguous. Object to the form, misstates testimony, asked and answered. THE WITNESS: It didn't happen that I recall for these disgorgement pools. Page 906 17:20:13 17:20:15 17:20:15 17:20:18 17:20:20 17:20:23 17:20:25 17:20:29 17:20:30 17:20:35 17:20:38 17:20:41 17:20:44 17:20:48 17:20:49 17:20:51 17:20:53 17:21:01 17:21:05 17:21:08 17:21:09 17:21:10 17:21:13 17:21:15 17:21:17 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 Page 908 17:22:25 17:22:28 17:22:35 17:22:39 17:22:45 17:22:47 17:22:49 17:22:52 17:22:53 17:22:55 17:22:58 17:22:59 17:23:02 17:23:03 17:23:06 17:23:09 17:23:11 17:23:15 17:23:21 17:23:26 17:23:30 17:23:34 17:23:37 17:23:40 17:23:46 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 exclusion pool? MR. McDONELL: Object to the form. Vague as to the -- vague and ambiguous as to the standard you're referring to. THE WITNESS: It could. And certainly if there's an example of that, I would consider it. And look at the totality of the evidence for that customer. But if -- it will be my strong inclination if there was evidence that customers for some reason said this is why we are doing it and it fell within the boundaries of the alleged actions, I would not exclude that customer. MR. PICKETT: Q. Let me see if I understand what you're saying. Are you saying that you have the ability to uncover evidence of a customer's reliance on infringement at TomorrowNow to determine whether that played a role in their decision to purchase SAP? MR. McDONELL: Vague and ambiguous, confusing question, object to the form. Incomplete hypothetical. THE WITNESS: No, I don't think I'm -- I certainly didn't say that. I think it happened multiple times on the lost profits side, where I had information that suggested that TomorrowNow was perhaps the only viable competitor, and the reason I was excluding them was a service evaluation. So if I had that information, they then went back into my lost profits calculation. MR. PICKETT: Q. Did you understand we were talking about disgorgement, as you call it, or infringer's profits, as I was calling it? A. Of course. Q. And the competitor evaluation exclusion pool I've been asking you about is not a lost-profits exclusion pool. It's one of your disgorgement exclusion pools. Right? A. Correct. But you asked me if it ever happened. And "ever happened" means we're no longer within this one pool. So -- it's getting late. We got to try and keep calm here. I'm doing my best to answer your questions. Maybe a little, you know, imprecision creeping in here and there. Q. So I think I heard you say, but let me see if I have it right, that you did not exclude any customer from any of the ten disgorgement exclusion pools on the basis of some evidence that 65 (Pages 905 to 908) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 909 17:23:49 17:23:54 17:23:55 17:23:56 17:23:59 17:24:00 17:24:04 17:24:05 17:24:07 17:24:09 17:24:13 17:24:14 17:24:15 17:24:16 17:24:20 17:24:25 17:24:27 17:24:31 17:24:36 17:24:40 17:24:42 17:24:51 17:24:53 17:24:56 17:25:00 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 Page 911 17:26:33 17:26:34 17:26:39 17:26:42 17:26:43 17:26:43 17:26:45 17:26:46 17:26:47 17:26:48 17:26:49 17:26:54 17:26:59 17:27:02 17:27:05 17:27:06 17:27:11 17:27:13 17:27:13 17:27:17 17:27:18 17:27:24 17:27:29 17:27:34 17:27:39 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 TomorrowNow played a role in the customer's behavior? MR. McDONELL: Asked and answered, and vague and ambiguous. THE WITNESS: Yeah, I think there are only two customers left in this analysis. It would have to be one of those, wouldn't it? MR. PICKETT: Q. It would, wouldn't it? A. And as I indicated several times already, I don't recall that situation arising. Q. For any of these pools? MR. McDONELL: Asked and answered. THE WITNESS: Well, there are still only two customers, so whatever pools they're in, I don't recall that occurring for those two customers. MR. PICKETT: Q. Were you aware that 19 of the customers identified by you as competitor evaluation customers in Exhibit 3235 were identified by SAP as Safe Passage program customers? A. I wouldn't -- I'm not aware of that number. I couldn't have told you as I sit here that 19 of these were Safe Passage customers. I don't think it's particularly relevant, although I MR. PICKETT: Q. Even though before the lawsuit was filed, SAP was of the opinion that for over 2 years, TomorrowNow was the cornerstone of Safe Passage? MR. McDONELL: Objection. Asked and answered -MR. PICKETT: Q. Right? MR. McDONELL: -- repeatedly. Object to the form. THE WITNESS: Well, you know, there's testimony on that point that -- that goes the other way -- well, you shake your head, but I don't think you're right. And if you like, I will spend a day or two looking for that testimony and send you a bill for it. But there's also -- there's also -MR. PICKETT: Q. What a deal. What an offer. A. I'm a lot cheaper than Mr. Meyer. Q. Go ahead. A. So there's also information in my report starting on page 130 that talks about the tension between SAP and TomorrowNow down at the account executive level, where there's traction with the customers. Page 910 17:25:03 17:25:06 17:25:10 17:25:14 17:25:16 17:25:19 17:25:20 17:25:21 17:25:23 17:25:25 17:25:29 17:25:35 17:25:38 17:25:44 17:25:47 17:25:49 17:25:54 17:26:00 17:26:02 17:26:06 17:26:10 17:26:15 17:26:19 17:26:25 17:26:28 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 Page 912 17:27:39 17:27:41 17:27:46 17:27:50 17:27:53 17:27:58 17:28:02 17:28:06 17:28:11 17:28:17 17:28:21 17:28:24 17:28:24 17:28:30 17:28:32 17:28:35 17:28:39 17:28:41 17:28:46 17:28:49 17:28:49 17:28:54 17:28:55 17:28:56 17:29:00 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 understand Mr. Meyer recently changed his analysis, and it became relevant for him. Q. Why don't you think SAP's opinion with respect to whether a customer is a Safe Passage customer is relevant to its inclusion in your exclusion pool? MR. McDONELL: Object to the form of the question. THE WITNESS: Well, I don't think Safe Passage is what is being alleged here as being inappropriate. So when I look at what I'm trying to do -- I'm trying to determine the "but for" world -- whether a customer was Safe Passage or not doesn't seem to make any difference. And when we look at the data that we've gathered of something like 850 Safe Passage customers, only 86 of which could even arguably be part of this case, that's 90 percent of the Safe Passage customers were not part of the case. That's an overwhelming number. And when we get to the end of the day, not only is it 86 out of 850, it's two out of 850. So Safe Passage doesn't -- doesn't get you there. It has to be the alleged actions that are causing this behavior, not Safe Passage. It may be that Thomas Ziemen thought whatever he thought in his higher, somewhat detached role. But down where it mattered, with the AEs, there was a great deal of tension, as Mr. Nelson testified, Mr. Hurst testified. And I've quoted that in pages 130, 131, 132. So while Mr. Ziemen thought it was a cornerstone, I don't think that's an unassailable position. I understand he said it. I'm not backing away from whatever it was he said. I pointed that out to you when you led me through the document. But you can't ignore the other evidence, either. Q. You're aware that customers on your competitor evaluation exclusion pool were offered -- I'm sorry, that received free TomorrowNow service -- support, I should say, as an incentive for their SAP application -MR. McDONELL: Objection. Vague and ambiguous -MR. PICKETT: -- purchase. Should be SAP applications purchase. MR. McDONELL: Objection. Vague as to as to whether you're referring to all customers or 66 (Pages 909 to 912) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 929 18:05:08 18:05:11 18:05:16 18:05:22 18:05:27 18:05:31 18:05:37 18:05:42 18:05:50 18:05:53 18:05:56 18:05:58 18:06:03 18:06:03 18:06:06 18:06:11 18:06:14 18:06:18 18:06:19 18:06:21 18:06:27 18:06:32 18:06:32 18:06:35 18:06:36 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 Page 931 18:07:37 18:07:39 18:07:42 18:07:45 18:07:48 18:07:52 18:07:56 18:07:58 18:08:01 18:08:06 18:08:13 18:08:19 18:08:22 18:08:26 18:08:27 18:08:31 18:08:35 18:08:38 18:08:41 18:08:44 18:08:46 18:08:51 18:08:55 18:08:58 18:09:03 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 to the form. THE WITNESS: The reporting entity is the entire company. To apply the entire company reported margin, for example, on support services to the specific operations in these tiny countries -- I have to go back a page -- the Netherlands; Singapore is a tiny, tiny operation. There's not much revenue in Croatia, either. So, you know, there's no way to calculate this information on a company-by-company basis. Whatever you do, you have to do some form of allocation. MR. PICKETT: Q. Did you use any textbooks or academic references when you developed your regression models? A. Oh, my. I think I told you yesterday, I did the first one in probably about September 1969, so -Q. I'm sorry, for -- let me clarify. I meant doing the -- in using the regression models, you used for your regression analyses in this case. MR. McDONELL: Object to the form of the question. THE WITNESS: I was -- I think I understood that question. I was trying to -- Q. Do you understand when it's appropriate to exclude a constant from a simple regression model such as the one you use? A. The -- there are times when you want to exclude the constant in the -- I think in this case, it was on the Oracle side of the equation that we did that. In this particular case, I used a log model. So in a sense, the constant is embedded in the log function. So you can't actually separate that constant out from its attached log function. Q. You used a zero intercept model for the regression analysis related to Oracle. Correct? A. That's correct. Q. And that excludes the constant. Correct? A. That assumes that the constant is zero, so that the slope of the line that you generate runs through the origin. Q. And so that would force fixed cost to be zero in that analysis. Correct? A. It -- it's -- you have to be very careful once you start going down this avenue. It also assumes that revenues are zero. And of course, when revenues are zero, essentially all of the costs are zero. Page 930 18:06:39 18:06:40 18:06:43 18:06:46 18:06:50 18:06:53 18:06:58 18:07:01 18:07:01 18:07:04 18:07:04 18:07:05 18:07:06 18:07:08 18:07:11 18:07:12 18:07:13 18:07:15 18:07:17 18:07:19 18:07:20 18:07:23 18:07:27 18:07:31 18:07:34 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 Page 932 18:09:04 18:09:09 18:09:14 18:09:17 18:09:22 18:09:26 18:09:29 18:09:32 18:09:35 18:09:38 18:09:42 18:09:46 18:09:49 18:09:52 18:09:53 18:09:55 18:09:59 18:10:02 18:10:05 18:10:07 18:10:10 18:10:10 18:10:11 18:10:12 18:10:13 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 MR. PICKETT: Q. Okay. Go ahead. A. If I'm doing a regression analysis these days, in the same way that I don't need to look up the double entry for a cash purchase, for example, I don't need to go to a book to do this regression analysis. So I was giving you sort of an old answer, because I've been doing them for such a long time. Q. So you didn't need to look up how to do a regression analysis? MR. McDONELL: Asked and answered. THE WITNESS: That's correct. MR. PICKETT: Q. Did you use a program in order to run the regression analyses? A. Yes. Q. Which one? A. Excel. Q. Do you know what panel data are? A. Yes. That's what we had here with the SAP data. Q. How would you define panel data? A. It's cross-sectional data over time. And so we had here multiple countries, multiple revenues and expense figures, and we had them spread over a period of years. So when you only have data in a model like we have that is in a specific range, it's very dangerous -- in fact, totally inappropriate -- to take information and extrapolate from that limited range of data that you do have and say, well, let's put an intercept here, and the intercept will be where the fixed costs were. And if your data were very close to the Y axis, that might be appropriate. So you -- you can extrapolate a little bit, but you can't extrapolate from 10 billion dollars down to zero. That wouldn't be an appropriate extrapolation. It would be too far. Q. Did -- I'm sorry. A. I was just going to say that the model really only applies over a given range, and you couldn't extrapolate it out to infinite, and you couldn't extrapolate it down to zero. Q. Did you consider that issue in creating your zero intercept regression model? MR. McDONELL: Object to the form of the -MR. PICKETT: Q. Or using it, I should say? MR. McDONELL: Object to the form. 71 (Pages 929 to 932) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 933 18:10:13 18:10:14 18:10:18 18:10:21 18:10:24 18:10:27 18:10:30 18:10:32 18:10:33 18:10:36 18:10:43 18:10:46 18:10:47 18:10:49 18:10:50 18:10:52 18:10:53 18:10:57 18:10:59 18:11:05 18:11:13 18:11:17 18:11:19 18:11:21 18:11:23 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 Page 935 18:12:34 18:12:37 18:12:39 18:12:43 18:12:45 18:12:53 18:12:57 18:13:00 18:13:02 18:13:04 18:13:06 18:13:09 18:13:14 18:13:18 18:13:22 18:13:27 18:13:32 18:13:35 18:13:40 18:13:45 18:13:52 18:13:53 18:13:59 18:14:03 18:14:04 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 THE WITNESS: Yes. That's why we did that, because there's really no meaning to saying, let's look at Oracle's fixed costs when revenues are zero. Revenues are not zero. The revenues were in the billions of dollars, so it would be inappropriate to extrapolate. MR. PICKETT: Q. Are there ways to test whether the intercept belongs in the regression? A. The -- you can develop a coefficient and do tests on the coefficient to determine whether it's a significant number. Q. Did you do so? A. For the Oracle side? Q. For the Oracle side. A. No, because I didn't have a -- I didn't have that constant, so I didn't have an intercept. Q. Did you do it for the SAP side? A. Yes. I had -- I had -- A in my equation was essentially the intercept. But really, again, the intercept is not separable from its log function that it's attached to. So it doesn't have any meaning. Q. I don't understand if you did the test and it turned out -- I don't -- the question is, did A. With t scores and R-squareds like we had, we didn't need to do that. Q. Do you know what a fixed-effects model is? A. I am not familiar with that term. Q. Do you know what first differencing is? A. I've used that term. I can't give you a definition of it as I sit here. Q. Did you consider that there might be seasonality in the data? A. Yes. I think that's probably what was driving the autocorrelation on the Oracle side. Q. And what did you conclude with respect to seasonality and its impact on the results? A. If the t scores had been low and the R-squared had been 50.54, I would have had to adjust for the autocorrelation. But with the R-squared and t's where they were, I didn't need to make that adjustment. Q. Let me ask you to look at Footnote 1093 on page 243 of your report. A. 243? Q. 243, and it's the first footnote, 1093. There you cite the Litigation Services Handbook. Do you see that? A. I do. Page 934 18:11:25 18:11:29 18:11:34 18:11:37 18:11:40 18:11:43 18:11:44 18:11:44 18:11:46 18:11:49 18:11:53 18:11:56 18:12:01 18:12:03 18:12:07 18:12:10 18:12:11 18:12:15 18:12:19 18:12:21 18:12:22 18:12:26 18:12:29 18:12:31 18:12:33 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 Page 936 18:14:04 18:14:07 18:14:07 18:14:12 18:14:16 18:14:23 18:14:28 18:14:34 18:14:37 18:14:39 18:14:42 18:14:46 18:14:47 18:14:49 18:14:50 18:14:53 18:14:57 18:15:00 18:15:03 18:15:08 18:15:10 18:15:12 18:15:21 18:15:22 18:15:26 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 you do a test to see if the intercept belonged on the SAP regression analysis. A. I'd have to look -- I'd have to look up what the test result was. Could you pass me -Q. If it -- well, let me withdraw the question then. A. Okay. Q. I don't think we have enough time to do the research. A. Let me just tell you that the coefficients that I developed were significant. They had good t scores. The regression models yielded very high R-squared values. There was some autocorrelation in the Oracle side, which is not unexpected with this type of data. But the t score and the R-squared were so high, it -- the autocorrelation would tend to increase those. Q. Yes. A. But if you take the autocorrelation out, the difference in the equation, if you plugged in the data, would be negligible. Q. Did you adjust for the autocorrelation factor? Q. For what purpose did you rely on the handbook? A. Well, if you go back to 242, you'll see where that quotation begins. And this is really talking about the ways in which you can measure the relationship between cost and revenues. And here we're talking about a regression analysis. It says, a better alternative uses regression analysis, and that's what I did. Q. And in your report, you cite the 1995 version of the handbook? A. Yes. Q. Is there any reason you didn't cite a more recent version? A. No. I'm a little shocked that that's the 1995 version. I'm -- I didn't realize I bought that book such a long time ago. Q. Let me mark -- or let me show you what's been marked as Exhibit 3236, which I believe is a more recent version of the handbook. (Deposition Exhibit 3236 was marked for identification.) MR. PICKETT: Q. This appears to be a 2007 Fourth Edition, as compared to your Second Edition 1995. Correct? Or at least portions 72 (Pages 933 to 936) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 953 18:41:47 18:41:48 18:41:51 18:41:52 18:41:53 18:42:28 18:42:29 18:42:33 18:42:36 18:42:40 18:42:43 18:42:44 18:42:47 18:42:53 18:42:58 18:43:05 18:43:08 18:43:13 18:43:16 18:43:19 18:43:23 18:43:26 18:43:30 18:43:30 18:43:38 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 Page 955 18:59:15 18:59:16 18:59:17 18:59:18 18:59:22 18:59:31 18:59:31 18:59:33 18:59:37 18:59:40 18:59:44 19:00:06 19:00:12 19:00:17 19:00:21 19:00:23 19:00:25 19:00:37 19:00:39 19:00:41 19:00:43 19:01:21 19:01:25 19:01:27 19:01:28 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 THE WITNESS: But just as a general proposition, if we've moved here, I would prefer to have -MR. PICKETT: Fair enough. THE WITNESS: -- U, please. MR. PICKETT: Q. What's the definition of zero intercept technique? A. It will be far easier to draw that for you than to explain it. But it -- if I have to use words -- I already did it once, but I'll do it again. It's where we don't have a constant function, so when the independent variable is zero, the line goes through the origin. Q. And in your formula, VC equals A plus BQ, the A intercept in this case represents fixed costs. Is that correct? A. Well, that will be the standard way of thinking about it. But of course, since I have a zero intercept, A essentially goes away. Q. Is the Q in that equation intended to be total revenue or support revenue? MR. McDONELL: Assumes facts. THE WITNESS: It is total revenue. Let me check that. than support revenue. Do you recall that? A. I do. Q. Did you understand that we provided defendants support revenue data for OUSA and OEMEA? A. That's my recollection. Q. So even though it was available to you, you chose not to use it. Correct? A. Well, I chose not to use it for a perfectly valid reason. But yes, I chose not to use it. Q. Let me ask you -- you know, I'm confused now. Did we mark Appendix A-2 as an exhibit or not? Not yet? That's fine. Let's do it this way. Let me show you what's been marked as Exhibit 3238. It's portions of a text called "Econometrics" by G.S. Maddale. (Deposition Exhibit 3238 was marked for identification.) MR. PICKETT: Q. If you could please refer to page 92 of the text. Do you recognize the text or Professor Maddala? MR. McDONELL: I object to the presenting this witness with a partial document that's very Page 954 18:43:39 18:44:39 18:44:41 18:44:47 18:44:53 18:44:56 18:45:02 18:45:06 18:45:11 18:45:12 18:45:16 18:45:17 18:45:21 18:45:26 18:45:34 18:45:39 18:45:45 18:45:47 18:45:48 18:46:01 18:58:50 18:58:53 18:59:07 18:59:08 18:59:12 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 Page 956 19:01:32 19:01:35 19:01:39 19:01:41 19:01:44 19:01:45 19:01:46 19:01:46 19:01:49 19:01:56 19:01:59 19:02:00 19:02:03 19:02:06 19:02:10 19:02:16 19:02:19 19:02:20 19:02:22 19:02:23 19:02:27 19:02:30 19:02:32 19:02:50 19:02:51 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 MR. PICKETT: Q. Sure. A. It's total operating revenue. Q. So with A eliminated in the equation, this essentially becomes the coefficient B times total revenues equals variable costs. Correct? A. Correct. So that would suggest that if revenue increased by $1, variable cost would increase by the component B times that increased dollar. Q. Why did you use total revenue rather than support revenue? A. Because I was trying to see how the expenses for the company related to the revenues for the company. And the way that I got the data was to look at the publicly available information. And that was the analysis I did. MR. PICKETT: Let's take a break. THE VIDEO OPERATOR: Going off the record, the time now is 6:46. (Recess from 6:46to 6:58 p.m.) THE VIDEO OPERATOR: The time now is 6:59 and we're back on the videotape record. MR. PICKETT: Q. I had asked you some questions regarding the OUSA and OEMEA progression analyses as to why you used total revenue rather dense without giving him ample time to read and consider it. THE WITNESS: I don't know who G.S. Maddale is. MR. PICKETT: Q. Nor do you recognize the text? A. That's correct. Q. All right. So if you look about a third of the way down, there's a discussion of high R-squared, R-squared syndrome, and there's a sentence that begins, quote: "However, if the Durbin-Watson statistic is very low, it often implies a misspecified equation no matter what the value of R squared is. In such cases one should estimate the regression equation in first differences." Do you agree with that statement? MR. McDONELL: Object. Lack of foundation. I repeat my objection about presenting the witness with an extremely dense partial document without giving him ample time to read and consider the entire document. THE WITNESS: Well, I agree that you read it correctly. And -- 77 (Pages 953 to 956) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 961 19:07:57 19:08:01 19:08:05 19:08:09 19:08:14 19:08:20 19:08:24 19:08:27 19:08:32 19:08:39 19:08:42 19:08:45 19:08:48 19:08:49 19:08:54 19:08:59 19:09:01 19:09:02 19:09:05 19:09:08 19:09:13 19:09:21 19:09:23 19:09:26 19:09:29 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 Page 963 19:10:55 19:11:00 19:11:02 19:11:04 19:11:06 19:11:08 19:11:10 19:11:13 19:11:16 19:11:19 19:11:21 19:11:23 19:11:25 19:11:26 19:11:28 19:11:29 19:11:31 19:11:33 19:11:34 19:11:37 19:11:40 19:11:41 19:11:42 19:11:43 19:11:44 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 expenses, there would be an intercept somewhere up the x axis, wherever that happened to be for that particular business. So I explained to you that where you have data that are measured in the billions of dollars, and you're looking at data that covers a range, and I'm just giving you an example now, from, say, 10 billion dollars to 15 billion dollars, that to extrapolate that graph to the intercept, wherever it may be, which would suggest that zero revenue, this is what the fixed cost will be, will be a totally inappropriate way to apply a regression analysis. You cannot extract to an area where there are no data points. So -- wait a minute; you asked me the question, I'm going to tell you the answer again. So you have this range of data, and you're saying, from the minimum point on my example that will be $10 billion, to zero revenues, we have no data points. But you want, and your question requires, that we take that line that's suggested by those data points and extrapolate it all the way back to zero revenues. That, even to a layperson, must sound -- function. So I -- that -- your understanding is simply incorrect. MR. PICKETT: Q. If Oracle had no revenues, is it your testimony that their costs would be zero? A. If Oracle had no revenues, there would be no Oracle, is my testimony. Q. Sir, it's not true. Is it? A. If it had no revenues? What -- how long do you think it would last if it had no revenues? It would have no costs either. MR. McDONELL: I object that we're -Q. It would have a building in Redwood Shores, wouldn't it? MR. McDONELL: I object. Incomplete, meaningless hypotheticals. THE WITNESS: Yes, it's just silly. MR. PICKETT: Q. Well, isn't is silly for you to assume that Oracle's costs would reduce to zero? She have fixed costs, don't they? MR. McDONELL: Object to the form of the question, compound, vague and ambiguous, incomplete hypothetical. THE WITNESS: Okay. Let's -MR. PICKETT: Q. Let me withdraw the Page 962 19:09:34 19:09:37 19:09:41 19:09:45 19:09:46 19:09:49 19:09:53 19:09:54 19:09:56 19:09:57 19:10:00 19:10:02 19:10:02 19:10:05 19:10:08 19:10:12 19:10:17 19:10:21 19:10:24 19:10:30 19:10:34 19:10:39 19:10:45 19:10:48 19:10:51 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 Page 964 19:11:45 19:11:46 19:11:47 19:11:49 19:11:51 19:11:53 19:11:55 19:11:55 19:11:56 19:11:57 19:11:58 19:12:01 19:12:01 19:12:02 19:12:04 19:12:06 19:12:07 19:12:10 19:12:15 19:12:18 19:12:23 19:12:25 19:12:26 19:12:29 19:12:30 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 well, that would be kind of silly, because now we're at a point where there are no revenues. And if there were no revenues at Oracle, there would be no Oracle. So the intercept that's suggested by that line for the data points that you do have is meaningless. Q. But you used an intercept for SAP, which was my question. Why did you use the SAP intercept? That includes billions of dollars as well. Right? MR. McDONELL: Asked and answered. Object to the form of the question. THE WITNESS: The intercept that is in the SAP equation, the A, if you recall, was connected to a log function. It's not separable. And the way that works is, you have this curvilinear line, because we have -- we don't have a linear equation, and the -- although there's an intercept embodied in the calculation, that intercept has no meaning. There is no use in my analysis of an intercept value independent of its role in that log function. So no, I -- there's an A, but there's no meaning to A independent of its role in the question. A. You asked me a question. Q. No, I'm withdrawing the question. That's the rule. Here we go. Variable costs do not equal total costs, do they? MR. McDONELL: Object to the form of the question. THE WITNESS: That's correct. MR. PICKETT: Q. Variable costs plus fixed cost equal total costs. Correct? MR. McDONELL: Asked and answered previously, vague and ambiguous. MR. PICKETT: Q. Correct? A. I'm just waiting for him to finish. That's correct. Q. And if we do your analysis -- I'm sorry, if we look at your Oracle regressions, the Oracle USA regression in particular, I'll use this as an example, you're equating the total costs with the variable costs, are you not? MR. McDONELL: Vague and ambiguous, asked and answered. THE WITNESS: Okay. MR. PICKETT: Q. That's the result of 79 (Pages 961 to 964) Merrill Legal Solutions (800) 869-9132 STEPHEN K. CLARKE June 10, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY Page 965 19:12:31 19:12:32 19:12:34 19:12:35 19:12:40 19:12:42 19:12:45 19:12:48 19:12:52 19:12:56 19:12:58 19:13:01 19:13:04 19:13:07 19:13:09 19:13:10 19:13:13 19:13:17 19:13:20 19:13:21 19:13:27 19:13:30 19:13:33 19:13:36 19:13:39 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 Page 967 19:14:52 19:14:54 19:14:55 19:14:56 19:14:58 19:15:01 19:15:02 19:15:05 19:15:06 19:15:09 19:15:12 19:15:14 19:15:14 19:15:14 19:15:14 19:15:14 19:15:14 19:15:14 19:15:14 19:15:14 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 your regression. Correct? MR. McDONELL: Wait, don't interrupt -THE WITNESS: It's not the result of my regression. What my regression does is, it takes the data for the range that we have it. And you need to understand, fixed costs don't mean they're fixed over every conceivable range of activity. They're fixed over a given range of activity. So if Oracle doubled in size, it wouldn't have the same fixed costs. It would have more buildings all over the world. If it shrunk to 10 percent of its current size, it wouldn't have the same fixed costs. It would divest itself of a bunch of buildings and other fixed costs. So fixed costs only have meaning within a given range of activity. And as soon as you get outside that range of activity, all costs are variable. So to give you an example, General Motors doesn't need to make as many cars. What does it do? It shuts its factories. It Toyota is a growing car company and needs to make more cars and it's at capacity in the factories it's got, it has to open new factories. MR. PICKETT: Let's go back on the record. MR. McDONELL: 30 seconds. MR. PICKETT: Q. Last question: Would Oracle's fixed costs change if there were a 2 percent change in the number of support customers? A. I think that's unlikely. MR. PICKETT: Thank you. We're done. THE VIDEO OPERATOR: Very good. Going off the record, the time now is 7:15. This also will be the conclusion of Tape 5, Volume 3, in the deposition of Stephen Clarke. (Time noted, 7:15 p.m.) --o0o-I declare under penalty of perjury that the foregoing is true and correct. Subscribed at ________________, California, this ____ day of ___________ 2010. __________________________ STEPHEN K. CLARKE Page 966 19:13:40 19:13:45 19:13:49 19:13:53 19:13:58 19:14:01 19:14:04 19:14:08 19:14:11 19:14:17 19:14:19 19:14:22 19:14:28 19:14:30 19:14:32 19:14:35 19:14:36 19:14:37 19:14:38 19:14:39 19:14:40 19:14:41 19:14:47 19:14:48 19:14:51 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 Page 968 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 So the fixed costs are fixed only within a range. And I have specified the equation that tells me the slope of the line, and then I have applied that to quantify the ratio of fixed costs, and by substracting that figure for -- I beg your pardon, variable costs. By subtracting that variable cost figure from total cost, I get the fixed cost for that range of activity that's relevant in this case. So your constant coming back to this difference, this completely bogus difference between the two specifications, is just demonstrating a lack of understanding. I don't know who's creating these questions for you, but they don't know what they're doing. MR. McDONELL: Counsel, by my calculation we've hit 7 hours. MR. PICKETT: We're not. One more question. MR. McDONELL: I need to get the time. MR. PICKETT: Let's go off the record. You're interfering with this examination, Jason. MS. WALLACE: We're just asking for the time. THE VIDEO OPERATOR: 30 seconds. CERTIFICATE OF REPORTER I, HOLLY THUMAN, a Certified Shorthand Reporter, hereby certify that the witness in the foregoing deposition was by me duly sworn to tell the truth, the whole truth, and nothing but the truth in the within-entitled cause; That said deposition was taken down in shorthand by me, a disinterested person, at the time and place therein stated, and that the testimony of said witness was thereafter reduced to typewriting, by computer, under my direction and supervision; That before completion of the deposition review of the transcript [X] was [] was not requested. If requested, any changes made by the deponent (and provided to the reporter) during the period allowed are appended hereto. I further certify that I am not of counsel or attorney for either or any of the parties to the said deposition, nor in any way interested in the event of this cause, and that I am not related to any of the parties thereto. DATED:______________________ ____________________________ HOLLY THUMAN, CSR 80 (Pages 965 to 968) Merrill Legal Solutions (800) 869-9132

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