Direct Marketing Association, The v. Huber

Filing 50

RESPONSE to 15 MOTION for Preliminary Injunction with Incorporated Memorandum of Law filed by Defendant Roxy Huber. (Attachments: # 1 Exhibit 1, # 2 Exhibit 2, # 3 Exhibit 3, # 4 Exhibit 4, # 5 Exhibit 5, # 6 Exhibit 6, # 7 Exhibit 7, Part 1, # 8 Exhibit 7, Part 2, # 9 Exhibit 7, Part 3, # 10 Exhibit 7, Part 4, # 11 Exhibit 7, Part 5, # 12 Exhibit 7, Part 6, # 13 Exhibit 7, Part 7, # 14 Exhibit 8, # 15 Exhibit 9, # 16 Exhibit 10, # 17 Exhibit 11, # 18 Exhibit 12, # 19 Exhibit 13, # 20 Exhibit 14, # 21 Exhibit 15, # 22 Exhibit 16, # 23 Exhibit 17)(Scoville, Stephanie)

Page 1

1

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO

2
--------------------------------------------------------3
THE DIRECT MARKETING ASSOCIATION,
4
Plaintiff,
5
v.

Civil Action No.:

10-CV-01546-REB-CBS

6
7

ROXY HUBER, in her capacity as
Executive Director, Colorado
Department of Revenue,

8
Defendant.
9
--------------------------------------------------------10
11
12
13
DEPOSITION OF F. CURTIS BARRY
14
15
16
17
October 19, 2010
18
Sandston, Virginia
19
20
21
22
23
24
25

HALASZ REPORTING & VIDEO
P. O. Box 1644
Richmond, VA 23218-1644
[phone]
Reported by: Mary L. Rosser, RPR
Exh.9

Page 18

1

A

Yes.

2

Q

And do you also get a sense of what their IT

3

costs and what their IT budgets are?

4

A

Yes.

5

Q

And what kinds of documents would you usually

6

see or how would you get an understanding of what their

7

IT budgets are?

8
9

A

Well, you know, we're often looking at

proprietary profit and loss statements for the company

10

so, you know, we'll take and understand what those costs

11

are as a percent of net sales.

12

just one line.

13

to a dozen lines.

14

we're looking to replace a system, we often want to -- we

15

often have to determine what the change in the IT

16

Department is going to be, just like we have to determine

17

what the return on investment is going to be for a

18

system.

19

they're going to get that money back is important or

20

they're not going to spend the money unless they have to.

21

And so we -- you know, sometimes you're going from a very

22

old system that might be 15 or 20 years old that works

23

well, but it's kind of reaching its limit, and you're

24

implementing it, say, with a totally new technology that

25

is maybe more flexible and more -- requires less

You know, and it's not

You're kind of interpreting half a dozen
You know, the studies we do where

The systems are fairly expensive, and how

Exh.9

Page 19

1

hand-holding or people time to manage it.

2

understand those and help clients work through what those

3

costs are and so forth.

4

Q

So we

So by the end of the process, you have a very

5

good understanding of the company's financials and how

6

their IT costs fit into the overall business?

7

A

Not always the total financials, but we have a

8

pretty good idea of -- we know exactly what -- not

9

exactly.

We know what we have projected the total cost

10

to either develop and install a system is going to be as

11

best as we can, or if they're buying a commercial system

12

we know what the costs of the various stages through this

13

process are going to be, and we know the modifications

14

that are going to be required, and the services, meaning

15

training and conversion and implementation.

16

services part of the project is often 50 percent or more

17

of the total cost because of the cost of the professional

18

people that a vendor uses.

19

Q

And the

As the president of your company, how much time

20

do you spend consulting versus on the general management

21

of your company?

22

A

When you have six people, you don't have a lot

23

of general management.

My wife is involved with the

24

business part time, and she takes care of everything.

25

I spend a hundred -- not a hundred, but 95 percent, 90

So

Exh.9

Page 32

1

(Exhibit No. 1 was

2

marked for identification.)

3
4
5

BY MS. SCOVILLE:
Q

All right.

So why don't you quickly take a look

6

at Exhibit No. 1 and just make sure this looks like a

7

complete copy of your report, please.

8

A

I believe it is.

9

Q

Okay.

Well, let's jump in and start on page 4,

10

if you would.

11

you talk about external commercial programming rates --

12

or from external vendors, and you give a range of $140 to

13

$225 per hour.

14

these numbers.

15

A

Okay.

On page 4, about halfway down the page,

I need to understand how you arrived at

Well, as I said, I deal with proposals

16

from vendors not every day, but, you know, much of the

17

time so I'm continually looking at what vendors have --

18

one, what they think the effort is to do something in a

19

narrative form, and then how much per hour they feel that

20

they will spend to do that modification.

21

all the steps required to develop and program the

22

modification, and they use different skill levels of

23

people to do that.

24

spends, say, 10 percent of their time, and then just

25

various levels of programming skills to do the work, and

So it includes

There would be a project manager that

Exh.9

Page 33

1

then people who QC the change and people that document

2

and so forth.

3

salaries.

4

Q

So there are all different skills and

And did you refer to any particular request for

5

proposal when preparing this report and coming up with

6

this range?

7

A

No.

I mean, I've got it in my head.

I have a

8

pretty good idea from one vendor to another what they

9

charge, and this is typical.

10

Q

Did you look at any labor market surveys?

11

A

No.

12

Q

What about any other sort of market survey data

13
14

that would give programming rates?
A

I deal with internal clients, programmers, and

15

we talk about cost all the time so I don't -- you know, I

16

have that in my head.

17
18

Q

And how great would the variance in these rates

be based on geography?

19

A

They really don't.

20

Q

And can you provide any sort of what I would

21

call confidence interval for this range?

22

see surveys that are done and they say --

23

A

Plus or minus five percent.

24

Q

Plus or minus five percent.

You know, you

25

All right.

And how

do you know that?
Exh.9

Page 37

1
2

Q

Okay.

And would you provide the same confidence

interval of 5 percent for those estimates?

3

A

Yeah.

4

Q

Later in the same paragraph, you say, "Well-run

5

companies carefully budget internal IT projects."

6

that I can get a sense of the industry, what would the

7

range of an IT budget be for a small retailer versus a

8

large retailer?

9
10

MR. SCHAEFER:

So

Just for clarity, do you mean the

entire IT department or do you mean --

11

MS. SCOVILLE:

12

Exactly.

13

A

I mean, the entire IT department.

If it's a shop that doesn't do anything new,

14

they're just kind of maintaining what they're doing, it

15

might be 1 to 1 1/2 percent of net sales.

16

shop might be, you know, where they're doing some new

17

things, might be 2 percent.

18

company doing a lot of things where they have to trade

19

out their systems or they have to build, say, a West

20

Coast fulfillment center, it's going to be above that,

21

above 2 percent.

22

BY MS. SCOVILLE:

23
24
25

Q

An average

And if it's a fast-growing

And would that range be the same for small

retailers versus large retailers?
A

No, but it's -- it sounds logical that it should
Exh.9

Page 38

1

be, but it's just really based on how efficient companies

2

are, and sometimes smaller companies are a lot more

3

efficient than bigger companies, so I've learned that

4

it's not always size.

5

Q

And can you translate those percentages into

6

actual dollar amounts for me, you know, in terms of a

7

range?

8

A

Well, it depends on the size of the company.

9

Q

Right.

10

company.

11

Let's take a small to moderate-sized

costs?

12

What would the range be for their overall IT

MR. SCHAEFER:

What are you calling a small to

13

moderate-sized company so what do you want?

14

BY MS. SCOVILLE:

15

Q

Well, maybe we should start by having you define

16

for us what a small, moderate company is versus a large

17

company.

18

A

Okay.

In my mind, a small company is a company

19

that's, say, under $5,000,000 a year in sales, net sales.

20

A moderate-sized company might be somebody in a 20- to

21

40,000,000 or something.

22

know, the mega companies are 250- and above.

23

know, you've got some range differences there.

24
25

Q

Sure.

And then a large company, you
And so, you

And so maybe I need to ask, first of all,

whether or not that's the right distinction to say small,
Exh.9

Page 41

1

A

No.

I would --

2

Q

Put the support costs on top of that?

3

A

Yeah.

4

Q

So once you added support costs into a small

5

company's IT costs in terms of dollar values, what would

6

a small IT -- sorry, what might a small retailer be

7

spending annually on support costs?

8
9

A

See, I always try to equate it to percent of net

sales so I would guess from what I know -- you know, from

10

what I've been doing for many years, it's going to be in

11

a -- you know, from 1 to 2 percent of net sales.

12

know, management, when they're looking at costs, they

13

know these numbers too so, you know, if they were

14

presented with a deal that costs 3 percent of net sales,

15

it's going to get thrown out the window.

16

Q

Sure, sure.

You

Now, what about for a

17

moderate-sized company, one that you said would be in the

18

20- to $40,000,000 a year in net sales, what would they

19

be spending on their IT systems annually?

20
21

A

Well, they're, on the low end, they're going to

be spending, say, 200- to 400,000.

22

Q

And what would that include?

23

A

It would include -- may include, say, one

24

programmer, an operator or an operator and a half to take

25

care of the operations, again, software support, that
Exh.9

Page 42

1

18 to 20 percent, the hardware maintenance.

There's not

2

a uniform way of necessarily tracking all costs --

3

Q

Sure.

4

A

-- and you can't just say that every company

5
6
7

tracks the costs the same.
Q

Right.

No, I'm just trying to get a sense of

the industry --

8

A

Yeah.

9

Q

-- and how it works.

10

A

Okay.

11

Q

And when we were talking about support fees and

12

18 to 20 percent, let me just confirm that 18 to 20

13

percent is the percentage of the cost of the initial

14

software purchase, right?

15

A

True, the license fees.

16

Q

The other range of companies that you gave me

17

was the mega of $250,000,000 in a year up in annual net

18

sales.

19

A

Right.

20

Q

Is there a category between moderate and mega

21
22
23

that we should be discussing?
A

Well, again, it's going to vary.

here is three.

What I've said

There's everybody in between, right --

24

Q

Sure.

25

A

-- and it's going to vary.

Just like we said,
Exh.9

Page 43

1

if they're not doing anything, 1 to 1 1/2, if they're

2

doing something, 1 1/2 to 2, and if they're doing some

3

great things, it's over 2.

4

It's all on a continuum.

So just to go back to one thing.

5

Q

Sure.

6

A

We talked about the purchase of a new system for

7

the low end, and so purchase for a $20,000,000 to

8

$40,000,000 business, that might be more in a 400- to

9

$700,000 purchase.

So if you take the mega, mega can be,

10

you know, probably the low end, $2,000,000.

11

we don't know the upper end of the megas.

12

had projects that cost 8- or $9,000,000.

13
14

Q

Obviously,
You know, I've

But that would be on a single project for a mega

retailer --

15

A

Right.

16

Q

-- not their total IT support costs?

17

A

True.

18

Q

Do you have any sense of what total IT support

19
20

costs would be for a mega retailer?
A

Well, again, the same thing, 1 to 1 1/2 if

21

they're not doing much, 1 1/2 to 2 if they're doing

22

something, and above 2 if they're replacing.

23

mega -- I've had clients that will have 200 people in

24

their IT center in a mega company.

25

would have maybe at least a dozen on the low end, but big

You know, a

Probably the typical

Exh.9

Page 44

1
2

companies have a lot of people.
Q

And if a mega company were to purchase a new

3

software system, what kind of numbers would we be talking

4

about there?

5

A

That's what I was just saying.

6

Q

I see.

7

A

2,000,000 on the low end, 8- or 9,000,000 on the

8

upper end.

9

Q

I see.

Okay.

Back to the report.

At the

10

bottom of page 5, you have in the last paragraph Cost to

11

Evaluate Requested Systems Changes, and you say, The IT

12

industry best practice is to conduct an evaluation of

13

proposed changes.

14

detailed evaluation can be $1,000 to $5,000 on the low

15

end, to much higher costs for complex changes and new

16

subsystems.

17

figure for the low end?

18

A

And you go on to estimate that a

How did you arrive at the $1,000 to $5,000

Just from what I do every day.

In some cases,

19

we actually help clients set up what we call the change

20

management systems, in other words, the way the users

21

request changes to systems and how to cost it out and

22

things like that, or another case is, you know,

23

management, when I'm there, may say, Well, let's look

24

at -- you know, we often look at like a multiple year

25

backlog of changes.

Because they never have enough
Exh.9

Page 46

1

can see spending a lot more --

2

Q

Sure.

3

A

-- a couple thousand.

4

Q

What I'm trying to understand is if the

5

evaluation costs are built into --

6

A

They are.

7

Q

-- the numbers that you've already provided in

8

the exhibits.

9

A

They are, yes.

10

Q

Okay.

Let's see, on page 7, subparagraph 2

11

there, you talk about the Cost for Marketing Service

12

Bureaus --

13

A

Right.

14

Q

-- and I need to understand, first of all,

15
16

exactly what a marketing service bureau is.
A

Most companies use marketing service bureaus in

17

a -- in anywhere from one to four different ways.

When

18

they rent and exchange lists -- that's a premise of much

19

of direct marketing, that the way you build your business

20

is you rent and exchange similar kinds of product lists

21

or service lists.

22

with a competitor, but certainly a list that you think is

23

going to respond because, as we said before, it's a low

24

percent response industry.

25

have anywhere from 50 to thousands of different segments

So you may not be doing it directly

So when we do that, we might

Exh.9

Page 47

1

of lists that have to be merged and purged against your

2

internal file because you don't want to mail the same

3

book to --

4

Q

5

names --

6

A

Yes.

7

Q

-- and addresses?

8

A

Yes.

9

Q

Okay.

10

A

So we don't want to mail -- let's say, if we

And lists, you're talking about customers'

11

back up, the best customers are on many people's lists,

12

okay, because that's where -- they're a good customer.

13

They like to shop this way.

14

you're on four lists, which is not uncommon, there can

15

be -- you know, we actually develop a lot of numbers for

16

companies from the service bureaus so we know how many

17

people shop once, twice, three times, four times, up

18

through like ten times, plus.

19

multiple catalogs or promotions so we want to get those

20

down, so we call that merge/purge.

21

Most people would use service bureaus for that.

22

So we don't want to -- if

So we don't want to send

So that's one way.

Another way is that even though they have

23

internal marketing files -- every company has internal

24

operational files, in other words, when a customer calls

25

in, they say, where is my backorder or you shipped me
Exh.9

Page 48

1

this and it's broken or can I get another widget just

2

like this one.

3

and -- now, some people also take their operational files

4

and make those internal marketing files, and there may be

5

more data that's added or it looks different than just

6

operational data.

7

Q

That's an operational file.

You go in

And would a service bureau do the transformation

8

from an operational file into a marketing file or would

9

the companies do that and then send a bureau the

10
11

marketing file?
A

No.

A low percentage of the companies will try

12

to do that internally by themselves.

They may do the

13

merge/purge outside and then have that sent back.

14

most, most mailers will use the service bureau also to

15

develop the mailing, in other words, what's going to be

16

mailed.

17

organized and analyzed is fairly complex.

18

you know, a bunch of names and addresses and Janie bought

19

this and Bill bought that.

20

a longer period of time, it's tracking response rates by,

21

you know, how many are one-time buyers and maybe we've

22

sent the one-time buyers reactivation notices to try to

23

get them to buy again.

24

data -- or, excuse me, what marketing promotions an

25

individual customer actually got, okay, and then we

But

And the reason is, is that the -- how data is
It's not just,

You know, it's tracking, over

And so we track what marketing

Exh.9

Page 49

1

determine through the service bureaus are we spending too

2

much or too little to get that response.

3

fairly, it becomes fairly data intensive and data rich.

4

Q

So it becomes

So the marketing service bureaus, as I

5

understand what you just said, are the firms that are

6

doing the data crunching --

7

A

Yes.

8

Q

-- to determine that I am a woman of a certain

9
10

age, who has small children, who only shops when she has
free shipping offers or something like that --

11

A

True.

12

Q

-- is that right?

13

A

That's exactly right.

14

Q

Okay.

So the marketing service bureaus are the

15

people who crunch all the numbers to make sense of it for

16

the retailers?

17

A

And sometimes analyze it for them, meaning the

18

human, you know, here's the report, but this is what it

19

means.

20

Q

Okay.

21

A

Then you have another use is for actually

22

developing models, in other words, data models.

How do I

23

find more of Stephanie.

24

shopper -- is a good shopper for kids under six years old

25

or five years old.

Stephanie is a type of

Exh.9

Page 53

1

A

Right.

2

Q

And as I understand it, these are not pricing

3

models that would be publicly available?

4

A

Right, no.

5

Q

They would be in response to requests --

6

A

Right, yeah.

7

Q

-- for proposals?

8
9
10
11

Okay.

When was the last time

you personally reviewed a pricing model?
A

We do a couple of them a year.

We did one in

the spring of this year.
Q

And were there any particular pricing models

12

that you relied on in forming your opinions in this

13

report?

14

A

No.

15

Q

So you're relying more on your general

16
17

experience with the pricing models?
A

And on the -- there's two aspects.

One is, as

18

we have in the exhibits, the cost of merge/purge, which

19

is certainly one of the smaller costs in this report, and

20

often -- and then the services.

21

people are going to develop, you know, a reporting system

22

for you comes back to these same kinds of costs that we

23

talked about a couple of hours ago.

24

than some complex model.

25

Q

In other words, where

So it's more that

So before we get into the specifics of the three
Exh.9

Page 55

1

crossfoot my assumptions, and that was helpful and it

2

ended up in some cases decreasing my initial estimates.

3

Q

Okay.

But other than kind of checking your

4

estimates against some folks in the industry, you didn't

5

do any more formalized studies --

6

A

No.

7

Q

-- of the costs?

8

A

No.

9

Q

Did you refer to any literature or existing

10

studies to determine the costs?

11

A

No.

12

Q

Now, you're aware, I believe, that the Act

13

exempts retailers with less than $100,000 in gross

14

sales --

15

A

Yes.

16

Q

-- to Colorado residents?

17

A

Right.

18

Q

Did your analysis exclude that level of

19

retailers?

20

A

Yes.

21

Q

And how did you take that into account?

22
23

How did

you exclude those folks?
A

Well, I work primarily -- when I think about the

24

size of a business, I think about the size of the

25

12-month buyer file; in other words, how many customers
Exh.9

Page 57

1

THE WITNESS:

2

MS. SCOVILLE:

3

THE WITNESS:

Yeah.

Well, let's take about a

10-minute break then.

4

Okay.

Thank you.

5

(Break.)

6
7
8
9
10

BY MS. SCOVILLE:
Q

Right before our break, you mentioned that you

had talked to about 15 companies; is that right, to kind
of check your estimates?

11

A

Right.

12

Q

How did you select which 15 to speak with?

13

A

They were just -- some were software vendors of

14

commercial systems.

15

their judgment.

16

quickly, I don't have to spend a week telling them what

17

I'm trying to do, and I can get a, Have you thought about

18

this or maybe this is a little bit high or this is low.

19

Just people I trust.

20

Q

21

A

You know, I can give them an idea

also?

22

They were just people that I trust

23
24
25

And did you also speak with actual retailers,

Well, I mean, yeah, they were -- you mean big

box retailers or -Q

No.

I'm talking about actual multichannel

retailers -Exh.9

Page 58

1

A

No.

2

Q

-- as opposed to software vendors.

3

A

No.

4

Q

And of the retailers, did they cover both

5
6
7
8
9

Most of them were multichannel retailers.

catalog and Internet?
A

Almost every one of my clients does.

There's

rarely one that isn't multichannel.
Q

And did you speak with a range of small to

medium and large retailers?

10

A

Mostly moderate, one large, one mega.

11

Q

And how did you decide on the number 15?

12

A

Well, we were trying to meet a date, and that's

13

about what I had time to do.

14

Q

And did you keep any notes of your conversations

15

with them?

16

A

Just one, which I've turned over to you that

17

had -- I didn't really -- you know, I wasn't trying to do

18

something methodically.

19

assumptions.

20
21

I was just trying to check the

It's in what you got last week, I think.

MS. SCOVILLE:

Okay.

Let's mark this as Exhibit

2, please.

22

(Exhibit No. 2 was

23

marked for identification.)

24
25

MR. SCHAEFER:

A very minor point, they may be
Exh.9

Page 61

1
2
3
4

A

They're a marketing service bureau company.

And

these others, I can't tie it down to a specific company.
Q

Okay.

Well, why don't you give me a list of the

companies with whom you spoke.

5

A

One would be D.M.insite.

6

Q

And what kind of company is that?

7

A

That's a web software company, web software

8

provider.

9

Q

Okay.

10

A

Let's see, I talked to CommercialWare, which is

11

a -- it's a software company.

12

able to do this, so I'm thinking about the calls I made

13

versus the ones I got back, and I can't specifically say

14

which ones these represent.

15
16
17
18
19
20

Q

Okay.

speak with?
A

I had a short time to be

But just generally, who else did you

Who are the other 15 companies?

Well, as I said, I made a number of calls and

got a limited number of call-backs.
Q

Okay.

Do you remember the retailing companies

with whom you spoke?

21

A

22

remember.

23

Q

24
25

I don't.

I'm giving you the ones that I

Do you have any other documents that would

reflect who the retailers with whom you spoke were?
A

No.
Exh.9

Page 63

1

even if he didn't specifically rely on this particular

2

phone call.

3

MR. SCHAEFER:

Let me ask you -- it's clear the

4

witness has some sensitivity about it.

5

is whether or not you can -- if you establish that the

6

information contained is relevant to the report or to the

7

opinion, that's fine.

8

didn't consider it, it seems to me that the name is not

9

necessary, other than in an effort to identify someone

10

The issue I have

If he didn't rely on it or he

without, I think, a reason typed in the report.

11

MS. SCOVILLE:

Okay.

I think we've already done

12

that, but let me take another shot at it.

13

BY MS. SCOVILLE:

14

Q

So, Mr. Barry, I understand that you in

15

mid-September came up with initial estimates of the costs

16

for companies to comply with the three categories of

17

Colorado regulations; is that right?

18

A

Yes.

19

Q

And then you spoke with 15, approximately,

20

companies, and then you made revisions of those

21

estimates; is that right?

22

A

Well, I validated what I was thinking, not based

23

on what they were telling me that it was going to cost

24

them.

25

experience.

Much of what I have in my report is what I have as
All I was doing was -- I didn't ask them
Exh.9

Page 64

1

what it would take them to do it.

2

process.

3

I never asked them what it was going to cost them because

4

I didn't want to get but too far into it.

5
6
7

I was validating the

That's why I don't understand.

I never asked,

Q

And why didn't you want to get too far into

A

Well, because I talked to Brann & Isaacson, and

it?

8

they told me from the very beginning to be very careful

9

not to solicit any work on this account; in other words,

10

you know, don't -- be very objective, which is what I do

11

in all my work, and, you know, if you're going to talk to

12

people, don't, you know, don't make a point of being an

13

expert, just use it to validate your process, and that's

14

what I've done.

15

to cost some company to do something is my estimate.

16

It's not what they've told me.

17

something and given it to me.

18

Q

The cost, I have no -- what it's going

They haven't estimated

So as I understand it, no company gave you an

19

estimate of what they have or have not done to comply

20

with the regulations?

21

A

No.

22

Q

What did you ask the companies?

23

A

I would say -- for example, if we talked about

24

web, we talked, as the requirements -- or as the report

25

says, and it's going to require a change in, say, the
Exh.9

Page 65

1

order path, I would ask them, you know, if you had to, if

2

you had to do some major change in the order path, how

3

much -- you know, what does that entail, and they'd

4

describe it to me, and then I'd say to myself, okay,

5

that's, you know, that's a moderate change or a small

6

change.

7

description so that I have any uniformity between

8

descriptions.

9

could say these were conservative estimates, that I

But I never gave them any kind of a written

It was really more to make sure that I

10

wasn't giving such a high number that we'd spend a lot of

11

time arguing whether it was 50,000 or 35,000.

12

Q

And it's my understanding that you revised some

13

of your numbers after speaking with these companies; is

14

that right?

15

A

Right.

16

Q

Okay.

And we'll get into the specific numbers

17

in a minute.

As I understand it, you did not have a

18

formulated list of questions when you called these

19

15 companies?

20

A

No.

21

Q

You didn't use a questionnaire?

22

A

No, no.

23

Q

All right.

24
25

And you didn't do anything to

methodically track their responses?
A

No.
Exh.9

Page 74

1

please.

2

(Exhibit No. 4 was

3

marked for identification.)

4
5
6
7

BY MS. SCOVILLE:
Q

Do you recognize Exhibit 4 as an e-mail that you

sent to Matthew Schaefer on September 23rd?

8

A

Yes.

9

Q

All right.

This e-mail says, "I have talked to

10

15 companies today.

50% had no awareness of this

11

regulation which is very worrisome and disconcerting in

12

trying to estimate costs."

13

A

There's a mistake in this.

14

Q

And what is the mistake?

15

A

I didn't talk to 15 in one day.

I talked to

16

them over -- the way I remember it is that I had like

17

three days or two days so it wasn't "today".

18

pretty sure this is the first time and the only time that

19

I sent Matt a note that said I've talked to people, I

20

think.

21

e-mail that you have.

22

Q

And I'm

I mean, I haven't gone back and looked at every

So when you say that "50% have no awareness of

23

the regulation which is very worrisome and disconcerting

24

in trying to estimate costs", what about it was worrisome

25

and disconcerting?
Exh.9

Page 75

1

A

Just that they were not -- it wasn't on their

2

radar.

3

me because I had already written down what I thought, but

4

I was concerned for them and their clients.

5

Q

It wasn't disconcerting for me or worrisome for

When you talked to retailers, what did you learn

6

in terms of whether multichannel retailers were aware of

7

the regulations?

8
9

A

About the same.

You know, they had -- there had

been only, I think only one news story on this topic, and

10

it was back in July.

11

that DMA was suing the State of Colorado.

12

had some errors in it.

13

long that just said this is it, more later, but it did

14

have errors.

15

Q

It was in Multichannel Merchant
They actually

It was literally one 8 1/2 by 11

But of the retailers with whom you spoke, about

16

50 percent were aware of the regulations as I understand

17

it?

18

A

Yeah, to some degree.

It doesn't mean they were

19

doing anything about it.

20

high certainty nobody I talked to knew the details of the

21

three requirements.

22
23

Q

I would say, I would say with

And Wyland, the marketing service bureau with

whom you spoke, were they aware of the regulations?

24

A

No.

25

Q

The next sentence reads of this e-mail in
Exh.9

Page 76

1

Exhibit 4, "So the impressions and costs were all over

2

the place.

3

considerably to avoid issues."

4

trying to avoid?

5

A

I took your advice and cut the costs down
What issues were you

Well, as you know, if you looked at my drafts,

6

which I had in my -- I think it was the September 17th

7

draft or whatever the first one to Brann & Isaacson was,

8

I had pushed myself to think through what I thought it

9

was going to take typically and put a dollar on it, and

10

those are the costs that I, as I talked to some people

11

not about what it was going to cost them, but just the

12

effort and the process, that I changed, and I don't, I

13

mean, I don't remember which ones changed and which ones

14

didn't, but the -- what Matthew had asked me to do was to

15

just be conservative with it, don't try to do a study of

16

a bunch of different companies.

17

out to do.

18

Q

That's not what we set

And when this e-mail in Exhibit 4, the last

19

sentence of that paragraph says "I took your advice",

20

what was Mr. Schaefer's advice?

21
22

A

I just said what it was.

It was to be

conservative.

23

Q

And that's the whole of his advice to you?

24

A

Yeah.

25

I mean, he's a lawyer, he doesn't know

anything about systems, and he trusted my judgment for
Exh.9

Page 93

1

Q

Okay.

2

A

Right, or just a hot link, if you know -- you

3

So it could be an icon or a URL?

know, like the words "Colorado sales tax".

4

Q

Highlighted and underlined --

5

A

Right.

6

Q

-- you click on that, and then it takes you

7

Yeah.

somewhere else?

8

A

Yes.

9

Q

And you assume that the linking notice would

10

send customers to a retailer's FAQs; is that right?

11

A

It's one way to do it.

12

Q

Okay.

13

A

Just to have a -- when you do that hot link, to

What would another way to do it be?

14

be able to go out to a place either in the web system or

15

in the order management system where you have company

16

policies so that, you know, we could put out there in a

17

user-friendly way what the statute said and what the

18

customers' options were, and that they would be required

19

to pay the sales tax if, as you know better than I, all

20

the possibilities.

21

the systems that allow us to do that for both call center

22

and e-commerce.

23

Q

So just, you know, we have places in

So it would be possible then for the linking

24

notice to take a customer not to the frequently asked

25

questions page, but to like the terms and conditions
Exh.9

Page 94

1
2

section of the offer?
A

Yeah.

We don't call it that, but it would be

3

just like, you know, our company policies.

4

on returns or product damage.

5

it probably wouldn't be visible to the customer without

6

clicking that maybe.

7

Q

It could be

And on the surface of it,

And in terms of the cost that it would take

8

companies to create this path, is the cost any different

9

if it takes -- if the linking notice takes the customer

10

to frequently asked questions, as opposed to the

11

company's policy page?

12

A

No.

13

Q

Okay.

14

What about a pop-up window, would a

pop-up window work as an alternative?

15

A

Yes.

16

Q

And would programming the order path for a

17

pop-up window be more or less expensive than a linking

18

notice?

19

A

It might be, it might be somewhat more, but a

20

small amount of money.

21

you want the customer to click on that, that they accept

22

that or not, which is kind of a negative, you know,

23

customer service issue.

24
25

Q

A question would be, you know, do

And when you said that it might be somewhat more

but a small amount of money, tell me what you mean by
Exh.9

Page 95

1

that.

2

A

I'm not sure I understand that.
Well, I mean, it's going to vary by company.

3

might be a couple thousand dollars more, it might be

4

less.

5

Q

To program a prop-up window --

6

A

Yeah.

7

Q

-- as opposed to a linking notice?

8

A

It

It's not a huge amount, but it would be more

9
10

than just hitting an FAQ.
Q

You mentioned in the last paragraph under

11

1(a) -- we're back on Exhibit 1, your report here -- that

12

you have used the assumption that companies adopt a

13

linking notice, rather than some form of "work around".

14

What would a "work around" be?

15

A

"Work around", generally the way the term is

16

used, is something that may be less desirable, but gets

17

it done without major programming.

18
19

Q

And what would be some examples of "work

arounds" in this particular context?

20

A

I don't have any.

21

Q

Let's go back to Exhibit No. 5, if you would,

22

which is one of the earlier drafts of your report.

Okay.

23

If you would look at page 7, please.

24

paragraph says, "Retailers we have talked to are looking

25

at a variety of solutions and workarounds including

The second full

Exh.9

Page 97

1

did come up, and I told them I didn't think that would

2

work.

3

BY MS. SCOVILLE:

4

Q

Okay.

The second sentence of this paragraph

5

says, "Another is that e-commerce customers to force the

6

Colorado customer, when they enter their delivery

7

address, to have to click a button before proceeding with

8

the sale that they understand their sales tax

9

obligations."

10
11

Is this something that's actually being

done by a company?
A

No.

I don't remember -- no, but it goes back to

12

what I just said a couple of minutes ago.

13

negative customer service ramifications.

14

It has some

kind of threw this up.

People just

15

Q

Okay.

16

A

Right.

17

Q

-- that was thrown out by one of the people that

18

So it was an idea --

you talked to?

19

A

Right.

20

Q

All right.

The next paragraph says, "There are

21

a variety of workarounds that we have heard discussed

22

which probably do not meet the regulation.

23

e-commerce trigger e-mails to inform the Colorado

24

customer after the order is accepted by the system."

25

that something that companies are actually doing?

One is using

Is

Exh.9

Page 98

1

A

No.

2

Q

And did you believe that that option for

3

It's an idea again.

complying with the regulations would be acceptable?

4

A

No.

5

Q

Okay.

6
7

And is that based on your conversations

with the Brann Law Firm?
A

I don't, I don't think so.

It just seemed to be

8

when using a trigger e-mail, it's after the fact rather

9

than before.

10
11

Q

Okay.

So in your opinion, that would not meet

the Colorado regulations?

12

A

That's my opinion.

13

Q

If it did meet the Colorado regulations, would a

14

trigger e-mail be less expensive than changing the web

15

order path?

16

A

Assuming that everyone can identify a Colorado

17

order -- a Colorado customer and trigger an e-mail may

18

mean some changes there, but --

19

Q

Would it be less expensive, I guess is my

20

question.

21

A

Than what, what we're assuming here?

22

Q

Than changing the web order path.

And let's

23

actually start over so we've got a clean question.

24

Sorry.

25

Would a trigger e-mail after an order is placed
Exh.9

Page 101

1

this 5- and 10,000 also involves the discovery and

2

evaluation process.

3

MR. SCHAEFER:

Stephanie --

4

MS. SCOVILLE:

Yes.

5

MR. SCHAEFER:

-- can we take a break just long

6

enough for me to check out?

7

MS. SCOVILLE:

Oh, of course, of course.

8

sorry, we are getting close.

9

I'm

break.

10

Let's go ahead and take a

(Break.)

11
12
13

BY MS. SCOVILLE:
Q

Okay.

Right before our break we were talking

14

about your estimates for changing the web order path as

15

5- to $10,000.

16

$10,000 into the components of designing the program

17

changes, developing, programming and testing?

18

A

Did you attempt to break that 5- to

Not in writing, I don't have them in writing,

19

but I did sit down and kind of go through that

20

mentally.

21

Q

Okay.

And how would you divide up this

22

particular estimate of 5- to $10,000 in terms of those

23

categories?

24
25

A

Well, I think that at least half of the --

anywhere from half to 75 percent of the costs are in the
Exh.9

Page 102

1

design and what management wants to do and whether it

2

meets, whether it meets the -- not just this, but does it

3

meet the need, and the programming part, the physical

4

change hopefully is smaller than the design.

5

Q

6

quarter --

7

A

Yeah.

8

Q

-- of the estimate?

9

A

Right.

10
11

So programming and testing might be just a

It's going to vary on, you know, what

kind of a change, but -Q

And I apologize if I'm repeating myself from

12

five minutes ago.

I'm already having trouble remembering

13

exactly what we covered, but I don't think I've asked you

14

this yet.

15

program a change like this?

Did you do any tests or studies to actually

16

A

No.

17

Q

And did you refer to any literature or published

18

studies about what the cost might be?

19

A

Of making the Colorado change?

20

Q

For the transactional notice.

21

A

I'm not aware of any.

22

Q

So this is based on your experience?

23

A

Right.

24

Q

And did you discuss changing the web order path

25

with the 17 companies with whom you spoke?
Exh.9

Page 103

1

A

I did with the ones that had a reasonable idea,

2

you know, an awareness.

3

companies, if they weren't aware, then I wouldn't have

4

spent all my time trying to get them to know what to

5

do.

6
7
8

Q

In other words, with half the

And what was the feedback you got from actual

companies about the cost to change the web order path?
A

Well, I didn't ask anybody for a specific cost.

9

What I asked them was, am I thinking about the process

10

that you might have to go through, and then I put the

11

cost on it.

12

Q

And have you had any similar experiences with

13

the clients of your firm in terms of assisting them with

14

changing web order paths to comply with a similar

15

regulation?

16
17

A

With changing a web order path, yes, but not

with a similar regulation.

18

(Exhibit No. 10 was

19

marked for identification.)

20
21
22

BY MS. SCOVILLE:
Q

Okay.

Let's, if you would, take a look at

23

Exhibit No. 10.

24

report dated September 15th?

25

A

Do you recognize this as your draft

Yes.
Exh.9

Page 104

1

Q

If you would, take a look at page 4, please,

2

under C, Estimated Costs, 1, Order management, enterprise

3

and e-commerce systems.

4

A

Let's see --

5

Q

At the top of the page.

6

A

Yes.

7

Q

And in the underlined text, you have, "FCBCO has

8

not estimated the dollars but it could be a $50,000 one

9

time cost.

10

How the software vendor might charge for that

is obviously unknown as it would be a shared expense."

11

And then in the next paragraph, you say,

12

"Company website developers would have an equally

13

difficult time in making this change.

14

another $30,000 to $50,000 charge to inform the

15

customer."

16

This could be

First of all, I want to confirm that this part

17

of your draft report is referring to the transactional

18

notice.

19

A

Let me take a look at that.

20

Q

Sure.

21

A

I believe it does.

22
23
24
25

I'm not sure there isn't

some overlap between one and two now, but -Q

Okay.

How did you arrive initially at the

$50,000 for external costs and 30- to 50- for internal?
A

Just, as I said before, thinking through what I
Exh.9

Page 105

1

thought the issues would be, trying to put what I would

2

consider to be a cost on there that I could then

3

validate, and that looking at -- you know, thinking about

4

other projects we've done that are similar in the same

5

parts of the system, like the order processing part or

6

the web path part, trying to be realistic because, as we

7

said hours ago, IT people don't estimate accurately, and

8

I didn't want to come in too low initially.

9

kind of like this is a strawman figure, and then tried

10

to -- and then validate it and think further about it.

11
12

Q

Okay.

So it was

And you obviously changed your

estimates --

13

A

True.

14

Q

-- downward.

15
16

And why did you change the

estimates downward?
A

One, I wanted to make sure that I didn't --

17

since I don't have the details written down, that I could

18

talk through them and, you know, discuss them.

19

larger number like that, I think that's harder to do.

20

think there are very real costs to this statute, and what

21

didn't change is most of the things I identified -- most

22

of the areas that I identified in the initial report are

23

in the final.

24

Q
A

Yeah.

I

But just the dollar value changed?

25

With a

And what I didn't want -- nobody likes -Exh.9

Page 106

1

I've never worked with anybody, whatever the issue is

2

that we're working on, if I come in and say, Well, I

3

think it's 5,000 and it ends up being 50-, nobody likes

4

that.

5

bringing it down, that has always -- whether it's an

6

estimate of my time or software.

7

personal style kind of thing.

8

with some huge increase.

9
10

Q

But if I say it's some other number and I'm

So it's more of a

I don't want to go back

Well, what is the most accurate number in your

professional opinion --

11

A

In the report.

12

Q

-- as to the actual costs?

13

A

In the report.

14

Q

The 5- to $10,000?

15

A

Yes.

16

Q

Okay.

And so I guess I'm still trying to

17

understand why you revised it downwards, other than just

18

not wanting to aim too high.

19

A

Well, I think, I think they're realistic, and I

20

also think that if the statute stands, I think that those

21

are very conservative estimates, that those are small

22

numbers as estimates go for IT changes.

23

big to a novice, but they're not a -- they represent true

24

costs, actual costs, and I believe that these will end up

25

being conservative.

They may look

Exh.9

Page 107

1
2

MS. SCOVILLE:

Let's take a look at Exhibit 11,

please.

3

(Exhibit No. 11 was

4

marked for identification.)

5
6
7
8

BY MS. SCOVILLE:
Q

Do you recognize Exhibit 11 as another draft of

your report?

9

A

Yes.

10

Q

Okay.

If you would take a look at page 4,

11

please, the top of page 4, and this is part of Exhibit A,

12

the transactional notice.

13

on page 4 says, "Estimated cost to modify order the order

14

path for the message is estimated from $15,000 to

15

$25,000."

16

of changing the web order path?

And the first full paragraph

And is that another iteration of your estimate

17

A

Yes.

18

Q

And that came after --

19

A

As best I recall, yeah.

20

Q

Okay.

21

And that appears to have come after our

initial estimate of 50- or 30- to 50-?

22

A

Right.

23

Q

I guess I'm still trying to understand what you

24

did or what changed in your analysis to take it from 50-

25

or 30- to 50- to 15- to 25- down to 5- to 10-.

What
Exh.9

Page 108

1

changed along the way?

2

MR. SCHAEFER:

3

A

Object to the form.

Well, again, as I said, I originally put a high

4

number, a strawman on that, realizing I was going to have

5

a week to two weeks to develop it, develop it further and

6

to think about it, and, you know, this is all this is.

7

This is not meant to be any more than that, that these

8

are working notes, working drafts, I guess is a better

9

way to say it.

10
11

BY MS. SCOVILLE:
Q

And what changed -- or why did you revise your

12

estimate downward from 15- to 25- in Exhibit 11 to 5- to

13

10- in your final report?

14

A

To be very conservative with the costs.

As I

15

said in the early part of this document, what flexibility

16

people have with systems, whether they use outside

17

companies to program them or they can maintain

18

themselves, whether their technologies are flexible, all

19

these things make some costs easier than others for

20

people to accommodate.

21

developers make it more expensive.

22
23

Q

Sure.

Older technologies and outside

And your 5- to 10- estimate takes outside

developers and older technologies --

24

A

Right.

25

Q

-- into account?
Exh.9

Page 109

1

A

True.

2

Q

Did you do any studies or any tests as you

3

revised the numbers downwards?

4

A

No.

5

Q

So you had initial estimates which were based on

6

your own experience of 50- or 30- to 50-?

7

A

Right.

8

Q

And then you had estimates of 15- to 25- based

9

on your experience?

10

A

Based on thinking about it more.

11

Q

And then you had your final estimate of 5- to

12

10- also based on your experience?

13

A

Yes, and a limited outside validation.

14

Q

Did anything that the 17 companies you

15

interviewed say to you factor into your decision to

16

revise these numbers downwards?

17

A

I would say no.

It was, again, a validation of

18

process, you know, what they think this means they'd have

19

to do.

20

you have to change the order path if that isn't true

21

then, you know.

22

Q

Obviously, I'm leading them through; you know,

And looking at Exhibit No. 11, can you tell

23

whether or not this draft was done before or after you

24

talked to the 17 companies?

25

A

I have no idea.
Exh.9

Page 114

1

printed; is that right, and that's what the 5- to 10-

2

estimate represents?

3

A

All the invoices would look alike, but we'd have

4

sufficient size on the front of the invoice to

5

accommodate whatever it is the companies feel comfortable

6

with saying.

7

have a friendly paragraph.

8
9
10

Q

Some might be one line long, and some might

And how common is it right now, this Colorado

regulation aside, for retailers to have forms that are
specially generated for different states' requirements?

11

A

Rare.

12

Q

Okay.

What are some of the other instances

13

where a separate form for a particular state would be

14

triggered?

15

A

There may be in horticulture provisions that say

16

something about seeds, quarantined products.

17

rare.

18

Q

It's very

You include that the cost estimate for modifying

19

the invoice or packing slip would be 5- to $10,000.

20

what data did you base that conclusion?

21

A

On

My experience in going through what I think

22

would have to be considered and the time to develop an

23

estimate, along with the time to develop a design and the

24

programming and testing.

25

Q

And did you break this 5- to $10,000 into
Exh.9

Page 115

1

different categories and give hourly estimates for each

2

step in the process?

3

A

Not as notes.

4

Q

But it sounds like you did that in your head; is

5

that right?

6

A

Yes.

Right.

7

Q

And can you recreate for me how you got to the

8

5- to 10-?

9

A

Well, as I said this morning, I believe it would

10

cost a couple thousand dollars to evaluate the change.

11

In the case of something this complex, it could easily

12

cost $5,000 if people aren't aware of it.

13

that the program -- the system design and the program

14

design, not the programming, is more than half the cost

15

of every change.

16

Q

17

instance?

18

A

No.

19

Q

I see.

20

A

-- as a programmer.

I said before

Programming is more than half in this

The design of what I have to do --

We call that program

21

design.

In other words, I'm going to take the statement,

22

the computerized statement, and I'm going to do this.

23

Well, I have to write all that down, I have to get

24

everybody to agree to it.

25

cost.

That's more than half the

So that's how I came up with it.
Exh.9

Page 116

1
2

Q

And did you estimate the number of hours and

then multiply it by hourly rates?

3

A

Right.

4

Q

Okay.

5

A

I used a blended rate between the $32 -- let's

And what hourly rates did you use?

6

look at the page.

If we look on page 4 of the final

7

report, we have $24 and $48 without benefits.

8

benefits into it, we have $31 and $62.

9

blended average of those two.

If we put

So I took a

10

Q

And did you just do a straight average --

11

A

Yes.

12

Q

-- 31 plus 62, divided by half?

13

A

Yes.

Like 47 or something.

So, again, trying

14

to be conservative, not trying to push it towards the

15

high side or the low side.

16

Q

So if you take $5,000 -- and I just did the math

17

right here -- divided by the blended rate, which is

18

actually 46.5, you get 107 hours of time to modify the

19

invoice.

20

A

Yes.

21

Q

And then you could do the same math to determine

That would be the low end, right?

22

how many hours it would be to modify to get to the upper

23

range of $10,000?

24

A

Right.

25

Q

And is that how you did the math -Exh.9

Page 117

1

A

Yes.

2

Q

-- to get to these numbers?

3

A

Yes.

4

Q

And did you come up with the amount of hours

5

first or did you come up with the numbers, the totals

6

first?

7

A

I came up with the hours, you know, just how

8

many -- when you look at all the pieces to this and just

9

envisioning what most companies would have to do as they

10

figure out what they're going to do to meet this, if they

11

have to, and then I used the dollar averages.

12

Q

Now, none of the figures in your final report or

13

your draft reports are expressed in terms of number of

14

hours.

They're expressed in final costs.

15

A

Right.

16

Q

Do you have any notes or other documents that

17

would reflect your thinking in terms of hours?

18

A

No, I don't.

19

Q

Okay.

And I'll tell you -- I did the math

20

sitting here -- that it would take 215 hours at the

21

blended rate to get to $10,000.

22

A

Okay.

23

Q

How did you arrive at 215 hours?

24

A

With some technology, I'm going -- you know,

25

with like mainframe technology or some of the older
Exh.9

Page 119

1

programming is closest to 150 to 160 average?

2

A

Yeah, somewhere in that.

I mean, I don't

3

remember how it calculates out right now.

I will say

4

that, and you can see this in my drafts, that I use the

5

computer a lot to capture thoughts, and then I refine

6

them.

7

put them at the end of the document, and so I don't, I

8

don't write as many manual notes as I might have 15 years

9

ago.

You can see things that I throw out or I typically

I kind of think with the computer and kind of

10

capture things that way and then write over them or

11

discard them.

12

Q

So you don't have any documents that would

13

reflect how you did the math in terms of what blended

14

rate you used times how many hours to get to these

15

figures?

16

A

No.

17

Q

Okay.

I'm telling you how I remember doing it.
Did you do any tests or studies to come

18

up with the 5- to $10,000 estimate for modifying the

19

invoice or packing slip?

20

A

I didn't, but as I said before, I considered

21

those and I think my peers would consider those to be

22

conservative numbers, and that there will be costs the

23

companies will bear that are that or hirer, depending on

24

the technology and the skill levels and so forth.

25

Q

Did you refer to any literature or published
Exh.9

Page 120

1

studies in coming up with the 5- to 10,000 estimate?

2

A

No.

3

Q

And is that something you discussed with the

4

17 companies with whom you spoke?

5

A

What is the "that"?

6

"that" is?

7

Q

Sure.

Would you reword what the

Did you discuss your estimate of 5- to

8

$10,000 to modify the packing and order slip with the

9

17 companies with whom you spoke?

10
11
12

A

No.

I was talking to them more about process,

what would you have to do if you had to do it.
Q

If you could go back to Exhibit 5, which is one

13

of your earlier draft reports, on page 7.

This is the

14

paragraph we discussed earlier that you said related to

15

catalog sales and, as I understand it, would apply more

16

to modifying the packing slip.

17

A

What paragraph is it that you're looking at?

18

Q

The first full paragraph.

19

A

Right.

20

Q

"Retailers we have talked to are looking at a

21

variety of solutions and workarounds including having the

22

sales person or Call Center rep input a short phrase

23

message that will print on the customer order and refer

24

the customer to the website for more details."

25

something that companies are actually doing right now?

Is that

Exh.9

Page 122

1

question, which is, would it be more or less expensive

2

than what you've estimated in your report?

3
4

MR. SCHAEFER:
A

Same objection.

I don't know.

I don't know that it would be

5

acceptable.

6

BY MS. SCOVILLE:

7

Q

All right.

Going back to Exhibit 11, which is

8

also an earlier draft of your report, on page 4, you

9

initially estimated that to modify the invoice and

10

packing slip would cost 15- to $20,000.

11

know, I guess, what changed between your initial estimate

12

and your final estimate of 5- to 10-.

13

A

I'd like to

Well, first off, I don't know the date of this

14

document and where I was in that thinking process.

15

as I said, I started out with high numbers and brought

16

them to something that I felt was conservative as I

17

worked through it.

18
19

Q

And

And as I understand it, you did not do any

studies or tests or any other specific --

20

A

No.

21

Q

-- analysis in changing those numbers?

22

A

No.

23

Q

Going back to your full and final report --

24

THE WITNESS:

25

MS. SCOVILLE:

Can I ask you a question?
Sure.

And I don't know if I'll
Exh.9

Page 131

1
2

Q

What would an average percent of calls be if an

item is backordered?

3

A

Probably 30 or 40 percent.

4

Q

Okay.

5

Can you think of other examples that

would generate a high number of calls?

6

A

You know, periodically, there are billing

7

issues.

For example, you read in a paper where, let's

8

say, a big bank processor has doubled billed credit card

9

customers.

Well, that generates a tremendous -- you

10

know, everybody, whether they have it wrong in their bill

11

or whether they think they do because they're a

12

cardholder, it generates a call.

13

segments of the direct marketing public that are older

14

customers, not myself but older customers, they will call

15

because they think big brother is watching them; what am

16

I buying, how do I pay this.

17

first off, baby boomers are the largest segment of the

18

population, and there are catalogs, especially in women's

19

merchandise, that are fairly large where the average

20

customer is 60 or older, and they get something that

21

isn't worded well, isn't clear what they have to do,

22

they're going to call.

23

They're not going to call you.

24

us.

25

Q

There are certain

There's probably -- well,

That's the easy thing to do.
They're going to call

So what data did you use to reach your estimate
Exh.9

Page 132

1

of 50 percent?

2

A

Best judgment.

3

Q

And did you do any tests or studies?

4

A

No.

5

Q

And did you refer to any published literature?

6

A

No.

7

Q

We do have some e-mail correspondence.

I think

8

it has already been marked Exhibit No. 3.

This is your

9

e-mail with Matt Schaefer on September 16.

Point No. 6

10

says, "To figure number of call center calls, etc.

11

about if we figure 50 percent?"

12

Firm's response to your inquiry on that point?

13
14
15

A

I don't remember.

How

What was the Brann Law

I would say that it sounded

reasonable, but I don't specifically remember.
Q

Back to your final report, the next item in your

16

transactional notice calculation is professional

17

assistance, and you estimate that companies will need 3-

18

to $5,000 worth of professional assistance to do the

19

transactional notice.

20

$5,000 number?

21
22
23
24
25

A

How did you come up with the 3- to

Just from working through it, best judgment,

experience.
Q

What accounting assistance would be needed to

comply with the transactional notice?
A

Well, some people use their outside accountants
Exh.9

Page 133

1

as advisers so it would be as much that.

2

we're thinking about is to meet Colorado regulations.

3

There are some sales tax software companies that also

4

provide consulting.

5

not going to try to interpret this by themselves I

6

wouldn't think.

7
8

Q

You know, what

So I would imagine people, they're

They wouldn't be smart to.

Does your 3- to $5,000 estimate include changes

to customer privacy policies?

9

A

No.

10

Q

All right.

11

A

Right.

12

Q

What about involvement from the creative

So that would be separate?

13

department to finesse the wording, is that included in

14

the 3- to $5,000?

15

A

No.

16

Q

So it's just strictly legal and accounting

17

costs?

18

A

Right.

19

Q

All right.

20

And what data did you use to decide

that that number should be 3- to 5-?

21

A

You know, from a -- you were saying accounting

22

and legal.

23

that, and I know that once you open up all these issues

24

that it's reasonable to think you're going to spend a

25

couple of days, three or four days, to fully answer all

I think there's a place for consultants to do

Exh.9

Page 134

1

the questions.

2

would be going back and looking at how they interpreted

3

what you told them and how they're going to proceed and

4

it's, I think, a conservative estimate.

5
6

Q

It wouldn't be in one sitting, but it

Did you do any tests or studies yourself to

determine the 3- to 5,000 amount?

7

A

Just that I know -- no.

8

Q

And did you refer to any literature or published

9

studies?

10

A

No.

11

Q

And did you discuss this with any of the

12

17 companies with whom you spoke?

13

A

No.

14

Q

Okay.

Going back to Exhibit 10, which is your

15

September 15th draft.

On page 4, you initially put the

16

consulting and legal expertise costs at 5- to $7,000.

17

A

Okay.

Where is -- right here.

18

Q

It is right above No. 3.

19

A

Okay.

20

Q

Consulting and Legal Expertise for Compliance

21

Costs - $5,000 to $7,000.

22

5- to $7,000 estimate?

23

A

How did you come up with the

Again, this was my original draft.

24

these others, they were strawman numbers.

25

down.

Like some of
I revised them

I may have asked Matt what he thought as an
Exh.9

Page 135

1
2
3
4

adviser, but, you know, they were a little too high.
Q

And did Mr. Schaefer indicate he thought the

5- to 7- was too high?
A

I don't remember specifically.

I'm just saying

5

I think I remember that, but I'm sure if he did you'll

6

show me an e-mail.

7

Q

Well, I don't have an e-mail.

8

A

I don't either.

9

Q

So that's why I'm wondering what your

10
11

discussions with him were.
A

Well, what I do remember is when we helped two

12

clients work on shipping and handling, I remember what

13

that number was, and it was in that upper range and he

14

felt -- what I remember is, I think that he felt that

15

might be too high.

16

Q

If you could look at Exhibit A.1.

17

A

In this --

18

Q

In your final report.

19

A

The final report.

20

Q

Exhibit No. 1.

21

A

Okay.

22

Q

I just want to make sure I understand.

Pardon me.

You've

23

got Basic statutory/regulatory requirements and Necessary

24

but not discretionary, and you've got the Totals for low

25

end first your compliance costs (sums of above), $10,000.
Exh.9

Page 137

1
2

THE WITNESS:

Could we take a break?

I need to

use the rest room.

3

MS. SCOVILLE:

Absolutely.

4

ahead and break for lunch.

5

You know, let's go

the record.

6

It's noon.

And we can go off

(Break.)

7
8
9

BY MS. SCOVILLE:
Q

Mr. Barry, this morning we just touched very

10

briefly on how on-line retailers -- and let's just focus

11

on on-line retailers for a moment -- collect and keep

12

information about their customers.

13

professional experience, it is common for on-line

14

retailers to keep track of what it is that customers buy,

15

right?

And so in your

16

A

Yes.

17

Q

And retailers, on-line retailers would also

18

track what customers spend annually?

19

A

Yes.

20

Q

And would they also track what customers spend

21

in their lifetime?

22

A

Some do and some don't.

23

Q

Okay.

What about whether or not on-line

24

retailers track how long a customer spends on a

25

particular website?
Exh.9

Page 138

1

A

2

website?

3

Q

Right.

4

A

Yes.

5

Q

So they would know that I searched, you know,

6

You mean how long physically they're on the

landsend.com for 30 minutes or something like that?

7

A

If I were Lands End.

8

Q

Yes, if you were Lands End.

9

A

Yes.

10

Q

Okay.

11

Do on-line retailers also track how many

times a particular customer visits their site?

12

A

Yes.

13

Q

Do they track which Internet browser customers

14

use?

15

A

Yes.

16

Q

Do they track which items customers are

17

interested in?

18

A

To the degree that they can.

19

Q

Okay.

20

A

I think most can.

21

Q

Beyond more than just what is ultimately

22

And to what degree can they do that?

purchased --

23

A

Right.

24

Q

-- they can determine which items I, as a

25

customer, viewed?
Exh.9

Page 139

1

A

What they looked at and so forth.

2

Q

Okay.

3

from?

4

A

Yes.

5

Q

What ZIP Code they're from?

6

A

Yes.

7

Q

Which computer they use or which IP address?

8

A

Yes.

9

Q

Whether or not customers use discount codes?

10

A

Yes.

11

Q

Whether or not they visit a site after receiving

12

an e-mail?

13

A

Yes.

14

Q

What about whether or not customers buy after

15

Do they track what country customers are

receiving a special offer?

16

A

Yes.

17

Q

Okay.

18
19

What other kinds of metrix do retailers

use to track customers?
A

Well, I mean, there's literally -- this is a

20

creative marketing thing so the list isn't endless, but

21

it's pretty large.

22

customer with a certain type of message, meaning they

23

haven't shopped in a while; the time sensitivity of the

24

message, in other words, if they bought a week ago and

25

you send them some special offer, do they buy again right

You know, can you reactivate this

Exh.9

Page 140

1

away; the purchasers or customers who buy "X" also buy

2

"Y", so it can serve up to the customer some purchase

3

preferences.

4

Q

That's kind of endless.

Okay.

And as I understand it, catalog companies

5

would, to the extent that they can, track similar

6

metrix?

7

A

Right.

8

Q

Okay.

9

And that's how it is that retailers can

identify me as a woman of a particular age, who has

10

children, and buys certain kinds of good when I have a

11

free shipping offer?

12
13
14
15
16

A

It might not be on-line, though.

sometime after.
Q

Okay.

It might be

It doesn't have to be on-line.
Sure, sure.

And then what do retailers

do with all of the data that they collect?
A

Number one, they're looking for, you know, how

17

promotions work -- do promotions work and under what

18

circumstances, what facts they work; what merchandise,

19

meaning what products; how can I liquidate overstock

20

products; you know, effectiveness of various promotions

21

and how -- you know, that versus another.

22

A/B testing.

23

which one responds better.

24
25

Q

We call that

Okay.

You know, here is Offer A versus Offer B,

And then do they also use the data to

improve their marketing to a particular customer?
Exh.9

Page 141

1

A

Yes.

2

Q

And do they provide the data that they track to

3
4

the marketing service bureaus?
A

Generally, what they provide is the raw data,

5

the transactions, the returns, not necessarily -- they

6

may provide, you know, findings, but, you know, how many

7

click throughs they had, that probably wouldn't go to the

8

marketing service bureau.

9
10
11
12
13

Q

What about to the database companies we talked

about, the four or five large ones?
A

I think it's the same.

I don't think it goes

generally beyond the company in most cases.
Q

So in your professional experience, the data

14

that companies collect, that retailers collect, such as

15

how much is spent annually, on what kinds of items, after

16

how many visits to the website, you're saying that most

17

retailers keep that information in-house?

18

A

No, no.

What I meant was, they don't -- the

19

first two you said, the marketing service bureau would

20

take the same data and develop their own data.

21

want to read back what those first two were just to -- so

22

those two, you know, I pass the raw data.

23

inside, but I'm really using the outsider to kind of use

24

that and validate it and put it together with other data.

25

If you

I may have it

The third one was more like clickstream data.
Exh.9

Page 147

1

basic data, so it varies.

2

it's accurate, but if you can't recombine it with

3

something, then what value -- you're not sometimes sure

4

what value it has.

5
6

Q

You know, how accurate it is,

In your experience, do retailers keep this data

for more than a year?

7

A

I think most do.

8

Q

Okay.

9

What would be the outer limit in your

experience as to how long a retailer would keep the

10

data?

11

A

I don't know if I could answer that.

I mean, I

12

just -- you know, maybe a couple of years.

As your

13

promotional schedule changes, then the history, it

14

changes.

15

promotion -- and companies have hundreds of promotions.

16

So you see the ups and downs.

17

with it?

18

Q

So, you know, unless you really plot every

All right.

Big deal.

What do you do

So going back to your report, just a

19

couple more questions on the transactional notice.

20

on Exhibit A, page 2, at the bottom of page 2, onto page

21

3, you talk about on-going compliance costs, and you

22

estimate on-going compliance annual costs of $1,500 to

23

$2,000.

24

$1,500 to $2,000?

25

A

Still

What data did you use to reach the conclusion of

Just because this is a sensitive customer
Exh.9

Page 157

1
2
3
4
5
6

Q

So I'm wondering how you took those two numbers

to get to 5- to 10- in the middle.
A

Because I thought it was on the low end of the

range, and I think it's reasonable.
Q

Okay.

Let's go to Exhibit B, which is the

annual purchase summary.

7

A

In the final?

8

Q

Yes, please, in Exhibit 1.

9

Under Subparagraph

1, the last full paragraph, it talks about there are two

10

potential sources for the detail order information, the

11

operational order processing system and the direct

12

marketing system.

13

between the two systems?

Can you explain to me the difference

14

A

Are we right here?

15

Q

Yeah, exactly.

16

A

Well, we talked this morning -- I think it was

17

this morning -- that, you know, the system, the part of

18

the system that we use for the call center to take the

19

order, service the customer, that's what we call the

20

operational part of it.

21

marketing part of it, in other words, if they were using

22

the same data, but formatted and analyzed differently

23

for, say, the RFM.

24

operations.

25

Q

The direct marketing is the

So it's the marketing versus the

And do most retailers have both, the operational
Exh.9

Page 158

1

order processing system and the direct marketing

2

system?

3

A

4

the data.

5

Q

It's in the same system.

It's just how you view

There are different reports and things.
Okay.

I guess what I'm trying to understand is,

6

all retailers would hold this data, and would most

7

retailers be able to view it through both lenses, through

8

the operational lens and through the marketing lens?

9
10
11
12

A

Catalog companies can.

Again, e-commerce may

not be as sophisticated at the marketing side of it.
Q

Okay.

So e-commerce retailers would be more

likely to view their data through the operating lens?

13

A

Right.

14

Q

Okay.

15

I see.

But the data already exists,

right?

16

A

Yes.

17

Q

One of the costs that you list in your report,

18

and this goes on to page 2, in terms of the steps that

19

are necessary on the annual report, are, No. 6, for the

20

accounting department to check the file to determine if

21

any corrections are necessary.

22

accounting department need to do?

23

A

What work would the

Well, what I'm envisioning is, we're not just

24

going to run this and then pump out the data.

It was

25

something that is very customer sensitive and now reports
Exh.9

Page 169

1

literature --

2

A

No.

3

Q

-- for that number?

4

A

No.

5

Q

You conclude that 20 percent of Colorado

6

purchasers will buy $500 or more per year from a

7

particular retailer.

8
9
10
11

MR. SCHAEFER:

How do you know that?

says.

Objection.

That's not what it

It says less than 20 percent.

BY MS. SCOVILLE:
Q

Okay.

Let me start over.

You conclude that

12

less than 20 percent of Colorado purchasers will buy $500

13

or more a year from a particular retailer.

14

know that?

15

A

How do you

Just taking the $100 average order as being a

16

higher than average order in direct businesses and the

17

fact that they're going to buy two times or less on the

18

average, they won't reach the $500.

19

customers' results over the year, if you have somebody

20

that buys $500, you've got a really premium buyer.

21
22

Q

25

And did you do any particular studies to

determine that 20 percent is the right percentage?

23
24

I know looking at

MR. SCHAEFER:
A

Same objection, but go ahead.

Less than 20 percent.

conservative number.

I think that's a very

I think it could easily be 10 to 15
Exh.9

Page 170

1

because it will be a premium buyer.

2

BY MS. SCOVILLE:

3

Q

So it could be as low as 10 percent of

4

customers?

5

A

Yes.

6

Q

Okay.

Did you do any studies yourself to

7

determine what percentage of folks would buy $500 or

8

more?

9

A

10

No.

I just, as I said, know that from working

with clients' results and experience.

11

Q

And did you refer to any published literature?

12

A

No.

13

Q

Did you discuss that with the 17 companies with

14

whom you spoke?

15

A

No.

16

Q

Is published literature available in your field

17

that would talk about the percentage of buyers who spend

18

more than a certain amount?

19

A

There are just general surveys, which are hard

20

to apply because they often take in small start-up

21

catalogs and very large catalogs and they average things

22

together and they end up not sure how to apply the data.

23

So could be, but --

24
25

Q

And did you try and estimate different

percentages based on small start-up catalogs versus
Exh.9

Page 190

1

A

It says, "The relevant systems development costs

2

for these steps were also included in Exhibit B."

3

costs are included for developing.

4
5

Q

Okay.

So the

But not in the costs that you've

estimated for the customer information report?

6

A

No, no.

7

Q

The next paragraph talks about the

8

specifications that the Department of Revenue is going to

9

publish for transmitting the customer information report,

10

and you estimate that complying with the Department

11

specifications will add $1,000 to $3,000 to the costs.

12

How did you arrive at those numbers?

13

A

Well, first off, if the Department of Revenue

14

specifies something that retailers don't use generally as

15

software, I felt that we should recognize some kind of a

16

placeholder.

17

purchase a piece of software to do that or a program --

18

you know, maybe change a series of programs that we have,

19

but certainly we've got to respond to it

20

electronically.

21

Q

They would say we'd have to, you know,

So those costs could be less, depending on the

22

software specifications that the Department of Revenue

23

releases?

24

A

Yes.

25

Q

Would that portion of the costs ever be zero?
Exh.9

Page 191

1

A

Potentially.

2

Q

And in coming up with the 1,000 to 3,000 number,

3

did you refer to any literature or published studies?

4

A

No.

5

Q

Discuss that with any of the 17 companies with

6

whom you spoke?

7

A

No.

8

Q

The next paragraph indicates that, "Customer

9

I used my own judgment.

information and purchase information is protected by

10

privacy statutes and the data is typically encrypted when

11

sent between locations.

12

Colorado regulations and could increase costs."

13

was a little bit confused about that.

14

increase the costs?

This is not specified in the
And I

What would

15

A

Encryption.

16

Q

So the retailer company encrypting the data?

17

A

Right.

18

Q

And do the retailers already encrypt any of

19
20

their data?
A

There are a variety of different methods of

21

encryption.

22

from the Department of Revenue and, you know, we don't

23

know how to react to that until we see it.

24
25

Q

We're dealing with something we don't know

Is it possible that depending on what the

Department ultimately specifies that that cost could turn
Exh.9

Page 192

1

out to be zero?

2

A

It's a possibility.

3

Q

The second to the last paragraph on this page

4

says, "Companies will spend hundreds of hours of general

5

management, marketing, call center, IT and accounting

6

time interpreting and implementing this regulation in

7

their company business environment and systems."

8

go on to estimate that it will take between 150 and 200

9

hours or between $7,500 and $10,000, separate and apart

10

from additional systems costs.

11

And you

the 150 to 200 hours?

12

A

How did you come up with

Well, as we talked about this morning, the types

13

of people, meaning call center, marketing, fulfillment,

14

the general management of IT, that will have to make up a

15

committee that will determine what their company's

16

interpretation of the regulation is, how they're going to

17

need it, and how they are -- you know, what they're

18

determination is for what they need to do in terms of

19

changing what they do.

20

estimate for the number of people and the salaries that

21

we see people paying.

22
23
24
25

Q

I think that's a conservative

And so what was the hourly rate that you used

here for those types of management jobs?
A

Well, I don't exactly remember.

We could divide

it out and see, but I think you'll find it's in the
Exh.9

Page 193

1

ballpark.

2

Q

Well, if we divide $7,500 -- hang on, I can't

3

use my phone, this calculator apparently.

4

we divide $7,500 by 150, you have $50 an hour.

5

A

All right.

If

And that's in line with what I said with the

6

call center training procedures.

7

when you put general management into it and so forth, so

8

if you take the $10,000.

9

Q

So that's pretty low

And in determining the hourly rate, again, you

10

did that based on your own experience; you didn't refer

11

to any published studies?

12

A

No.

13

Q

And in determining the 150 to 200 hours, again,

14

you relied on your general experience and didn't refer to

15

published studies?

16

A

Did not.

17

Q

Or do any studies of your own?

18

A

Did not.

19

Q

Did you talk to any of the 17 companies with

20

whom you spoke about this?

21

A

No.

22

Q

Did you attempt to break down, in terms of the

23

150 to 200 hours, how much of that would be management

24

versus marketing versus call center versus IT?

25

A

No, I didn't.
Exh.9

Page 194

1

Q

How were the call center costs in this component

2

different from the call center costs that you have

3

already estimated, which included overhead, on the annual

4

statement -- or, sorry, the transactional notice?

5

A

Yeah, transactional.

What we were talking about

6

there are procedures.

So once this committee decides

7

what it is they're going to do, then another set of

8

people will take what's decided and interpret it in terms

9

of their systems and process and what they tell people

10

and the training materials for the reps.

11

the call center part of it are putting the training and

12

procedures together.

13

Q

The people in

They're not determining that.

And in terms of the IT costs on this component,

14

how are the IT costs in this component different from the

15

IT costs that you've already estimated on the

16

transactional and annual statement?

17

A

On the transactional or annual statement, those

18

are the design costs and the programming costs.

19

more part of being in the management team that defines

20

what they think the solution will be and how it affects

21

the company.

22

Q

This is

So if I understand it, then, the costs that

23

you're estimating for the customer information report in

24

terms of management time, the $7,500 to $10,000, that's

25

really executive or higher level company time spent to
Exh.9

Page 195

1

comply with the regulations; is that right?

2

A

Yes.

3

Q

All right.

Let's go to Exhibit D.

Your second

4

bullet point on Exhibit D talks about the high cost of

5

losing customers and losing sales, and you include, "We

6

anticipate that this statute's requirement will cause a

7

major percentage of the customers to abandon the shopping

8

cart or stop and call the Call Center."

9

already given the estimate that more than -- or at least

10

I think you've

50 percent of customers will call the call center.

11

A

Yes.

12

Q

Have you made an estimate of how many customers

13

will abandon the shopping cart?

14

A

No.

15

Q

What would a major percentage of customers

16

abandoning the shopping cart be?

17

A

18

percent.

19

Q

I would say somewhere between 25 and 50

And on what data do you base your conclusion

20

that 25 to 50 percent of customers will abandon the

21

shopping cart?

22

A

That a high percentage of the Internet

23

transactions are abandoned because of price or ease of

24

use -- lack of ease of use of the site, and this is a

25

very negative thing.

You're telling the customer that
Exh.9

Page 196

1

after the fact you're going to pay more for that product,

2

and there's no -- you know, it's not going to build

3

sales.

4

Q

It has to lose sales.
And are there published studies in your field

5

that talk about the percentage of Internet transactions

6

that are abandoned because of price or ease of use?

7

A

Yes.

8

Q

And did you refer to any of those?

9

A

No.

10
11
12

I just read them all the time and take

those into account.
Q

And so the 25 to 50 percent is based on your

general experience then?

13

A

Yes.

14

Q

Did you discuss that with any of the 17

15

companies with whom you spoke?

16

A

No.

17

Q

And you haven't done any studies yourself?

18

A

No.

19

Q

You conclude that the regulations will cause

20

retailers to lose customers and sales, right?

21

A

Yes.

22

Q

Do you have any way to quantify how much

23
24
25

retailers will lose?
A

I can't mathematically do it, but I think about

how competitive today's retail environment is and if
Exh.9

Page 197

1

somebody is going to pay -- if a customer is going to pay

2

more from my -- as an out-of-state retailer than somebody

3

in state or someone else, then the person with the same

4

product, but a different price, the lower price often

5

gets the sale.

6
7

MS. SCOVILLE:
question?

8

Could you read back my initial

I'm sorry, I've already lost it.

(The question was read by the court reporter.)

9
10
11

BY MS. SCOVILLE:
Q

So I understand that, you know, this is based on

12

the competitive environment, but do you have any way to

13

quantify?

14

A

No.

15

Q

And you haven't done any studies yourself in

16

that area?

17

A

No.

18

Q

Have you discussed it with any actual

19

retailers?

20

A

No.

21

Q

In your experience working with clients in your

22

company, are there clients you've had who have

23

implemented governmental regulations that have caused

24

them to lose sales?

25

A

Not that I can think, no.
Exh.9

Page 207

1

purchasers, and that number is going to be lower once you

2

take the four bullet points --

3

A

Right.

4

Q

-- in Exhibit B into account?

5

A

Right.

6

Q

Okay.

If you could take a look at the first

7

page of Exhibit 10.

8

have, "The initial start up costs may be $34,000 to

9

$46,000 for small to moderate sized companies", and those

10

You have under "A. Conclusions", you

numbers were eventually revised downward, right?

11

A

Yes.

12

Q

And then if you would take a look at the

13

September 16th draft, which is Exhibit No. 9.

14

A

It's right here, I think.

15

Q

Thank you.

All right.

On page 4, you have

16

Initial cost to set up internal company program, Total

17

estimated costs, $28,000 to $38,000 per company.

18

see that?

19

A

Yeah.

20

Q

And those costs were also reduced down, right?

21

A

True.

22

MS. SCOVILLE:

Do you

Why don't you-all give me just

23

two or three minutes to check my notes, but I think I'm

24

done.

25

(Break.)
Exh.9

Page 226

1

fulfillment systems with packing inserts in the past?

2

A

All the time.

3

Q

What, on average, does a simple packing insert

4

cost to place in an individual package?

5

A

Under 10 cents.

6

Q

In this case, it needs to be provided with every

7

order?

8

A

From Colorado.

9

Q

So this would be something south of a dime, but

10
11

for every single order placed?
A

Yes.

And then with gifts and ship-to's, because

12

the package isn't going -- since the package is not going

13

to the purchaser, you'd have to have a separate notice

14

mailed to the purchaser.

15

to put a notice in the box that this gift -- your

16

purchaser is going to have to pay the sales tax.

17

not going to do that.

18

that fact, whether it's a ship-to or a gift, and send

19

that to the purchaser.

20

would be, does it have to go first-class or can it go

21

bulk.

22

Q

23

In other words, we're not going

We're

So we're going to have to take

Then the question I would think

So that would be an additional cost with the

ship-to's and gifts?

24

A

Yes.

25

Q

Ms. Scoville asked you questions as well about
Exh.9