Oracle Corporation et al v. SAP AG et al

Filing 931

Declaration of Elaine Wallace in Support of 930 Motion to Exclude Expert Testimony of Paul K. Meyer [Filed Pursuant to D.I. 915 ] filed by SAP 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)(Related document(s) 915 ) (Froyd, Jane) (Filed on 10/4/2010) Modified on 10/5/2010 (vlk, COURT STAFF).

Oracle Corporation et al v. SAP AG et al

Doc. 931 Att. 3

EXHIBIT 3

Dockets.Justia.com

PAUL K. MEYER May 13, 2010 HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY
Page 332
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO 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 PAUL K. MEYER _________________________________ VOLUME 2; PAGES 332 - 647 THURSDAY, MAY 13, 2010

HIGHLY REPORTED BY:

CONFIDENTIAL - ATTORNEYS' EYES ONLY HOLLY THUMAN, CSR No. 6834, RMR, CRR (1-427374)

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Q.

Now, did you believe that your approach of

looking at the 1 million dollar per customer value was a reasonable -- a -- you know, a legitimate reasonableness check? A. It was a check that made sense from my

perspective, because I understood from Oracle's management that at times they'll look at the value of an acquired customer, just to make certain it's within the proper range of what they can find utility and value on. Q. Okay. And the 1 million dollar per

customer number that you came up with is basically dividing the purchase price by the number of

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customers? A. That's right. In a very simple fashion,

that's correct. Q. And by doing that, you included as part of

the value any real property assets owned by PeopleSoft? A. It would include that and the other

assets, that's right. Q. A. Q. The fixed assets? Very gross, that's correct. It would include IP assets that are not at

issue in this case, such as patents and trademarks? A. Q. I would agree with that, that's correct. It would include other assets not at issue

here, like accounts receivable? A. Q. A. Right, I think that's exactly -Cash? That's correct. We can go back to the

balance sheet and look at all those items, that's correct. Q. And you're not suggesting that those types

of assets that I just listed should be part of the calculation of the value of use, are you? A. No, I'm not. But it's important for the

jury to know that these kinds of metrics exist, and

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at Oracle at times, they'll say the value of a customer could be 5 or 10 million dollars, depending on the customer. In fact, I think

Mr. Phillips at one point said it could be 10 or 20 million dollars. So these are very reasonable gut checks, and it doesn't say that's a million dollars just for this, but it's something that says we can do this and make certain we're in the proper range of determining the value.

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Q.

Going to this issue of the statement in

your report that the Oracle senior executives said they'd value 30 percent of the customers going to SAP at 3.33 billion, who said that? A. If you ask me without the notes in front

of me, and just from sort of my understanding of what was communicated to me -Q. Let's look at the notes. I mean, we have

the notes here. A. Okay, that's fine. (Deposition Exhibit 2031 was marked for identification.) MR. McDONELL: Q. So I'm showing you,

Mr. Meyer, what's been marked as Exhibit 2031, which appear to be a collection of handwritten notes. And they have document production numbers

on them in the lower right-hand corner. To move things along, I refer you to page 39 of 41. A. Q. Do you have that before you? Yes. Why don't you take a moment to look over

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those notes. A. Q. (Examining document.) Okay. Okay.

Have you had a chance to look over

those notes? A. Q. A. Yes, I have. Whose handwriting is that? This would be Ms. Dean's. And I think But for

there may be some of my handwriting also.

the most part, though, she drafted the notes and I looked at them. Q. they? A. These are the notes that at a high level And please identify these notes. What are

address the major points that were provided to us by Mr. Ellison, Ms. Catz, and Mr. Phillips in our conversation on November 4th of 2009. Q. Okay. Which one of them expressed the

opinion that the fair market value of the loss of 30 percent of support customers would be approximately 3.3 billion, or 30 percent of PeopleSoft's acquisition price? A. Well, the conversation was -- involved And so if you walk through the -- the

everybody.

notes, basically, we had discussions about the potential losses, customer losses. And from their

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perspective, as they understood the scope of the license, they would think that the loss could be as high as 50 percent, 30 to 50. And so we were talking about this issue of 30 percent, although Mr. Ellison and Ms. Catz and Mr. Phillips felt it could be more based on the significant access that was provided through the copyrighted property to SAP in this negotiation. And so we talked about the value that was paid for PeopleSoft -Q. Okay. Who came up with that concept? Let him finish. Well, I don't know what

MS. HOUSE:

MR. McDONELL: he's answering.

I asked him who expressed the

opinion, and he's starting to go on a long explanation of all these other things. MS. HOUSE: it's inappropriate. Every time you do it, Jason, Let him finish his answer. Q. I said, who came up

MR. McDONELL: with the concept? MS. HOUSE:

And he's answering it. Let me try again.

MR. McDONELL: Q.

Did one of these individuals come up with

the concept -MS. HOUSE: Asked and answered.

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MR. McDONELL:

Q.

-- of using 30 percent

of the support customers to come up with the 3.3-billion-dollar valuation? MS. HOUSE: THE WITNESS: Asked and answered. You've already asked that

question, and I gave you my response that basically it was a dynamic conversation and it quickly centered on once they understood the scope of the access and the scope of the materials that they would be providing in the license, that the group at large felt the losses could be as high as 50 percent. And I sort of reigned them back to their lower end, which is 30 to 50, and worked from there. But they felt this would be a devastating

impact on their company, which was consistent with their prior thoughts as to why this value could be, you know, tens of billions. So we focused on this 30 to 50 percent range, and that's how the conversation progressed. And then we moved to what was important to them, which was the value of what they had just paid for PeopleSoft, the 11 billion. And that's when we had

this discussion that worked through the notes about basically, they paid a million dollars per

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customer, they understand the customers are enabled and protected by the technology that they have just paid for. And at the bottom of page 2, the impact

of licensing would be greater than 3 billion dollars if lost at least 3,000 PeopleSoft customers. And so we worked from that perspective of the greater than 3, 30 percent, against the 11 billion dollars. But there was large sentiment that the losses could be much larger, as high as 50 percent, probably sort of nearing Mr. Agassi's thoughts on the other side of the table that they could gain as much as 60. So that was the dynamic conversation with three very savvy people that were sort of talking in unison about these. these issues. MR. McDONELL: Q. So you're saying that They were in unison on

all three of the Oracle senior executives -Mr. Ellison, Mr. Phillips and Ms. Catz -- all came up with the idea and explained to you that their losses could be as high as 30 percent, or 3.3 billion dollars? A. It just didn't transpire that way. And

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so -- and I'm not going to give testimony that doesn't reflect the conversation. Basically, they came together on -- and were consistent on the impact, which could be up to 50 percent. And from there, the conversation, I

can't exactly recall all the voices, but it sort of came together that -- and Mr. Ellison was involved in this -- saying that it could be devastating to the company with this license, but if we had to do it -- and then we forced them back towards the 30 percent just to sort of see if that was the lower end of the range. And then from there we talked

about the value of the PeopleSoft deal, how important it was, they paid per customer. And then

basically the 30 percent brings you up to 3.3 billion. So we talked around that, even though you could feel the sentiment that it could be much, much higher. And so from my perspective, I was

trying to get their most conservative view on what would happen if you licensed. And it wasn't like the conversation -- you can't always tell sort of who's saying what, but it was basically a consistent message that is now I believe laid out with the highlights in these

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notes.

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Q.

And would you agree that to the best of

your knowledge, Oracle has never recorded any impairment in its financial statements of the goodwill of -- created in the Siebel acquisition? A. That's my understanding.

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MR. McDONELL:

Q.

Tell me as specifically

as you can what analysis was conducted by SAP that generated the 200-customer number. A. I wouldn't have the specifics of that. I

have to rely upon what's available contemporaneously in the business records of SAP. And I can work off of their business records, which are not dissimilar to what they generated for the PeopleSoft transaction. The same people were

involved, it was being woven into Safe Passage, they're tracking Safe Passage. They even say that

there's 2,000 joint SAP/PeopleSoft customers, they went through and they chronicled all the customers, they have -- in fact, on Bates -219, they go through and they've got PeopleSoft/JDE customers, they have Enterprise customers, and they come down to the 2,000 customers. And this is all a reaction

to -- there's another document that lays out this threat.

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Q.

Did you do any independent analysis of the

reasonableness of the 200-customer estimate? A. Q. When you say independent analysis -Did you do any independent market analysis

to see -- to independently verify that the 200-customer assumption, if that's what it was, was reasonable and reasonably likely to come to fruition, meaning, at that time SAP was reasonably likely to have 200 customers go to TomorrowNow support for Siebel? A. If I understand the question, in an

overall sense, I compared the 2,000 existing joint customers to the projection of 200, I looked at the other records that indicated the threat could be 1.5 billion euros, and from that perspective I'm accepting the projections at the time of the same individuals that have -- were involved in the launch of the PeopleSoft Safe Passage initiative, and we've been tracking along the results in all the large customers that have been part of that program. And that's are not small companies. Q. What was the mathematical computation that

was done that produced the 200-customer number? MS. HOUSE: Asked and answered now three

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times. THE WITNESS: question. MS. HOUSE: again? Do you want him to answer it I don't follow your

I just don't want to hear complaints about

the timing. MR. McDONELL: Q. How did the

200-customer number come to be? MS. HOUSE: THE WITNESS: Asked and answered. I can tell you how -- from They

my perspective what they would have done. would have taken the 2,000 customers -MR. McDONELL: have done. Q.

Not what they would

What they did do. Let him answer. Let me give you my answer. Q. Are you telling me what

MS. HOUSE: THE WITNESS:

MR. McDONELL:

they actually did or what you -MS. HOUSE: Don't interrupt him, and don't You ask a

be dismissive and argumentative. question, you get an answer. MR. McDONELL: Q. Okay.

What did someone

do to come up with the 200-customer number? MS. HOUSE: THE WITNESS: Asked and answered. If you're asking me my

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perspective on that, I can give you my perspective. I'm not privy to the work papers and all the analysis and all the detailing that was done by people at SAP, and we've been through that already. So --

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Q.

Okay.

So it's your view that when

evaluating the hypothetical negotiation under the Georgia Pacific factors, you look at the time of the hypothetical negotiation only. data available as of that time only. A. There's two levels. Right? Right? The

There's a level that

focuses on at the time of the hypothetical, and Georgia Pacific, but I think what overrides that even more here is, it's my understanding of the law that when you figure out the fair market value of the license, it's an exercise that occurs back in January 2005, and you focus on the valuation at that point in time, just like you would focus on any valuation assignment. A valuation assignment,

you look at the point in time, and you do your valuation. And that's consistent with what I think the law has asked here, which is, assign the fair market value at that time, which is consistent with Georgia Pacific, which says, do the hypothetical focused on that time.

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MR. McDONELL:

Q.

So is this a

document -- is this a document, Exhibit 1018, in the paragraph numbered 1, which you relied on for that -- that data point that you cite in 135 of your report that TomorrowNow estimated that $1 of TomorrowNow revenue equaled $10 of SAP strategic license revenue pipeline? A. This document, and also 1019. They both

have that reference. Q.

But this one has it.

And you relied on this document in doing

your income approach? A. Q. A. Yes. And did you consider it reliable? I considered it a source of information

that would reflect inputs from TomorrowNow's

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management. Q. Did you read the deposition testimony of

Andrew Nelson about the document? A. Q. I believe I've seen that. And did you in particular read the portion

of his testimony or are you aware of his testimony where he basically testified that what he meant was that the business model was to sell half of what the -- sell at half of what the vendor had, meaning a TomorrowNow price of $1 would mean an Oracle price of $2. A. Q. Right?

I understand that. And that if Oracle was charging

maintenance at $20 -- I'm sorry, 20 percent of the license fee, that simply mathematically translated into a $10 license. A. SAP. Q. Well, I'm not there yet. I mean, I think Correct?

You're talking about the $10 license for

we're starting with the assumption that $1 of TomorrowNow support translates into $2 of Oracle support, which would imply there was a $10 Oracle license at the outset of it all. A. I'll agree with that. MS. HOUSE: Do you have Mr. Nelson's

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testimony so he can look at it? MR. McDONELL: I do, but I don't want to

take the time to go over it unless we have to. MS. HOUSE: Well, then we're just going to

assume that you're properly paraphrasing it without seeing it. MR. McDONELL: Q. So in connection -- and

then did you understand Mr. Nelson then to be saying that that mathematically translates into $10 of SAP license pipeline? A. What I understand is that if it's a dollar

of TomorrowNow support revenue, it becomes a $10 increase in SAP's strategic license revenue pipeline. Q. And pipeline means an opportunity to sell.

Is that your understanding? A. view it. sales. Pipeline would be -- it's how you want to It can be backlog, it can be future But it's basically saying, if we get

service, we have an opportunity to get license. Q. Exactly. So that's exactly the point. You didn't understand

It's an opportunity.

Mr. Nelson to be saying here that if -- for every $1 of TomorrowNow support revenue, SAP would necessarily get $10 of license revenue. Is that

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true? A. Well, I differ on that, because I think

what he's saying is that it's a value-based proposition. make $10. Now, if you and I want to quibble over whether they're going to make $8 or $12, I would agree there could be some flex there. But the If we make a dollar, SAP's going to

value proposition, and why they did the deal with TomorrowNow, was, it was a vehicle to have maintenance revenues lead to license revenues. Q. on this. You understand, don't you, that they don't always lead to license revenues. A. Correct? My But Mr. Meyer, I want you to really focus

I think we differ on this.

understanding of this business is that you -- if you have maintenance, there's a very good opportunity to win other business. And it's a very

important -- it provides you an opportunity to be in the IT shop with the customer, with the contract. And that's a relationship that both SAP coveted, and so did Oracle. Q. Okay. So just to be clear, for purposes

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of your assumption, based on the use of the 1-to-10-dollar ratio cited in Exhibit 1018 that you then refer to in paragraph 135 of your report, your assumption is that for every $1 of support revenue TomorrowNow gets, SAP would get $10 of license revenue. A. right. That's the value proposition, that's

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Q.

So let's go to Exhibit 1018, and I just

want to understand your interpretation of that

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document. Are you interpreting that document to mean that Andrew Nelson was saying, for every dollar that TomorrowNow gets, SAP is necessarily going to get $10 worth of license sales? A. That's the value proposition and why his It's a very important part

business makes sense. of their company. Q.

So you're interpreting this to mean that

that was going to happen? A. No, I'm interpreting it for what it was,

was at the time, as the leader of TomorrowNow, he's showing the benefits that he brings to SAP both for SAP's pipeline and also the impact on their chief rival, Oracle. Q. And you used to 10-to-1 ratio in Correct?

performing your income approach analysis. A.

What I did was, I used that -- as I

mentioned about the market approach, this was a way for me to do a reasonableness check on the income approach. It was sort of -- let me finish -- it

was a way for me to check whether or not my results were reasonable. Q. Okay. So you used that 1-to-10-dollar

ratio, as you just testified you understood it, to

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check the reasonableness of your income approach analysis for the PeopleSoft license. A. That's right. Correct?

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Q.

So with respect to the market income and

cost approaches, you looked at those as independent stand-alone measures. Correct? And then you also

considered them within the ambit of Georgia Pacific. saying? MS. HOUSE: his testimony. THE WITNESS: all those separately. What I've done is looked at And I feel like they stand Asked and answered, misstates Is that what I understand you to be

on their own for the reasons I've put them forth

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and described them. But then I take that information and the additional considerations in Georgia Pacific and also come to a separate independent opinion of that, and I issue a value of 2 billion dollars.

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Q.

Okay.

Would you turn in your report to

paragraph 189, please? There you've stated that the 10-million-dollar price that SAP paid to acquire TomorrowNow is not instructive as to the fair market value of the license to the copyrighted materials at issue. A. Q. Correct so far?

That's correct. And in -- your reasoning is that SAP was

not acquiring any intellectual property in its acquisition of TomorrowNow. A. Q. Isn't that right?

That's one of the factors. Is it your -- is it your opinion that in

the hypothetical negotiation for the PeopleSoft/JD Edwards license, that the parties, Oracle and SAP, should not take into consideration the TomorrowNow acquisition by SAP? A. That would be my opinion.

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