Oracle Corporation et al v. SAP AG et al

Filing 989

Offer of Proof Regarding Damages Evidence 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)(Alinder, Zachary) (Filed on 11/15/2010) Modified on 11/16/2010 (kc, COURT STAFF).

Oracle Corporation et al v. SAP AG et al

Doc. 989 Att. 5

EXHIBIT E
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BINGHAM McCUTCHEN LLP DONN P. PICKETT (SBN 72257) GEOFFREY M. HOWARD (SBN 157468) HOLLY A. HOUSE (SBN 136045) ZACHARY J. ALINDER (SBN 209009) BREE HANN (SBN 215695) Three Embarcadero Center San Francisco, CA 94111-4067 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] [e-mail] [e-mail] [e-mail] DORIAN DALEY (SBN 129049) JENNIFER GLOSS (SBN 154227) 500 Oracle Parkway, M/S 5op7 Redwood City, CA 94070 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] Attorneys for Plaintiffs Oracle USA, Inc., Oracle International Corp., Oracle EMEA Ltd., and Siebel Systems, Inc. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION ORACLE USA, INC., et al., v. Plaintiffs, CASE NO. 07-CV-01658 PJH (EDL) DECLARATION OF PAUL K. MEYER IN SUPPORT OF ORACLE'S OPPOSITION TO DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT REGARDING PLAINTIFFS' HYPOTHETICAL LICENSE DAMAGES CLAIM [REDACTED] Date: October 28, 2008 Time: 9:00 a.m. Courtroom: TBD Judge: Hon. Phyllis J. Hamilton

SAP AG, et al., Defendants.

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DECLARATION OF PAUL K. MEYER

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I, Paul K. Meyer, declare as follows: 1. I am over the age of 18 and competent to testify to the facts stated in this

declaration. All statements made in this declaration are based upon my personal knowledge and belief. If called and sworn as a witness, I could and would competently testify as to such matters. 2. I am a Managing Director at Navigant Consulting, Inc. ("NCI") and co-

leader of NCI's national intellectual property practice. NCI is a national business, economic, financial and damages consulting company that provides services to government agencies, corporations and counsel. NCI has approximately 1,900 professionals in over thirty five offices throughout the United States, Canada, Europe and China. I. BACKGROUND AND EXPERIENCE 3. I am a Certified Public Accountant (CPA), Certified Fraud Examiner

(CFE), Certified in Financial Forensics (CFF) and accredited in business valuation (CPA-ABV). I am a Consulting Professor at Stanford University in the Graduate School of Engineering, where I have been teaching a course covering accounting, quantitative methods and financial issues for over fifteen years. I am also a member of the Advisory Board for the McIntire School of Commerce at the University of Virginia. I graduated from the University of Virginia in 1979. I lecture on intellectual property valuation, including at the Sedona Patent Conference, the USC Intellectual Property Institute, the Licensing Executive Society and Law Seminars International. 4. I have over twenty five years of experience consulting on financial,

accounting, economic and damages matters. I am experienced in financial, economic, damage, and accounting matters related to the scope of our work, analysis and study on this matter. I have consulted on numerous intellectual property infringement, misappropriation, valuation and licensing-related matters. I have analyzed hundreds of claims for lost profits and other financial and economic impacts, and have analyzed and determined reasonable royalty rates. I have testified in over two hundred depositions and approximately seventy trials and major arbitrations, including over thirty jury trials. 1
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5.

My curriculum vitae is included as ATTACHMENT A to this Declaration.

A listing of cases in which I have testified as an expert witness at trial, arbitration and/or deposition during the last four years is included as ATTACHMENT B to this Declaration. My hourly billing rate on this matter is $600. I have no publications during the last ten years. NCI's work on this matter was performed by me or under my supervision. II. RETENTION AND ASSIGNMENT 6. Oracle retained NCI to address economic and damage issues related to its

litigation with Defendants SAP AG, SAP America, Inc., and TomorrowNow, Inc. (collectively referred to herein as "SAP" or "Defendants").1 My analyses of Oracle's damages in this matter are on-going; I have not yet reached conclusions, nor have I reviewed all of the documentation and information that has been produced by the parties in this matter. I understand that fact discovery is ongoing. 7. The purpose of this Declaration is to address issues related to Defendants'

request for partial summary judgment precluding Oracle USA, Inc., Oracle International Corporation, Oracle EMEA, Ltd. and Siebel Systems Inc. (collectively referred to herein as "Oracle" or "Plaintiffs") from pursuing an award of actual damages on its copyright infringement claim in the form of a hypothetical license for the fair market value of the copyrighted materials infringed. Defendants make this request in their Motion for Partial Summary Judgment Regarding Plaintiffs' Hypothetical License Damages Claim, dated August 26, 2009 ("Defendants' Motion"). 8. I submit this Declaration in support of Oracle's Opposition to Defendants'

Motion for Partial Summary Judgment Regarding Plaintiffs' Hypothetical License Damages Claim ("Plaintiffs' Opposition"). I make the following statements based on my personal

Oracle Corporation, et al. v. SAP AG et al., Complaint In Case No. 07-01658 dated March 22, 2007; Oracle USA, Inc. et al v. SAP AG et al, Fourth Amended Complaint In Case No. 07-01658 dated August 18, 2009 ("Fourth Amended Complaint").

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knowledge and expertise and, if called as a witness, would be prepared to testify competently about them. The bases for my opinions and materials relied upon are referenced herein. III. COPYRIGHT DAMAGE REMEDIES 9. 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. See Exh. 1 (A true and correct copy of Nimmer on Copyrights, August 2009, Volume 4, Chapter 14 "Infringement Actions ­ Remedies"), at §14.01[A] and 14.01[B] (14-5, 14-6 and 14-9). 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[2] or by the value of the use of the copyrighted work to the infringer." See Polar Bear Prods, Inc. 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 Exh. 1 (Nimmer), at §14.02 (14-13 and 14-20.1 through 14-31). See also Defendants' Motion, at III.B.1, citing Polar Bear Prods, Inc. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004); Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir. 2002); Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 772 F.2d 505, 512 (9th Cir. 1985); and Jarvis v. K-2, Inc., 486 F.3d 526, 533 (9th Cir. 2007). One articulation of the "value of use" measure of damages is explained as: "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

2

I understand Defendants' Motion does not concern the lost profits measure of Oracle's actual damages.

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from the licensee's profits, or for a combination of both."3 10. 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.4 See Plaintiffs' Opposition, at §II.A, citing Polar Bear Prods, Inc. v. Timex Corp., 384 F.3d 700, 708 (9th Cir. 2004); Jarvis v. K-2, Inc., 486 F.3d 526, 533 (9th Cir. 2007); Mackie v. Rieser, 296 F.3d 909, 917 (9th Cir. 2002); Frank Music Corp. v. Metro-Goldwyn-Mayer, 772 F.2d 505, 512 (9th Cir. 1985); and Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, 1174 (9th Cir. 1977). The Ninth Circuit Model Civil Jury Instruction 17.23 on Copyright Damages states, "The reduction in 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." See Plaintiffs' Opposition, at §II.A. As noted in Nimmer on Copyrights, the similarities between the "value of use" theory of copyright damages and the reasonable royalty rule in patent law are apparent. See Exh. 1 (Nimmer), at §14.02[B][1] (14-22). 11. What SAP would have been reasonably required to pay Oracle for its use

of the infringed PeopleSoft/J.D. Edwards, Siebel and Oracle database copyrighted software and

Sid & Marty Krofft Television Prods., Inc. v. McDonald's Corp., 562 F.2d 1157, 1174 (9th Cir. 1977). The decision of the U.S. Court of Appeals for the Ninth Circuit acknowledges, "This same distinction is recognized in patent cases." Id. n.20. 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., Exh. 2 (A true and correct copy of excerpts from the June 2007AICPA Statement on Standards for Valuation Services No. 1, "Valuation of a Business, Business Ownership Interest, Security, or Intangible Asset"), at 44; see also Exh. 3 (A true and correct copy of excerpts from Intellectual Property, Valuation, Exploitation, and Infringement Damages, by Gordon V. Smith and Russell L. Parr. 2005 Edition), at 143.
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software support materials ("copyrighted materials at issue") can be determined based on the fair market value of those copyrighted materials at the time of infringement. There are well established, and widely accepted techniques for the valuation of intangible assets, including intellectual property such as the copyrighted software and software support materials at issue; namely, the Cost Approach, Market Approach and Income Approach. See Exh. 3 (Intellectual Property, Valuation, Exploitation, and Infringement Damages, by Gordon V. Smith and Russell L. Parr., 2005 Edition), at 148-154. The Cost Approach measures the market value of intellectual property based on the cost to replace the future service capability of the copyrighted asset; the Cost Approach does not directly consider the future economic benefits of the assets. See Exh. 3 (Intellectual Property, Valuation, Exploitation, and Infringement Damages), at 156. The Market Approach involves determining the fair market value of intellectual property based on a comparison to what others have agreed upon in arm's-length transactions involving similar assets. See Exh. 3 (Intellectual Property, Valuation, Exploitation, and Infringement Damages), at 169. Using the Income Approach, the fair market value of the intellectual property is determined based on the value of the future economic benefits that are expected to be generated by the asset. See Exh. 3 (Intellectual Property, Valuation, Exploitation, and Infringement Damages), at 185. A variation of the Income Approach is the Relief-from-Royalty Approach, whereby intellectual property is valued based on the present value of the royalties that the property owner is relieved from paying as a result of owning the asset.5 See Exh. 3 (Intellectual Property, Valuation, Exploitation, and Infringement Damages), at 194. In the valuation of intellectual property, it is common to consider analysis of the fair market value under multiple valuation approaches. See Exh. 3 (Intellectual Property, Valuation, Exploitation, and Infringement Damages), at 155 ("The analyst should consider using all three for every property because a comparison of their values may confirm the conclusions or highlight inconsistencies that should be investigated"). 12.
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In the context of hypothesizing a fair market value negotiation, the

I refer to the Relief-from-Royalty Approach and the Income Approach collectively as the "Income Approach."

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application of the traditional valuation methodologies explained above involves the evaluation of a variety of relevant economic and other factors, which are also addressed, for the most part, in litigation settings under the well-known patent case of Georgia-Pacific Corp. v. U.S. Plywood Corp. ("Georgia-Pacific").6 Georgia-Pacific provides for a collection of factors to be considered when determining a reasonable royalty under a hypothetical negotiation framework ("Georgia-Pacific factors"). Those same economic and other factors are relevant to this case in the determination of what SAP would reasonably pay Oracle, as of the time of infringement, for SAP's use of Oracle's copyrighted materials at issue. See Plaintiffs' Opposition, at II.F.1 (citing Polar Bear Prods., Inc. v. Timex, Corp., 384 F.3d 708, 709 (9th Cir. 2004); Jarvis v. K2 Inc., 486 F.3d 526, 534 (9th Cir. 2007); On Davis v. The Gap, 246 F.3d 166, 167-69 (2d Cir. 2001); McRoberts Software, Inc. v. Media 100, Inc., 329 F.3d 557, 566-67 (7th Cir. 2003); Bruce v. Weekly World News, Inc., 310 F.3d 25, 29-30 (1st Cir. 2002); Deltak, Inc. v. Advanced Systems, Inc., 767 F.2d 357, 361 (7th Cir. 1985); Getaped.com, Inc. v. Cangemi, 188 F. Supp. 2d 398, 404, 406 (S.D.N.Y. 2002); Fournier v. McCann Erikson, 242 F. Supp. 2d 318, 337 (S.D.N.Y. 2003); Marobie-Fl v. Nat'l Ass'n of Fire Equip. Distribs., 2002 U.S. Dist. LEXIS 2350 at *5-7 (N.D. Ill. 2002); and Thornton v. J Jargon Co., 580 F. Supp. 2d 1261, 1276 (M.D. Fla. 2008). 13. I have employed the above-mentioned valuation methodologies

throughout my twenty five years of experience in consulting on financial, accounting, economic and damages matters, and specifically as it relates to the valuation of intellectual property and related financial damages. I have testified at trial, arbitration and deposition on the determination of financial damages using valuation techniques including the determination of reasonable royalties in the context of a hypothetical negotiation based on the evaluation of economic and other factors, including the Georgia-Pacific factors. I have offered expert witness testimony on the valuation of intellectual property, including copyrighted works, after considering and using the Cost, Market and Income valuation approaches. I have analyzed, and

6

Georgia-Pacific Corp. v. United States Plywood Corp. 318 F. Supp. 1116 (S.D.N.Y. 1970).

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testified to, the value of damages for copyright infringement based on the framework of a hypothetical license negotiation. My testimony has been accepted by courts. See, e.g., Exh. 4 (A true and correct copy of excerpts from the transcript of proceedings before Judge Steeh on February 14, 2005 and the associated Order in Compuware Corp. v. IBM Corp., case no. 2:02cv-70906-GCS (E.D. Mich.)), at 36:15-39:22 (denying IBM's Motion in Limine to exclude evidence and my testimony related to value of use copyright damages).7 14. I am in the process of analyzing and measuring Oracle's financial and

economic damages in this matter. My on-going analysis includes the determination of Oracle's damages as measured by SAP's "value of use" of the copyrighted materials at issue. I am analyzing and developing opinions as to the fair market value of the copyrighted materials at issue using widely accepted valuation methodologies, including a determination of the fair market value based the framework of a hypothetical negotiation between Oracle and SAP. In my opinion, there is extensive relevant evidence to support the determination of the fair market value of Oracle's copyrighted materials at issue using accepted valuation methodologies, including the evaluation of relevant economic and other factors to determine what SAP would reasonably have been willing to pay, and what Oracle reasonably would have accepted, to license the infringed intellectual property. 15. The evidence cited throughout this Declaration represents examples of the

evidence that I may cite in support of my opinions and is not intended to be an exhaustive list of all available evidence and data that may form the bases of my opinions.8 To date, the majority of my analysis has been focused on SAP's infringement of copyrighted materials related to Oracle's PeopleSoft and J.D. Edwards software applications. I understand that discovery is on-going, and

7

The Compuware v. IBM case also involved allegations of software copyright infringement by a defendant company that was a significant competitor to the plaintiff in that case.

8

The accompanying Declarations of Holly House and Safra Catz authenticate sources I cite herein that was either produced by the parties in this action or came from transcripts of depositions in this action. I authenticate the other sources cited herein (e.g., valuation treatises, publically available materials such as SAP, Oracle and PeopleSoft SEC filings, and news articles).

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that discovery related to alleged infringement of software and/or software support materials related to Oracle's Siebel and database products has recently begun. To the extent that additional information becomes available, I will consider and/or rely on that information in forming my opinions, as appropriate.9 IV. ANALYSIS OF ECONOMIC FACTORS RELEVANT TO THE DETERMINATION OF FAIR MARKET VALUE 16. Due to differences in the timing of the first infringing activity, I anticipate

determining the fair market value of the PeopleSoft/J.D. Edwards, Siebel and Oracle database copyrighted materials at issue on the basis of separate hypothetical license negotiations between Oracle and SAP.10 Certain economic considerations of my analysis pertain to all of the respective negotiations, while others relate to the specific facts and circumstances of the copyrighted material subject to the particular license negotiation. 17. Economic and other factors relevant to the analysis of the hypothetical

license negotiations between Oracle and SAP as it relates to the PeopleSoft/J.D. Edwards, Siebel and Oracle database copyrighted materials include: (A) the nature, scope and duration of the

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To the extent that Defendants or Defendants' experts introduce additional reliable, relevant and instructive evidence after the submission of my Expert Report, I will take that evidence into consideration at that time. For instance, I understand the following facts and legal sources are relevant to the timing of the license for Defendants' use of the infringed PeopleSoft and J.D. Edwards materials. I understand that TomorrowNow had been servicing PeopleSoft customers prior to Oracle's acquisition of PeopleSoft and that the allegations are that TomorrowNow had been infringing PeopleSoft copyrighted materials prior to the acquisition. However, I also understand that, as a matter of law, 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 non-exclusive copyright licenses are personal and non-assignable without the consent of the licensor (in this case, Oracle ­ PeopleSoft's successor in interest). 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). I understand that Defendants did not start servicing J.D Edwards customers until after TomorrowNow was acquired by SAP, so that would have required a new license with Oracle at the time of SAP's acquisition of TomorrowNow. The Siebel hypothetical negotiation would commence at the time Defendants began infringing Siebel copyrighted material, which I understand occurred after Oracle's 2006 acquisition of Siebel. The timing of the Oracle database license will depend on when Defendants began infringing Oracle's database copyrights, which I understand is the subject of ongoing discovery.

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hypothetical license;11 (B) the past licensing practices of the parties for similar intellectual property, or lack thereof; 12 (C) the nature of the commercial relationship of the parties;13 and (D) market and financial considerations that would impact the parties' respective negotiating positions.14 Evaluation of these factors is relevant to the determination of the fair market value of the copyrighted materials at issue upon considering the Cost, Market or Income valuation approaches (although specific factors may be relevant to certain approaches more than others), and is consistent with the determination of the fair market value under the Georgia-Pacific framework for determining the outcome of a hypothetical license negotiation. As explained in detail below, there is sufficient evidence to allow me to analyze these relevant economic and other factors as they relate to the determination of the outcome of hypothetical negotiations between Oracle and SAP. A. Nature, Scope and Duration of the Hypothetical License 18. Analysis of the nature, scope and duration of the hypothetical license is

relevant to the determination of the specific terms of the license being negotiated, as they relate to, for example, the extent of intellectual property covered by the license, the permitted use of the property by SAP, permitted geographic regions of use by SAP, and the duration of the license, among others. For purposes of my analysis, the terms of the contemplated hypothetical licenses will be premised on SAP's actual infringement of the copyrighted materials at issue, and its actual plans and objectives for the use of the copyrighted materials at issue. 19. I understand that Oracle's technical experts are analyzing, and will offer

opinions as to, SAP's theft and use of the copyrighted materials at issue. Along with any relevant documents, testimony and discovery responses, I will rely upon the opinions of those
11 12 13 14

The consideration and analysis of this factor is consistent with Georgia-Pacific factors 3 and 7. The consideration and analysis of this factor is consistent with Georgia-Pacific factors 1, 2 and 4. The consideration and analysis of this factor is consistent with Georgia-Pacific factor 5.

The consideration and analysis of this factor is consistent with Georgia-Pacific factors 6, and 8 through 13.

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experts in determining the nature and scope of the intellectual property to be included in the hypothetical license negotiations, as appropriate.15 To date, my understanding of SAP's theft and use of the infringed intellectual property is based on information contained in Oracle's Fourth Amended Complaint, in which Oracle makes allegations including, but not limited to: a. Defendants illegally downloaded, copied and stored on its servers, Oracle copyrighted materials, which enabled it to offer services to Oracle software customers at cut rates, and to lure customers away from Oracle's software platform to SAP. See Exh. 5 (Fourth Amended Complaint), at 6:3-6 and 8-13; b. Defendants repeatedly downloaded copyrighted or confidential Oracle software and support materials from Oracle's proprietary, password-protected customer support website, including at least 10,000 illegal downloads of Oracle software and software support materials between September 2006 and February 2007, alone. See Exh. 5 (Fourth Amended Complaint), at 6:6-9 and 14-15; c. Over a period of years, Defendants systematically took unauthorized materials from Oracle's systems, including through the use of a dedicated bank of servers in a "download center" and a customized software tool developed by Defendants called "Titan." See Exh. 5 (Fourth Amended Complaint), at 6:15-18; d. Defendants stored on its systems more than five terabytes of Oracle software and software support materials. More than 8 million downloaded Oracle software and software support materials were found on just one of SAP's servers. See Exh. 5 (Fourth Amended Complaint), at 6:21-7:1; e. Defendants maintained "generic" and "retrofit update" environments containing copies of Oracle's software applications, from which it made thousands of copies of Oracle's software, and distributed thousands of individual "fixes" to its TomorrowNow customers. See Exh. 5 (Fourth Amended Complaint), at 7:19-8:3

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The consideration of testimony of qualified experts is consistent with Georgia-Pacific factor 14.

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and 8:21-23; f. Defendants "copied and pasted" and re-branded Oracle documentation that was "essentially identical" and "virtually verbatim with small changes." See Exh. 5 (Fourth Amended Complaint), at 8:24-9:4; and, g. Defendants supported approximately 40% of its TomorrowNow customer base by using Oracle database software in a manner for which it did not have a license. See Exh. 5 (Fourth Amended Complaint), at 42:28-43:3. 20. Evidence that I have evaluated to date informs the geographic scope of the

hypothetical licenses at issue.16 For example, the following confirm that Defendants used the copyrighted materials at issue to service customers throughout the world (expansion beyond North America occurred shortly after SAP's acquisition of TomorrowNow): a. A February 23, 2005 presentation to the SAP Board indicates the expansion of TN in Europe and Asia was "to be finalized by early-March." See Exh. 6 (Excerpts from a February 23, 2005 SAP presentation "Clear Sailing - Oracle Competitive Program SAP Board Update," SAP-OR 00299519-533 [Kagermann Exhibit 414]), at SAP-OR 00299525. b. Henning Kagermann, SAP Executive Board Member and Co-CEO, testified to SAP's immediate plan to expand TN services into Europe and Asia. See Exh. 7 (Excerpts from the deposition of Henning Kagermann, dated September 25, 2008), at 138:22-25. c. Excel files produced by SAP showing TomorrowNow accounts receivable data by customer indicate that revenue was received by TomorrowNow entities in the United States ("TN US"), Netherlands ("TN NL"), United Kingdom ("TN UK"), Singapore ("TN SG") and Australia ("TN AU"). See Exh. 8 (Excerpts from the
Given that it is alleged that Defendants' unauthorized use of the Oracle database software involved the servicing of its TomorrowNow customers (See Exh. 5 (Fourth Amended Complaint), at 42:28-43:3), I expect that the hypothetical license for that database software would be similar in scope to the licenses related to Oracle's PeopleSoft, J.D. Edwards and Siebel copyrighted materials.

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native file TN Customer Report-revised.xls, TN-OR 06125333). 21. The hypothetical licenses granted by Oracle to SAP for PeopleSoft/J.D.

Edwards, Siebel and Oracle database copyrighted materials would be non-exclusive, as Oracle would continue to provide software and software support to its own customers using those materials. For example, at the time of Oracle's acquisition of PeopleSoft, Larry Ellison confirmed that it would continue to support PeopleSoft products. See Exh. 9 (Excerpts from a January 18, 2005 Video Presentation "Oracle and PeopleSoft ­ Better Together," ORCL 00223497-531 [Ellison Exhibit 400]), at ORCL 00223501 ("We said at the beginning we'd support the PeopleSoft product for a decade, for ten years, and we intend to do that."). Oracle continued to support PeopleSoft and J.D. Edwards products throughout the term of the PeopleSoft/J.D. Edwards hypothetical license at issue. 22. I understand the hypothetical licenses would expire in October 2008,

coinciding with SAP's reported cessation of TomorrowNow's operations. See Exh. 10 (True and correct excerpts from SAP's publically filed Annual Report for the fiscal year ending December 31, 2008), at 173. However, there is evidence to suggest that in each hypothetical negotiation, Oracle and SAP would consider the financial implications of periods well into the future, and potentially into perpetuity, of entering into such a license. SAP's own documents, as well as deposition testimony of SAP senior executives and board members, acknowledge that SAP's intention was not simply to receive revenue from the provision of TomorrowNow support services, but it was rather to use its TomorrowNow offering to drive the conversion of Oracle's application customers over to SAP. In other words, SAP's objective was (and likewise Oracle's expectation would be) that some portion of TomorrowNow's customers obtained through October 2008 would switch to the SAP software platform, causing Oracle to lose license and maintenance revenue into the future. Relevant evidence in the record includes, but is not limited to: a. "Step 3" of SAP's "PeopleSoft 1-2-3" plan was to "Upgrade PeopleSoft customers to mySAP ERP." See Exh. 11 (January 5, 2005 SAP email with attached document "PeopleSoft 1-2-3 01 05 05.doc," SAP-OR 00004991-5007 [Shenkman Exhibit 12 Case No. 07-CV-1658 (PJH)
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225]), at SAP-OR 00005003. A statement in SAP's "PeopleSoft 1-2-3" plan that, "Freezing a PeopleSoft customer `forever' is not an end goal for SAP. SAP ultimately wants to sell more software and upgrade a customer to mySAP." See Exh. 11 (PeopleSoft 1-2-3), at SAP-OR 00004997. Testimony of Shai Agassi, Former SAP CTO and Executive Board Member, that SAP's Executive Board was more interested in the number of customers converted to SAP than the TomorrowNow maintenance revenues achieved. See Exh. 12 (Excerpts from the deposition of Shai Agassi, dated January 5, 2009), at 310:17-24. Testimony of Leo Apotheker, SAP Executive Board Member and Co-CEO, stating, "the acquisition of TomorrowNow was meant to facilitate the movement of customers who so desired to moved away from PeopleSoft ­ from PeopleSoft software in that particular case to SAP." See Exh. 13 (Excerpts from the deposition of Leo Apotheker, dated October 2, 2008), at 83:15-22. A statement in a SAP "Business Case" for providing Siebel support through TomorrowNow that, "The Maintenance offering ­ a key part of the Safe Passage program and provided by TomorrowNow ­ can be used as an enabler for future license revenue, to grow maintenance contract volume take away from Oracle and to generate additional maintenance revenue for SAP." See Exh. 14 (Excerpts from an October 2005 SAP presentation "Business Case: TomorrowNow ­ Siebel", TNOR 00995250-259 [Ziemen Exhibit 472]), at TN-OR 0099254. 23. In negotiating a reasonable license fee for the copyrighted materials at

issue, both Oracle and SAP would consider the long term financial effects of Oracle losing, and SAP gaining, application customers and associated downstream revenues. B. Past Licensing Practices of the Parties for Similar Intellectual Property, or Lack Thereof 24. The consideration of economic and other factors related to the past license

practices of the parties includes the identification and analysis of previous comparable license 13
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and asset acquisition transactions entered into by Oracle or SAP for similar intellectual property, or lack thereof. In addition, consideration should be given to Oracle's historical policies and practices to protect its copyrights. 25. As it relates to the PeopleSoft/J.D. Edwards and Siebel copyrighted

materials at issue, I am not aware of any instances where Oracle has previously licensed the copyrighted materials that are comparable to the contemplated hypothetical licenses with SAP. Likewise, I am not aware of license fees paid by SAP for use of copyrighted material that is comparable to the PeopleSoft/J.D. Edwards and Siebel intellectual property at issue in this case. However, as explained further below in section D.1 "Evidence of Oracle's Negotiating Perspective," the price that Oracle paid to acquire intellectual property in its acquisitions of PeopleSoft and Siebel is indicative, in part, of the significant value that Oracle attributes to the copyrighted property at issue. For example: a. Oracle paid $11.1 billion to acquire PeopleSoft in December 2004, $3.4 billion of which was attributed to acquired technology, maintenance contracts and customer relationships. See Exh. 15 (A true and correct copy of excerpts from Oracle's publically filed Annual Report for the fiscal year ended May 31, 2005), at 72-74; and Exh. 16 (Excerpts from the Standard & Poor's Report "Oracle Corporation: Estimation of the Fair Value of Certain Assets and Liabilities of PeopleSoft, Inc. as of December 28, 2004," ORCL 00313160-253), at ORCL 00313204. b. Oracle paid $6.1 billion to acquire Siebel in January 2006, $1.6 billion of which was attributed to acquired technology, maintenance contracts and customer relationships. See Exh. 17 (A true and correct copy of excerpts from Oracle's publically filed Annual Report for the fiscal year ended May 31, 2006), at 75-76; and Exh. 18 (Excerpts from the Duff & Phelps report "Estimation of the Fair Value of Certain Assets and Liabilities of Siebel Systems, Inc. as of January 31, 2006," ORCL 00312747-819), at ORCL 00312782. 26. In addition, there is sufficient evidence produced by SAP, as well as

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reasonably would have been willing to pay for its use of the copyrighted materials at issue (see section D.2 "Evidence of SAP's Negotiating Perspective"). 27. In determining the fair market value that Oracle reasonably could be

expected to accept from SAP for a license to the copyrighted materials at issue, I will take into consideration that Oracle has not previously licensed the copyrighted materials at issue for use by a competitor such as SAP. 28. There is sufficient evidence in the record for me to rely upon in the

evaluation of Oracle's policies and practices to protect its copyrighted materials at issue. For example: a. I understand Oracle's license agreements with its PeopleSoft/J.D. Edwards and Siebel customers prohibit access to, or use of, any portion of the software not expressly licensed to and paid for by the licensee, including any sublicense to third parties. See Exh. 5 (Fourth Amended Complaint), at 17:6-11. b. I understand third parties designated to help maintain a customer's Oracle software are subject to the terms of the underlying license agreement, and those terms generally preclude the third party from installing the software on a server, or accessing the source code of the software. See Exh. 5 (Fourth Amended Complaint), at 17:14-17. c. I understand the terms of Use of Oracle's Customer Connection website restrict access to, and use of, Oracle's copyrighted software and software support materials. See Exh. 5 (Fourth Amended Complaint), at 17:23-18:19. d. SAP current and former senior executives have acknowledged the importance of protecting intellectual property rights. While at SAP, Shai Agassi, Former SAP CTO and Executive Board Member, was quoted as saying, "I work for an IP company, and we believe in the importance of investors owing the IP they create. At SAP, we believe that without the ability to protect IP, most companies will no longer invest so much of their current revenues in future product innovation." See Exh. 12 (Agassi Depo.), at 27:4-15. See also Exh. 19 (Excerpts from the deposition 15 Case No. 07-CV-1658 (PJH)
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of Werner Brandt, dated November 12, 2008), at 46:8-21 (acknowledging that SAP vigorously protects its intellectual property). In July 2007, when admitting that inappropriate downloading had occurred, Henning Kagermann, SAP CEO, said, "Even a single inappropriate download is unacceptable from my perspective." See Exh. 20 (A true and correct copy of the publically available article, "SAP admits inappropriate downloads in Oracle case," Reuters, July 4, 2007). 29. I understand that Oracle and SAP have an existing agreement whereby

SAP is an authorized reseller of Oracle's database products. See Declaration of Larry Ellison, at ¶ 7. With respect to Oracle's allegation of database software infringement, I will review the terms of that agreement, and any other relevant agreements between the parties, as it relates to restrictions on SAP's licensed use of Oracle's database software. I will also consider the different types of licenses Oracle grants to its database customers or other third parties related to access and use of database material that have been produced in this action, as well as Oracle's customary terms, limitations and restrictions in those license agreements. I understand that discovery has just begun as it relates to Oracle's database copyright infringement allegations. In forming my opinions, I will incorporate additional relevant discovery of the parties as documents and information become available. C. Nature of the Commercial Relationship Between Oracle and SAP 30. There is extensive evidence in the record with which to assess the highly

competitive nature of the relationship between Oracle and SAP in the software applications business, and specifically the increase in competition between Oracle and SAP and SAP's escalating concerns as a result of Oracle's acquisitions of PeopleSoft and Siebel. This competition includes SAP's targeting of PeopleSoft and Siebel customers during the period of Oracle's acquisitions. Relevant evidence that I will take into consideration in forming my opinions includes, but is not limited to: a. Prior to its December 2004 acquisition of PeopleSoft, Oracle was one-third the size of SAP based on enterprise application software revenues. See Exh. 21 (Excerpt 16
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from an October 2004 IDC Report "Market Analysis ­ Worldwide Enterprise Applications 2004-2008 Forecast and Analysis," ORCL 00313337-84), at ORCL 00313349. Industry analyst reports, forecasts and analyses for the enterprise applications market identify Oracle and SAP as significant competitors. For example, see Exh. 16 (S&P PeopleSoft Valuation Report), at ORCL 00313171-172 ("With the acquisition of PeopleSoft, Oracle will effectively increase its overall market share to 27.0%, making the combined entity a more viable competitor to SAP," citing AMR Research data); and Exh. 18 (Duff & Phelps Siebel Valuation Report), at ORCL 00312759 (explaining that at the end of 2004, Siebel, Oracle and SAP were the top 3 players in the CRM market, and that as a newly combined entity, Oracle/Siebel surpassed SAP by 0.1% in market share). Deposition testimony of Oracle senior executives identifying SAP as its most significant competitor in enterprise applications. See Exh. 22 (Excerpts from the deposition of Safra Catz, dated March 27, 2009), at 19:10-25. Deposition testimony of SAP senior executives identifying Oracle as its main competitor, and highlighting the adverse impact on SAP of Oracle's PeopleSoft and Siebel acquisitions. See Exh. 13 (Apotheker Depo.), at 58:10-17 and 76:22-77:1. (stating that Oracle is SAP's "largest competitor," and "Oracle has become a significantly larger competitor than it was before it started all of these acquisitions."); and Exh. 7 (Kagermann Depo.), at 151:19-25 (agreeing with the statement that "Through its acquisitions, Oracle has emerged as the number-one competitor for SAP"). A February 2005 SAP presentation stating, "Market consolidation has changed the competitive landscape. Oracle is positioning itself to aggressively challenge SAP for leadership in business software solutions," and "Internal pressure at SAP is high to `take on Oracle' in response to public provocation from Oracle." See Exh. 23 (February 3, 2005 SAP email with excerpts of an attached SAP presentation "Clear 17 Case No. 07-CV-1658 (PJH)
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Sailing: Positioning SAP for the Market Leadership Battle, Communications Recommendations, Sylt Discussion Slides," SAP-OR 00126416 and SAP-OR 00147894-919 [included in Kagermann Exhibit 413]), at SAP-OR 00147896. A November 2005 SAP presentation stating, "Through its acquisitions, Oracle has emerged as the number-one competitor for SAP. While Oracle faces significant challenges such as aligning its different product lines ("Project Fusion"), the company remains a formidable competitor." See Exh. 24 (Excerpts from a November 2005 SAP "Sun Tzu 2006" presentation "Shaping the Future ­ ITPowered Business Innovation ­ SAP's Midterm Strategy," KAGERMANN_TEMP 000001-85 [Kagermann Exhibit 415]), at KAGERMANN_TEMP 000058. Numerous SAP documents indicating that its purchase of TomorrowNow was part of its competitive strategy to "take on Oracle." See Exh. 25 (Excerpts from a December 23, 2004 SAP presentation "A Roadmap for PSFT Customers to SAP," SAP-OR00253278-301 [Ziemen Exhibit 447]), at SAP-OR 00243280-282 (showing the offering of third party PeopleSoft service as a "Solution" for the "PeopleSoft Attack Program"); Exh. 26 (Excerpts from a January 16, 2005 SAP presentation "Safe Passage: Winning Customers and Markets from Oracle-PeopleSoft-J.D. Edwards," SAP-OR 00092046-70 [Shenkman Exhibit 236]), at SAP-OR 00092050 (stating SAP's goal was to "convert the majority of the PeopleSoft and J.D. Edwards customer base to SAP and contain Oracle's potential growth in the next generation application market," and that its offering of PeopleSoft and J.D. Edwards support will allow SAP to "siphon off the cash flow that Oracle needs to build or acquire it's next generation applications"); and Exh. 11 (PeopleSoft 1-23), at SAP-OR 00004998 (stating that SAP's efforts may "force Oracle to change its behavior or plans around pricing or positioning"). SAP internal documents indicating Oracle's acquisition of Siebel would threaten SAP's position in the CRM market as a result of its acquisition of Siebel. See Exh. 27 (Excerpts from an October 24, 2005 SAP presentation "CRM Review II," SAP18 Case No. 07-CV-1658 (PJH)
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OR 00164521-58 [Kagermann Exhibit 439]), at SAP-OR 00164527 (acknowledging SAP's "competitive edge diminished by 40% post-SEBL acquisition."); and Exh. 28 (November 8, 2005 SAP email with excerpts from an attached presentation "Oracle's Impact on the SAP Market and the Apollo Response," SAP-OR 00042102-130 [Apotheker Exhibit 497]), at SAP-OR 00042116 ("We lose our position as the number one player in the CRM market" after Oracle's Siebel acquisition). Market and Financial Considerations Impacting the Respective Negotiating Positions of Oracle and SAP 31. Market-related and financial considerations relevant to the determination

of the fair market value of the copyrighted materials at issue include: the value to Oracle of the copyrighted materials in generating sales of its other products; Oracle's significant investment in its intellectual property, which would be financially compromised and devalued upon licensing to SAP; the effect of selling the infringed copyrighted materials on sales of SAP's other products; and the extent to which SAP planned to use and has made use of the copyrighted materials at issue. Additional relevant financial considerations include: the profitability and commercial success of Oracle and SAP products embodying the copyrighted materials at issue; the portion of the profit or selling price customary to allow for the use of the copyrighted materials at issue; and the relative profit contribution of the copyrighted materials at issue as distinguished from non-copyrighted elements added by SAP, if any. 32. There is extensive evidence produced in discovery in this case, as well as

available in the public domain, from which I am able to analyze market and financial factors that Oracle and SAP reasonably would have considered in their license negotiations for the copyrighted materials at issue. 1. 33. Evidence of Oracle's Negotiating Perspective Market-related and financial factors that Oracle would take into

consideration in determining what it would reasonably accept for granting a license to SAP for the copyrighted materials at issue include: (1) Oracle's significant investments in the acquisition 19
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and development of the copyrighted materials at issue; (2) the value of Oracle's maintenance contracts and customer relationships in the generation of future revenue from sales of other Oracle products; (3) the losses or additional costs that Oracle would anticipate to incur as a result of competing with SAP for sales related to the copyrighted materials at issue; (4) the historic profitability of Oracle's sales of licenses and support services; and (5) the opinions of relevant Oracle personnel as to the amount of a license fee that it would be willing to accept for granting a license to SAP under the terms of the contemplated hypothetical licenses. As explained below, there is sufficient evidence to analyze, and form opinions on, these market and financial considerations from Oracle's perspective. 34. Evidence of Oracle's significant investment in the copyrighted materials

in suit are found in, as examples: a. Oracle paid $11.1 billion to acquire PeopleSoft in December 2004, $3.4 billion of which was attributed to acquired technology, maintenance contracts and customer relationships, and $6.5 billion of which was attributed to goodwill (for a total of $9.9 billion allocated to goodwill and other intangible assets), as shown in Oracle's publicly filed financial statements, and in the independent valuation performed by Standard & Poor's. See Exh. 15 (Oracle 2005 Annual Report), at 72-74; and Exh. 16 (S&P PeopleSoft Valuation Report), at ORCL 00313204. b. Oracle's multi-billion dollar sales and income forecast for PeopleSoft at the time of the acquisition, including relevant revenue, customer retention and expense assumptions upon which the forecast is based. See Exh. 29 (Worksheet labeled "PeopleSoft Operating Model" of Oracle's "Project Spice" financial model prepared at the time of its acquisition of PeopleSoft, ORCL00313255). c. Oracle paid $6.1 billion to acquire Siebel in January 2006, $1.6 billion of which was attributed to acquired technology, maintenance contracts and customer relationships, and $2.5 billion of which was attributed to goodwill (for a total of $4.1 billion allocated to goodwill and other intangible assets), as shown in Oracle's publicly filed financial statements, and in the independent valuation performed by 20 Case No. 07-CV-1658 (PJH)
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Duff & Phelps. See Exh. 17 (Oracle 2006 Annual Report), at 75-76; and Exh. 18 (Duff & Phelps Siebel Valuation Report), at ORCL 00312782. Oracle's multi-billion dollar sales and income forecast for Siebel at the time of the acquisition, including relevant revenue and expense assumptions upon which the forecast is based. See Exh. 30 (Worksheet labeled "Sierra-Input" of Oracle's "Project Sierra" financial model prepared at the time of its acquisition of Siebel, ORCL00312843). I will also review information related to Oracle's significant investment in research and development of the copyrighted materials at issue, as well as research and development investments made by PeopleSoft and Siebel prior to their acquisitions by Oracle. See, e.g., Exh. 31 (Excerpts from the PeopleSoft, Inc. Form 10-K for the fiscal year ended December 31, 2003), at 9 and F-17 through F-18 (PeopleSoft annual R&D investments for 2001 through 2003 ranged from $299 million to $433 million. PeopleSoft paid approximately $2 billion to acquire J.D. Edwards in July and August 2003); Exh. 32 (Excerpts from the Siebel Systems, Inc. Form 10-K for the fiscal year ended December 31, 2004), at 9 (Siebel annual R&D investments for 2002 through 2004 ranged from $299 million to $368 million); and Exh. 33 (Excerpts from Oracle's "FY08 Applications Development Budget Request," ORCL 00545983-609), at ORCL 00545985 (showing hundreds of millions of annual operating expense related to its Applications Unlimited program for its PeopleSoft, J.D. Edwards and Siebel product lines). 35. Evidence of the value of the acquired PeopleSoft and Siebel customer

relationships as it relates to potential future revenues, including opportunities for additional sales to those customers of other Oracle products ("cross-sell" and "up-sell" opportunities), and benefits thereof, includes, but is not limited to: a. Testimony of Safra Catz, Oracle Co-President, that the PeopleSoft acquisition would provide Oracle with "a much larger customer base and a much larger maintenance base so we could spend more on R&D and so that we could sell more 21 Case No. 07-CV-1658 (PJH)
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to this larger customer base of our other products. And so that we could take advantage of the fact that scale in our business improves the operating performance of the company ... you have an installed base of customers who are paying you maintenance, and thus you have a lot more money you can direct towards R&D." See Exh. 22 (Catz Depo.), at 77:20-79:2. Ms. Catz's testimony that Oracle's goals for the Siebel acquisition included obtaining Siebel's customer base and being able to sell them other Oracle products. See Exh. 22 (Catz Depo.), at 83:18-84:3. Statements by Charles Phillips, Oracle Co-President, cited in an investor presentation: "We are retaining [PeopleSoft's] very valuable maintenance revenue, again that's the real revenue stream behind this that makes this transaction work for us." See Exh. 34 (Excerpts from a December 2004 Oracle investor presentation "PeopleSoft," ORCL 00312888-939), at ORCL 00312930. Mr. Phillips' testimony of the magnitude of potential lost future sales if Oracle loses a customer. See Exh. 35 (Excerpts from the deposition of Charles Phillips, dated April 17, 2009), at 17:8-18:11 (". . .for every customer we lost, there's ten times that in license revenue that we could have sold over the years as they continue to standardize on our footprint").17 Mr. Philips' also testified that the goal of the PeopleSoft acquisition was to achieve scale in Oracle's core ERP business and to

I am relying on this form of Oracle executive management testimony not to quantify the lost profits associated with lost cross-sell and up-sell opportunities to the specific list of lost TomorrowNow customers (which I understand Magistrate Laporte has disallowed per her September 17, 2009 lost profits damages preclusion order), but as input for the considerations that would inform and be relevant to Oracle's reasonable fair market value negotiations of hypothetical licenses structured to allow Defendants to use the allegedly infringed materials. I understand that Defendants specifically did not seek preclusion of this measure of Oracle's copyright damages in that motion. See Defendants' July 14, 2009 Motion for Sanctions Pursuant to Fed. R. Civ. P. 37(c) and 16(f) at 13 n.9 ("This motion is limited to what Oracle characterizes as its lost profits claims, and does not extend to its `infringers' profits/unjust enrichment claims, its hypothetical license theory, or alleged damage to computer systems or data. Defendants do not concede that any of these other damages categories or theories are proper or timely, but will address those by separate motion if necessary. For example, Oracle's hypothetical license theory will be the subject of Defendants' Rule 56 motion to be filed on August 26th.").

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close the gap between Oracle and SAP. See Exh. 35 (Phillips Depo.), at 36:2537:14. Testimony of Larry Ellison, Oracle CEO, that losing a customer to SAP equates to losing that customer for ten to twenty years. See Exh. 36 (Excerpts from the deposition of Larry Ellison, dated May 5, 2009), at 12:2-13:4. Testimony of Jesper Andersen, Former Oracle SVP of Applications Strategy: "I got to believe, you know, for every customer that TomorrowNow took away from Oracle, we would have expected to make not only decades of maintenance, but obviously, like you do with most customers, you up-sell additional applications, technology, services, whatever it is." See Exh. 37 (Excerpts from the deposition of Jesper Andersen, dated June 10, 2009), at 259:19-24. Evidence that Oracle's acquisition of Siebel was expected to provide a valuable customer base with cross-selling opportunities and industry expertise in customer centric applications. See Exh. 18 (Duff & Phelps Siebel Valuation Report), at ORCL 00312756. I will also consider Oracle's revenue growth history and expectations for support customers. 36. Evidence of losses or additional costs that Oracle would have anticipated

due to enhanced competition with SAP for sales of support services for Oracle's PeopleSoft/J.D. Edwards and Siebel software products includes, but is not limited to: a. Testimony of Oracle executives that absent competition from SAP and TomorrowNow, its maintenance cancellation rates would have been lower. For example, see Exh. 38 (Excerpts from the deposition of Juan Jones, April 24, 2009), at 208:17-209:5 ("Undoubtedly our cancellation rate would have been lower, our renewal rate would have been, I believe, significantly higher and we would not have had the opportunity cost of having to work in very ­ an overwhelming workload against TomorrowNow competition, when they were offering the same thing for half the price."). 23
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b.

Testimony of Shai Agassi, Former SAP CTO and Executive Board Member, stating that he did not believe that Oracle's anticipated PeopleSoft/J.D. Edwards attrition rates were realistic "Because [he] thought [SAP would] be able to offer a better proposition by offering PeopleSoft and J.D. Edwards in particular customers to move over to SAP". See Exh. 12 (Agassi Depo.), at 192:13-193:19.

c.

Documents and information related to Oracle's actual PeopleSoft/J.D. Edwards and Siebel maintenance renewal rates and the adverse impact of SAP's TomorrowNow activity on them. See Exh. 39 (Excerpts from the deposition of Juergen Rottler, dated May 13, 2009), at 235:24-236:12 and 273:9-274:24 (that the renewal rates of companies acquired by Oracle generally improve over time, and that he would have expected that two years after the acquisition, the PeopleSoft cancellation rates would have been in line with Oracle averages of 2% to 3%); Exh. 40 (Actual PeopleSoft cancellation rates for Q3 2004 through Q3 2007 found in the native file "psoft cancellation rates 4-3-07.xls", ORCL 00103577) and Exh. 41 (Excerpts from January 19, 2007 Oracle presentation "Implications of Maintenance Cancellations on Applications Product Strategy," ORCL 00285572-589), at ORCL 00285577-579 and 583 (showing that maintenance revenue is important to profitability, and showing PeopleSoft and J.D. Edwards higher cancellation rates). See also Exh. 29 (Project Spice Model) for PeopleSoft renewal/attrition rates prior to its acquisition by Oracle, as well as Oracle's forecast customer attrition rates at the time of the acquisition.

d.

Oracle's reasonable expectations of the change in its business environment if SAP, its largest competitor and a company with significant resources, were able to offer competitive, credible service to Oracle's customers using Oracle's intellectual property. For example, as a result of TomorrowNow offering support services to Oracle software customers, Oracle experienced increased pricing pressure and bargaining power from its customers, and spent significant amounts of time responding to customer requests. See Exh. 39 (Rottler Depo.), at 43:2-8 24 Case No. 07-CV-1658 (PJH)
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(TomorrowNow became a frequent reason for customers to ask for pricing exceptions). 37. I will review and consider Oracle's historical relevant profit margins and

incremental costs related to its license and support revenues, as reported in Oracle's public financial statements, as well as based on Oracle's entity financial statements and/or product line profit reports that I understand have been, or will be, produced. 38. I will also interview relevant Oracle senior executives to obtain their input

and positions on what license fee amounts they believe Oracle would be reasonably willing to accept for granting licenses to SAP for its use of Oracle's PeopleSoft/J.D. Edwards, Siebel and Oracle database related materials under the specific terms of the contemplated hypothetical negotiations. 2. 39. Evidence of SAP's Negotiating Perspective In determining what SAP would reasonably be willing to pay for a license

to the copyrighted materials at issue, SAP would consider market and financial factors, including: (1) SAP's willingness to invest significant capital resources to expand its product offerings or gain access to additional customers; (2) the amount SAP was willing to pay and actually paid in its acquisition of TomorrowNow and the nature of the assets acquired; (3) the timing with which SAP wanted to gain access to the copyrighted materials at issue; (4) SAP's expectations of how its offering of support services to Oracle's newly acquired customers would drive increased maintenance revenue, as well as increased sales and profits of its own applications and other products; (5) the importance to SAP of obtaining access to the copyrighted materials at issue in terms of public relations and marketing and sales benefits, and as a means to disrupt Oracle's market momentum around the time of its acquisitions, and adversely impact Oracle's business; (6) the cost and time that SAP would have had to incur to independently develop the copyrighted materials at issue, if possible, and the risks associated with unsuccessful efforts; (7) SAP's use of the copyrighted materials at issue; and (8) the portion of SAP's profits that should be credited to the copyrighted materials at issue, as distinguished from noncopyrighted elements added by SAP, if any. As explained below, there is sufficient information 25 Case No. 07-CV-1658 (PJH)
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18

Exh. 11 (PeopleSoft 1-2-3), at SAP-OR 00004999. 41. I understand from discovery that SAP paid $10 million to acquire

TomorrowNow. However, discovery also reveals that this purchase price is not indicative of the amount that SAP would have been willing to pay Oracle to acquire the copyrighted materials at issue. SAP's due diligence information and other documents produced in this case indicate that SAP was not acquiring any intellectual property in its acquisition of TomorrowNow.18 See Exh. 46 (Excerpts from SAP Corporate Finance: Purchase Price Allocation as of July 19, 2005 induced by the Acquisition of TomorrowNow, Inc., dated April 4, 2005, SAP-OR 00005574589), at SAP-OR 00005589 (SAP's TomorrowNow purchase price allocation for intangible assets indicates no value for software applications and software and support materials); and Exh. 47 (January 13, 2005 SAP email Re: TomorrowNow, SAP-OR 00187024-25 [Brandt Exhibit 514]), at SAP-OR 00187024 (indicating that the TomorrowNow acquisition should be structured as a ". . . stock purchase agreement since no intellectual property is being acquired."). 42. Evidence in the record indicates that the timing and speed with which SAP

could obtain the ability to service Oracle's PeopleSoft/J.D. Edwards customers was of great importance to SAP. Evidence includes, but is not limited to: a. A December 13, 2004 SAP Executive Board decision (one day after the announcement of Oracle's definitive merger agreement with PeopleSoft) to pursue offering support services for PeopleSoft software in early 2005 in order to "take away the maintenance revenue stream" from Oracle. See Exh. 48 (December 13, 2004 SAP email Re: TomorrowNow, SAP-OR 00004915 [Shenkman Exhibit 208]). b. A December 16, 2004 email from Jim Mackey, SAP Vice President of Corporate Finance, to Andrew Nelson, Co-Founder of TomorrowNow, explaining that the SAP Executive Board requested to "accelerate the pace of our talks . . . to have you and your company join SAP through an acquisition as quickly as may be feasible . .
Additionally, there is sufficient evide