655
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
`*
`May 19, 2021
`CLOUDOFCHANGE, LLC
`*
`* CIVIL ACTION NO. W-19-CV-513
`VS.
`*
`*
`NCR CORPORATION
`BEFORE THE HONORABLE ALAN D ALBRIGHT
`JURY TRIAL PROCEEDINGS
`Volume 3 of 4
`
`APPEARANCES:
`For the Plaintiff:
`
`John H. Barr, Jr., Esq.
`John Allen Yates, Esq.
`Barden Todd Patterson, Esq.
`Edgar Neil Gonzalez, Esq.
`Kyrie Kimber Cameron, Esq.
`Patterson & Sheridan, LLP
`24 Greenway Plaza, Suite 1600
`Houston, TX 77046
`Abelino Reyna, Esq.
`Patterson & Sheridan, LLP
`900 Washington Ave, Suite 503
`Waco, TX 76701
`Charles E. Phipps, Esq.
`Locke Lord LLP
`2200 Ross Avenue, Suite 2800
`Dallas, TX 75201
`Charles S. Baker, Esq.
`Scarlett Collings, Esq.
`Locke Lord LLP
`600 Travis St., Suite 2800
`Houston, TX 77002
`Kristie M. Davis, CRR, RMR
`PO Box 20994
`Waco, Texas 76702-0994
`(254) 340-6114
`Proceedings recorded by mechanical stenography, transcript
`produced by computer-aided transcription.
`
`For the Defendant:
`
`Court Reporter:
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
`
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
`*
`May 19, 2021
`CLOUDOFCHANGE, LLC
`*
`* CIVIL ACTION NO. W-19-CV-513
`VS.
`*
`*
`NCR CORPORATION
`BEFORE THE HONORABLE ALAN D ALBRIGHT
`JURY TRIAL PROCEEDINGS
`Volume 3 of 4
`
`APPEARANCES:
`For the Plaintiff:
`
`John H. Barr, Jr., Esq.
`John Allen Yates, Esq.
`Barden Todd Patterson, Esq.
`Edgar Neil Gonzalez, Esq.
`Kyrie Kimber Cameron, Esq.
`Patterson & Sheridan, LLP
`24 Greenway Plaza, Suite 1600
`Houston, TX 77046
`Abelino Reyna, Esq.
`Patterson & Sheridan, LLP
`900 Washington Ave, Suite 503
`Waco, TX 76701
`Charles E. Phipps, Esq.
`Locke Lord LLP
`2200 Ross Avenue, Suite 2800
`Dallas, TX 75201
`Charles S. Baker, Esq.
`Scarlett Collings, Esq.
`Locke Lord LLP
`600 Travis St., Suite 2800
`Houston, TX 77002
`Kristie M. Davis, CRR, RMR
`PO Box 20994
`Waco, Texas 76702-0994
`(254) 340-6114
`Proceedings recorded by mechanical stenography, transcript
`produced by computer-aided transcription.
`
`For the Defendant:
`
`Court Reporter:
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`(May 19, 2021, 8:30 a.m.)
`THE COURT: Why can't we go ahead and get the prove-up
`done? The jury's all here.
`MR. YATES: Mr. Barr's in the building apparently.
`THE COURT: Mr. Yates, about how long will it take you to
`do your offer of proof?
`MR. YATES: Mr. Barr is just down the hall and will be
`here in less than two minutes. And I believe the total would
`be about ten minutes, probably less, to do the offers of proof.
`THE COURT: I just want the jury to know about how long
`it'll take.
`MR. YATES: I suspect it's ten minutes.
`THE COURT: Let the jury know they'll be coming in in
`about 15 minutes.
`MR. BARR: Sorry about that, Your Honor.
`THE COURT: No, no. I came in early. I just thought we'd
`get a jump on it and get the offer of proof done and then we
`can bring the jury in.
`MR. YATES: Your Honor, plaintiffs would like to call
`Mr. Crouse to testify regarding technical apportionment outside
`the presence of the jury under Federal Rule of Evidence
`103(a)(2).
`THE COURT: Okay. Mr. Crouse?
`DIRECT EXAMINATION
`
`BY MR. YATES:
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`Mr. Crouse, did you conduct the technical
`Q.
`apportionment in this case?
`A.
`Yes, sir. I did.
`Q.
`And what did you conclude?
`A.
`I concluded that at least 80 percent of the value to
`the accused products in this case as it relates to features and
`functionality -- 80 percent of the value to the features and
`products in this -- to the accused products are taught by the
`patents-in-suit.
`Q.
`And how did you reach that conclusion?
`A.
`I reached that conclusion through a number of steps.
`Q.
`Well, what was your first step?
`A.
`My first step was to determine the benefits, at least
`at a high level, for the patents-in-suit.
`Q.
`And what benefits did you identify?
`A.
`I identified the high-level benefits of a web-based
`point-of-sale builder that is flexible, easy to use and
`accurate. Customers of any skill level can manage their
`point-of-sale system directly, and the point-of-sale system can
`be managed from anywhere in the world, and the POS system is
`managed in realtime.
`Q.
`And what did you do next?
`A.
`My next step was to look at the high-level components
`of NCR Silver, and more broadly all point-of-sale systems --
`all point-of-sale systems.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`And what components did you identify?
`Q.
`I identified six functional categories or groups of
`A.
`components that represent a point-of-sale system of which NCR
`Silver is one. And I opined on this yesterday, but No. 1 is
`transaction handling which represents purchases -- purchases,
`credits, et cetera.
`The second item is inventory or item management. The
`third item is point-of-sale content management. The fourth is
`point-of-sale infrastructure, so the network, the hardware,
`et cetera. The fifth component is reporting. And the sixth
`component is security.
`Q.
`What did you do next?
`A.
`The next thing I did was to determine which
`functional -- which of these functional categories were taught
`by the patents-in-suit. And these were the first four that I
`just mentioned: Transaction handling, inventory management,
`point-of-sale content management and point-of-sale
`infrastructure. And those were the core functions.
`Q.
`And what do you mean when you say these are the core
`functions of NCR Silver?
`A.
`I believe these are taught by the invention on our
`significant differentiating drivers of demand for the accused
`NCR product.
`Q.
`Okay. How does that correspond to your 80 percent
`number?
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
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`Sure. So now I have a list of six functional
`A.
`categories. And as I looked at this list, my job here was to
`ascribe or assign relative percentages that represent the
`overall functionality of the point-of-sale system to each of
`these functional categories. So since we're talking about an
`entirety of a point-of-sale solution, this number will add up
`to 100 percent.
`So as I was assigning these functional categories, these
`percentages of functional categories and looking at the list, I
`realized that I knew -- I knew the two end points, No. 1 and
`Nos. 5 and 6, I knew the answer. And I knew them to be
`relatively consistent across point-of-sale systems.
`Q.
`So you would describe this as an end point analysis
`for your six items?
`A.
`Yes, sir. So the end points are Item 1, as I
`mentioned, and Items 5 and 6. And so what I did is I looked
`through this. As I looked at, for instance, No. 1, transaction
`handling. And what I discussed yesterday is transaction
`handling is the backbone of a point-of-sale solution. You
`quite simply don't have a point-of-sale solution without
`transaction handling. And if you look at Dr. Chatterjee's
`report, he opines that transaction handling is a broad category
`to which I agree. And so I assigned 50 percent to this
`functional category which is Category 1.
`Q.
`Okay. But 50 percent is not 80 percent. What'd you
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
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`do next?
`No, sir. It's not. As I continued to look over the
`A.
`list, I looked at the other end point which are Items 5 and 6.
`And, again, I looked at those and I said those are relatively
`consistent across point-of-sale solutions, and they represent
`anywhere between 5 and 20 percent of the overall functionality
`of the point-of-sale solution.
`Q.
`So how did you get to your 80 percent?
`A.
`And so now we have between 5 and 20 percent in the
`Groups 5 and 6 that left a remaining 80 to 95 percent
`representing categories -- functional Categories 1 through 4.
`So then what I did is I went to our damages expert,
`Ambreen Salters, and I stated I have the representative --
`relative grouping of Items 1 through 4 that represent the
`functionality of a point-of-sale solution of 80 to 95 percent.
`She then told me she would like a conservative number, so I
`arrived at the lowest number of that range which was
`80 percent. And that's how I arrived at my conclusion.
`Q.
`Thank you, Mr. Crouse.
`A.
`Thank you, sir.
`THE COURT: Thank you. You may step down.
`THE WITNESS: Thank you, Your Honor.
`THE COURT: Yes, sir?
`MR. BARR: Yes, Your Honor. Plaintiffs would call Ambreen
`Salters for an offer of proof.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
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`661
`
`THE COURT: Okay.
`And you all need to remember to read in your exhibits from
`yesterday, if you have --
`MR. BARR: Yes, Your Honor. We do.
`DIRECT EXAMINATION
`
`BY MR. BARR:
`Q.
`Ms. Salters, could you state your name for the
`record, please?
`A.
`Ambreen Salters.
`Q.
`Okay. And you are the damages expert for the
`plaintiffs in this case; is that correct?
`A.
`That is correct.
`Q.
`Okay. Did Mr. Greg Crouse, CloudofChange technical
`expert, conclude that the Silver Essentials software as opposed
`to the hardware embodies the patented functionality at issue in
`this case?
`A.
`Yes. He did.
`Q.
`Did Mr. Crouse perform a technological apportionment
`analysis to determine the percentage of the Silver Essentials
`software's value in terms of components, features and functions
`taught by the patents-in-suit?
`A.
`Yes.
`Q.
`Did you use this apportionment in your damage model
`to determine the amount of the Silver essential software
`revenue that is attributable to the patents-in-suit?
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
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`Yes.
`A.
`What is the amount of the technical apportionment
`Q.
`that Mr. Crouse determined?
`A.
`80 percent.
`Q.
`Could you explain to us how you used this technical
`apportionment in your report?
`A.
`Yes. According to Mr. Crouse, the Silver Essentials
`software contains a patented functionality which is essential
`to the web-based POS system. The accused software follows --
`offers the following high-level components: Transaction
`handling, inventory item management, POS content management,
`POS infrastructure, reporting and security.
`The Silver Essentials software features of reporting and
`security are not essential to the functioning system and also
`not covered by the patents-in-suit.
`Based on this analysis, Mr. Crouse concluded that at least
`80 percent of the accused software's value in terms of
`components, features and functions is taught by the
`patents-in-suit.
`Q.
`Did you accept that 80 percent figure in your -- and
`use it in your modeling?
`A.
`Yes. I did.
`Q.
`And using that 80 percent apportionment figure for
`the functionality of the systems contributed by the
`patents-in-suit, what did you find was the appropriate royalty?
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`16.5 million.
`A.
`How did you arrive at that figure?
`Q.
`I utilized NCR's monthly baseline software pricing of
`A.
`79 percent. I applied Mr. Crouse's technical --
`Q.
`I'm sorry. Did you say 79 percent?
`A.
`Or $79. I apologize. $79. And I applied
`Mr. Crouse's technical apportionment of 80 percent and then I
`multiplied that by NCR's accused software's gross profits of
`42 percent. And then I multiplied that by the number of
`accused monthly software subscriptions of 547,907.
`Q.
`I'm sorry. What was the percentage of gross profit
`for NCR Silver that you used?
`A.
`47 percent on average. It is a little bit different
`per year based on their profitability.
`MR. BARR: Okay. That concludes our offer of proof, Your
`Honor, for this witness.
`THE COURT: Thank you, ma'am.
`MR. BARR: May this witness be excused, sir?
`THE COURT: Yes, sir.
`If you all want to read into the record your exhibits from
`yesterday. And then we will bring the jury in.
`(Conference between counsel.)
`MS. CAMERON: Good morning. The parties have conferred
`this morning and we believe the only new exhibit that was
`admitted yesterday was DTX-133 which was on the list the Court
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`provided.
`We had one additional note. In reviewing the list, we see
`that Plaintiff's Exhibit 82 is marked as having Tab A and B. I
`think it should be Joint Exhibit 82 with A and B.
`(Off-the-record discussion.)
`MS. CAMERON: Okay. Thank you very much.
`THE COURT: Ready to go?
`MR. BARR: Plaintiff's ready, Your Honor.
`MR. BAKER: Defendant's ready, Your Honor.
`THE COURT: Is your witness ready to go?
`MR. BAKER: Yes, Your Honor.
`THE COURT: I'll be back in about five minutes. We'll
`bring the jury in.
`(Recess taken from 8:44 to 8:49.)
`THE BAILIFF: All rise.
`THE COURT: Please remain standing for the jury.
`(The jury entered the courtroom at 8:49.)
`THE COURT: Thank you. You may be seated.
`Ms. Collings, are you calling the next witness?
`MS. COLLINGS: Thank you, Your Honor. The defense calls
`Dr. Devrim Ikizler.
`(The witness was sworn.)
`DIRECT EXAMINATION
`
`BY MS. COLLINGS:
`Q.
`Good morning.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`Good morning.
`A.
`Could you please introduce yourself?
`Q.
`Yes. My name is Devrim Ikizler. I live in Austin.
`A.
`And what are you appearing on today, Dr. Ikizler?
`Q.
`I'm here to opine on the patent infringement issue
`A.
`that we all know in this case.
`Q.
`Have you created some slides to assist you in
`presenting your testimony today?
`A.
`Yes. I did.
`Q.
`And are they in front of you?
`A.
`Yes.
`Q.
`Okay. Could you tell us a little bit about yourself,
`starting with your education?
`A.
`Yes. I studied mathematics and economics as an
`undergraduate in Turkey. And then I studied my -- got my Ph.D.
`in economics from the University of Texas at Austin.
`Q.
`And what do you do for a living now, Dr. Ikizler?
`A.
`I do quite a few things. I have three -- I do three
`things essentially, split my time between research, consulting
`and teaching.
`Q.
`Now, as an economist do you have a particular field
`of concentration?
`A.
`Yes. I do specialize in competition economics which
`essentially deals with business-to-business transactions and
`the consequences of those transactions on the companies and the
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`industry as a whole.
`Q.
`So you said you really are doing three things right
`now. You do research, consulting and teaching. Do you do that
`all freelance? Do you have your own business?
`A.
`Yes. I own a small business based in Austin. I have
`five full-time employees, three Ph.D.-level researchers,
`including myself and two data scientists. It's a company
`called Intelligent Analytics and Modeling. So that is my
`research and consulting side of the business.
`But I also do teach regularly, at least one class a year
`at the University of Texas at Austin in the economics
`department. And I do research with my colleagues at UT
`regularly which I will tell you about it.
`Q.
`So going back to your research arm, the research arm
`of your business, can you tell us a little bit about that?
`A.
`Well, I do a lot of nonprofit research. I help
`nonprofits do their data analysis and consult them about how to
`grow their business and about -- give them insights about their
`past actions.
`And to give you some examples of that is I consult
`regularly a nonprofit called JUST that -- that serves female
`entrepreneurs that are under-served communities that gives them
`micro loans so they can get -- form businesses. So I gave them
`data analytics services.
`But I'll give you a couple other examples. I was part of
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`the team of researchers that got hired by the Texas General
`Land Office after -- in 2017 after Hurricane Harvey happened.
`The federal funds that Texas -- State of Texas received had to
`be distributed in the state of Texas. Each county was going to
`get a different allocation. And part of that -- I was part of
`the researchers that calculated that allocation, for example,
`in 2017.
`And besides that I have -- as you can see on the screen, I
`represented the State of Texas in specifically TABC against
`Walmart in 2018 in the federal court in Austin as an expert
`witness.
`And I recently got two Small Business Administration
`grants that are federal grants and one National Science
`Foundation grant that in conjunction City of Austin we're
`developing a mobility hub in the underserved neighborhood in
`Austin.
`So in addition to the research arm of the business,
`Q.
`you mentioned that there was also a consulting section. Can
`you tell us a little bit about the work that you do in the
`consulting portion?
`A.
`The consulting portion involves consulting some
`businesses, but also consulting law firms in litigation cases
`such as this one. I do a few of those only a year because I
`have too much on my plate essentially. Because I have a
`seven-month-old, so I do a lot of diaper changing for that.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`And my wife is also a business owner. She's a -- sorry.
`She's a floral designer so she does a lot of weddings,
`especially all the postponed weddings from the COVID time now.
`So I try to not to take too much of the litigation cases, but I
`do a few of those a year.
`Q.
`And this is one more thing. So you've been retained
`in this case by NCR Corporation as an expert witness on
`reasonable royalty; is that correct?
`A.
`Correct.
`Q.
`And you're being paid by NCR Corporation for your
`work on this case?
`A.
`Yes. I get paid hourly, and my compensation, which
`was one of the things that I was -- I never understood in this
`industry, my compensation is not dependent on the outcome of
`this case, whether -- whichever party -- whatever you guys
`decide today is not going to affect my compensation.
`(Clarification by the reporter.)
`BY MS. COLLINGS:
`Q.
`Okay. So let's go back to your litigation
`experience.
`On the litigation side, with respect to -- you've worked
`on patent litigation matters, correct?
`A.
`Yes. Between 2010 and 2015, especially, I worked
`full time in litigation with one of the best experts in the
`United States, I considered. Professor McGee was my mentor.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`He's a finance professor and advisor to four different
`presidents. So I essentially learned this business from him
`over the years. So I did a -- quite a bit of patent
`infringement cases.
`Q.
`And on your patent litigation cases, can you describe
`for me how much work you do for plaintiffs, how much work you
`do for defendants?
`A.
`I do about 50/50.
`Q.
`And in those cases, patent litigation cases, have you
`used the same methodologies in calculating a reasonable royalty
`that you have used in this case?
`A.
`Yes. Pretty much in every patent litigation case we
`do -- construct a hypothetical negotiation using, what you
`heard yesterday, Georgia-Pacific 15 factors.
`But every case, depending on the data availability, we
`have to do -- use a slightly different methodology, using what
`we have, because we're trying to estimate something. If you
`have great past transactions, you could use that; otherwise,
`you have to use other things.
`So you have to look at the data availability to choose the
`methodology.
`Q.
`And have you ever worked on a case involving
`point-of-sale solution technology?
`A.
`I worked on two cases that relate to payment systems.
`They were not about the specific point-of-sale terminal, but
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`they were in the payment processing systems.
`One of them was a trade secret case in 2016. One was -- I
`think that was my first deposition. It was a trade secret case
`involving a technology. It was a imaging technology, when you
`had to deposit a check at the bank. There was a person that
`wrote the software that was working with a bank. So that was a
`related case.
`And then another one was an antitrust matter between
`Discover and Visa about the debit cards and their securities.
`MS. COLLINGS: Your Honor, we proffer Dr. Ikizler as an
`expert witness on economics in this case.
`MR. BARR: No objection, Your Honor.
`THE COURT: He'll be admitted.
`BY MS. COLLINGS:
`Q.
`And I'll remind you to please slow down.
`A.
`I will do my best. Please remind me regularly. I
`don't mind.
`Q.
`Thank you.
`Dr. Ikizler, what was your assignment in this case that
`you've completed?
`A.
`I had three assignments. First, you heard
`Ms. Salters yesterday. So my -- I was assigned to analyze her
`report and her opinions and quality control her calculations as
`a rebuttal expert. That was my first assignment.
`My second assignment was to construct a hypothetical
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`negotiation, which is if the parties had a chance to go back to
`2016, before this all started, when the patents were issued, if
`they had sit down at a table and negotiated, what would they
`have decided, which is a really hard task.
`But as a result of that hypothetical negotiation, what
`reasonable royalties should be paid today that resembles what
`the parties would have agreed back in 2016 considering a bunch
`of factors.
`Q.
`So let's start with that hypothetical negotiation.
`Can you tell us a little bit about what your
`considerations were with respect to the hypothetical
`negotiation?
`A.
`Well, first thing is the timeline. When would that
`hypothetical negotiation take place?
`So in 2012, NCR started selling this product. And in
`2016 -- to July of 2016, the patents were issued by the U.S.
`PTO.
`
`So when the patents were issued, that dictates the
`hypothetical negotiation date. That's the date the
`CloudofChange would have come to the table, knock on the door,
`hey, we need to sign a deal. What do you want to do?
`So that is the date that I picked as the hypothetical
`negotiation date.
`Q.
`And earlier in your testimony I heard you mention the
`Georgia-Pacific factors.
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`If we turn to Slide 5.5, are these the Georgia-Pacific
`analysis factors that you were referring to earlier?
`A.
`Yes. This is a long list of factors that the courts
`recommend that the experts use for this analysis. I
`highlighted some of them to be more important, but you already
`heard about it from Ms. Salters as well.
`These factors are common, and I followed these factors. I
`will go over them essentially -- as necessary throughout my --
`throughout my slides later today. So we'll cover them as
`needed.
`Okay. Well, now that you've outlined the context,
`Q.
`can you tell us a little bit about your analysis of
`Ms. Salters' report?
`A.
`Yes. So Ms. Salters did an analysis that could be
`summarized in a few components. There's a price component.
`She takes $79 price per unit as you can see on this screen top
`row. And that is same from year to year, she takes the same
`price. And then she takes a gross profit percentage that she
`calculates that varies between 40 percent to 50 percent. And
`then she calculates number of subscriptions that's been sold in
`this software.
`And then comes up with damages that in her report she
`suggested 16.5 million. And yesterday she testified she gave a
`range. She said somewhere between 12 to 20 million. I will go
`over her -- the details of her analysis and explain which parts
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`I agree with her and which parts I don't agree with her.
`Q.
`Do you have an understanding of how Ms. Salters
`reached her conclusions?
`A.
`Yes. So one of the first observations that you will
`realize she relies on Mr. Crouse very heavily, which is the
`expert for the plaintiff, the technical expert. She read and
`cited blog posts which I found unreliable to some degree. Not
`that there's anything wrong with the blog posts, but if that's
`your only data source that you're relying on -- for example, I
`task my students every semester for a research study, I do not
`allow them to recite a blog post. They could cite a blog post
`as supplemental evidence, but if the fundamental portion of
`your analysis relies on a data point that's written by a blog
`post which is not peer-reviewed, which means other people --
`other researchers didn't get to quality control that data, I
`don't find that reliable. So that's another observation.
`In her report she did not cite one academic research
`paper, not one. It's all blog posts. You can look at the
`footnotes. I wanted to put them in, but I have limited time.
`It's in her report, as part of it.
`She used a survey to compare profitability of NCR which is
`a publicly-traded company. She said in the SaaS industry
`profitability is somewhere between 70 to 95 percent.
`Q.
`You referenced the SaaS industry. Can you explain
`what you're referring to? What does that acronym stand for?
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
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`That stands for software as a service, which is --
`A.
`Netflix is in that SaaS industry as we talk yesterday. All the
`apps you download that you may be paying for is in the app
`industry is in the SaaS industry essentially. You just pay for
`a subscription month to month.
`Q.
`How else did you find that Ms. Salters reached her
`opinion?
`And lastly, with using three excuses -- when I say
`A.
`excuses, in my opinion they're excuses -- she deemed NCR
`financials -- she assumed NCR financials are simply not
`correct.
`Okay. And based on your analysis of Ms. Salters'
`Q.
`report, your understanding of how she reached those
`conclusions, do you have an opinion about Ms. Salters' NCR
`Silver profitability analysis?
`A.
`Yes. Before we get into profitability, I want to say
`one thing. The importance of these bullet points that I put
`here, as economist -- everybody watches the news. You're aware
`that one of the hardest jobs is economy, because we constantly
`go through economic depressions and financial crises.
`Why is that? Because there's usually a number out there
`you want to estimate. That's what we do. We look at multiple
`data points. We look at a lot of data which you've seen in
`slides -- everybody's slides, stack of papers. Everybody
`analyzes data. Great. What's the purpose? Is to estimate
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
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`that one value out there, how much CoC should have gotten paid
`in 2016.
`But when you do that analysis, what I'm trying to
`highlight here with these five bullet points, because it's such
`an unknown number you have to seek precision, accuracy and you
`have to be detail-oriented. You can't just do -- take
`constantly shortcuts. And that is the pattern that I realized
`in Ms. Salters' analysis, a lot of shortcuts which makes her
`results unreliable. But I will get to details on that one.
`Let's move to profitability.
`Q.
`Okay.
`MS. COLLINGS: Let's move to the Slide 5.9.
`BY MS. COLLINGS:
`Q.
`Now, can you explain to us what opinions you had with
`respect to Ms. Salters' profitability analysis?
`A.
`Yes. So this is the financials that is produced by
`NCR. Publicly-traded company, regulated by Securities and
`Exchange Commission. They have investors they have to report
`to. They can't just make up numbers.
`MR. BARR: Your Honor, I object to narrative answers to
`every question.
`THE COURT: Overruled.
`BY THE WITNESS:
`A.
`So this screenshot here is a list of the expense
`items that is as listed in NCR's financials. I didn't change
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`anything except I highlighted three of them in light yellow,
`which I'll have another slide later annotated.
`But you can see on the explanation part, in the middle, it
`says "Salters excludes," "Salters excludes," and then "Salters
`and Ikizler includes."
`So there are three items out of this 27 that Ms. Salters
`decided to include only. She said the other ones cannot be
`reliably correct, and she used three excuses. I will walk over
`all of these three excuses. You actually heard some of them in
`this trial in the last two days.
`THE COURT: Okay. At some point you got to ask a
`question.
`BY MS. COLLINGS:
`Q.
`So you mentioned the rationalization for your opinion
`that Ms. Salters overinflated NCR Silver's profitability
`analysis.
`MS. COLLINGS: If we turn the slide.
`BY MS. COLLINGS:
`Q.
`And you provide an explanation of the basis for that
`opinion.
`How did Ms. Salters, in your opinion, overinflate NCR
`Silver's profitability?
`A.
`So simple math. There were 27 items, and she picked
`three of them to the other ones. Therefore, she excluded 24
`out of 27 cost items that NCR's accounting department thought
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
`
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`was appropriate.
`And as a result of that exclusion, she reached
`47.2 percent profitability. If you just do exactly what NCR's
`financials, as they produce and as they view internally, you
`would have reached 28.1 percent.
`Q.
`So overinflation of NCR Silver's profitability was
`your first observation with respect to Ms. Salters' opinion.
`Your next was that she inappropriately was citing to a blog
`post.
`MS. COLLINGS: If we turn the slide.
`BY MS. COLLINGS:
`Q.
`Can you -- and in doing so, she not only overinflated
`the NCR Silver profitability margin, but she also contrasted --
`is that what you were just explaining, she contrasted the
`profitability with the SaaS industry study?
`A.
`So if you could go to the previous slide, please.
`Yeah. Even the previous one.
`So I said Ms. Salters used three rationales for inflating
`the gross profit analysis. One of which is the fact that there
`must be something wrong with this financial.
`And she said, well, Ms. Schoonover was asked a series of
`questions in her deposition, and she did not answer them
`properly.
`And we heard two days ago -- I don't know if you remember,
`but we heard two days ago here, Ms. Schoonover was never asked
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`KRISTIE M. DAVIS, OFFICIAL COURT REPORTER
`U.S. DISTRICT COURT, WESTERN DISTRICT OF TEXAS (WACO)
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`the questions about this specific P&L. She was being asked
`questions about the selling expenses. So that was one of the
`reasons that she found this unreliable.
`The second reason was that 400 survey. Well, just
`yesterday she said there was 1,200 companies that was surveyed
`in that SaaS industry survey. That is actually incorrect.
`There is 400 companies, which I corrected her in my deposition
`but still she said 1,200 yesterday.
`So what's wrong with that survey? Surveys are a great way
`to rely on data. Well, if you want to estimate how much Texans
`drink coffee, would you do a survey in New York? No. Because
`you're interested in how much Texans drink coffee.
`Well, she used a survey that is conducted by a venture
`capital firm that has vested interest in collecting funds so
`that they can invest into start-ups. So they had surveyed --
`Q.
`Dr. Ikizler, I'm going to interrupt you. I'm sorry.
`But you've just mentioned a vested interest. Are you
`talking about the public -- the publisher of the study of the
`blog article?
`A.
`Yes. The company who conducted the survey.
`Q.
`Okay. What about the company who conducted the
`survey? Who is that company?
`A.
`That is a venture capital company.
`Q.
`O
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