2012-1029, -1049
`
`IN THE
`UNITED STATES COURT OF APPEALS
`FOR THE FEDERAL CIRCUIT
`_________________________________________________________________
`
`VERSATA SOFTWARE, INC. (formerly known as Trilogy Software, Inc.),
`VERSATA DEVELOPMENT GROUP, INC. (formerly known as
`Trilogy Development Group, Inc.), and VERSATA COMPUTER
`INDUSTRY SOLUTIONS, INC. (formerly known as Trilogy Computer
`Industry Solutions, Inc.),
`Plaintiffs-Cross Appellants,
`
`
`
`
`
`
`
`v.
`
`SAP AMERICA, INC. and SAP AG,
`Defendants-Appellants.
`_______________________________________________________________
`Appeals from the United States District Court for the Eastern District of Texas in
`case no. 07-CV-0153, Magistrate Judge Charles Everingham.
`______________________________________________________________
`
`BRIEF OF PLAINTIFFS-CROSS APPELLANTS VERSATA SOFTWARE,
`INC., VERSATA DEVELOPMENT GROUP, INC., AND VERSATA
`COMPUTER INDUSTRY SOLUTIONS, INC.
`_______________________________________________________________
`
`Mike McKool
`Douglas Cawley
`MCKOOL SMITH, P.C.
`300 Crescent Court, Suite 1500
`Dallas, TX 75201
`(214) 978-4000
`
`Scott L. Cole
`Principal Attorney
`Joel L. Thollander
`MCKOOL SMITH, P.C.
`300 W. 6th Street, Suite 1700
`Austin, TX 78701
`(512) 692-8700
`
`
` Attorneys for Plaintiffs-Cross Appellants
` Versata Software, Inc., Versata
` Development Group, Inc., and Versata
` Computer Industry Solutions, Inc.
`
`
`
`
`
`May 29, 2012
`
`
`
`
`
`McKool 439202v18
`
`SAP Exhibit 1011
`
`

`

`
`
`CERTIFICATE OF INTEREST
`
`Versata Software, Inc., Versata Development Group, Inc., and Versata Computer
`Industry Solutions, Inc. certify the following:
`
`1.
`
`The full name of every party or amicus represented by me is:
`
`
`
`
`
`
`Versata Software, Inc. (formerly known as Trilogy Software, Inc.); Versata
`Development Group, Inc. (formerly known as Trilogy Development Group,
`Inc.); and Versata Computer Industry Solutions, Inc. (formerly known as
`Trilogy Computer Industry Solutions, Inc.).
`
`The name of the real party in interest (if the party named in the caption is not
`2.
`the real party in interest) represented by me is:
`
`
`
`
`Versata Software, Inc., Versata Development Group, Inc., and Versata
`Computer Industry Solutions, Inc.
`
`3. All parent corporations and any publicly held companies that own 10 percent
`or more of the stock of the party or amicus curiae represented by me are:
`
`
`
`
`
`
`Versata Software, Inc., Versata Development Group. Inc., and Versata
`Computer Industry Solutions. Inc. are wholly owned subsidiaries of Versata
`Enterprises, Inc.; and Versata Enterprises. Inc. is a wholly owned subsidiary
`of Trilogy, Inc.
`
`The names of all law firms and the partners or associates that appeared for
`4.
`the party or amicus now represented by me in the trial court or agency or are
`expected to appear in this court are:
`
`MCKOOL SMITH P.C.: Peter J. Ayers, Sam Baxter, Ada Brown, Joshua W.
`Budwin, Leah Buratti, Steven Callahan, Douglas Cawley, Scott L. Cole,
`Douglas Edwards, Laurie L. Fitzgerald, Kevin M. Kneupper, Mike McKool,
`Jr., Michael Perez, Steven Pollinger, John M. Shumaker, Rosemary Snider,
`Theodore Stevenson, III, Joel L. Thollander, James Willi
`
`AHMAD, ZAVITSANOS & ANAIPAKOS, P.C.: Joseph Ahmad, Amir H. Alavi,
`Demetrios Anaipakos, Steven Mitby
`
`
`
`
`
`
`
`
`
`
`
`
`i
`
`

`

`
`
`TABLE OF CONTENTS
`
`CERTIFICATE OF INTEREST.................................................................................i
`
`TABLE OF AUTHORITIES .....................................................................................v
`
`STATEMENT OF RELATED CASES....................................................................ix
`
`I.
`
`II.
`
`STATEMENT OF JURISDICTION ...............................................................1
`
`STATEMENT OF THE ISSUES ....................................................................1
`
`III. STATEMENT OF THE CASE .......................................................................2
`
`IV. STATEMENT OF THE FACTS .....................................................................4
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`The Invention Solves a Widespread Problem and
`Generates Significant Profits Through Pricer Sales to
`SAP Customers......................................................................................4
`
`Reacting to the Competitive Threat, SAP Decides to Add
`Functionality Designed to Work Like Pricer to Its
`Enterprise Software. ..............................................................................7
`
`SAP Promises, Then Delivers, Versata-Like Pricing—
`and Destroys Pricer’s Principal Market. ...............................................9
`
`Infringement Is Found in the First Trial..............................................11
`
`SAP Refuses to Remove the Infringing Functionality........................14
`
`Damages Are Awarded, and an Injunction Entered, in the
`Second Trial. .......................................................................................15
`
`V.
`
`SUMMARY OF THE ARGUMENT............................................................19
`
`VI. STANDARD OF REVIEW...........................................................................21
`
`VII. ARGUMENT.................................................................................................23
`
`A.
`
`Substantial Evidence Supports the “As Shipped”
`Infringement Finding...........................................................................23
`
`ii
`
`

`

`
`
`1.
`
`2.
`
`The evidence confirms that all computer
`instructions necessary for infringement are found
`in SAP’s software “as shipped.” ...............................................24
`
`SAP’s “as shipped” argument is erroneous,
`misleading, waived, and in conflict with settled
`law.............................................................................................28
`
`B.
`
`Substantial Evidence Supports the “Denormalized
`Numbers” Infringement Finding. ........................................................34
`
`1.
`
`2.
`
`3.
`
`The evidence confirms that SAP’s software uses
`“denormalized numbers,” and determines their
`units and application at runtime................................................34
`
`SAP’s “determined at runtime” argument is
`nonsensical and was soundly rejected at trial. ..........................35
`
`SAP’s “disclaimer” argument is erroneous,
`misleading, and in conflict with settled law. ............................37
`
`C.
`
`Substantial Evidence Supports the Lost-Profits Award......................40
`
`1.
`
`The evidence supports each of the four Panduit
`factors........................................................................................41
`
`a.
`
`b.
`
`c.
`
`d.
`
`There is substantial evidence of demand........................42
`
`There is substantial evidence of the absence
`of noninfringing alternatives. .........................................45
`
`There is substantial evidence of capacity. ......................46
`
`There is substantial evidence of the amount
`lost...................................................................................47
`
`The evidence supports the causation finding............................52
`
`SAP’s “market-shifting” argument is erroneous
`and misleading. .........................................................................53
`
`2.
`
`3.
`
`D.
`
`Substantial Evidence Supports the Reasonable-Royalty
`Award. .................................................................................................55
`
`iii
`
`

`

`
`
`E.
`
`The Injunction Should Be Affirmed. ..................................................59
`
`1.
`
`2.
`
`The injunction against future maintenance and seat
`sales is proper............................................................................59
`
`The injunction against future maintenance is
`proportionate. ............................................................................62
`
`F.
`
`JMOL Should Not Have Been Granted on the ’400
`Patent. ..................................................................................................65
`
`G. Versata’s Reasonable-Royalty Testimony Should Not
`Have Been Excluded. ..........................................................................68
`
`VIII. CONCLUSION AND RELIEF REQUESTED.............................................70
`
`iv
`
`

`

`
`
`TABLE OF AUTHORITIES
`
`
`CASES
`Acumed LLC v. Stryker Corp.,
`551 F.3d 1323 (Fed. Cir. 2008) ..........................................................................63
`
`Page(s)
`
`Applied Med. Res. Corp. v. United States Surgical Corp.,
`448 F.3d 1324 (Fed. Cir. 2006) ..........................................................................29
`
`Aro Mfg. Co. v. Convertible Top Replacement Co.,
`365 U.S. 336 (1961)............................................................................................61
`
`Brooktree Corp. v. Advanced Micro Devices, Inc.,
`977 F.2d 1555 (Fed. Cir. 1992) ..........................................................................42
`
`Brown v. Bryan Cnty.,
`219 F.3d 450 (5th Cir. 2000) ........................................................................21, 23
`
`Carborundum Co. v. Molten Metal Equip. Innovations,
`72 F.3d 872 (Fed. Cir. 1995) ..................................................................59, 61, 62
`
`Conoco, Inc. v. Energy & Envtl. Int’l, L.C.,
`460 F.3d 1349 (Fed. Cir. 2006) ....................................................................32, 63
`
`Cramer v. United States,
`325 U.S. 1 (1945)................................................................................................56
`
`Crystal Semiconductor Corp. v. Tritech Microelectronics Int’l,
`246 F.3d 1336 (Fed. Cir. 2001) ..........................................................................57
`
`Depuy Spine, Inc. v. Medtronic Sofamor Danek, Inc.,
`567 F.3d 1314 (Fed. Cir. 2009) ....................................................................45, 46
`
`Dresser-Rand Co. v. Virtual Automation, Inc.,
`361 F.3d 831 (5th Cir. 2004) ..............................................................................21
`
`Ecolab, Inc. v. Paraclipse, Inc.,
`285 F.3d 1362 (Fed. Cir. 2002) ..........................................................................39
`
`Fantasy Sports Props. v. Sportsline.com, Inc.,
`287 F.3d 1108 (Fed. Cir. 2002) ..............................................................32, 33, 67
`
`v
`
`

`

`
`
`Finjan, Inc. v. Secure Computing Corp.,
`626 F.3d 1197 (Fed. Cir. 2010) ..............................................................32, 33, 67
`
`Fresenius USA, Inc. v. Baxter Int’l, Inc.,
`582 F.3d 1288 (Fed. Cir. 2009) ..........................................................................61
`
`Grain Processing Corp. v. Am. Maize-Prods. Co.,
`185 F.3d 1341 (Fed. Cir. 1999) ..........................................................................47
`
`Gyromat Corp. v. Champion Spark Plug Co.,
`735 F.2d 549 (Fed. Cir. 1984) ............................................................................45
`
`Hebert v. Lisle Corp.,
`99 F.3d 1109 (Fed. Cir. 1996) ......................................................................42, 44
`
`High Tech Med. Instr. v. New Image Indus.,
`49 F.3d 1551 (Fed. Cir. 1995) ............................................................................34
`
`Huffman v. Union Pac. R.R.,
`675 F.3d 412 (5th Cir. 2012) ..............................................................................55
`
`i4i Ltd. P’ship v. Microsoft Corp.,
`598 F.3d 831 (Fed. Cir. 2010) ......................................................................44, 64
`
`Innogenetics, N.V. v. Abbott Labs.,
`512 F.3d 1363 (Fed. Cir. 2008) ....................................................................22, 62
`
`King Instrument Corp. v. Otari,
`814 F.2d 1560 (Fed. Cir. 1987) ....................................................................60, 62
`
`Laxton v. Gap Inc.,
`333 F.3d 572 (5th Cir. 2003) ..............................................................................22
`
`Lucent Techs., Inc. v. Gateway, Inc.,
`580 F.3d 1301 (Fed. Cir. 2009) ..........................................................................57
`
`Microprocessor Enhancement Corp. v. Tex. Instruments Inc.,
`520 F.3d 1367 (Fed. Cir. 2008) ..........................................................................66
`
`Oiness v. Walgreen Co.,
`88 F.3d 1025 (Fed. Cir. 1996) ................................................................49, 50, 55
`
`vi
`
`

`

`
`
`Omega Eng’g Inc. v. Raytek Corp.,
`334 F.3d 1314 (Fed. Cir. 2003) ..........................................................................39
`
`Panduit Corp. v. Stahlin Bros. Fibre Works, Inc.,
`575 F.2d 1152 (6th Cir. 1978) ............................................................................41
`
`Reeves v. Sanderson Plumbing Prods.,
`530 U.S. 133 (2000)................................................................................21, 22, 56
`
`ResQNet.com, Inc. v. Lansa, Inc.,
`594 F.3d 860 (Fed. Cir. 2010) ............................................................................57
`
`Ricoh Co. v. Katun Corp.,
`486 F. Supp. 2d 395 (D.N.J. 2007).....................................................................66
`
`Rite-Hite Corp. v. Kelley Co.,
`56 F.3d 1538 (Fed. Cir. 1995) (en banc) .....................................................passim
`
`Sage Prods. v. Devon Indus.,
`126 F.3d 1420 (Fed. Cir. 1997) ..........................................................................53
`
`SmithKline Diagnostics v. Helena,
`926 F.2d 1161 (Fed. Cir. 1991) ..........................................................................55
`
`Spectralytics, Inc. v. Cordis Corp.,
`649 F.3d 1336 (Fed. Cir. 2011) ..........................................................................22
`
`TWM Mfg. Co. v. Dura Corp.,
`789 F.2d 895 (Fed. Cir. 1986) ......................................................................46, 56
`
`Uniloc USA, Inc. v. Microsoft Corp.,
`632 F.3d 1292 (Fed. Cir. 2011) ....................................................................68, 69
`
`Vargas v. Lee,
`317 F.3d 498 (5th Cir. 2003) ..............................................................................23
`
`Versata Software, Inc. v. SAP Am., Inc., No. 2:07-CV-153,
`2011 U.S. Dist. LEXIS 102333 (E.D. Tex. Sept. 9, 2011)...................................4
`
`Wenger Mfg. v. Coating Mach. Sys., Inc.,
`239 F.3d 1225 (Fed. Cir. 2001) ..........................................................................39
`
`vii
`
`

`

`
`
`Windsurfing Int’l v. AMF, Inc.,
`782 F.2d 995 (Fed. Cir. 1986) ............................................................................64
`
`Yarway Corp. v. Eur-Control United States,
`775 F.2d 268 (Fed. Cir. 1985) ............................................................................54
`
`
`
`STATUTES
`
`28 U.S.C. § 1295(a) ...................................................................................................1
`
`
`
`OTHER AUTHORITIES
`
`FED. CIR. R. 47.5 .......................................................................................................ix
`
`FED. R. APP. P. 4(a)(3) ...............................................................................................1
`
`
`
`viii
`
`

`

`
`
`STATEMENT OF RELATED CASES
`
`Pursuant to FED. CIR. R. 47.5, Plaintiffs-Cross Appellants Versata Software
`
`Inc., Versata Development Group, Inc., and Versata Computer Industry Solutions,
`
`Inc. (collectively, “Versata”) note that:
`
`(a) there have been no other previous appeals in this case; and
`
`(b) counsel is not aware of any case pending in this or any other court that
`
`will directly affect or be directly affected by this Court’s decision in this appeal.
`
`
`
`ix
`
`

`

`
`
`I. STATEMENT OF JURISDICTION
`Versata agrees with SAP’s jurisdictional statement, SAP.Br.1, but adds that
`
`this Court has jurisdiction over Versata’s cross appeal under 28 U.S.C. § 1295(a),
`
`and Versata’s cross-appeal notice was timely filed under FED. R. APP. P. 4(a)(3) on
`
`October 25, 2011, A20501-06.
`
`II. STATEMENT OF THE ISSUES
`SAP’s Infringement Issue 1: Whether the district court properly denied
`
`SAP’s motion for judgment as a matter of law (“JMOL”) on noninfringement of
`
`the ’350 patent when substantial evidence—including testimony from Versata’s
`
`expert, source code from SAP’s accused software, documentation supporting that
`
`software, deposition testimony from SAP employees, and testimony from SAP’s
`
`own expert—demonstrates that the accused software, as shipped, meets every
`
`element of every asserted claim of the ’350 patent.
`
`SAP’s Infringement Issue 2: Whether the district court properly denied
`
`SAP’s motion for JMOL on noninfringement of the ’350 patent when substantial
`
`evidence demonstrates that the accused software uses “denormalized numbers.”
`
`SAP’s Damages Issue 1: Whether the district court properly denied SAP’s
`
`motion for JMOL on lost-profits damages when substantial evidence supports each
`
`of the four Panduit factors, and the amount awarded by the jury—as the district
`
`1
`
`

`

`
`
`court found—“was not the product of speculation, but was based on sound
`
`economic proof confirmed by the historical record.” A46.
`
`SAP’s Damages Issue 2: Whether the district court properly denied SAP’s
`
`motion for JMOL on reasonable-royalty damages when SAP itself presented all the
`
`evidence necessary to sustain the jury’s award.
`
`SAP’s Injunction Issue: Whether the district court properly exercised its
`
`broad discretion in prohibiting SAP, as a direct competitor, from generating future
`
`revenues through maintenance and additional seat-sales of infringing products.
`
`Versata’s Infringement Issue: Whether the district court erred in granting
`
`SAP’s motion for JMOL on noninfringement of the asserted apparatus claims of
`
`the ’400 patent based upon the assumption that the term “program code configured
`
`to cause” addresses the in-use configuration of SAP systems, rather than the as-
`
`shipped configuration of SAP program code.
`
`Versata’s Damages Issue: Whether the district court erred in excluding the
`
`reasonable-royalty testimony of Versata’s damages expert when that testimony
`
`carefully ties proof of damages to the invention’s footprint in the marketplace.
`
`III. STATEMENT OF THE CASE
`Versata co-founder Tom Carter invented a “breakthrough” pricing engine
`
`that, by leveraging the hierarchical product and customer data structures used by
`
`large companies to organize pricing information, became “the Rolls Royce of the
`
`2
`
`

`

`
`
`industry.” A1304; A1086. In three short years, Pricer—the product embodying this
`
`patented technology—came to “dominate[] the market,” generated hundreds of
`
`millions of dollars in revenue for Versata, and was sold as a “bolt-on” to numerous
`
`corporations running SAP software. A9152; A3706; A3938. SAP worried that
`
`Versata was “raking in the cash” by “tapping into [its] customer base.” A8467;
`
`A9156. So it set out to learn what it could about the new software, and then to
`
`develop its own engine that would, as SAP told its customers, work “just like …
`
`Pricer, but as a SAP product!” A8475; A2178; A3326-27. SAP succeeded, and
`
`launched this new pricing engine—bundled into its enterprise software—in late
`
`1998. A3703; A8479. This launch had its intended effect: the principal market for
`
`Versata’s software was destroyed, and Pricer was “marginalized.” A28145.
`
`In the first trial, the jury found infringement and awarded $139 million in
`
`damages. A198-205. The district court confirmed that all of the computer
`
`instructions necessary for infringement were found in SAP’s software as shipped,
`
`but nevertheless granted JMOL on one of the two asserted patents on the ground
`
`that its apparatus claims required additional proof connected to the use of SAP’s
`
`systems. A153-56; A57-58. In light of then-newly issued opinions from this Court,
`
`the district court also ordered a new trial on damages. A139.
`
`Following the first trial, SAP issued a software patch that, it alleged,
`
`eliminated future infringement by simply impeding users from saving the letter
`
`3
`
`

`

`
`
`“A” typed into one data field. A3466-67. In the second trial, the jury found that
`
`SAP’s post-patch software continued to infringe, and awarded $260 million in lost-
`
`profits damages and $85 million in reasonable-royalty damages. The district court
`
`upheld those awards, and issued an injunction to protect Versata from future harm.1
`
`This appeal followed.
`
`IV. STATEMENT OF THE FACTS
`A. The Invention Solves a Widespread Problem and Generates Significant
`Profits Through Pricer Sales to SAP Customers.
`
`After meeting with hundreds of corporate information-technology specialists
`
`across the country in the mid-1990s, Carter perceived a widespread need for
`
`improved software to manage and execute the complex product-pricing strategies
`
`of large companies. A1069-77.
`
`The conventional thinking was that different types of data—involving
`
`configurable products, dispersed customers, variable prices, bulk and geographic
`
`discounts, and the like—should be segregated and stored in different tables, which
`
`appears orderly from a human perspective. But this structure caused an explosion
`
`in the number of pricing tables required, each of which had to be separately
`
`accessed and searched for potentially relevant information. A447-48. This
`
`burdensome search-and-retrieve system, repeated for innumerable pricing tables,
`
`1 Versata Software, Inc. v. SAP Am., Inc., No. 2:07-CV-153, 2011 U.S. Dist.
`LEXIS 102333, 102339, 102267 (E.D. Tex. Sept. 9, 2011).
`
`4
`
`

`

`
`
`was slow; inflexible; and difficult to maintain. A3133-39; A3307-13; A1089-96;
`
`A1277-83. As the jury heard, using prior-art pricing engines was like fishing for a
`
`particular price, in a sea of prices, with a single pole. A1392-99.
`
`Carter realized that changing the conventional thinking could lead to vast
`
`improvement, and he invented a pricing engine that leveraged the hierarchical data
`
`structures used by large companies to organize pricing information. A448; A3811-
`
`12. By representing these ubiquitous customer and product hierarchies within the
`
`pricing tables themselves, and then retrieving and processing multiple potentially
`
`applicable price adjustments in one access, Carter’s pricing engine was far superior
`
`to the prior art. It offered a 10-100 times improvement in performance; greater
`
`flexibility; and easier maintenance. A3133-39; A3307-13; A1089-96; A1277-83.
`
`Using this engine was like fishing for a price, in a sea of prices, with a wide net.
`
`A1400-07.
`
`Versata filed patents on the technology, which issued as U.S. Patent Nos.
`
`5,878,400 (“the ’400 patent”) in 1999 and 6,553,350 (“the ’350 patent”) in 2003,
`
`A503; A431, and embodied that technology in its new “Pricer” software. A3133.
`
`Pricer launched to substantial acclaim in 1995: “it was a breakthrough. It
`
`was very innovative.” A1304. Analysts praised it as “the Rolls Royce of the
`
`industry.” A1086; A1081-87; A1835-38; A9164; A8541-43; A8546-48; A8557-58.
`
`SAP itself viewed Versata as a “market leader” with a “visionary product.” A8527.
`
`5
`
`

`

`
`
`The reaction of companies implementing Pricer—many of whom had previously
`
`implemented SAP’s pricing software—ranged “[s]omewhere between excitement
`
`and disbelief … it just hadn’t occurred to them that technology, software, and
`
`hardware at the time could do things that well.” A1079.
`
`This industry praise was matched by Pricer’s “meteoric” rise in sales from
`
`1995 to 1998, when Versata sold Pricer to scores of companies, including tech
`
`giants such as IBM, Lucent, Motorola, and Hewlett-Packard. A3330-31; A3146-
`
`52; A3725; A28227. With respect to large companies—called “Tier 1” at trial, and
`
`representing the “sweet spot” for this technology, A3163—Pricer commanded an
`
`average up-front license fee of $1.8 million; a maintenance revenue stream worth
`
`$1.7 million; and approximately $1.5 million in related professional services.
`
`A3734-42; A3158-61. Each large Pricer customer thus generated $5 million in
`
`revenue and $3 million in profit. A3742. Sales made between 1996 and 1998 to 21
`
`such customers—representing only a fraction of Pricer’s Tier 1 sales—generated
`
`$135 million in revenue for Versata. A3706. Because SAP’s enterprise software
`
`was “dominant” among these sweet-spot customers, the principal market for Pricer
`
`was comprised of Tier 1 companies running SAP software. A3163-64; A3805-06;
`
`A4239-41; A2327; A1305; A28085.
`
`Versata thus experienced tremendous success with Pricer, and in early 1998
`
`the future was bright—quick and accurate pricing was a core need for the many
`
`6
`
`

`

`
`
`hundreds of large companies running SAP’s enterprise systems, and Pricer had
`
`wide, industry-crossing appeal. A3170; A8526.
`
`B. Reacting to the Competitive Threat, SAP Decides to Add Functionality
`Designed to Work Like Pricer to Its Enterprise Software.
`
`But SAP had other plans. It also offered pricing software—bundled into its
`
`enterprise systems—but that software suffered from the problems that Carter’s
`
`invention solved: it was slow; inflexible; and difficult to maintain. A8465; A447;
`
`A8563-64; A9160-61. A 1997 survey that “shed light on the incredible demand for
`
`… Pricer” revealed that the great majority of SAP customers needed pricing speed
`
`and flexibility that SAP’s software could not provide. A28095-97. SAP began
`
`advising customers to “reduce their pricing procedure’s complexity to improve
`
`performance.” A8465. SAP’s own sales force eventually took to recommending
`
`Pricer over SAP’s bundled pricing functionality. A9162. As an SAP witness
`
`conceded at trial, its prior-art software simply “couldn’t compete.” A3991.
`
`This reality was reflected in the numerous SAP customers—who had already
`
`paid for SAP’s pricing functionality—that purchased Pricer as a bolt-on to their
`
`SAP enterprise platforms:
`
`these large Fortune 500 companies, very smart folks, looked at
`[Pricer], knew that they had a free alternative with SAP and still wrote
`… purchase orders … worth millions of dollars. And companies don’t
`part with millions of dollars, unless there’s real value there.
`
`
`7
`
`

`

`
`
`A1287; A1301-04; A1114; A1928. Large customers began “turning off the pricing
`
`functionality in their [SAP] ERP systems and deciding to use [Versata’s] Pricer as
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`the sole pricing repository for their enterprise.” A1083-85; A1112-13; A8546-48.
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`
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`SAP was keenly sensitive to Pricer’s competitive threat, and complained
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`internally that Versata “dominate[d] the market” and was “attacking our
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`functionality” and “pricing maintenance,” “tapping into our customer base,” and
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`“raking in the cash.” A9152; A8462; A8467; A9156. This created significant
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`pressure within SAP. A8467-68; A8310; A9162; A1830-35; A2344-45. It
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`considered purchasing Pricer’s source code, A9158; A2163-65; A2350-54, but
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`ultimately rejected that idea, choosing instead to learn what it could about the
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`software and then develop a new pricing engine that would work “just like …
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`Pricer, but as a SAP product!” A8475; A2178; A3998.
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`
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`SAP thus met with Versata in 1997 for demonstrations and explanations of
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`Pricer. A3181-83. Versata was led to believe that these meetings were to explore a
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`possible Pricer-related partnership, but SAP had in fact privately decided months
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`earlier that it would not work with Versata. A3183-85; A28600. SAP also met with
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`some of Versata’s largest customers, including Bridgestone, in an effort to find out
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`“more about … Pricer’s capabilities.” A8464-65; A4110-25; A28224-25; A28164-
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`67; A8551-56. These findings were relayed to SAP’s development headquarters,
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`where engineers labored under instructions that their “main focus” should be to
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`“stop [Versata] and build market share in the [sales pricing engine] market,”
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`A8476-77, with a “product that is competitive with … Pricer.” A8540.
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`
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`About a year later, in October 1998, SAP launched its new hierarchical-
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`access pricing engine, bundled into its enterprise platforms. A3810. Like Pricer,
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`this engine was designed for hierarchical accesses to hierarchical arrangements of
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`customer and product data. A8430 (“especially for hierarchical data such as that
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`representing a product hierarchy or a customer hierarchy”); A5. No longer would
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`SAP require users to fish for prices with a pole. A1392-99. As SAP explained, that
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`prior-art process “not only [took] a great deal of time, but … also reduce[d] system
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`performance and force[d] the system to use a rigidly fixed sequence of accesses.”
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`A8430. The new engine, in contrast, allowed users to fish for prices with a net—
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`just like Pricer. A8430; A447. SAP’s expert opined that this new pricing engine
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`represented fully 2% of the value of SAP’s much larger software products. A2733-
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`35; A2049.
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`C.
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`SAP Promises, Then Delivers, Versata-Like Pricing—and Destroys
`Pricer’s Principal Market.
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`Even before SAP launched its hierarchical-access engine, it was announcing
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`that it would soon offer new software “just like … Pricer.” A2178; A3998; A8475;
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`A3326-27 (“customers would tell us that SAP had told them that they would be
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`introducing our kind of capabilities in short order”). This was in line with SAP’s
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`strategy of “‘pre-announc[ing]’ product functionality without releasing it to the
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`general market,” which caused the “marketplace to ‘freeze’ as current SAP
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`customers decide[d] to take a ‘wait for SAP’ attitude.” A8469; A28112; A28126.
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`SAP thus began to impact Pricer’s sales momentum in the early months of 1998.
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`A3334-35; A3370-71.
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`Once SAP actually delivered on its promise to offer a hierarchical-access
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`engine that worked like Pricer, that momentum came to a screeching halt. SAP had
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`“closed the functional gap” with Versata, and had flooded Pricer’s principal market
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`with bundled—and therefore “free”—versions of its formerly unique functionality.
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`A3147; A4016-17; A3702-03. This was not an accident: SAP bundled its new
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`engine with other software “to discourage the use of 3rd party components
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`(Trilogy).”2 A8479. Without a differentiated-value proposition to offer its target
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`market, Pricer sales plummeted in 1999—notwithstanding that 1999 was otherwise
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`a banner year for Versata and the industry generally. A3155-56; A28142. Pricer’s
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`“conversion rate” (or “win rate”) dropped from 35% to some 2% as the SAP
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`impact took hold. A3324-25. As the tech market peaked, Pricer crashed.
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`With no sales momentum in Pricer’s principal market—the Tier 1
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`companies running SAP software—Versata made the rational decision to
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`discontinue heavy investment in marketing Pricer. A3162-63; A28145. Following
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`“many a conversation about SAP closing the gap,” Versata elected to deemphasize
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`2 Trilogy is Versata’s former name.
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`Pricer in favor of other promising pursuits. A3364-65; A3162-63. Versata retained
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`many of its previously-won Pricer customers, and Pricer remains in Versata’s on-
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`sale product portfolio to this day. A3432-33. But with its target market destroyed,
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`Pricer lost its place at the forefront of Versata’s offerings. SAP had accomplished
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`what it set out to do—it had “marginalized” Pricer. A28145; A3179-80.
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`D.
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`Infringement Is Found in the First Trial.
`SAP suggests that “Versata’s patents are directed to a very specific way to
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`determine [a] price,” SAP.Br.3,7, but in fact they cover the “capability to execute a
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`pricing procedure using hierarchical accesses to hierarchical arrangements of
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`customer … and product … data.” A5; A456-57; A540; A8430.
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`SAP also asserts that there is no infringement evidence “based on the
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`capability of SAP’s software as shipped”—that Versata’s evidence is based only
`
`on an in-use demonstrative setup of an accused system, and that Versata’s
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`infringement expert allegedly added “computer instructions” to make that system
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`infringing. SAP.Br.14-16. But in fact Versata’s expert, Scott Nettles, offered no
`
`fewer than five layers of evidence proving that “the SAP accused software
`
`products as shipped” infringe the asserted claims of the ’400 and ’350 patents.
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`A1440-41. A sixth layer was supplied by SAP’s expert. A2515-16.
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`This evidence
`
`included: 1) Nettles’
`
`testimony explaining how he
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`“determine[d] that there’s infringement in this case independent of [the] use of
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`SAP’s products,” A1373-74; 2) proof—citing to specific portions of SAP source
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`code—that every element of every asserted claim is “implemented by computer
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`instructions … written by SAP’s programmers,” A1440