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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`MARSHALL DIVISION
`* Civil Docket No.
`VERSATA SOFTWARE, INC.
`* 2:07-CV-153
`* Marshall, Texas
`
`vs.
`
`•
`• August 17, 2009
`* 8:30A.M.
`SAP AMERICA INC., ET AL
`
`TRANSCRIPT OF TRIAL
`BEFORE THE HONORABLE CHAD EVERINGHAM
`UNITED STATES MAGISTRATE JUDGE
`ANDAJURY
`APPEARANCES:
`FOR THE PLAINTIFFS: MR. SAM BAXTER
`McKooi-Smith
`104 East Houston, Suite 300
`Marshall, TX 75670
`
`MR. THEODORE STEVENSON, Ill
`McKooi-Smith
`300 Crescent Court, Suite 1500
`Dallas, TX 75201
`MR. SCOTT COLE
`MR. STEVEN J. POLLINGER
`MS. LAURIE L. GALLUN
`MR. JOSH W. BUDWIN
`MR. KEVIN M. KNEUPPER
`McKooi-Smith
`300 West 6th Street, Suite 1700
`Austin, TX 787011
`
`APPEARANCES CONTINUED ON NEXT PAGE:
`
`MS. SUSAN SIMMONS, CSR
`COURT REPORTERS:
`MS. JUQITH WERLINGER, CSR
`Official Court Reporters
`100 East Houston, Suite 125
`Marshall, TX 75670
`903/935-3868
`(Proceedings recorded by mechanical stenography,
`
`VERSATAv. SAP
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`Page 1
`VERSATA EXHIBIT 2006
`SAP v. VERSATA
`CASE CBM2012-00001
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`
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`Trial: Day 01 Vol. A Prelim. Jury Instructions, Opening, Carter direct. cross 8/17/2009 8:30:00 AM
`a. That-- that cannot be a good sign.
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`A. No.
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`a. Okay. So how were you able to find a woman
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`who would be willing to marry you with this kind of
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`lifestyle?
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`A.
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`It took a long time, and as it turns out, she
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`actually worked at Trilogy.
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`a. Okay. Okay. All right And when you were
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`traveling around the country, who-- who-- I understand
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`they were big companies, but who within those companies
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`were you talking to?
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`Were these the people who bought the kinds of
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`software you were selling and the kinds of software that
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`14 SAP sells or somebody different?
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`A. Oh, absolutely.
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`Q. Okay. Shift gears a little bit.
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`As you were in your three-year trek around the
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`country talking to these people, did you notice any
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`problems that they were having, any software problems,
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`that you didn't think were being addressed by the
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`products that were available at the time?
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`A. Yes.
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`Q. And high level, what area was that in?
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`A. The area was pricing.
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`a. And can you give us a sense for these kinds
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`of- the kinds of companies you were talking to? 'Mlat
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`was the pricing problem? In other words, what were
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`their pricing operations like that made this so
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`challenging?
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`A. Well, I mean, the problem at the highest level
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`was just sales reps want to sell, right? And so you
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`have to be able to give the customer a price in order to
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`sell. If you go ask somebody, what's the price, and
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`they can't tell you, it doesn't help.
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`1 0
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`But the -- the nature of technology back then
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`11 was all these big companies had big centralized computer
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`systems.
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`So when a sales rep was out wining and dining
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`the customer, playing on the golf course, whatever, and
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`the customer would say, what's the price, the sales·rep
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`couldn't tell them.
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`They either had to call the home office, or if
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`it was on the weekend, there was nobody to call, they
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`19 would have to go back, and they might have to wait a
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`couple of days.
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`So when the customer would ask for a price,
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`there's typically a delay. And at the time, laptop--
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`laptops were just coming out. They weren't that
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`powerful, so none of the system -- those central systems
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`at the time would run on a laptop.
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`Trial: Day 01 Vol. A Prelim. Jury Instructions, Opening, Carter direct, cross 8/17/2009 8:30:00 AM
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`So that was sort of the key thing that we were
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`trying to do, was what did the customer say; here's the
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`price, because you can't close the deal if you don't
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`know what the price is.
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`Q. Okay. And can you give us an example? Like
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`take a -- take a company like Whirlpool. I mean, do
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`they have a simple pricing structure, one size fits all
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`for all their product lines and all their customers, or
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`is it a more complicated endeavor than that?
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`A. Oh, no. It's far more complicated than that.
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`Q. Can you give us at least a little sense for
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`the complexity you saw in a company like a Whirlpool or
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`some of your other clients?
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`A. Well, someone like Whirlpool, they, obviously,
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`sell many, many products, first of all, but then they
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`sell them through different channels. I mean, you don't
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`necessarily walk into a Whirlpool store to actually go
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`buy Whirlpool. You'll walk into a Sears or something
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`like that.
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`And so at all of these different places, they
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`would have different part numbers, different model
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`numbers, different prices along the way, and actually,
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`even in different parts of the country, depended on how
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`24 much it cost to ship it.
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`In fact, you know, the same washing machine
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`Trial: Day 01 Vol. A Prelim. Jury Instructions, Opening, Carter direct, cross 8/17/2009 8:30:00 AM
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`could be a different price in Florida versus Texas and
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`California.
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`Q. Okay. And did the companies you talked to,
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`did they want the ability to have really complicated,
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`really flexible pricing, or did they- was that not
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`that big a deal?
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`A. Oh, they didn't just want it; they needed it.
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`It was a reality.
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`Q. And I think you had mentioned the laptops.
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`This is back in the early to mid-1990s?
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`A. Yes.
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`Q. They weren't that powerful?
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`A. Correct.
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`Q.
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`If you -- if you had software on a laptop and
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`you wanted to kind of dial back in to the home office,
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`how did that work back at that time as compared to
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`today?
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`A. Well, I mean, today you have the internet,
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`right? And so you pretty much just walk up to any
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`computer anywhere.
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`But at the time, at best, there were modems
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`and cellular modems that were slow and just didn't--
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`didn't handle it that well.
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`Q . Was the speed of the pricing system back at
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`that time more important or less important in terms of
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`being able to dial in remotely?
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`A. . I mean, it's always been important, right?
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`3 mean, today, with the internet, you may have thousands
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`and thousands of customers wanting to know the price of
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`something every minute of the day.
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`So, you know, back then, you might have had
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`several hundred sales reps working with some customers
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`checking, but they still wanted the answer in a second.
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`Q . Okay. Well, after you sort of got your arms
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`around the problem you saw out there, did you think that
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`there was something that could be done about it?
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`A. Yes, I did.
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`Q . Okay. And what was the first step you took
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`after you had that realization, or what was the first
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`thing that you did?
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`A. First thing I did was, I went to Joe Liemandt,
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`our CEO, and said, hey, I've got a great idea. I think
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`18 we should go work on this.
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`Q . And I take it he was an enthusiastic
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`supporter?
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`A. No. He explicitly forbid me from working on
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`it, if you can believe that.
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`Q . Okay. Can you tell }.IS why he forbid you from
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`24 working on it?
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`A. Well, we were so busy -- I was so busy in
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`particular selling and working with other customers that
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`he didn't want me distra~ted, didn't want me spending
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`any time -~ any time that I could be -- spend working
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`with customers.
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`You got to work on those customers that you've
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`got right now. Don't work on anything else.
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`a. Okay. Well, did you follow Mr. Liemandt's
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`instructions to the T?
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`A. No.
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`a. All right. Can you explain your
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`insubordination for us, please.
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`A. Yes. I decided that while I watched everybody
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`else flying around on planes that I was doing multiple
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`times a week, that people would read a book, watch a
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`15 movie, take a nap, I said, you know what? When
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`everybody's sleeping, napping, reading a book, if I want
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`to work at this point, Joe shouldn't have a problem with
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`that. That's my time. It's up to me. I can do what I
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`19 want with it. So I will forego some entertainment or
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`sleep to do what I wanted to do at that point.
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`a. Okay. So this was, I take it, on those planes
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`you were flying on all the time?
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`A Yes. I was very strict about it, because I
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`knew if I worked on it, you know, even in an evening,
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`Joe would complain, right? And so it was only on the
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`planes.
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`Q. Okay. Fair enough.
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`Well, how long did it take you working on this
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`problem on the planes until you had something you felt
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`like you could show somebody else?
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`A.
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`I don't remember precisely, but it was in the
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`range of three to six months.
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`Q. Okay. And who did you decide to show it to
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`first?
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`A.
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`I first showed it to Trilogy's Vice President
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`of Marketing, a man by the name of John Price.
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`Q. And why did you pick Mr. Price rather than,
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`for example, Mr. Liemandt?
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`A. Well, it was two things. I mean, first of
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`all-- well, (A) Joe said-- Mr. Liemandt said no.
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`Second of all, if the Vice President of Marketing gets
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`excited and says, hey, this is great; we can make a
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`18 market out of it, he would be an ally for me.
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`And then the fact that his name was John
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`Price, and this was pricing software, I decided to make
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`a bad pun and call it the John Price builder product,
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`so ...
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`But I thought it might el'_ldear it to him and
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`get him to like the idea a little bit more to help me
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`out.
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`Q. Well, did your plan pay off?
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`A. Yes, it did.
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`Q. Okay. What-- and let me ask you this: It
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`sounds like you were on the plane all the time. VI/hat
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`kind of job -- what kind of role did Mr. Price have at
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`Trilogy?
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`A. Oh, he was also on planes. He was more
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`exclusively selling where I was selling and helping the
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`customers after they purchased. But he was all-- he
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`10 was out selling all the time.
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`Q. Okay. And just for some context, can you give
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`us a sense of how many different customers you may have
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`13 met with in the three or four years you were on your
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`road trips?
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`A Oh, I mean, at the peak, I would easily visit
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`three customers a week. So, I mean, 50 weeks a year--
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`it wasn't always three, so probably a hundred customers
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`a year, something of that order, for several years.
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`Q. All right. Well, let me ask you this: When
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`you-- when you showed the work you had at that point to
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`21 Mr. Price, what was his reaction?
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`A He was excited. He was very excited.
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`Q. And how did you take that as a --
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`A That was -- that was a good sign. That was
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`25 what I wanted. That was what I was hoping for. That
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`was what I was trying to achieve.
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`Q. All right. Well, after you talked to
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`3 Mr. Price -- and I take it, he became an ally for you?
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`· A Yes.
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`Q. All right. And what did you do then?
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`A. We went back to talk to Joe, the CEO, and
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`present the idea anew.
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`Q. All right. Well, did it go a little better
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`this time?
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`A.
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`It went a liWe better. It still started out
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`11 with a silence and a glare, like I can't believe you did
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`this anyway, but it worked out.
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`Q .
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`I take it he got over his irritation pretty
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`quickly?
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`A. Yes.
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`Q . All right. Now, let me ask you this: At that
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`point, at the time you had showed it to Mr. Liemandt,
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`did you have the product complete then, or was there
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`still more work to be done?
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`A. No. There was still work to be done.
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`Q . Okay. Can you tell us when you finished your
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`22 work and when you had the product ready to go?
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`A.
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`I remember that pretty clearly. It was the
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`July 4th week -- over the July 4th weekend. I think it
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`25 might have been July 5th, 6th, of 1995.
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`Q . Okay. And why do you remember that so
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`clearly?
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`A Well, we- Trilogy had hired about 50 college
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`students, who were going to start the following week.
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`So I knew I would be busy working with them. I wanted
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`them to be able to use this and leverage it. and so I
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`worked through fireworks and whatever else to get it
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`done by the time they started.
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`Q. Okay. Just so we're clear, have you- did
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`you or anyone at Trilogy ever sell or offer to sell the
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`ideas in your invention before July 5th -- excuse me --
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`July 4th, 1995?
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`A No.
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`Q. Okay. And after you got it ready for the
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`group of new hires, what was your job at the company
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`then? Were you still back on the road?
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`A. Get back on the planes, go fly around and
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`visit more customers.
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`Q. Excellent.
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`Did you - did you begin to show your
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`customers the new product that you had built, in
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`addition to the configuration product you were already
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`selling?
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`A Yes.
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`Q. Okay. And can you describe the reaction of
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`the customers -- the first few customers that you showed
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`this to?
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`A. Somewhere between excitement and disbelief.
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`They -- it just hadn't even occurred to them that
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`technology, software, and hardware at the time could do
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`things that well, that would let them get the final
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`pricing to the customer then and there.
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`Q. Okay. Were any of these customers you were
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`talking to people who also ran SAP software?
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`A. Yes, many- many of them.
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`Q. Okay. And did any of the people you showed
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`your new product to respond by telling you, This looks
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`exactly like the SAP condition technique, big deal?
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`A. Oh, no. I mean, to them it-- to everybody,
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`it was completely different.
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`Q. Okay. Now, did anybody else besides the
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`customers notice-- take notice of your invention after
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`you had started showing it to customers in July of 1995?
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`A. Yes. We started getting press, analysts,
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`researchers. A lot of people started finding out about
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`it and writing about it.
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`Q. Okay. Have you heard of an organization
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`called the Gartner Group?
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`A. Yes.
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`Q. Okay. Can you tell us who they are?
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`(Jury out)
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`THE COURT: All right. Court's in
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`recess.
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`Mr. Potts, I need to see you.
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`(Recess.)
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`COURT SECURITY OFFICER: All rise.
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`(Jury in.)
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`THE COURT: Please be seated.
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`Lots of up and down in here, so I
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`You may proceed, Mr. Cole.
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`MR. COLE: Thank you, Your Honor.
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`Q .
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`{By Mr. Cole) Mr. Carter, I think when we left
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`off, we were talking about the Gartner Group, which is
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`one of the industry analysts that covers the software
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`business.
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`A. Correct.
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`Q. Okay.
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`MR. COLE: Mr. Diaz, if you could put up
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`the first Gartner--
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`Q.
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`(By Mr. Cole) It says Plaintiffs' Exhibit 581,
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`and it's a November 19-- excuse me- a November 1997
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`report from Gartner Group talking about SC pricer.
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`VVhat is SC pricer?
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`A. SC pricer is the product that I created.
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`Q. Okay. And after your product was launched,
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`did you get the Gartner Group to do some reports about
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`your product?
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`A. Yes.
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`Q. And is this one of those reports?
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`A. Yes, it is.
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`Q . Can you read it for us, please, the section
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`that we've blown out?
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`A. Yes.
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`It says: Here, we review Trilogy Development
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`11 Group's SC pricer, the first product to provide the
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`12 majority of features that selling organizations require
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`for pricing configuration.
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`Q. And is the statement here about your product
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`being the first one to provide the majority of features
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`that were required for pricing configuration, was that
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`consistent with what you were hearing from customers
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`directly?
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`A. Yes.
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`0. And in your experience, did the kind of
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`customers that you sold to, did they listen to what
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`22 Gartner had to say?
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`A. Yes, they definitely did.
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`MR. COLE: Mr. Diaz, -ifwe could go to
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`the next slide.
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`Q . (By Mr. Cole) This is from --I believe it's
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`the same Gartner Group report on the same day.
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`Could you read that, the highlighted section
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`here, talking again about your product?
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`A. The strength of the integration is
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`demonstrated by many Trilogy customers turning off the
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`pricing functionality in their ERP systems and deciding
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`to use SC pricer as the sole pricing repository for
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`their enterprise.
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`Q . And there's a reference there to ERP systems?
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`A. Yes, that's correct.
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`Q. What are those?
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`A. These are the systems, such as those sold by
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`SAP, that managed the rest of the business as was
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`described earlier from manufacturing through
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`distribution, inventory control, things like that.
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`Q. So ERP is the stem-to-stem software?
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`A. Yes, that's correct.
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`Q . Okay. And did- SAP's ERP system at the time
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`of this article in 1997, did it have a pricing
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`functionality with it?
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`A. Yes, it definitely did.
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`Q. And is this consistent with your experience
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`24 with some of your customers, that they might turn off
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`the ERP pricing and use yours instead?
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`A. Yes, that's correct.
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`Q. Did that actually happen?
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`A. Yes.
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`Q. Okay.
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`MR. COLE: Let's try the next one,
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`6 Mr. Diaz.
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`The last was PX582, by the way. I forgot
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`to note that for the record, or maybe --
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`Q. (By Mr. Cole) Okay. Last Gartner Group slide,
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`could you read the highlighted portion of this one,
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`again dated in November of 1997?
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`A. Yes.
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`Whirlpool evaluated SAP R/3 sales and
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`distribution and Trilogy's SC pricer. Whirlpool
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`selected Trilogy's Selling Chain product suite, with SC
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`pricer to be the sole enterprise pricing repository.
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`Q.
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`I've got a few questions for you here.
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`You heard Mr. Batchelder in opening statement
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`talk about Trilogy's product not doing well in the
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`20 marketplace.
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`Can you tell us how Trilogy's product did
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`competing against SAP with Whirlpool in 1998?
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`A. Well, it obviously did very well. So
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`24 Whirlpool evaluated whether or not to use SAP's pricing
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`system or whether or not to use our SC pricer. And they
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`decided to use ours exclusively.
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`Q. Now, ~id the-- the SAP pricing software, the
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`R/3 system there at the time, did it have hierarchical
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`accesses?
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`A. No.
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`Q.
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`(By Mr. Cole) Next we've got one more article.
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`This was the USA Today article we saw briefly in opening
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`statements. This one is dated in February of 1998.
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`Do you remember this article coming out?
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`A. Yes, I do.
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`Q. And could you read the first couple of
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`sentences there for us?
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`A. The move to clean up the pricing process has
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`already created a star. Pioneering GenX software
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`company, Trilogy, which identified the problem early and
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`created an acclaimed software package to manage what it
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`calls the Selling Chain.
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`Q . And I think we saw a reference to the Selling
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`19 Chain in one of the prior slides.
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`Can you tell us what that is?
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`A. Selling Chain was actually our suite of
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`software where there were multiply modules, so similar
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`.to the ship-to-stern analogy for inventory and
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`24 manufacturing, it was kind of our ship-to-stem suite of
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`software for sales, for sales reps.
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`And the Selling Chain is where you see the SC
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`acronym. SC stands for Selling .Chain.
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`Q . So was it correct to say that Trilogy never
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`offered a suite of software?
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`A. No, that's not correct.
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`Q. And was your-- the pricing module, the
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`pricing software you wrote, did that fit within the
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`Selling Chain suite?
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`A Oh, yes. It was part of the suite.
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`Q. Can you give us a sense for how important it
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`was relative to what the customers were looking for when
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`they-- when they might be buying the Selling Chain
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`suite?
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`A.
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`I can-- I like to think it was, arguably, the
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`15 most important part, because, again, coming back to
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`sales reps, if you can't tell the customer the final
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`price, they won't buy until you can. And so that was
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`kind of the gating factor. It was incredibly important.
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`Q. And then I keep saying the last, but I think
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`this is the last slide on this.
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`This is further from the USA Today article,
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`notes that competition looms and -- but for now, Trilogy
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`has separated itself from th~ pack and is the Rolls
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`24 Royce of the industry.
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`And can you tell us the-- who that is making
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`the quote about Trilogy being the Rolls Royce of the
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`industry?
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`A. Yes. Jack Maynard of the Aberdeen Group.
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`Aberdeen Group is another one of the well-respected
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`industry research groups, just like Gartner that you
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`mentioned earlier.
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`And so they study the companies, test the
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`products, and write reviews that many companies use as
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`the basis of their decisions in who to purchase.
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`Q . And in 1998, February of 1998, was that
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`consistent with the feedback you were getting from your
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`customers that you were selling to?
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`A. Oh, yes, absolutely.
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`Q . All right. Mr. Carter--
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`MR. COLE: We can pull that down.
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`Q.
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`(By Mr. Cole) Now, did there come a time when
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`you decided you wanted to protect the product and the
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`ideas that you had created?
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`A. Yes.
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`a. Okay. And did you file for a patent on that?
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`A. Yes, I did.
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`Q . And when did you do that?
`I filed-- it was June or July of 1996.
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`A.
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`Q . Okay. And, ultimately, did the U.S. Patent
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`25 Office award you any patents?
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`Q . Well, why not?
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`A. Well, my name is Thomas J. Carter, Ill, and my
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`dad is Thomas J. Carter, Jr., so I thought it would be a
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`good thing to give him the plaque that said Thomas J.
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`Carter on it. So my dad actually has it hanging in the
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`front entry of his house. And there's no chance I'm
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`getting that back.
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`Q. All right. All right, Mr. Carter, I want to
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`switch gears a little bit now and talk about in a little
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`10 more technical detail the problem you saw and the
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`solution you came up with.
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`A. Okay.
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`Q. And I think you had mentioned that one of the
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`problems was the system -- the old systems were too
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`slow.
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`A. Correct.
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`Q . Okay. Can you tell us, from more of a
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`technical standpoint, what it was about the old systems
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`that existed before your patent for your patented
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`invention that made them slow?
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`A. The old systems used many database tables to
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`store their information.
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`Q. Okay. Can you tell us what a database table
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`is?
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`A. Yes.
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`So a database table is just a place to hold
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`information. You can think of each table in a database
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`as being a little bit like a spreadsheet. So if you,
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`know, wanted to store information on, let's say, things
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`you owned and things you're going to buy, you would have
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`one spreadsheet of things you own, one thing of things
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`you're going to buy. And so each one is just a separate
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`spreadsheet to store different pieces of information.
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`And so when the software would go to calculate the
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`price, it- you have five different spreadsheets or
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`five different tables. You have to go to each one. And
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`I'll say while it's not exactly precise, it's, let's
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`say, if you have five spreadsheets, it can be five times
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`get it.
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`If you have a hundred tables, it's arguably a
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`hundred times slower than if you have to just go to one.
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`18 So just the number of tables directly correlated to the
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`amount of time it would take to go calculate the price.
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`Q. Okay. And if you have a lot of tables that
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`you might need to access to do a price, let me ask you,
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`does -- does the computer have to go and look at all the
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`tables, or can it know ahead of time wliich ones to look
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`at and which ones not to look at?
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`A. No, it can't know ahead of time until it
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`starts looking to see what's there.
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`Q. Okay. Can you give us sort of a real-world
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`example of how that problem would play out in the real
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`world with the sales rep or somebody going into the
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`system and trying to get a price for a particular
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`product sold to a particular person?
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`A. Right. So if a sales rep is asking for the
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`particular price, the system might first go to one table
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`and say, you know, what is the-- what's the base price?
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`10 Maybe it's a hundred dollars.
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`And then it says, well, are there any customer
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`discounts? I don't know, so it has to go look at
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`another table and say, is there a discount for the
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`customer?
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`And then once it says yes or no, there's a
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`discount, well, might there be a second discount. And
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`so maybe you'd have to go look in another table for
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`that.
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`And then it says, well, what's the tax rate?
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`20 Well, where does this customer live? So you have to go
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`look in another table to go get the taxes.
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`Do I have to ship it?
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`Oh, yes. Then finally, let's say, well, did
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`the customer buy five, because if they bought five or
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`25 more, then there's another discount. So you have to go
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`look in another table to go get that.
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`And so it's just a sequence of steps for each
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`situation. Taxes, discounts, shipping, things like
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`that, each one is an access to the database to get the
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`information.
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`a. Okay. And if you were going to try to get a
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`price in a complicated system like that, can you give us
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`an idea of-- I mean, how long might it take back at
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`the -- back at the time you made your invention?
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`A.
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`It ranged, which was part of the problem. In
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`the best case, it might only take a couple of seconds.
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`12 But for bigger companies, the reality is it might take a
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`13 minute to two minutes for one request.
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`Now, you might have one request with two
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`people asking for it at the same time, then it might
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`take twice as long just because the computer was busy
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`17 working on the other person's request.
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`a. In a big company like Whirlpool or somebody
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`like that, how many sales reps or people doing pricing
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`20 might be trying to access their system at a given time?
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`A. So there might be several hundred sales reps
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`doing it, but as we mentioned in that sort of
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`sl)ip-to-stern software, there are people other than
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`sales reps also accessing the system.
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`So if somebody's looking up inventory at the
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`same time somebody's pricing, that just makes it slower
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`also, even though it's not even asking for another
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`pricing request.
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`Q. Okay. V\that would happen in a complicated
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`system like that, if you made this pricing system
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`available on the internet and allowed customers or the
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`public to come in and use the pricing software?
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`A. Realistically, the system would die. You
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`would have thousands of people hitting it at the same
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`time, and this happens with internet sites all the time.
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`Too many people go there for -- at the same time, and
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`the servers just crash; they slow down.
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`I mean, even if they don't crash, they take so
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`long to respond that everybody goes away. And if you're
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`trying to sell something and the system doesn't come
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`back in a reasonable period of time, you're not going to
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`buy. You can't buy.
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`Q. Have you ever had that experience where you--
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`you think about buying something and you hit the button
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`to price it, and it sort of churns and churns? Has that
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`happened to you?
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`A. Yeah, more often than not.
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`Q . What's your general reaction when that
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`happens?
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`A. You go find somewhere else.
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`sounds like there were some advantages to reducing the
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`number of tables in a database.
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`A. Correct.
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`Q. Okay. Why did people do it the old way?
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`In other words, why-- why did people go out there and
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`create all these different tables for all these
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`different things, and then require the computer to go
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`access them one at a time?
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`A. Well, organizationally, it makes sense, all
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`right? As I mentioned whether-- if you were storing a
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`list of, let's say, clothes that you owned versus cars