Free Motion in Limine - District Court of Federal Claims - federal

Case 1:06-cv-00245-EJD

Document 45-7

Filed 03/07/2008

Page 1 of 25

MELVIN JAGER
.

Page 11 8
i i would normally do.

Page 120 ,
1 strtegy -- an Investment and Tax Strtegy as I have

2 Q. (BY MR. DONAHUE) And how so?

2 defined it in my report, and my approach wa to
3 determine whether it has the charcteristics of a tre

3 A. Well, if -- and I was careful to state it that
4 I'm -- you know, in the abstract whether this is a trade
5 secret or not, as th Court may detrmine to be a

4 secret, and I said it does. It's a plus that it has
5 enhancements. I did not dig into exacly what the
6 enhancements might be.
7 Q. J understd that, but now I'm saying if

different than and 7 could be different -- may not be different, but could be
6 legallyprotectable trde secret, is

8 different from, doe it have the characteristics of 9 intellectul propert or this form of intellectul
i 0 propert called trade secrets? So then I could go to
i i the next step and say that a fee based on a percentae

you 8 knew - I undersd you didn't know, but ifI told you 9 that - that a difference between the COBRA tax stategy

10 . and other similar strtegies on the maret was that for

1 i the COBRA strtegy they charge more money for the
i 2 offsetting options, would you view that as a tye of

the value, so to spe, was it a reasonable approach i 3 to making it a fee?
12 of

13 enhancement that would differentiate the COBRA sttegy
i 4 from thes other stategies?

i 4 If it's ultimately determined that .- if

15 i was taking about patentabilty, and it's ultimately

15 MS. GA VIOLl: Objection. Form.
i 6 A. I don't know enough about the economics of

i 6 not patentable, that stil would mean that my analysis the fee structu would i 7 about the appropriateness of
18 stil be valid. So I was careful to say the

the

17 -- or the ta aspect of it to say whether tht's an
i 8 enhancement or not. I'm sorr.
19 Q. (BY MR DONAHU) Okay. Are you aware of

19 characteristics of a trde secret because, you knw, I
20 did not and I didn't have the time and I didn't charge 21 for the time to send letters and investigate thoughout 22 the whole accounting industr about this subject matter.

any

2 0 other firms that were offering similar strtegies as the

21 COBRA strategy?

22 A. Well, Jenkins & Gilchrist was involved in
23 aspects of this, that's another -- other than E& Y?

23 I relied upon the documents that I had and came to the
24 conclusion that it had the characteristics of a trade

25 secret.
Page 11 9

2 4 That's another firm that wa involved. There were firms 25 that rendered legal opinions on these strategies, so I
Page 121 ~

1 Q. Did you ask counsel to provide you with any i

guess they were involved.
Q. Are you finished?

2 documents that may elucidate as to what enhancements 2

3 Ernst & Young provided to this strategy? 3
4 A. No, I don't recall doing that because I wasn't 4
5 specifically concerned about the exact detail of

A. Yes. ~
A. Yeah.

the 5

Q. Okay. Take a look at page 10, secnd bullet ~

at the top. You state (as read): Ernt & Young was the .
only company providing the COBRA Investment and Ta: ;
Strtegy. I am not aware of any other primar service i

6 enhancements. I was -- I was impressd with the fact 6
7 that they said they made enhancements and that therefore 7

8 that would be par and parel of the idea that - well, 8

providers other than E& Y who were offering this specifi( ~

9 you know, they're appropriately charging a fee for the 9
i 0 use of these services which includes tax representation i 0

COBRA investment ta strateg. Do you see that?

i i before th IRS, ta strtegy, business strgy, and on 11
i 2 top of anyting else they made enhancements to this 12

Q. And what is your basis for your conclusion

13 strgy. I didn't paricularly feel like I had to know 13 that E&Y was the only, what you call, service provider

14 exatly what the enhancements were. 14

that was offering a COBRA strategy? the documents tht I reviewed A. Well, I -- in 15 Q. If! told you to assume that one difference 15 16 between this COBRA stregy and other tax strategies on 16 and the conversations I had with counsel, I was not 17 the market was the fact that in the COBRA strtegy the 17 aware of any other par that was giving the COBRA

18 client would pay a greater amount of money for the 18 sttegy --

i 9 offsetting options than in the other strtegies, would 19

Q. And

you --

20 you view that as an enhancement? 20
21 A. Pay a grter amount of money to whom? I 21

A. - as a strategy.

Q. And you point out in the last sentence that
(as read): This belief is based on my review of

22 mea, pay a greater fee? (guess the word -- I don't 22
24 "enhancement" because it was't a major part of my 24

the ;

23 think we should place too much emphasis on the word 23 available documentation and my discussions with counse L
A. Right.
your conclusion -- of

25 undertanding of the analysis. We have a ta 25

Q. What portion of .... ..".~",-,.,.,:,_ ,'......"",...'......... ,'.....'e_.._ ", ,_: ....._ .' _ - ~ c... M....~ .'i~';:, "H)'...;,.~._... ," -- _u. - _' .. ,~.".;."_...,,,....; ..:'" ;',r'.'~':,~"..;~' ",:C_"'; - .. .~¥

this

31 (Pages 118 to 121)

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Case 1:06-cv-00245-EJD

Document 45-7

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Page 2 of 25

MELVIN JAGER
Page 122
1

Page 124 ,
Do you see that?
MS. GA VIOLl: Objecion. Form.

conclusion is based on your discusions with counel? 1 entities.

2 3
4

A. What portion? Well, thy all-- they went 2
hand in hand. I disussed it with counsel and reviewed 3

A. I see that reference.
Q. (BY MR DONAHUE) Now, do you know -- do YOt
know whether or not the COBRA ta strategy had that element to it?

the documents, I ca't say... 4

5

6
7
8

Q. What counsl did counsel say? 5
A. I don't recall specificaly except tht I've 6
been -- I was provided with everying that - that I 7 needed to come to that conclusion or tht I -- that 8

9

would permit me to come to that conclusion. 9

?i 10 Q. Yeah, well, but did counsel say that there are 10 11 no other promoters oftax strategies offenng similar 1 i believe the question was cleary staed. ~ 12 COBRA-like strtegies? 12 MS. GA VIOLI: Objection. Form. 13 Q. (BY MR. DONAHE) Okay. Take a look at the ; 13 A. I really can't tell you what exactly counsel 14 next sentence. It says (as read): These shelters were 14 ~ ."5 15 said at this stage. But when we had those discussions, 15 referrd to by various names including Short Option Strategy, Spread Option Strtegy, Split Opion Stregy, 16 this was the opinion and conclusion I formed as I stated 16

A. That element? What element is that? Q. The element I jus read. MS. GA VIOL!: Objecon. For. I don't

A. No, I do not is the aner. ~

Do you have any knowledge as to what are 20 Have you seen this document before? 21 the charcteristics of the various ta strategies that 21 are referrd to in which I just read? 22 various individuals 23 A. As SOS? 23 Q. This is the indictment of Q. Any oftbem. 24 in connection with their design, marketing, and 24 A. No, I do not. 25 implementation of ta stategies. And most of these 25
Page 123

17 18 Q. (BY MR. DONAHUE) I'll hand you what's been i 8 19 marked as Exhibit 2437. I'll han you this one because i 9

here in this report. 17

SOS, Bin Options, Digital Options, Gain Mitigator, ~
Loss Generator, COINS, BEST, FX Trasaction (hereinfter

it has a clip on it. 20 A. I do not believe so, no. 22

W~ ~
strategy has the same elements or many of the same

i

j
L

Page 125 .
Q. Do you know to what extent that the COBRA ta ..j
1

2 familar with the accounting firm KPMG? 2
3 A. I've heard that term. That's a -- what does 3
6 A. KPMG, they represent names I assume, but I've 6

i individuals were former employees of KPMG. Are you 1

4Q. that stad offor. 4 A. I do not know. 1 5 It's JUSt the name the firm. 5
8 Q. Were you aware that roughly about 22 8
the SOS Strtegy? A. I don't recal that, no.
Q. Okay.

elements as these tax strategies? I:
Q. Do you reall that in the indictment that I ~

read to you for E& Y individuals there was a reference to i

7 head that name, yes. 7
9 individuals either at KPMG or other entities were 9

10 indicted in connection with their involvement in 10

11 fraudulent ta shelters? 11

A. But I'll tae your word for it. Q. Well, let's see here. It's Exhibit 2439. Do you stil have that in front of you? MS. WlRSKYE: What is it? 13 Q. Tur to page 26 of MR. DONOHUE: 2439. MS. WIRSKYE: But what is it? 15 Q. Do you see at the bottom there's a reference i 5

12 A. No, I was not. 12 Exhibit 2437. 13

14 A. Page 26. 14

16 to fraudulent SOS shelters? i 6 17 A. I see the reference, yes. i 7 Q. 18 Q. And do you see it states under paragph 47 18 you?

MR. DONOHUE: It's the E& Y indictment. (BY MR DONAHUE) Do you have it in front 0

19 (as read): These shelters were designed to generate 19 A. Yes, I do now.
22 clients entering into virally offsetting foreign 22 paragrph 26 states (as read): The objective of 23 currency option positions with the bank including but 23 was the complete and permanent elimination of

20 substatial capital and ordinar ta losses though a 20 Q. Okay. Tur to page 16. I read to you before 21 seres of pre-arged trsacions that involved the 21 paragraph 26, which is at the bottm. Y ou'll notice
24 not limited to Ban A, sometimes transferrng the 24 liabilty on whatever amount of ordinar income or

COBRA all tax

25 offsetting option positions to a parnership or other 25 capita gain a client might choose. COBRA, which
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32 (Pages 122 to 125)

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Case 1:06-cv-00245-EJD

Document 45-7

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Page 3 of 25

MELVIN JAGER
Page 126
1 involved the manipulation of

Page 128

basis in foreign currency 1 is: Now that you know this, what would you want
yourself to do in order to be able to tell a client that their paricular COBRA stategy is, in fact, meets this
first requirment of

2 options, was E& Y's brand of a stategy also known as the 2

3 Short Option Strategy. 3

4 Do you see that? 4

5 A. I see that. 5 7 of strategies in the KPMG indictment the same term, the 7 8 A. Is that what SOS Strteg? 8 Short Option stads for? 9 9
10 Q. And that's -- if you recall, if

yours, that it's novel, it's not

generally known in the .industr, and has some ty of 6 Q. And do you recll that I re you in the list 6 difference between the other strategies on th maret,
what would you want to do? MS. GA VIOL!: Objection. Form. these A. Well, in general terms eah one of strategies could be a trde secret or have the
be ten trde secrets on -- related or somewhat similar

12 that one? 12

you wantto go 10

1 i back to the KPMG indictment -- do you want to go back t 11 characteristics of a trade secret. The paries kept them confidential, treated them as such, and they could

i 4 Q. Onepleas? 14 15 that, second. 15
13 A. Let me checkjustto be sure. What page was 13

strategies. And that's one of the diffculties in the
trade secret business is to go out and investigate other r.

16 MS. WIRSKYE: 26. 16 17 TIE WITNSS: 26? 17

strateges that ar trde secret th are kept -

they're kept secret, so you don't know what they ar. But what you would do as best you could 18 Q. (BY MR. DONAHUE) It's on page 27. 18 is determine the characterstics of that paricular 19 A. The Short Option Strategy is included on page 19 business method or strateg and does it have the 20 27 of Exibit

2 i Q. SO were you aware that, in fact, there were a 21

2437. 20
Page 127
3
4

charteristics of a trade secret. You can have, for

22 whole series of offsetting option transactions that were 22 example, a trade secret on a whole series of components, 23 being marketed during the same time period that the 23 each of which ar known generally, but the combination 24 COBRA stategy was being mareted? 24 of those components has suffciently this uniqueness or

25 MS. GA VIOLl: Objection. Form. 25 monochrome ofunkowness that I referrd to earlier that'
Page 129
1 permits it to be categorized or charcterized as a trde

1 A. No, I was not.

2 Q. (BY MR. DONAHUE) Do you - as you sit here
3 today, do you have any knowledge as to what the 4 differences, ifany, are between these varous

2 secret.
5 6

5 strategies? 6 A. That are listed in these documents here--

In the trade secret business there's an that where people defend against trade secrets saying, well, each one of these components is known and therefore the entire process, for example, is
awfl lot of

7 Q. Yes.

7
8 9

known. We know a st A, step B, step C, and D. But in
totality, the process together, the combination can be and is in the law many times found to be or have the
charteristics of a trde secret.
Q. (BY MR. DONAHE) You stad off by saying: Well, in general tenn each one of

8 A. -- or these indictments?
9 No, I could not speak to the difference

10 between these strategies.

10 11 12 there are any. I assume they are, but 12 A. If 13 13 they're different names. I guess that's the difference. 14 14 Q. If you were going to provide an opinion to a 15 15 client that its tax strategy met th charteristic that 16 16 it was not generally known in the industr and that it 17 was at least somewhat different than other tax . 17 18 18 strategies already being marketed in the industr, what 19 would you do now that you have ths information before 19 20 20 you? 21 21 A. What would I do? 22 22 Q. Yes. In other words, you now know, as I've 23 23 pointed out to you, that there are a -- at this point in 24 24 time there are a vaiet of other tax strategies 25 25 involving offsetting options. And my question to you

11 Q. If--

your anwe .
these

strategies could be a trde sect or have the
characistics of a tre secret. The paries kept

them confidential, treated them as such.
How dQ you know that to be tre?
A.. Well, how do I know that to be tre?

i

Q. Yes.
A. In my understanding of

the tre secrt law-

you -- for, example, you and I could both have a tre

secret on exactly the same thing, conceptually. You
keep it secret. I keep it Secret. Vis-a-vis eah

other, we may not be able to have any cause of action,
but you stil have a trade secret. It's different from

other intellectul propert subjec mater because of

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33 (Pages 126 to 129)

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MELVIN JAGER
Page 130
1 that charcteristic. Now, can you enforce it? Yeah,

Page 132 ~
1

1 that ther ar other ta strategies going by different J

2 you tell your client of your secret and keep it secret.
3 I tell my client my secret and keep it secret.

2 names that, at least in the indictment, have been L 3 characerized as essentially the sae strtegy, would '
4 you want to do somethng more. now that you know this, fi
5 either asking counl to provide you with whatever

4 Q. But-5 A. But we don't know of each other's secrecy.
6 Q. But

you-

6 documents you -- thy could regaring this issue or on
7 your own do something more, now that you know this?

7 A. Because they're secret.

8 Q. Were you speag theoretically or were you
9 saying with respect to the vanous firms that were

8 MS. GA ViOLI: Objection. Form.

9 A. Well, I was not asked to investigate the
1 0 detailed chaacteristics of the strategy, and therefore
1 i it wouldn't have done an awful

10 offering the different tax stategies that I 11 mentioned -- I should say the tax strategies that I

lot of goo for me to

12 mentioned. Do you have any ideas as to whether those
13 firms knew that other firms were offering the same ta

12 know the detaled specific difference between the .

13 stregies becuse my -- my -- my assignent or intent
14 was to determine whether the stte ha the

14 strategy?

15 A. I'm speang theoretically. I do not know.
16 but you asked me -- in fact, I thought to speak 17 theoretically so I spoke theoretically.
18 Q. Okay. Well, but my question is: If

15 charcteristics of a trade secret, not did it, in fact,
1 6 legally be an enforceable trde secrt that might be

17 upheld eventually in court.

you

18 So would it afect me? I would like to

19 knw the difference between the various processes, but " 2 0 if they're all secret, I don't think tht I could find ~ 20 generally known in the industr and had some slight 21 that out. But if there's -- if there's a suffcient i 2 1 enhancement over other similar ta strategies and you 22 enhancement or difference, that alone could spea to the i 22 knew that there were all these other ta strategies out 23 there, what would you want to do to confll to yourself 2 3 fact tht they have a trade secret and I have a trade i could be a trade secret compard to : 24 secret. ABCD Prime 24 tht the COBRA ta stategy was and had the 25 ABC and D. I just don't know what the details are. 25 characteristics of a trade secret?
19 wanted to determine ¡fthe COBRA tax strategy was not
Page 131
1 MS. GA VIOLI: Objection. Form. 1 Q. (BY MR. DONAHUE) If 2 A. Well, see, that speaks to the dilemma of

Page 133
you knew that the variow ~

this 2 firms that were offering these ta strategies knw that ~

3 trade secret business compared to patent business. In 3 'other firms were offering the same or a similar ~ 4 the patent game I could go out and look in the libra 4 strtegy, would that make any difference in your ~

5 or a patent offce and see if it's, quote, novel, end 5 opinion? ~
8 whether you have the same strategy -- if

6 quote. But ifI had a secret process or a secret 6 MS. GA VIOLI: Objection. Form. ~
7 business strategy and I want to know what your -- 7 A. Please repeat your question. "i
your strtegy 8 Q. (BY MR. DONAHUE) Yeah, my queston is -- and

9 is secret, even if I called you up and said tell me your 9 I may be wrong on this. It appears you'ry making an
10 strtegy, you would say no, its secret. So in tht 10 assumption that thse firms do not know that other firm

11 respect there's'diffculty in doing this investigation 11 are offering the same or a similar ta strategy. And l,.i
12 you're suggesting. 12 I -- my question is: If

you knew that these firm, in

13 But what you do is you do the best you 13 fat, were awae that other fi were offering the same ~
14 can. You investigate the facts. You look at the 14 or a very similar ta strtegy, would that mae any

15 circumtaces. You see -- a strong indicia is how did 15 difference to your opinion?

16 the people treat it that were dealing with it. Were 16 MS. GA VIOLI: Objecion. Form.
17 there confidentiality agreements? Were there 17 A. If I knew they wer offeri similar ta

18 understdings that this secret would be -- not 18 strtegies? I would like to consider that fat. It
1 9 disclosed to others? And you do th best you ca to 19 would be par of the totaity of circutaces, but
2 0 come to that conclusion that it has the charcteristic 20 again, I keep coming to the fact that I viewed my

21 of a trade secret. Just like any other areas of the 21 assignent not quite that way. I was tring to
22 law, you may, in fact be wrng, but you've come to that 22 deterine whether as treaed in this environment. in
23 ascertainment that based on what I know, it has the 23 this case, between thes paries did this subject matter
2 4 characteristics of a trade secret. 24 have the chacteristics of intellecal propert and

25 Q. (BY MR. DONAHUE) Well, now that you do knov 25 specifically characteristics of a trae secret such that

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34 (Pages 130 to i 33)
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MELVIN JAGER
Page 134

Page 136
I did not intend to and I did not have the assignent to go out and deermine as a matter of absolute proof that
this business strategy was a tre seret. Now, if

1 it was reasonable to ask for a percentage fee for the 1 under the circumstances to pay a fee for? I was not -2 use of

that intellectual propert. 2

3 And the importt element or the most 3

4 importt element, I guess, is the way the pares 4

that

5 treated it, not whether in the abstract it wa - you 5
6 have to rely upon the common sense and what you know ar i 6

was my assignent, it would tae me a lot more tie than

what I have invested here. That wasn't my assignent.

7 what the paries themselves did. In a nutshell, based 7
8 upon what I looked at, this subject matter -- this 8

Q. (BY MR DONAH) So am I right in saying that
you didn't conclude that as a factual mattr this COBRA
tax strategy had the chareristics of a trade seret?

9 business strtegy had the chareristics of a trde 9
10 secret and that permitted me to go to the next step .and 10

MS. GA VIOLl: Objecton. Form.

Q. (BY MR. DONAHU) Am I right in thats what 11 say, al1 right, it would be reasonable under the normal 11 intellectual propert laws and techniques 12 you're saying? 12 valuation of

13 to apply a percentge fee to the use of that 13
16 you had -- you statd that one of

14 (BY MR. DONAHE) See, I'm confued. Because4 information. 1 i 5 15 Q.
your requirements is i 6
17 novel in the sense of not generally being known in the 1 7

MS. GA VIOLl: Objection. Form.

A. No. No, thats not what I'm saying.

Q. (BY MR. DONAH) Okay. What ar you saying~
A. I'm saying what I said in my report. I'm
tring to say it accurately.

18 industr. Am I right on that? i 8

Q. What did you mean when you said: I did not go
this business stregy was a trade secre.

j
~

19 A. Right, of a trade secret, yea. i 9 out and determine as a matter of absolute proof that
What did you mean by that?
just like COBRA. That's the reason I 22

20 Q. Of a trade secret. And I have pointed out to 20
2 i you that you may -- ther may be other -- a lot of other 21
22 tax strtegies

A. Well, like I say in my swr of opinion on
paricular thing in the absolute might have never been
Page 137

23 showed you those indictments. Of course, indictments 23 page 4 of my report, it has the charcteristics of a 24 ar al1egations. But now that I've pointed this out to 24 tre secret. For me to ascertin whether any
25 you, you seem to be saying to me well, that really is 25

Page 135
1 not relevant because ¡looked at the totality of 1 known by anybody would tae me an awful

lot oftime. L

2 circumstaces. 2 And i did not say, for exaple, is in fact a specific ~
3 But I'm specifically saying to you, now 3 trade secret. I say it has the characteristics of a'
4 that you know this, that there's allegations, that 4 trade secret, which for my purposs was what I needed to :

5 there's this same product being offered by other firms, 5 know because then my primar assignent was the next ~

6 what would you want to do to confirm, yourself, that in 6 step.. Was it reasonable under the circumstances for the ;
7 fact the COBRA tax strategy was not generally known in 7 paries to trat this as a body ofinformation that

8 the industr? 8 would justify the charge of a fee for use of the
9 MS. GA VIOLI: Objection. Form. I 9 information?

10 believe we've covered this already several times. 10 Now, it's jus like if I were -- if I had
i 1 A. You said same product. You see the -- this 11 a patent and I

licensed you the patent and you pay me a

12 gets a little confuing. But in this intellectual 12 milion dollars for the patent, it has value. It has

13 propert ar information has value. Even non-secret i 3 the charcteristcs of a patentable invention. But
14 information has value. There's a section of the 14 after a lawsuit is finished three year later, that may i 5 restatement, Section 759 for exaple, that talks about 15 be rendered an invaid patent but stil it had th
i 6 the misus of non-trade secret information. So the fact i 6 characteristics of a patentable invention. I know it knowledge can support a fee 17 sounds abstract, but this is what we're dealing with. i 7 that something -- a body of
~ ~ ¡

18 or a reasonable royalty, for example, for the use of -- 18 Q. But when a client -- if you told the client
19 which I viewed my asignment to be -- isn't necessaly 19 we're going to allow you to -- with our product not pay
20 totally dependent upon it being totally in view of all 20 any taxes at all, wouldn't a client pay money for that

21 circumstances in the abstract and in realty a, quote, 21 regardless of whether or not it was an had the

22 trade secret or a patentable invention. 22 characteristics ofa trade secret?

23 Does this have the characteristics of a 23 MS. GA VIOLI: Objection. Form.

24 trade secret? Is it a valuable body of information? 24 A. i really can't speak to that.
25 And is it, therefore, something that would be reaonable 25 Q. (BY MR. DONAHUE) But to me it appes to be

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35 (Pages 134 to 137)

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MELVIN JAGER
Page 138

Page 140 l

1 that you're saying because the client ultimately paid 1 aganst Paul Daugerdas, D-A-U-G-D-A-R-D-A-S, and Jenkins this decision? 2 money for this product, somehow that relates to the 2 & Gilchrist. Are you awa of A. I think this is part of the materil I 3 initial issue as to whether or not the tax strategy had 3

4 a -- had the charactenstics of a trade secret. 4 5 MS. GA VIOL!: Objection. Form. I 5
7 MR. DONOHUE: Counsel, let me finish my 7

referr to ealier that I had seen within the last

couple of days. It's a decision on summar judgment, is

6 believe you're mischaracterizing - 6 tht what this is? I believe so.

8 question before you object. 8

10 ths point. 1 0
1 i MR. DONOHUE: I'm sorr? I apologize. 1 i

9 MS. GA VIOL!: i don't hear a question at 9

Q. SO you believe you've seen it before? A. I think I've seen it, yes. I haven't seen it in this form, printe form.
Q. And who provided you with that material?

A. Counl did.
Q. And do you know why you were provided that material?

12 Q. (BY MR. DONAHUE) It appear from what I'm 12

13 hearng that what you're saying is, is th the primar 1 3

i 4 focus or purpos of your assignment was to determine if 1 4

A. Just as backgrund for this deposition. Q. Were you provided any other material besidel i 5 this ta strategy wa somethng in which a client would, . 1 5 16 in fac, pay money for. Is that what you've been 16 this decision? A. I saw the complaint, the pleadings. I went through -- there were three or four documents. I forget i 8 MS. GA VIOLI: Objection. Form. I think 18

1 7 saying? 1 7
Page 139

exactly what they were. There was some -- somebody who 20 MR. DONOHUE: You may answer. 20 tried to - well, I saw some deposition testùony. That 21 A. Well, as I said in my report and as I've been 21 wa pre substantially redacted, so I couldn't really 22 tring to say here, my assignent was to determine 22 follow all of it. And then I saw a motion by someboy 23 whether in my opinion the information I was provided for 23 to open the record and then the matter ended. I assume
24 permitted me to conclude that ths business strategy -- 24 25 this busines method, what we called Investment and Tax 25

19 the quesion is very unclear. 19

it was setled.

Q. Do you know why you were shown these

Page 141 !
materials?
~ '-

1 Strategy, had the characteristics of intellectual 1

2 propert, which would support a charge ofa reaonable 2

3 royalty-type fee for the use of it. And that was my 3

4 assignent. 4

A. Becaus counsel wanted me to have them in you asked me questions about me so that if them, I would be familar with them, as you are doing
front of

5 And i cae to two conclusions. One, it 5 now.

7 And two, therefore I looked at the - at the fee 7

6 had the charactenstics of the intellectu propert. 6

Q. How do you know?
A. Well, then if

we have no questions,lets move

8 structure and said well, that's not uneasonable. Those 8 on. 9 were my two steps in my assignment. 9 Q. Not so fast.

i 0 Q. (BY MR. DONAHUE) Okay. Let me show you 10 So did you have a chae to review the
i 1 what's been marked as Governent Exhibit 2440. You 1 i opinon?
12 mentioned previously you read some testimony of a 12 A. In general terms, yes.
the opinion under 13 Mr. Daugerdas. Have you seen this decision before? 13 Q. Okay. Tur to page 7 of

the

14 2440 is a decision in a lawsuit by the Diversifed Group 14 heading OPS, do you see in the firs paagrh it states

15 against Paul Daugerdas and Jenkns & Gilchrist. 15 (as read): A ta strategy is defined as a technique

16 THE WITNESS: Before we get to this, i 6 used in a business or investment trsaction designed to

i 7 could we tae a five-minute brea? 1 7 achieve a paricular ta result predicated on paricular
18 MR. DONOHUE: Sure. Sur. Any time you 18 economic and ta principals.

20 THE WITNESS: Than you. 20 strtegy for puroses of you rendering an opinion?

19 want a break. 19 Is that how you would define a ta

~

21 (Recess held, 2:21 p.m. to 2:27 p.m.) 21 A. Well, that's not the definition I used, as you 22 Q. (BY MR. DONAHUE) Back on the record. 22 know. I had investment ta becase there was an
23 Mr. Jager, you've been handed what's been marked as 23 investment component, and I understand some ofthese

,

24 Governent Exhibit 2440. As I mentioned previously, 24 paries actully made a profit, so to speak, from the
2~. t~~ .~~ .~ ~e~~~ion in al~~suitby the J?ive~sified Group 25 investent, but I'm certinly not going to arue with
. ,'. ",'1.. ._.. ..,,~._. __.:. ...,..,.,....,...~".,'u,. _...'...~.' ;.", ,.,_¿",_ ,,,.,~~..._,._;...;~ii.."''__.'~..-~.~,~~"l:;;..,."."~~~,~;v.t.1:~c,ç',,'_~.,':.,.,'""'.l.~.l~~.:n~=;;"1!:...~:"= ,__a~:,":,"_.:"":i...:~.. ,¡'''.'' ':I""':':,l'",:.,_to;::"'~'.~'Al~~~..Il'l;~$!"':' ci':'P-.,."..,."'I,"ir. ..

36 (Pages 138 to 141)

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MELVIN JAGER
Page 142
i the Cour about their deÍinition of a ta strtegy. 1
2 Q. What is your basis for saing some of

Page 144 ~

4 for that? 4
3 clients made a profit, so to speak. What's your basis 3

the 2

was: Do you know whether the COBRA ta strategy had this element as a featue of it?
MS. GA VIOLI: Objection. Form.

5 A. I thin that the material that i studied and 5
6 that counsel advised me that they did. 6
7 Q. Could you point to wher in the material that 7

A. Specifically, no, I don't. Q. (BY MR. DONAHUE) All right. The next
sentence says (as rea): As a result ofthese trdes

an trsfers, the tapayer claims tht the basis of the

9 on these transactions? 9 10 A. No. I'm relying on the representations of 10
8 you saw anyting that any of these people made a profit 8

tapayer' parerhip interest is increased by the cost
of the purchas call options, but is not reduced as a
result of the parership's assumption of the tapayers obligation with resect to the written call options. And my question is: Do you know whether

1 i counseL. 11
i 2 Q. And to what extent did that repreentation 12

i 3 play any par in your opinion? 13 i 4 A. Well, thats why -- it really is an Investment i 4 i 5 and Tax Strategy. i 5

the COBRA strategy had that as an element of its -- its strategy? A. No, I do not. As I said in my report, I made 1 6 Q. If none of the clients made a profit on the 16 some assumptions and I didn't get into thos details. Q. Would it raake any difference now, as you sit 1 7 trsaction, would that affect how you referred to this 17

i 8 strategy? 18 19 MS. GAVIOLI: Objection. Form. 19
wouldn't 20
Page 14 3
21 Q. (BYMR. DONAHUE) Eventhoughtheydidn'tmak 21
25 making a profit If

here today, if of

you knew that the COBRA strategy had bo ~

those as elements to your ultimate opinion? ,
MS. GA VIOL!: Objecton. Form.

20 A. No, it

A. Bot of -- what both?

Q. (BY MR. DONAHUE) Well, I read you two 22 a profit, would you stil refer to it as a, quote, 22 2 3 Investment arid Tax Strtegy? . 23 sentences. I'm referring to those two sentences. And , you knew the COBRA ta strategy ha 2 4 A. Yes, I would because they had the potential of 24 my quesion is: If
they, in fact, did not, they stil 25
both of

those elements, would that make any difference t

. Page 145 ~
~

1 would have the potentiaL.
2 Q. Do you know the difference between a positive
3 and negative expected return?

i to your opinion?

2 A. Well, my opinion was assumed on the -- was ,~

3 based on the assumption that this business strategy had ,!

4 A. I have not heard that term.
S Q. Go back to Exhibit 2440, page 7, and I'm in that paraph where -- the first 6 the middle of 7 paragaph, wher it states (as read): The option
8 parership strteg is a ta saving strtegy wherein

4 both invesent characteristics and ta strtegy
5 characteristics. This paraph you just read to me out
6 of

this opinion talks about some techniques used to

7 obtain a ta benefit. So to the extent that's a par of

8 the tax strategy, it would be within my assumption, but

9 the taxpayer purhases and writes options and transfers 10 these option positions to a parership so as to create
i i substantial increae basis in the parership interest.

9 I can't tell you whether it is exactly what COBRA is or 10 not. I did not study that. the charcteristics you 11 Q. But wasn't also one of

12 . Do you see where I just read?

13 A. Yes, I do.
14 Q. To your knowledge, do you know if

12 looked at when detining whethr COBRA was a13 entitled to trade seret protections is whether or not.
i 4 COBRA was generally known in the indust? Wasn't th ~t the elements you looked at? 15 one of 16 MS. GA VIOL!: Objection. Form.

the COBRA

i 5 strateg had that same feature?

16 A. To my knowledge the COBRA sttegy, as I

17 opined on, had like I said in my opinion two aspets: 18 the potential for profit on the investment and the 1 9 potential for ta savings. Ths speak to one par of this -- this is OPS, 20 that, the tax saving strtegy. If

17 A. That's what I -- thatsone of the
i 8 chareristics of a trde secret, yes.

19 Q. (BY MR. DONAHU) And what this is saying i

21 right? I can't tell you what the difference is betwee
22 OPS and COBRA.

20 is that another stategy called OPS or the Option ~ 21 Parer Strateg bas these characteristics. And I'm ~ 22 saying if you knew that COBRA had the same ~
23 characteristics, would that afect

23 Q. Well, since you didn't precisely answer the 24 question I asked, let me ask it once again.
2 5 I read you that sentence and my question

your opinion as to ~

24 whether or not COBRA was generally known in the ¡

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25 industr? ~
37 (Pages 142 to 145)

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MELVIN JAGER
Page 146
Page 148
It's that response that I'm having a hard 1 MS. GA VIOLl Objection. Form. I 1 2 believe he's already answered this question. 2 time understading. Is a trade secret somethng that is 3 MR. DONOHUE: You may answer it. 3 purely referred to between - in your view between the

4 A. Not necessarily because I have based my 4

paies or is a trae secret something that you have to

5 opinion on the assumptions that i stated. There, . 5
6 obviously, are other tax-saving strategies out there, 6

7 and that would not have chaged my opinion. 7
8 Q. (BY MR. DONAHE) Even if

those ta-savings 8

you meet these legal characteristics, it provides you with protection thoughout the country?
meet legal chacteristics; and if

MS. GA VIOLl: Objection. Form.

10 wouldn't change your opinion? 10

9 strtegies had essentially the identical featues, that 9

A. I don't quite understad the question. Q. (BY MR. DONAHE) All right. Let me.- let me
go back then. If you recall, I said if

11 MS. GA VIOLl: Objection. Fonn. i 1
12 A. WeIl, that might change the conclusion as to 12
13 whether or not it's an absolute trade secret, but it 13

you knew that

other ta strtegies on the market at the same time as
COBRA had the same featu as COBRA. if

you knew that,

14 wouldn't change the conclusion -- and this is a fme 14 I asked would that afect your opinion. What is your 15 point -- that the sttegy, as interpreted by these 15 answer to that question? MS. GA VIOL!: Objection. Form. You've 16 paries and as I have studied, have the characterisics 16

17 of a trde sec. 1 7
24 and breahed his attorney-client relationship. I thin 24

asked this queson severa times now.

2 A. Well, as stted here, I thin there was some 21 0 Paul Daugerdas? 20 21
22 contentions that Mr. Daugerdas breached agreements that 22

18 Q. (BY MR. DONAHUE) Do you know what the natu 18 19 of the lawsuit was between the Diversified Group and 19

MR. DONOHUE: You may answer. A. I think I did answer that question before and
you can read back my question if

you ca.

THE WITNESS: Can you find the answer to
that? Q. (BY MR. DONAHUE) But I read you back your
answer and I didn't understad your answer. So that's

23 he had with the Diversified Group and with his attrney 23

25 that's what this speaks to. 25
1

the reason I'm asking it again.
Page 149
A. Well, your queston wasn't - the answer you

2

3
4

paragraph. 2
Q. Take a look back on page 7, the last 1

A. Yes. 3
Q. On the first column, it says (as read): 001 4

Page 147

read back wasn't quite the question you just asked me, so please restate your question and I'll tr to answer
it.
Q. All right. My question is: If

'i

,

5
6 7 8

asserts that OPS originated sometime in i 988 in a 5 converstion between Orn Tilevitz T-I-L-E-V-I-T-Z, an 6
attrney, who at th time was an employee of 7
PrceWaterHouse, engaged by DGI to review and develo( 8

you knew that

there were other tax strtegies on the market that

l

9

ta stategies an R. J. Ruble, a lawyer with the firm 9

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Brown & see tht? 10 Wood. 11 Do you
Haber, DGI spent hundreds of hours of A. Yes, I

offered the same features as COBRA - I'm asking you if you knew that - how would tht affect your opinion? MS. GA VIOLl: Objection. Form.
A. Well, I tred to aner that before. My

A. Yes, I do. 12

assignent was not to determine in the absolute sense

that this was - this busines strtegy was something Q. And next it says (as read): According to 13 that was a trade secr in the ultimate or abstct

developing the OPS into a functonal ta strategy. 15 understoo it, was to determine if it had the

Do you see that? 1 6

Q. And my questions is -- and it's really getting 1 B back to your prior response. You stated: That might i 9 chage the conclusion as to believe it were not an 20 absolute trde secret, but it wouldn't change the 21 conclusion and at that -- in this -- and that is a fine 22 point. But the strategy is interpreted by these 23 parties, and as I have studied have the characteristics 24

do. 17

professiona time 14 sense. My assignent was to -- my asignment, as I
characterics of intellectal propert, in this cae a
trade secret, or proprieta information that th next
step would justify the application of a reasonable fee
to use it.

Q. (BY MR. DONAHUE) Well, in your report on page ~ 10, Exhibit 2398, the second bullet, you say (as read): Ernst & Young was the only company providing the COBRA :

Investment and Tax Strategy. i

,u",: '':''''~:'"''. w.':." .t...'\t-=.",,~.,~y. '''''''.,'_,,,, i,...~; ",. :',.;, .....,' i ',,,'; "'" _' :,., ',1;',;,',:' : '.' , 'r-~~.~'.; v. . ':',,""~l~.:'.~":.',,~ '!'~'¡;,~;J' ""'~"";'t..&.,~';~~'II~.'. ~~-"-.,-:,\i:-.""'" .;,':,~,~..,,,..~..._.( _,,~,..,o~ ..'v..l":~.,~ .:.rM';" l' ..~., ',' '"~'''''''-;''''~'ø''''

of a trade secret. 25

Do you see that? \

A. Yes; I see that.

38 (Pages 146 to 149)

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MELVIN JAGER
Page 150
1
Q. And you say (as read): This belief

Page 152

is based

2
3
4

on my review of the available documentation and my
discussion with counsel.

2 previous answers. If

1 the question again is because I don't understad your just say it doesn't you could
3 afec it or it does affect it, you know, that to me -4 I could move on. But I need an answer to my questions.
5 MS. GA VlOLl: There's

Do you see that?

5

A. I see that.
Q. Okay. So you do render an opinion that COBRA
was the only compay providing the COBRA Investment an
Tax Strategy, am I corrct?

not a question

6 7
8

6 before the witness.

7 Q. (BY MR. DONAH) So I ask the quetion again.
8 If

you knew that there were other ta strtegies on the

10

A. As I understad COBRA, that's correct. Q. And you made - baed on your discussions with 11 counsel and your review of what you call available
9

9 maket that had the sae featus as the COBRA ta 10 sttegy, how would that affect your opinion that the 11 COBRA ta strategy met the charctenstic that it was
12 not generally known in the industry?

12 13 14 15 16 17 18 19 20 21 22 23 24 25

documentation, you concluded that you had a resonable

basis for that conclusion, correct? MS. GA VlOLl: Objection. Form. the factors A. Well, see, this -- this was one of that I considered in determining in my opinion as an intellectual propert lawyer that this subject matter
had the characteristics of a tre secret, and therefore would justify the charging of a fee -- a reasnable fee you -- I don't know for its use. Now, I don't know if how else to stae it. I've said that two or thee times now.

13 MS. GA VlOLl: Objection. Form. Asked i

14 and answered. 1 16 question. ~ 18 question? l 19 MS. GA VLOLI Objecton. '
15 A. I stand on my previous answer to that same ~
17 Q. (BY MR. DONAHE) So you refuse to answer the ~

20 A. I've already answered it, sir. I'm sorr. I
21 don't mean to be arguing, but I'll tr to restate it as 22 best I can, the answer, but I would rather refer to the 23 previous answer that I gave.

Q. (BY MR. DONAHU) But you haven't answerd th
question that I just asked you. MS. GA VIOLl: Counsel, I believe he has
Page 151

24 Q. (BY MR. DONAH) Well, your previous answer
25 dealt with I wasn't given the assignment to make a
Page 153
1 deterination in the absolute sense as to whether or not

1 answered the question. I thin it's time to

move on

,

2 from this area.

2 the COBRA tax strategy met the charcteristics or had
3 the charteristics of the trade secret. You said that,

3 MR DONOHUE: Please don't make
4 statements on the record.

4 am I correct?

5 MS. GA VIOLl: Objection. Asked and
6 answered.

5 MS. GA VIOLl: Objection. Form. ,
6 A. That was pa of

what I said, yes. ~

7 MR. DONOHUE: Okay.
8 Q. (BY MR. DONAHUE) What my question was -- is 9 you have made a statement here that Ernst & Young was

7 Q. (BY MR. DONAHUE) But then I pointed out to i)
8 you you did render an opinion that the COBRA strategy,. "
9 Ernst & Young was the only company providing the COBRA ~
10 investment. I pointed that out to you. To me that's a .

10 the only company providing the COBRA Investent and Ta: i 1 prtt dogmatic, absolute statement. And alls I was ;t 11 Strategy. And you say your belief is bas on my review 12 doing was pointing out that if you knew that there were 12 of available documentation and my discussions with 13 other companies out there that were, in fact, offerg a you knew that 13 counseL. And what my question is: If 14 strategy that had the same feares as COBRA, would that 14 other firms out there were offering this sae tax 15 affec your opinion? i 5 strtegy, how would that affect your opinion?
i 6 MS. GA VIOLl: Objection. Form. Asked
i 7 and answered.

16 MS. GA VIOLl: Objection. ~
17 Q. (BY MR. DONAHl) And you come back to tellng .'
18 me that you weren't asked to make a determination in the

18 A. I think I'll depend upon my previous answers

19 to that question that's been asked severa times, so...
20 Q. (BY MR. DONAHUE) Am I right

19 absolute sense.

then, it wouldn't

20 MS. GA VIOLl: Is ther a question before

21 affect your opinion at all? 22 MS. GAVIOLl: Objection. Form. 23 Mischaracterize the expert's opinion.
24 A..I stand on my previous answers.
25 Q. (BY MR. DONAHU) Well, the

21 the witness, Counsel? ~

22 Q. (BY MR. DONAHU) Do you understand where m ;

23 problem lies? ~
24 A. Do I understand where your problem lies? No, 1 ,

reason I'm asking

~':' ._~'l"~' ::. ~..: ,;';:"'''':'_;;"'',;:'',;.-,'_ .':: ~....H":, ,,", :..1';-.:".~~,,_$' ~:". ,':'. "-0 ";~"l;',.~'d'''~',,,,!~~,,~'',' :-~':"':,.:.'~'-::.'_;".~ ;.~, , ".."." ".~;,.,'.:",.",...i,.';'.:'..~;"". ...._,:,..'i-~':...,:..:".,..~~.....'....::s'

25 I don't. ~

39 (Pages 150 to 153)

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MELVIN JAGER
Page 154
1 Q. Okay. Let me specifically go back to your i

Page 156 :i
at, the totality of circumstaces, and my assignment was not as COBRA stregy that's trade secret to the abs, is it -- doe it have the charcteristcs of a trde secret. An as I've said to you many ties, you
an I both might have COBRA. And you might charge yo

2 conclusion that Ernst & Young wa the only company 2
3 providing the COBRA investment ta strtegy. If

you 3

4 knew that wasn't true, would that affect your opinon? 4
6 A. If

5 . MS. GA VIOLl: Objection. Form. 5

7 my opinion? You're pullng out one sentence of a 7 fee to use COBRA. The'fact that we both know it or the
i 0 many times before, you and I can both, for example, have 10 have the chacteristics of a trae secret. That's what i 1 the same trade secret. So I would have to say based on 11 I'm speakng to.

I knew that wan't tre, would that afect 6 clients a fee to us COBRA. I might charge my clients a

8 several-page report, and I looked at tha fat as well 8 fact that other people knew it besides Ern & Young and
9 as many other facts, as rve stated. And as rve said 9 was chaging a fee for it, alone does not make it not

13didn't look into the exact COBRA 14 thnk it would. 13 14 I
12 what I know, that mayor may not affect it, but I don't 12

Q. (BY MR. DONAHUE) So in other words, for

puroses of having the characteristic of a tre secret,

you are one -- let me phr it this way. It makes, in your opinion, no difference 15 strategy, so I can't answer those detaled questions 15 if someone else is offering th identical pruct? 16 you've been tring to ask me, I don't know the COBRA 16

17 strtegy that well. 17

MS. GA VIOLl: Objection. Form. I don't

18 Q. (BY MR. DONAHUE) Well, to anwer my questio 18 believe that's what the expert spoke to. A. No, that's not what I said. That's not - I 19 do you need to know what the details of the stategy 1 9 thught i was making myself clea. I'll tr to reste 20 are? Ails I'm saying is assume with me. You're an 20 2 i expert witness. I'm saying asswne there are other 2 1 it.

22 strategies that have the same featues. 22

I was tring to determine whether this
had the chacteristics of intellectual

23 MS. GAVIOLI: Objecon. Form. Asked 23
25 MR. DONOHUE: Counsel, let me finish my 25

24 and answered. 2 4

propert tht

would reasonably support the chaging of a fee. And my ~
conclusion was yes. And whether you are charging a feel

1 question. i
Page 155

Page 157 ~
~

2 MS. GA VIOLl: It seems to be the same 2

3 question you've been __ 3

for a similar service or not wouldn't ultimately affect that opinion, ifthat's what you are driving at.

Q. (BY MR. DONAHE) Well, ifthat's the case,

I 9 i 0 finish my question. 10
9 me -- it's improper, it's impolite .- at least until

4 MR. DONOHUE: Counsel, please do not 4 why was it necessary then in your second bullet for your conclusion that Ernst & Young was the only company. j 6 MS. GA VIOLl: - asking for the last 6 providing the COBRA Investment and Tax Strategy, why was . that necessary? A. Well, because basically -8 MR. DONOHUE: Please do not interrpt 8

5 interrpt me until __ 5

7 hour. We need to move on. 7

MS. GA VIaLl: Objection. Fonn.

1 i A. Please state your question. 1 1

A. Why was it necessar? It was one element of
my analysis, and I just staed what one element of

my

i 3 can't -- inof thoughL 13 train response to my last 14 14 I

12 Q. (BY MR. DONAHUE) Yes, my question. I lost m) 12

analysis wa at th time I made my analysis.

15 question you seem to be saying, I didn't look into the i 5

there were other firm Q. (BY MR DONÄH) If out there in the market that were offerig this same ta strategy and charging a fee and these finns ar aware
the same product and charging a fee for their ta

i 6 details of the COBRA strtegy. And .what I pointed out 16 that thre are other finrs out there charge - offng

17 to you is, forget about the detls. Just assume that 17

18 there are other strategies on the market that have the 18 strategy, which had the same feat as the COBRA
19 same fea. And I asked you, would that affect your 1 9 strtegy, would this make a difference in ters of 20 opinion. And I think what you're saying is no, it would 20 whetr in your opinion thse strategies had the 21 not affect my opinion. Ifthat's your answer, fine we 21 characteristics of a trade secet?

22 can move on. Is that your answer? 22
24 A. Well, I would stad on what I have said 24

MS. GA VIaLl: Objection. For. Asked

23 MS. GA VIOLI: Objection. Form. 23

and answered.

A. It would not affect my ultimate opinion, no.

..'" "í 25 previously, but there are several feat that I looked 25 My ultimate opinion was that this body of intellectual i, 'i_,=:._.l'....,'......l",.~" .(¡o..., ."".',":'G";;"~.l"'¡"t;.:\.'''l":;:.''"'::~¡;, ::',,,'l""',,_~',,',''1';'~''~'';-~'" ',.;..,.",~"-.,.,.,,...;.,,'. ;,y;l':of"l;~"""-,i ;~'~;¡)\"''~.-~~y::,-,',:;~:';'---'t..:.N..~_:;C:~~~.~i:~~

40 (Pages 154 to 157)

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Page 11 of 25

MELVIN JAGER
Page 158
1 propert or of this boy of

Page 160

informtion had the 1

A. That's what -- that's what Mr. Pooley has said
and I was generally referrg to what Mr. Pooley said,

2 charcteristics of intellectual propert was suffcient 2

3 to reaonably support a fee and whether other people 3 yes. Q. Now, did you make any attempt to determine 4 were doing it or not in my judgment would not change 4

5Q.that ultimateconceivable to you5 opinion. 6 6 (BY MR DONAH) Is it
7 that the -- the fee that clients were paying that that 7

whether or not the COBRA strategy was generally known
and had been guarded?

A. I believe i did, yes. We looked at the
docuents that ar cited just below that staement
are cit on page I 1 and looked at th fact, as I could

8 wa - could have been directly related to the fact that 8

9 they we being told that they would save - be able 9 you're reding and looked at the other documents tht
ascertin them, and yes, we have looked into that.

10 to - not save but eliminate their tax liabilty? 1 0

11 MS. GA VIOLl: Objection. Form. 11
12 A. I'm sorr. Would you re the question? 12

Q. And by the documents, are you referring to the

13 Q. (BY MR. DONAH) Yeah. Did you conceive of 13 confidentiality agreements?
14, the possibilty that the reason that clients were paying i 4 15 a fee for the tax strategy was beause they were being 15

A. Well, the one, two - those four bullet points

on the bottom of page i 0 and the top of page 11 is what
I'm referrg to, for exaple. The paries guarded this

16 told th the tax strtegy could eliminate their ta 16

information by confidentialit agreements and by understandings between them. That's what I meant by 19 A. WelJ, I stated the assumptions upon which my 19 guarding. Q. SO in that you were attempting to determine -2 0 opinion wa based, and the asumption was that it had 20 you were using the confidentiaity agrements as wha 21 business and ta aspects, and that's -- what you just 21 sort of, circumsttial evidence to the fact that the 22 described was a tax aspect of

17 liabilty, did you consider that possibilty? 17

18 MS. GAVIOLl: Objection. Form. 18

the strategy. But i 22 23 staed out with that assumption. 23
24 Q. (BY MR. DONAHUE) If

strateg was not generally known?

you recall, you mentione 24

2 5 that there were other stategies, ta strtegies that 25
1 2 3
4

Page 159 Page 161 .,
1

MS. GA VIOLI: Objection. Form. i Q. (BY MR. DONAHU) Is that what you were doing? ~
A. It's one factor you consider, yes.

had been patented. Do you recall that? A. Yes.
these other ta

Q. Do you know whether any of strategies that had been patented had as a feature of 5 their strtegy paying a fee to a firm based on a 6 percentage oftheir tax savings? 7 A. No, I do not know. 8 Q. Okay. Let me turn to your secrecy you would, turn to page 10 of 9 requirement. And if

2 3
4

Q. In your second bullet on page 11 you state (as
read): The Invesent and Tax Strategy is not publically available.

~ ~

5

6
7
8

You say (as read): Based on the information reviewed, the speific Investment and Tax Strategy was not publically accessible or well-known in
the financial and the ta services industr.

1

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Exhibit 2398, the second paragraph, the las sentence

you state (as read): Eslishing that something is not generlly known and that it is been guarded -- and it has been guaded aides in convincing a trer of fact
that the trade secret is valuable. And my question is: What is your basis
for that staement? A. Well, that's a p~phrasing of a comment I

What is your basis for that conclusion? 10 A. Well, to the extent that I reviewed the record 11 and had discussions with counsel, that was my 12 understading at the time I wrote this. 13 Q. Would you -- given the morning an the 14 afernoon, would you -- now that other information has
9

".

think made by Jim Pooley in his bok is what that is -James Pooley, I'm sorr.

Q. SO it's -- in other words, its your opinion

that in order to meet this requirement, it would be
helpful to estalish that the item is not generally

known and that it is guard -- and it has been guarded? MS. GA VIOLl: Objection. Form. Q. (BY MR. _,.., .;","','"'''~'~''l'~'-':'''' ", ",-' :," i'_\'."'.~:'__"."" :0' ,,' .....,. ...,-....... DONAHUE) Am I ..right? ....,,-."';,¡:..:, ... .. .""."..,",,,_,,, ._~_ 'J,"',;"

haven't looked into as to what extent they have the same n .' ,;;....,:~,~., ..:..-.._,-~.,-.-._,......:,,;-"'",.,:.i-~"':',""~,~,,'. ~¡;.;.i..~:.--..,,'"'" ..:'¡..\...,'¡._.."":I,,~.., :i,...":'.:'~= ',~~IIQ."l.(~ ;.~",;..,~.-.:.''''

15 16 17 18 19 20 21 22 23 24 25

been provided to you, do you see any reason tht you

¡

would change the wording ofthat sentence? A. Well, I have not -- I did not look into whether any of these SOS's or whatever they are are similar or different or to wha extent they're diferent from the Investment and Tax Stregies I am looking at, so as I sit here today I wouldn't change that statement knowing what I know now. Q. Would you possibly have a footnote and point
out that there are other strategies on the market and I

!

"

,

"

1

I

'41 (Pages 158 to 161)

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Page 12 of 25

MELVIN JAGER
Page 162
Page 164

1 features as the COBRA ta strategy? i bullet.

2 MS. GA VIOLl: Objection. Fonn. 2 3 A. I couldn't tell whether I would put it in a 3

4 footote or not. 4

5 Q. (BY MR. DONAHUE) Would you put it in the 5

7 MS. GA VIOLI: Objection. Form. 7

6 text? 6

A. Yeah.

Q. Did you wòte that bullet?

A. Did I wnte it? Q. Yes. The trde secret reains a trade secre
even ifits disclosed to the IRS.

A. Tht was a joint effort by myself, Rick, and
the questions I asked is well, common sense tells me that ifI disclose somethng
Steve in my offce. One of

i 0 infonnation? i 0
9 mean, would you add something now that you have other 9

8 Q. (BY MR. DONAHUE) That was a rel question. I 8

to the IRS, it's maintaned in confidence. Jus like

11 A. Well, the other information I have is only i i

for years and year if I disclosed my inventon to the

12 that there are other tax strategies out there. And I 12 patent offce, it's secret and nobody can get it. And ~
i 3 don't know whether they're identical to or different 13 i 4 from or to what extent they're different from what I i 4
i 6 saying over and over again, my assumption was that this 1 6

so I -- the premise is, in fact, under The Freedom of ~
Information Act there's an exception to The Freedom of ~

i 5 have been told the COBRA strategy was. And as I keep 15 Information Act saying trade secrets can be kept i

confidential from govenuent files. t¡
So the mere fact that information is
fied with the IRS or with the patent offce doesn't
:.

i 7 strtegy had investent and tax benefits and that it had i 7
i 8 the characteristics of a trade secret. If it may notbe 18
i 9 absolutely a trade secret, it had the charcteristics of i 9

mean that it no longer has the necessar

l

20 a trade secret such that my next conclusion is 20 confidentiality. It doesn't become automatically in the I
21 reasonable, that it is reasonable to prpare a fee for 2 i

public domai is what I'm drving at. ~
Q. Did you - were you aware of

22 charging it. I've said that as clear as I could. 22

Section 6103 of ~,'.'

23 Q. I understand that. But you've also concluded 23 the Internal Revenue Code at the time you were writing .

24 that the COBRA tax and investment strategy, as you cali 24 your report? A. I asked counsel to provide me with the 25 it, was -- met the secrecy requirement, correct? 25 Page 165 i Page 163
1 A. I said it has the chaacteristics of a trade 1 specific section of

the code because I assumed that

!
¡ '. " ~

2 secret and therefore is intellectul propert. That -- 2 there was one, and they provided that to me. I know
3 such that it would justifY a fee for the use of it. 3 that my ta records are kept confidential by the IRS, I
4 Q. If

you turn back to page 10, the third 4 assume.
the COBRA ta strategy have

5 paragraph, could you read that paragraph? 5 Q. Do you know whether or not the COBRA ta
6 A. Which paragraph now? 6 strategy or the features of

7 Q. The third paragrph, it stas with "my 7 been anounced by the Internal Revenue Service?

~
~

8 opinion." 8 A. No, I do not.

9 A. Yes. Do you want me to read it out loud? 9 Q. I'm going to hand you what's been marked as

i 0 Q. Yes. i 0 Exhibit 2467. Exhibit 2467 is known as Notice 2044, an

i i A. (As read): My opinon basd on the 11 it makes reference to ta avoidance using arficially
i 2 information reviewed is that the Investent and Tax 12 high basis and it indicates it was released in August
i 3 Strtegy was adequately maintained as a secre. This is 13 of 2000.

i 4 evidenced by the following and discussed in the i 4 Have you ever seen this notice before?

15 following sections. i 5 A. I don't recal it. Is it par of the i 6 And then I cite those documents -- those 16 documents that I list in Exhibit B? It doesn't have a 17 four or five bullet points. 17 Bates number.
i 8 Q. Am I right, you did conclude that based on the 18 Q. You know the rule. You can't ask me

19 information you reviewed that the COBRA strategy was 19 questions.

2 0 adequately maintain the secret, that was one of your 20 A. Well, I'll check just to make -- well, it
21 conclusions, right? 21 doesn't have a Bates number, so I assume it wasn't

22 MS. GA VIOLI: Objection. Form. 22 there. I guess the answer is I don't recall.
23 A. That's what I said based upon what I reviewed 23 Q. Okay. Are you aware as to whether or not the

24 and cited below, yes. 24 Internal Revenue Service can make an anuncement 25 Q. (BY MR. DONAHUE) Turn to page 11, the last 25 regarding the features of a tax strategy without

... . ': ,-",:.~,; ,":,. '"",.:~.'i~"~".o"t:r"","i:\'..i~~'i:i'~' ','r:i....~...,,;."'~~,.y:. .r'" ...¡..wc.:.~."'u""....¥.".lM..~..-",,~c...~.,:~.,.M:. -.t."l:".::. ;...',,..\Y _V:":~'''~''''': .... -.;;:.",.). .J~'- '7r'lí.r.,,:~..,.;t.'_ ;";.;.," ';,::..~.,~:.._,;'.'i;'. ì ...,l~.:'..~:t:;""':;."'':~~"t . ;~"'..;'~ ':,....'r~.;.',~"=ii:; _ ~

42 (Pages 162 to 165)

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MELVIN JAGER
Page 166
1 identifying individuals, are you aware of

Page i 68
it was or under what circumstaces it was disclosed or
could be disclosed. I don't know what circumsance

that? 1

2 A. No, I was not or am not. 2 there is an anouncement 3
3 Q. To what extent if

4 regarding - a public anouncement regarding the 4

5 features of a ta strtegy would tht affect your 5

7 was met? 7

6 opinion regarding whether or not the secrey requireent 6

you're dealing with. I'm not familar with the way the IRS operates. Q. (BY MR. DONAHUE) But I was just referrng t( the secrecy requirement. And for purose of rederng
an opinion, if

the Inter Revenue Service anounced

8 MS. GA VIOLI: Objection. Form. 8 the featres ofthe strtegy, would tht afec your
9 A. Let's see, this was released in 2000 -- the 9
MS. GA VIOLI: Objection. Form.

opinion as to whether nr not the sttegy was secret?

1 0 end of 20007 Ths did not exist at the time of 1999 or i 0

i i 2000 with respect to the trsactions i was looking at, 11

12 so I gues this would -- I haven't red this. I don't 12

A. If they did in fat anounce it? Q. (BY MR. DONAHU) Yes.
A. And published it in the -Q. Yes.
A. -- New York Times or whatever?

13 knw whats in it. But that would not have been a i 3

14 factor at the time that I determined what my opinion was i 4

15 basd on. 15
19 what extent would your opinion be affected if

16 Q. (BY MR. DONAHUE) Well, I didn't necessaily 16
17 ask a question dealing when it was issued. I just asked 17
18 a more generl question. And generaly speakng, to 18

Q. Well, in an anuncement.

the 19

A. Well, it's a public document. public document. Q. Yeah, a
A. Well, then, you know, that would be a major

20 Internal Revenue Service could anounce the feats of 2 0

factor to look at becaus you've jus defined the mater

as being in the public that could 21 the tax stategy, would that affect your opinion? 21 things, but it would bedomain andyou would change one factor have to 22 MS. GA VIOLI: Objection. Form. 22 look at.

23Q.A. Could or did? 23 24 (BY MR. DONAHUE) Could. 24
Page 167

25 A. I guess is the question. 25
1 Q. Could.
2 A. That would be

Q. All right. Let's look at your next requirement, which is security.
Page 169 ~
~ 1

i A. Yeah.
one ofthose factors you would

2 Q. And you'll notice at page 12 of

3 consider, but the queston would have to be asked, did

4 they. Anybody can disclose something, but did they
5 disclose it. And if! look at this in 2000, it would

6 not have been a factor at the time that I was makng my
7 analysis, which was at the time the transactions

Exhibit 2398 3 that you refer to the fact that the plaintiff mus us 4 reaonable effort in establishing your security 5 requirement. And I'm referrng to the third paiagaph. 6 Have I correctly stated what your opinion is? 7 MS. GA VIOLI: Objection. Form.

.

8 occurred.

8 A. Well, I say thre the stadard ofreasonable
9 effort is flexible. Effort that are reasonable under

9 Q. Well, we'll get to whether it actually -- if
10 you knew it could have, in fact, but my question now is

10 the circumstaces, yeah, thats what I'm saying. It's
i 1 not a quetion of abslute secrecy~ It's a question of

11 simply - and it's referrng to your reference to 6103, 12 you're saying that the Intal Revenue Service mus
i 3 maintain information regarding th ta stegy a

12 reaonable secrecy. 13 Q. (BY MR. DONAHU) You said secrey. Do yo
14 mean securty?

i 4 secret. They can't disclose it. And what I'm saying
15 is, if

you knew that.the Interal Revenue Service could

15 A. Reasnable securty,ofcourse.

16 disclose the features of the ta sttegy without
17 disclosing the names of the individuals, would that

16 Q. And wha is your bais for your conclusion
17 th