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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
`'* 1:15 P.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. SCOTI 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
`
`19
`20 APPEARANCES CONTINUED ON NEXT PAGE:
`21
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`MS. SUSAN SIMMONS, CSR
`COURT REPORTERS:
`MS. JUDITH WERLINGER, CSR
`Official Court Reporters
`100 East Houston, Suite 125
`Marshall, TX 75670
`903/935-3868
`(Proceedings recorded by mechanical stenography,
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`VERSATA v. SAP
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`VERSATA EXHIBIT 2010
`SAP v. VERSATA
`CASE CBM2012-00001
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`Trial: Day 01 Vol. B Carter cross, redirect, Dholakia direct, cross, redirect 8/17/2009 1:16:00 PM
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`is a business person that is responsible for setting
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`pricing in a way that's going to help his company or her
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`company sell the most of their products and earn the
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`4 most amount of money in profit.
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`Q. Okay. And when you were selling your software
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`and trying to pitch it --
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`A. Yeah.
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`Q.
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`-- was that person your target audience?
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`A.
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`Initially, it was.
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`Q. Well, pretend I'm a pricing manager and I'm at
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`a big company that does a lot of complex promotions and
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`I'm currently involved-- I've got SAP or Oracle or one
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`of the big ERP enterprise software--
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`A. Right.
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`Q.
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`--programs running in my shop, and it's got
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`that pricing module we've talked about. And pretend
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`you've run into me, and this is a golden opportunity for
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`you to tell me your best pitch why Trilogy's Pricer is
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`better than what I've got now that I don't have to pay
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`anything more for.
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`What would you tell me?
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`A.
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`I'll give it my best shot.
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`Frqm what I remember, we used to focus on
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`three things. We would say, quickly, ease of
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`25 maintenance. The programs that I just described with
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`our system, you, pricing manager, can do yourself. You
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`won't have to go ask somebody in IT to do it for you.
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`No. 2 was disconnected pricing. You want to
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`be able to put the power of that pricing information out
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`onto a laptop computer with your sales rep in front of
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`the customer, not have it locked up back at
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`headquarters.
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`And No. 3, I would have said performance.
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`It's performance, fast. The calculations are going to
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`come back like that (snaps fingers) because of the way
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`the system was designed.
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`Q. Okay. I wrote these down. I want to ask you
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`some questions about them.
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`A. Okay.
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`Q . The first, I saw you said ease of maintenance,
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`and you don't have to involve IT.
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`A. Yes.
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`Q.
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`IT, is that information-
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`A.
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`Information technology, yes.
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`Q. Thafs the department in most companies that
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`does what?
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`A. They're responsible for the computers and the
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`software and the systems that run th!3 business.
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`Q . So under the old way of doing it, before
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`25 Trilogy comes along, if I'm the price manager --
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`A. Yes .
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`Q.
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`-- and I want to do this snow tire promotion
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`in the Northeast--
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`A. Yes.
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`Q.
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`-- what is my life like?
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`A. Frustrating, because you have to -you've
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`designed a promotion to respond in real time to this
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`situation. You're losing to Michelin in the Northeast
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`on the snow tires.
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`But you have to call somebody over in IT,
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`usually fill out a form that describes the promotion you
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`12 want to have run.
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`Q. Wait a second. Why can't I get on my computer
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`on my desk? I've got the stem-to-stern software, and
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`type in my promotion right here and just do it?
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`A.
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`If you saw some of the screens before, SAP's
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`user interface is not exactly designed for the pricing
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`18 manager to know condition types and the like.
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`Q. Would I have to get into tables and create
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`those?
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`A. That's right.
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`Q. Most of the companies you dealt with, when you
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`23 were selling Pricer, would they funnel that off to their
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`IT departments?
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`A. Correct.
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`Q. And are those the same IT departments that
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`would be taking phone calls from people when their
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`computers crashed or responding to other emergencies?
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`A. Same group and the same group that was trying
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`to install other systems. They were typically the poor
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`souls that were overburdened and under resources
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`universally.
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`Q . So as the pricing manager, you come and tell
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`9 me you don't have to send your price promotions to IT
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`anymore, how big a deal is that to me?
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`A. That's huge.
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`Q. Vl/hy?
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`A. Because now you can get what promotion you
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`14 wanted to run to compete against Michelin, and you can
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`do it yourself in literally seconds or minutes versus
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`16 what would otherwise take days, weeks, months.
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`Q. The second thing I wrote down that you
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`18 mentioned was a disconnected--
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`A. Disconnected pricing.
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`Q.
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`Is that basically you can run this on a
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`laptop?
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`A. That's right.
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`Q . Okay. This may be fairly self-explanatory,
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`but just tell us why that's important.
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`A. Because prior to that -- you know, imagine if
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`you're trying to close a sale, as Mr. Carter was
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`2 mentioning be~ore, a customer is going to ask you how
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`3 much is it going to cost.
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`In the old world, prior to our technology, the
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`only way to do that would be to call somebody back at
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`headquarters and ask them to put it in the system and,
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`hopefully, they were at their desk when you called;
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`hopefully, it wasn't a weekend when you were out with
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`these guys golfing or whatever it was.
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`And if they were, you would have to make sure
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`that you were very specific about exactly the order you
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`12 wanted. And there were no errors in the conversation
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`about what numbers to be put into the system, and then
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`you'd get an answer back.
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`Q.
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`I was going to ask you, if you called in
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`because you don't have a laptop and that gets garbled
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`along the way and they put in the wrong SKU number or
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`18 wrong number, what does that result in?
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`A. That would result in an incorrect price being
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`quoted to the rep who quotes it to the customer who then
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`later is told, oops, sorry, I can't actually give you
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`that deal. And that's a bad conversation from a
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`salesperson's perspective.
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`Q. Okay. The third thing you wrote down was your
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`25 Pricer was faster.
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`A. Yes, sir.
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`Q. Faster to do what?
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`A. Calculations.
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`Q. So--
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`A. Calculating the end price.
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`Q. Okay. And how-- how-- I know it probably
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`varies according to how complex and how big a company.
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`So with all those caveats, are you able to at
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`least benchmark us -- benchmark it for us as to how much
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`faster Pricer was?
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`A. Absolutely, with all those caveats, depending
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`on the situation, but it wasn't at all uncommon to see
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`13 SC Pricer to be able to compute something in a
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`sub-second or a second or two response time, meaning the
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`time that it would be asked give me a number, and it
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`could get it back, whereas with some of our customers
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`that bought our software to run through the same
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`complexity, it could take a couple of minutes.
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`Q. So your competitors would take two minutes,
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`and you would take two seconds?
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`A. Thafs right.
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`Q. Why is that important? If I'm the pricing
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`23 manager and I heard you tell me that, I say, well, okay,
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`two minutes, why is that a big deal to me?
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`A. A number of reasons, I think.
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`One, you want to be able to give the answer to
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`the customer quickly. And, number two, it's a load on
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`the system.
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`You know, as was being described earlier, the
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`SAP system is stem to stern. It's doing lots of
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`different things. And as irs calculating for a couple
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`of minutes, that's consuming resources where other
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`requests going into the system may not get executed as
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`quickly. So those would be a couple of reasons.
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`Q. When you were back then in 1995, '96, '97
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`selling Pricer, was the internet on the horizon as
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`something people were going to be doing business and
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`quoting prices over some day?
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`A Absolutely. And it was definitely
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`forward-looking in '95. By '97, I would say most
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`people, you know, saw that the internet was going to be
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`an important part of their business. And so the ability
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`to come back with an answer like that was very
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`important.
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`Q. Have you ever waited two minutes for a price
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`quote on the internet?
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`A
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`I have not.
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`Q. Le~ me ask you a little bit about hierarchies.
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`A Yes, sir.
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`Q. You've been sitting in Court through the
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`A.
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`In those years, you know, particularly '96 and
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`'97, I think the ·best testament to how much better our
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`software was is the fact that these large Fortune 500
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`companies, very smart folks, looked at our software,
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`knew that they had a free alternative with SAP and still
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`wrote us purchase orders that were million -- worth
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`7 millions of dollars.
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`And companies don't part with millions of
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`dollars, unless there's real value there.
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`Q. And what value was there?
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`A. There's a tremendous amount of value. As
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`12 Mr. Carter was describing, for a VP of Sales or a VP of
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`13 Marketing -- you know, for a VP of Sales to have the
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`ability to control what prices his sales reps are able
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`to put out or not and to be able to get pricing to his
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`customers quickly, or a VP of Marketing to say my
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`pricing managers can now respond quickly to changes in
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`the market, that's worth millions.
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`Q. Did you ever have customers come to you and
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`ask you to prove it?
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`A. Very often. When you ask somebody for a large
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`dollar money-- a large dollar amount of money, they are
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`going to say, well, if I give you a dollar. you have to
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`be giving me back three, four, five in order for this to
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`25 make sense for me, so prove it. Do what is called a
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`Q. So you were 70 percent faster in changing
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`prices.
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`In program administration fell by 59 percent
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`and 7 4 percent.
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`A. That's right. And it has a lot to do with
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`what I was describing earlier of being able to get the
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`prices in quickly yourself versus handing it off to
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`somebody else in Information Technology, who's
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`overburdened and under-resourced that had to go create a
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`Q. Mr. Dholakia, how much did Vllhirtpool pay
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`Trilogy for the Pricer software?
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`A.
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`It was $5 million for the license of the
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`software, plus a million dollars per year in annual
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`15 maintenance, plus quite a bit in services.
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`Q. How much do you think Trilogy software saved
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`17 Whirlpool in the long run?
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`A.
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`I think tens of millions of dollars.
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`Q. And you were competing head-to-head with SAP,
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`and Whirlpool, in fact, had the SAP pricing function
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`available to it?
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`A. They did at no cost.
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`Q. Let me ask you about another customer you
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`24 mentioned, and I'd like to go through it a little more
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`quickly. Allegiance Healthcare.
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`A Yes, sir.
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`Q.
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`\fl/hat's the business of Allegiance Healthcare?
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`A They sell medical supplies to hospitals.
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`Q. And at Allegiance Healthcare, did you compete
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`against SAP for that business?
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`A We did.
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`Q.
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`\fl/ho won that business?
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`A Trilogy did.
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`Q. Tell me-- give me an idea of the kind of
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`products, healthcare products, that Allegiance
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`Healthcare distributes?
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`A. They have-- they sell 200,000 products, so
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`everything you can possibly imagine that you've ever
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`seen in a hospital, from tongue depressors to syringes,
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`sutures, everything.
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`Q. Have they got a product hierarchy?
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`A. A big one.
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`Q. And we talked about price promotions with
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`19 Whirlpool and the tire companies. I can't envision
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`healthcare companies doing promotions.
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`V\lhat's the pricing problem that a healthcare
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`like Allegiance has?
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`A Two things. One is very complicated contracts
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`24 with lots of different buying groups that I was
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`describing earlier, and any given hospital might be
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`related to multiple buying groups, so figuring out what
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`price this particular hospital should receive on
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`sutures.
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`And then, number two, you would still have
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`some changes from -- for example, in HMO, the insurance
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`company might say I'm going to stop reimbursing surgical
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`sutures at 50 percent. I'm only going to reimburse them
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`at 30 percent.
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`Now, Allegiance needs to go into their system
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`and figure out how to make that change, but they might
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`only do it for-- you know, for surgical ones. Well,
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`now I've got to go through all my sutures and figure out
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`13 which ones are surgical versus nonsurgical, those types
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`of cases.
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`Q. Okay. How much did Trilogy charge Allegiance
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`for the software Pricer, plus the ongoing maintenance?
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`A.
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`It was about $2 million, as I recall, plus
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`half a million dollars or so in maintenance every year.
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`Q. Did they do a return on investment analysis
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`20 with us?
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`A.
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`I'm sure they did.
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`Q. Okay. And in general, would customers buy
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`your software if they weren't going to get some multiple
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`of their investment back?
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`A. No, never. These are very sophisticated, big
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`companies. You don't take millions of dollars from them
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`unless they_ are believing you're going to give them many
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`3 millions back.
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`Q. Okay. These are two examples we've given.
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`Are there other examples where Trilogy went head-to-head
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`with SAP and emerged the winner?
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`A. Absolutely.
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`Q. Let me ask you a little bit now about your
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`strategy on a personal level, and that is when you took
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`your job in 1995 and you were put in charge as the
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`business guy in charge of Pricer-
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`A. Yes, sir.
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`Q.
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`-- I imagine that the company had some goals
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`or things they wanted to do to see you succeed.
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`A. Yes.
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`Q. What was that?
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`A.
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`It was establish a market and sign up
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`customers, go and get this installed at Fortune 500
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`companies, and generate revenue.
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`Q. And at the time, what advantages did you think
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`you had in the market with the Trilogy Pricer?
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`A. Well, we thought it was -- it was a
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`breakthrough. It was very innovative. There was no
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`other sales and marketing focused pricing product that
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`existed anywhere. So we were very excited about it.
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`Q. And were there any disadvantages or
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`vulnerabilities you thought yo~ might have with your
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`product?
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`A Well, sure. I think we were-- we understood
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`that, fundamentally, we were going to be selling to lots
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`of companies that were already using SAP, and that was a
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`big vulnerability.
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`Q. Now, your target market was the biggest
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`companies with the most complex pricing. Do you have an
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`idea of how many of those companies were already running
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`SAP as their stem-to-stern enterprise software?
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`A Quite a bit. I would say, you know, 70 to 80
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`percent of the companies that were in our pipeline at
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`any point in time were already or were in the process of
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`acquiring SAP.
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`Q. Tell us why that's a potential vulnerability
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`for you.
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`A Well, you have to be able to integrate your
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`software seamlessly on top of SAP, because they were the
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`platform at the lion's share of the customers we were
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`targeting.
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`Q. Okay. And we've heard the word integrate a
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`lot. It may not be something we have familiarity with.
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`24 Mr. Carter talked about it a Jot for sure.
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`Tell us in very lay terms what integration is
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