Oracle Corporation et al v. SAP AG et al

Filing 994

Offer of Proof Regarding The At-Risk Report and Impact on Damages Analysis by SAP AG, SAP America Inc, Tomorrownow 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, # 10 Exhibit J, # 11 Exhibit K, # 12 Exhibit L)(Froyd, Jane) (Filed on 11/19/2010) Modified on 11/22/2010 (kc, COURT STAFF).

Oracle Corporation et al v. SAP AG et al

Doc. 994

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Robert A. Mittelstaedt (SBN 060359) Jason McDonell (SBN 115084) Elaine Wallace (SBN 197882) JONES DAY 555 California Street, 26th Floor San Francisco, CA 94104 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] [e-mail] Tharan Gregory Lanier (SBN 138784) Jane L. Froyd (SBN 220776) JONES DAY 1755 Embarcadero Road Palo Alto, CA 94303 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] Scott W. Cowan (Admitted Pro Hac Vice) Joshua L. Fuchs (Admitted Pro Hac Vice) JONES DAY 717 Texas, Suite 3300 Houston, TX 77002 Telephone: [phone] Facsimile: [phone] [e-mail] [e-mail] Attorneys for Defendants SAP AG, SAP AMERICA, INC., and TOMORROWNOW, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA OAKLAND DIVISION ORACLE USA, INC., et al., Plaintiffs, v. SAP AG, et al., Defendants. Case No. 07-CV-1658 PJH (EDL) OFFER OF PROOF REGARDING THE AT-RISK REPORT AND IMPACT ON DAMAGES ANALYSIS

SUBMITTED UNDER SEAL

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Defendants submit this Offer of Proof to identify the testimony, documentary and demonstrative evidence related to Plaintiffs' At-Risk Reports and other customer-related documents that Defendants would present, if permitted, to prove among other things: (1) the proper fact of and amount of damages; (2) causation; (3) causation of damages (e.g., customers' reasons for not renewing support contracts with Plaintiffs and/or selecting Defendants' products and services); (4) flaws in the opinions and testimony of Plaintiffs' damages related witnesses, including its damages expert (Mr. Meyer) and its executives; (5) the superiority of Defendants' lost profits and infringers' profits (disgorgement) analyses over damages evidence and approaches offered by Plaintiffs; (5) the nature and breadth of the third party support market and competitors to Oracle other than Defendants; and (6) the credibility of and/or the weight to be properly given to Plaintiffs' arguments, documentary evidence and witnesses' testimony on these subjects. If Defendants were permitted to present this evidence, its witnesses including but not limited to its damages expert, Stephen Clarke, would be able to present extensive detailed additional analysis and concrete examples that supports and corroborates his expert opinions related to these subjects. Defendants would also be able to more effectively cross-examine Plaintiffs' witnesses on these subjects. If permitted, Defendants would present to the jury Defendants' Trial Exhibit A-0059 (attached as Exhibit A), and Defendants' Trial Exhibit A-9338 (attached as Exhibit B) (collectively, the "At-Risk Reports"). The At-Risk Reports were prepared under the direction of Plaintiffs' employee, Richard Cummins. Exhibit C (09/16/08 Cummins Depo. Tr.) at 204:24205:1, 205:5-7; Exhibit D (09/23/08 Cummins Depo. Tr.) at 312:3-12. The At-Risk Reports were intended to capture information from customers who were at risk of leaving Oracle support for any reason. Exhibit D (09/23/08 Cummins Depo. Tr.) at 320:23-321:2, 321:5-9, 321:11-17. Defendants' witnesses, including Mr. Clarke would testify about the contents of these reports and the ways in which they support his opinions on damages. Further, if permitted, Mr. Clarke would present and testify to the information contained in his trial slides relating to customers and damages issues (relevant slides are attached as Exhibit E) as well as various customer-related exhibits including Trial Exhibits A-6110, A-5181 and A-6891 attached as
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Exhibits F, G, and H, respectively). All of these have been improperly excluded on hearsay grounds during the November 18, 2010 proceedings.1 On August 5, 2010, Plaintiffs moved in limine to exclude customer statements referred to in its At-Risk reports on the ground that they are out of court statements from third parties and thus inadmissible hearsay. See ECF No. 916 (Pls.' MIL No. 3) at 13:27-17:5. Plaintiffs concede that the At-Risk Reports are admissible as a business records. Plaintiffs only objection is to the admissibility of transcribed customer comments contained in the report. See Exhibit I (09/30/10 MIL Hearing Tr.) at 10:15-12:14 ("We're not contending that the reports themselves are not . . . business records. We're focused on just this one part of the report which are transcribed comments from customers."). The Court excluded transcribed customer statements in the report, except to the extent that Plaintiffs' expert relied on them, on the ground that Defendants had not "articulated any applicable exception to the hearsay rule." See ECF No. 914 (09/30/10 Order) at 1-2. On November 15, 2010, Defendants filed their Motion Regarding Admissibility of Plaintiffs' At-Risk Report, requesting that the Court reconsider its Motion in Limine ruling and admit the At-Risk Reports in their entirety, including transcribed customer statements. ECF No. 986 (Defs.' At-Risk Report Mot.). Defendants presented the Court with a complete copy of Exhibit A-9338 as an exemplar of the notes field of an At Risk report so the Court could conduct an in camera review of the report and consider whether it or any portion of it would be admitted into evidence. Exhibit J (11/15/2010 Tr. of Proceedings) at 1431:24-1433:16. On November 16, 2010, the Court denied Defendants' request in its entirety and excluded the entire contents of the so-called notes field of the At-Risk Reports, which thereby excluded, for example, virtually the entirety of Exhibit A-9338 and the comparable portions of Exhibit A-0059. Exhibit K (11/16/2010 Tr. of Proceedings) at 1528:4-1529:2. Defendants respectfully submit that the Court's November 16, 2010 ruling is erroneous as a matter of law, for the reasons stated in Defendants' written submission. See ECF No. 986 (Defs.' At-Risk Report Mot.). Mr. Clarke reviewed and analyzed millions of pages of documents produced by the parties
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in this action and identified the reasons why individual customers terminated Plaintiffs' software support. Mr. Clarke's damages calculations regarding infringers' profits and lost profits relied, in part, upon information contained in the At-Risk Reports. See 05/07/2010 Stephen K. Clarke Expert Report (the "Clarke Report") (relevant excerpts of which are attached as Exhibit L) at 209235. The Clarke Report explains that there were numerous reasons why various customers chose to terminate Plaintiffs' support. Plaintiffs' At-Risk Reports were part of a formal reporting process for all sales personnel to report support renewal customers they felt were "at risk" of not renewing support. The At-Risk Reports thus reveal the factors that Plaintiffs looked for, and customers identified, as precursors to customers terminating Plaintiffs' software support. Mr. Clarke relies upon the same factors and information identified in the At-Risk Reports to establish a similar methodology to determine why customers left Plaintiffs' support. Based in part upon this information, Mr. Clarke grouped customers into the appropriate "exclusion pools" to demonstrate why customers should be excluded from the lost profits and/or infringers' profits analyses. Thus, the At-Risks Reports legitimize, substantiate and provide great persuasive weight to Mr. Clarke's methodology and analysis because they show that Plaintiffs and customers also identified the same factors as a precursor to customers cancelling support. For example, the At-Risk Reports quote Olin Corporation stating that Olin had decided it would

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If permitted, Mr. Clarke would testify regarding his methodology as it relates to the
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information in the At-Risk Reports, and to customers' intentions, individually, in leaving Plaintiffs' support to more fully support and corroborate his lost profits and infringers' profits analyses. Mr. Clarke would demonstrate how factors identified by Plaintiffs' and their customers served as the basis of his methodology and helped him categorize the customers appropriately according to their behavior. This explanation would substantiate the legitimacy of Mr. Clarke's approach towards the analysis, generally, and towards the individual customers. If permitted to use the excluded evidence, the documents would prove and Mr. Clarke would testify in greater depth with greater detailed support about the nature and existence of the third party support market in general and alternatives to vendor provided support from Oracle in addition to Defendant TomorrowNow. If permitted to use the excluded evidence, Defendants would have cross examined Plaintiffs' witnesses, including its executives and its damages expert, about the extensive evidence showing reasons customers left Oracle support and purchased software and/or support from Defendants and how that evidence shows that Oracle would have lost these customers even absent the copyright infringement. The At Risk Reports also contain detailed information related to the third-parties for which the customers are at-risk of leaving. Such third-parties include TomorrowNow amongst other third-party support providers, business process outsourcers, consulting companies, and other software vendors. Alternatives to Oracle identified by Oracle's sales representatives in the AtRisk Reports include:

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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 26 27 28 Oracle disputes that these options are alternatives to Oracle. For example, Oracle challenges that self-support is a viable alternative, yet Oracle states in its own At-Risk Reports that customers left Oracle to go on self support. Mr. Clarke performed a detailed analysis of the third-party support market and one of his sources is Oracle's At-Risk Reports. In trial, Mr. Clarke presented a slide that shows the company names of the alternatives to Oracle. He also discussed in some detail several third-party support options and other Oracle alternatives. Mr. Clarke would testify, if permitted, to the analyses and underlying detail exemplified in this slide that support, explain, and highlight his analysis regarding alternatives to Oracle support as contained in the Clarke Report. In light of the Court's rulings on September 30, 2010 and November 16, 2010, Mr. Clarke was obliged to exclude relevant customer information from his trial testimony and presentation and Defendants were unable to cross-examine Plaintiffs' witnesses concerning the information. At trial, Mr. Clarke was forced to truncate his trial testimony and presentation by excluding the slides attached hereto as Exhibit E and his associated testimony and analysis. These slides presented individual examples of customers Mr. Clarke placed into particular exclusion pools to help explain and demonstrate his methodology. However, Mr. Clarke could not present these slides because they contained information from the At-Risk Reports. These slides provide examples of customers that Mr. Clarke excluded from his lost profits and infringers' profits analyses. They include information regarding B.B.S. Electronics and Textile Management Associates, which were excluded from the lost profits calculation because there was a service gap of over six months after the customers left Plaintiffs' support (Service Gap); Capital Group, which was excluded from the infringers' profits analysis because its purchases from SAP were product extension of other SAP software it already used (Product Extensions exclusion pool); Baxter, which was excluded from the infringers' profits analysis because its software purchases were through a reseller/business process outsourcing
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(Reseller/BPO exclusion pool); Hitachi, which was excluded from the infringers' profits analysis because its purchases from SAP were products not related to its PeopleSoft software (NonReplacement Products exclusion pool); and Cowlitz County and Standard Register who were each excluded for multiple reasons (Joint Exclude exclusion pool). These slides each demonstrate different exclusion pools and examples of customers that qualify for the respective pools. Mr. Clarke would testify, if permitted, to the analyses exemplified in these slides that support, explain, and highlight his causation analysis regarding his infringers' profits and lost profits calculations contained in the Clarke Report. Similarly, Defendants' witnesses, including Mr. Clarke, would have relied upon Trial Exhibits A-6110, A-5181 and A-6891 to prove customer motivation, state of mind and causation of damages. All of these have been improperly excluded on hearsay grounds. Exhibits A-5181 and A-6110 are admissions of a party opponent, adoptive admissions and fit within the state of mind exception to the hearsay rule. Exhibit A-6891 was admissible to show the basis of Mr. Clarke's testimony after Plaintiffs' counsel opened the door by inquiring about changes to Mr. Clarke's report and opinions that were based on the information in the declaration that is Exhibit A-6891. For the reasons stated above, Defendants submit this Offer of Proof and identify the testimony and documentary evidence from the At-Risk Reports and other excluded documents and related testimony that Defendants would present, if permitted, to support and corroborate Defendants' lost profits and infringers' profits analyses.

Dated: November 19, 2010

JONES DAY

By: /s/ Jason McDonell Jason McDonell Counsel for Defendants SAP AG, SAP AMERICA, INC., and TOMORROWNOW, INC.
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