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

Case 1:06-cv-00245-EJD

Document 45-6

Filed 03/07/2008

Page 1 of 30

MELVIN JAGER
Page 1
IN THE UNITED STATES DISTRICT COURT
IN RE:
*
* * *

COBRA TAX SHELTERS LITIGATION

*

CARMEL PARTNERS, et al,

* *

*
* *
*

Plaintiffs,
VS.
UNITED STATES,

NO.: 1:06cvBOOl

* (S. D. Ind.")
*

Defendant.
JS BUCKINGHAM INVESTMENTS, LLC, et al,

* *
* * * * *
*

Plaintiffs,
Vs.
UNITED STATES,

*

* NO: 05-231 (Ct. Fed
* Claims)
*
*

, ¡ ~l ¡

Defendant.
MURFAM FARMS, LLC,

* *
*

1

*

*
*

Plaintiff,
Vs.
USA, NO,
DEFENDANT.

*

* NO: 06-245T through * 06-247T (Ct. Fed * Claims.)
* *

* * * * ** ** * * * ** *** * * * * *'* * * * * * * ***** * * ** * ** *** ** ** * ** ** * * * *

ORAL DEPOSITION OF

MELVIN F. JAGER
AUGUST 2ND, 2007
** * * * ** ** * * * ** * * * * * * * * ** * * * * ** * ** *** ** ** ** * * * ** * * * ** * **

-: GOVERNMENT

~ EXHIBIT

! 2
I

'S

J

,., _"_,,,,;,':.-:' .,-,.!.'t.'_"-.'-.'.i', ':.,',~'-"~";';_',:':,".'-_. ..._':;"::'¥~,':.;...w..:".'.."..".,,;;,,.i.;. Co "",".$~~'.:,....,-,;,".~; ,0' '..."'.;... '__'.."",."_,,.. "".:

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Case 1:06-cv-00245-EJD

Document 45-6

Filed 03/07/2008

Page 2 of 30

MELVIN JAGER
Page 2

Page 4 I
1

1 ORAL DEPOSITION OF MELVIN F. JAGER, produced as 2 witness at the instace of the DEFENDANT, and duly
3 sworn, was taen in the above-styled and numbered cause
4 on the 2nd of August, 2007, from 10:10 a.m. to 4:47

INDEX
PAGE

~ 'J ~

2 Appearces..................................... 2
3 Exhibit List................................. 5
4 Stipulations.................................... 7 5 MELVIN F. JAGER: 6 EXAMINATION BY MR. DONOHUE.................
7 8

,

~

5 p.m., before Tamy Stags, CSR in and 'for the State of 6 Texas reported by machine shortand, at the law offces
7 of

7

Meaows Coller, LLP, 901 Main Stret, Suite 3700,
Civil

8 Dallas, Texas, pursut to the Feder Rules of

Signtue and Changes......................... 208

9 Procedure and the provisions stated on the rerd or

9

10 attched hereto.
11 12 13
14

10 Reporter's Cerficate.......................... 2 i 0
11 12 13 14 15
REQUESTED DOCUMENTSIINFORM TION (None)
CERTIFIED QUESTIONS (None)

15 16
17

is
19 20 21 22 23
24

16
17 18

ij ~ ~ ~

19 20 21 22 23
24

l
~

25
Page 3

25
Page 5

1 APPEARANCES
2 FOR THE PLAlNTIFFS:

1 EXHffIT
NO. DESCON
PAGE
2

Laura L. Gavioli, Esq.
3
Sar Q. Wirske, Esq.

155 COBRA acon wok plan (Revised I 1103/99) 107
3

MEWS COLLIE, LLP
90 I Main Strt
Suile 3700
5
6 7

2351 E-mail by Brian Vaughn with attachd

4 COBRA document.......................... 107
S 2368 Set of COBRA slide

Dallas Tex 75202
214.744.3700
214.747.3732. Fax

numbes 14-15......... 49

6 2394 Mr. Jages expe rep in th

Buckigham cae daied 6f9107........... 7

8 FOR TH

DEFENAN, UNEDSTATESGOVERN:

Denis M. Donohue, Es
9

8 Fans, LLC ca dad 6f9107............ 7
9 2398 Mr. Jagesreport in th Gar Woods as

2396 Mr. Jagers expert repo in th MU AM
Tax Maller Parer of Teso

UND STATE DEPARTM OF JUSTICE
Tax Diviion

10 11 12

PO Box 403 Wasingt. D.C. 2004 202.307.6492 202.307.2504 - Fax
Joe Pitzng. l1, Es.

10 Pa......._....................... 7
11 2417 Rert of 12 2432 Rert of

Drve

Dr. La................... 25 13 2436 Ex witns repo of Lan Colby..... 26
14 2437 Incten of vaous Iber KPMG

Dr. DaRos'L................. 25

empoyee in coecon with thei
1 S degn, maketing, and implementation or

13 UNITE STATES DEPARTM OF JUSTICE Tax Divion

ta stgis................_........ 122
16

14 717 Nc Harod
Suite 400 15 Dalas, Tex 75201 214.880.9728 16 214.880.S741-Fax 17 18

2438 Desion in a ca calle United Slates 17 vs. Th GJaxo Gro..................... 203

18 2439 Indictent ii Ro Coplao, Man
19 Vmi, ............................... 65
Niss, RicUd Shap, aod Brian
~

20 2440 Desion in a lawsit by th Divesifed

19

20
21 22 23 24

21 & Gilch....................:........ 139

Grop agst Paul Dauger and Jens

I
~

22 244 i Rese by the Unitc Stal"" 10 the plaintiffs integatores sec sel in 23 the JZBudngham C8S.................. 71
24 2443 EngagemeDt leter between E& Y and

25
". ....

Mr. Gar Woo........................... 105
2S

2 (Pages 2 to 5)

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Case 1:06-cv-00245-EJD

Document 45-6

Filed 03/07/2008

Page 3 of 30

MELVIN JAGER
Page 6
1 2447 COBRA documnt known as lte steps of

Page 8
1

COBRA.................................. 47

2
3

A. Yes, they are. Q. Okay. Before we sta the questons regarding
any of your report, could you give me a brief

3 Sa Q. Wirsky....................... 45
10/1/99................................ 113
5

2452 L.tt.r dated Marh 19t. 2007 sig.d by

4 2453 E-mail cham by Brian Vaugh dated

7 2463 Adsor NonloSU Agren......... 102
8 2465 Background and issue ",Iaii 10 th Patetig of la adce date Ju 12th 9 206.................................... 10
10 2467 Notice 2044, refee to la avoidce

6 & OiJchrsL........................... 104

2451 Lcllcr 10 Mr. Robrt Copan frm Jenin

4 5 6
7 8 9

background as -- first as to your educational background.
University of

A. Okay. I went to engineenng school at the Ilinois and I have a BS degre in

mechaical engineering. And then I proceeed to law

school at the University oflUinois. I have a JD in
law. I grduated there in 1962. And then I went to

11 in Augl of20...................... 165
12 2469 T.inateofan Ernst&. Young engagemnt

usin arficial high buiS, reed
i.n.r.................................. 179

13
2470 E.maü by Brian Vaugh date 101221.... 183

14

15 Ocei Tor in the Ga Woo c..c........ 2 I
16 2473 Eng'iement let fi Meadows Ow to

2472 Engagem.niler fi Mcadows Owns 10

Ocean Torno in Ihe IZ Bucinha cae.... 21

17
2474 Engagcmen Ictt erm Meaows Owens to

ie Ocean Toro in the MUAM Pans, LLC cas. 21
19 2475 Mr. Jagers bils fo, March 1 -Marh 31, 2007.................................... 23

20

21 20.................................... 30
23

2476 Mr. Jag.ts biDs Co, Aprl I - Aprl 30,

22 2471 Mr. JaS.ts hiUs for May i - May 31.

200................................... 30

24 O.vioIL.............................. 17

2478 E-m.il to Slephe Powag. frm L.ura

25 2479 Mr. Jaaets biDs for June 1 .. Jun 30

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Page 7

work in Washington, D.C. as a - with a law firm for
three year and then retrned to Chicago, my hometown,

and practiced law basically ever since in Chicago until 2005. I retired from law in the begining of And then I at that time for two years went to work with - an expert with this consulting financial consulting firm called Ocean Torno, and I worked there for a couple of yea. And they are
principally the finacial aspects of intellectal

propert law is wha they deal with including expert

witnessing and reanable royalty an patent damages
cases, that kind of thing. And then in 2006 I retired from there and now I'm just, so to speak, of counsel with Ocean Torno. I'm retired and an independent
contractor, if

you wilL.
Page 9 L

2 (Exhibits 2472 though 2479 marked.) 2

befure? ~ 3 MELVIN F. JAGER, 3 A. Yes, I have.,
1 PROCEEDINGS 1
Q. Okay. Have you had your deposition taken

~ ~ ~

5 BY MR. DONOHU: 5 6 EXAINA nON 6
4 Having been first duly sworn, testified as follows: 4
7 Q. Mr. Jager, would you state your full name and 7

Q. Do you know approximately how

many times? i)

A. Over the year about ten times.
Q. Okay.

9 A. My name is Melvin F. Jager, J-A-G-E-R. 9 10 Q. And where do you reside? 10

8 spell your last name for the court reporter? 8

A. The las couple of year, twice. Q. And you know the procedure. The procedure is '. there's a court reporter here and she wil take down my , questions and your anwers. If you have any question
my best to reword the question.

11 A. My home is 2302 Wulfer Road, W-U-L-F-E-R-T, 11 regarding my questions, please let me know and I'll do

12 Road, Sanibell, Florida. 12

13 MR DONOHU: I would like to state for l3

A. Certinly.

Q. And you also know that you and I canot speak 14 th record that this deposition is being taken pursua 14 I finish 1 5 to an agreement of the paries as to time, place, and 15 at the same time, so you'll have to wait until the queson. 16 date. It is also being taken pursuant to the Federal 16

i 7 Rules of Civil Procedure. i 7

20 2398. 20

Now, my first question to you was to give

18 Q. (BY MR. DONAHUE) Mr. Jager, I'm going to ba 18 me a brief description of your educational background.

i 9 you what has been marked as Exhibits 2394, 2396, and 19 In fact, you gave me more th that. You gave me al a brief description of your employment backgoun. is

21 MR. DONOHUE: What I will do is give 21 there anyting more that your employment background that 22 you-all copies. This is the second set. 22 -- besides the brief description that you've already . 23 MS. WIRSKYE: Oh, I see. These are all 23 given me and that you would like to state?

24 just a duplicate. 24

A. Well, I think I've shown in my CV that's

25 Q. (BY MR. DONAH) And are those your reports? 25 attached as an exhibit to these reports, I've also done
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3 (Pages 6 to 9)
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Case 1:06-cv-00245-EJD

Document 45-6

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Page 4 of 30

MELVIN JAGER
Page 10

Page 12 '1

1 a fair amount of teaching of law as an adjunct 1
2 professor. I did that, so to speak, on the side. I 2
3 taught patent law and patent litigation strategies at 3
4 the University of

perspective?
A. That would be tre in most par but the last i
couple of

years at Ocean Torno it got into more of the q business aspects of intellectul prpert law and how to -. ~ 5 taught for one year or more at John Marhal Law School 5 monetize the intellectal propert, how to tu it into

Ilinois for about 12 years. Then I 4

6 trade secrets law in their master's level progr. And 6 value either by licensing or by patent damages in a 7 then I've been a guest lecturer at a couple of other 7 patent lawsuit, for example, or gettg damages or
8 universities: University of Victoria Law School in 8

having to pay daages or sellng them at auction even.
So in that respet, that was kind of a non-law busines t
aspet as well as a law aspect.
¡"

10 -- or in Oxford, England. 1 0
1 i And then I've -- I've spoke on 11
l2 intellectul propert, licensing and litigation and 12 13 trade secrets and patents quite often in different 13
14 places in America than other places outside of America i 4
15 Q. Could you look at what's been marked as 2398? 15

9 Victoria and then St. James College in Oxford in London 9

Q. Where is Ocean Torno located? A. Their principle offce is in Chicago. Q. And you mentioned previously what the general
natu of the business of

Ocean Torno is. Could you be i

more specific as to what their business is? 16 Now, am I correct that's your report in the - your 16 A. Well, they cali themselves an intellectual 17 title here is Gar Woods, as Tax Mater Parer of 17 propert merchant ban, and that is to mean that they provide whatever financial services you would seek related to intellectual propert. Par of their 20 Q. And I'm going to refer to that report as your 20 business is expe witessing. They have an expert 21 Tesoro report. Do you understad that? 21 witnessing deparent, which is what I was involved with. I was a managing director in that deparent.

18 Tesoro Drive Parers? 18

22 A. Yes.. 22
25 report. At the end of

19 A. That's corrct. 19

23 Q. Okay. Now, what I plan to do is to ask 23
Page 11
1 you if

They have an IP valuation depaent. If

you have a

24 questions initially about this report your Tesoro 24 patent or a grup of patents, for example, that you want
those questions, I'm going to ask 25 to have some value placed on it, they wil work in that

,
~ ~

Page
There's a -- recently they have a patent

13 ~
t, ~

your answers would be different iff asked the 1 area.

2 same questions with respect to the other two reports. 2

3 If you tell me they would be, then we'll spend the time 3 auction deparent. They have held four of the first 4 to go though those other reports. If you tell me no, 4 ever patent auctions open-quite auctions where your 5 the answers would be the same, we wil be finished. Do 5 patent propert or copyright or trademar propert can
7 A. Yes, tha's fine. IfI may go back a bit, I 7

10 A. That are avocations that i didn't add about 10
11 employment. I guess you would cal that employment. 1 i l2 But I've written a trade secret treatise for West 12
15 Trae Secrets Law throughout World. And thn I wrte, 15
16 licensing law handbook for West, so i think that's it. 16

9 Q. Okay. 9
B forgot to mention that I've also written a few books. 8

6 you understand that? 6

be sold in an open auction. And they've held one in San ~

Francisco, Chicao, New York, and London now. And
that's been fairly successfuL. It's kind ora new

concept. They also have developed what's called
the Ocea Torno 300 Index. They have - they have a 1

13 Publishing called Trade Secrets Law, a very cleaver 13 analysis. I think they cali it. I'm not a staistician, ~ 14 name. Then I edited a three-volume tratise called l4 so I don't fully unerstan it. They use this program ~
to value and rate the value of patents. And in using .

proprieta softare progr that uses regession '

18 in your CV, am I correct? 18
22 A. That's correct. 22

17 Q. Okay. And those publications are referred to i 7

that program, they have identified the top 300 companies ~
of Amerca in tenns oftheir perceived, not åctuaJ, but !
perceived value of

19 A. Yes, they are. 19

their intellectual propert as .

21 correct? 21

compard to other bricks in the mort and their
Arid those 300 compaies, valued strctly ~

20 Q. And your CV is atched to your report, am I 20 factories.

on the basis oflP, fonn what they have identified as an 23 Q. Okay. Isitfair to say that your experience 23 Ocean Tomo 300 Index. And now it's on the New York ~ 2 4 with respect to patents, trdemarks, copy rights, and 2 4 Exchange much like the Standard and Poors Index. And 25 trde secret are principally legal -- from a legal 25 the idea is tht peple in the fmancial ar can use
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4 (Pages 10 to 13)

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Page 5 of 30

MELVIN JAGER
Page 14

Page 16
1 2

1 that as a tool to determine the value oftheir -- their
2 investments. They haven't gotten off

CASE.
A. Yes.

the ground yet,

3 but their -- Ocean Torno is staring a hedge fund based

3
4

4 upon the OT-300 Index. It han't -- it han't gotten
5 off

in that cas?

Q. What was the subject mater of your testimony
A. That was a patent infrngement cae on an

the ground. 6 I'm not a financial man, and I'm not
8 in terms of consulting and how it should be done and

5 6
7 8

offset center frame for a planter in a patent cas.

7 directly involvéd. I've worked with them in these area

9 things like that, but I'm not - I'm not a hedge fund 10 man or anyting like that. 11 Q. You mentioned that you were manager of their
12 expert witness program. In that capacity, what did you 13 do?

14 A. Well, it's kind of a misnomer because I
1 5 basically managed lawsuits. i was an expert witness i 6 working on cases, and I would manage myself and
17 associates just like in a law firm working on those 18 varous cases. So i didn't direct anybody. It was kind
19 of like a parer in a law firm is what it amounts to.

Kinzebaw and Kinz ha4 invented this offset planter and had sued CASE IH for patent infrngement. And I the defendant CASE that there was 9 testified on behalf of 10 no infringement. I mean, that was my position. I was 11 testifying as a patent expert. And that was testimony 12 in Iowa -- the Nortern Disct ofIowa before a jury 13 trial. 14 Q. And just briefly, what was the basis of your 1S position that there was no infringement?
A. Well, I ha done -- as I ha done many times 16 17 before -- analyzed the patent, looked at what's called

18

the fie history of the patent, looked at what's called

20 Q. And approximately how many times did you

21 appear as an exper witness in a case?

22 A. In the last two years I've testified and given
23 deposition twice -- the last four years twice. Over the 24 last 20 year I've appeaed three or four times. And as

25 I've mentioned before, I've been deposed before about
Page 15
1 ten times.
2 Q. But under the Federal Rules of

the the claims of 19 the prior ar, and determined that if was read properly, what CASE 20 patent or the patent itself 21 was doing did not infringe that patent. It wa a legal 22 opinion. . 23 Q. It was -A. i stated so at triaL. 24 25 Q. It was a legal opinion?

Page 17 J
1

A. It was an opinion that they -- CASE as -- as a
manufacturer was not doing anything that infrged
their -- the other guy's patent. It was a combin- -- i . j.:

Civil Procedure

3 your report was supposed to provide us with the caes in

4 which you appeared as a witnes:; in the last four years. 5 Do you know what the names of those cases ar?

2 3 4

guess you would say it was a combination of applying my ,
mechanical engineering skills using their technology and ~
knowledge that they communicated to me and my knowledge ~
of

5
6

6 A. Yes, I thin we have that to provide to you.
7 MS. GAVlOLl: Yes, I think we've E-mailed

7
8

B you that list, i believe.

was no infrgement baed upon my experience as a patent i
Q. Okay. So you wouldn't necessarily call that, would you, a legal opinion, but rather your anysis of
the patent and ultimately aring at esentilly an

9 MR. DONOHUE: i didn't receive it. 10 (Sotto voce discussion.)

9

10 11 11 A. We worked on several cases that never really 12 12 went anywhere, but these are the two that ended up in 13 13 depsitions or testimony at triaL. 14 14 Q. (BY MR. DONAHU) And the E-mail that was 15 15 given to me has been marked as 2478. Do you have a copy 16 you? 16 or that in front or 17 17 THE WITNSS: Do you want to mark that as 18 18 2478? 19 MS. GA VIOLl: Sure. 19 20 20 A. Yes, I have 2478. 21 21 Q. (BY MR. DONAHU) Let's take the lowercase, 22 Kinzebaw, K-I-N-Z-E-B-A-W. I'm sure I'm not pronouncin¡ 22 23 23 that correctly. 24 24 A. Kinzebaw. 25 25 Q. Kinzebaw and Kinze Manufacturing, Inc. VS.
....' ,..',.....,.,.,....8',.,..,',,,.,..,, '.,. ..,....,.

attorney. n
opinion as an expert witness that there was no infringement? A. That's the better way to say it, yes.

the patent law, coming to the conclusion that there i

Q. You were, I asume, qualified as an expert
witness in that cas to testify?
A. Yes.
~ ~

Q. And what was the outcome of that case? A. To my delight, the jur found no infringement.
Q. That's the best way. You win.

jury. Q. Okay. Let's tae the case above it. And help me, how do you pronounce that? Minebea (ponouncing).
A. A very astute

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A. Minebea. ~
5 (Pages 14 to i 7)

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MELVIN JAGER
Page 18
i Q. Minebea Company, Precision Motors Deutsch 1

Page 20

2 Minebea, and Nippon, N-I-P-P-O-N, vs. George Papst, 2

3 P-A-P-S- T. 3
5 Q. What was the nature of 8 manufacturer of

4 A. Yes. 6 4 6 case?
your testimony in that 5

the other side said the licenses were clear and needed to be interpreted. The court - the bottom line is that ~
after the Daubert hearng of several days involving many ¡

witnesses, in addition to myself, he sorted out what he '1 was going to do in tenns of the trial tetimony. And he determined that in his mind, the Judge's mind, that the
licese agrments were not ambiguous. They were

7 A. In that case Minebea was a Japaese 7

hard disk drive motors, the motors that 8

unambiguous. So he could interpret them as a mattr of

law, and that he didn't need tesimony from either side . on what the agements would say. 10 company that ownd hundreds of patent on hard disk 10 i
9 drive your computer, har disks. And Papst was a Genm n 9

So he found that I was a patent exprt 12 licens agreements - and they had like i 0 or i 5 patent l2 and licensing expert, but that -- since it was a jur 13 license ageements between the two companies -- 13 trial, he was not going to let us testify on what he i 4 permittd Minebea to make had disk drive motors only 0 14 determined to be a question oflaw.
11 drive motors. And the isse was wheter the paricular 11

¡¡ ~ì ~ .~

~
~ ~ 51 s' ; .~ ~ ~

15 also make and sell hard disk drives that incorprated 15 i 6 the motors. That was the technical patent issue. 16

Q. Okay.

i 7 And my intended role was to, as a 1 7
18 licensing expert -- I've spent a lot of time in 1 B

i 9 licensing intellectual propert l as you wil see - was 19 2 0 to review the situation and review their products, 2 0 21 review the licenses, and interpret the licenses and 21
22 state an opinion on what I think the licenses meant and 2 2 23 whether they would -- would or would not give Minebea, 23
24 the Japanese manufactuing company, the right to sell 2 4
25 these motors for their intended purpose of being used in 2 5

A. Which made sense, I guess. Q. When were you first contacted by counsel for the plaintiffs in these cases? Do you recall approximately when? A. Somewhere earlier this year, Februar or thereabouts. Q. Who were you contacted by?
A. Well, I was contacted by my associate or

friend or contact at Ocean Tomo by the name orRick Conroy. He had been contacted -- I think he had been

Page 19
i hard disk drives.

. Page 21 i
i contacted by somebody from Meadows Owens, and it was ;

¡

2 Does that make sense? I would be glad to
3 explain it. It was a complex case. It went on for like

2 trade secret tye, intellectual propert type case. And :.
3 that's why he called me and said would you like to help i:

4 nine yeas.

4 us on this.
5 Because ( -- the people at Ocean Torno ar

5 Q. We don't have that much time here.
6 A. No, than God. I don't have that much time 7 maybe period.

6 basically MBAs and accountats. I wa the only patent
7 lawyer, so to speak, or IP lawyer. So when intellectul

~

,

~ ~

8 Q. And was that a bench trial or ajury trial?

8 propert cases came along, they called me. That's how I

9 A. It staed out as ajury trial and ended up as
i 0 a bench tral. I did not testify at tral. I testfied
i i by deposition and at a Daubert hearing where every
i 2 witness in the cae was -- has to attend a Daubert

9 got involved.

10 Q. And did he mention to you who frm Meadows
1 i Owens called him?
i 2 A. He might have, but I later leared it was

i 3 hearing.

i 3 these two ladies here, but I don't -- I didn't remember
14 at the time who it was.
15 Q. Okay. I'm going to hand you what's been
16 marked as

i 4 Q. They were challenged as expert witnesses? i 5 A. They just made a blind -- every - the Judge
1 6 in that cae did an unusual thing and said I'm just

2472.
the

i 7 going to listen to everybody's discussions about the

17 MR. DONOHUE: This is off 18 (Discussion held off

record.
j

i 8 patent expert on both sides. So they were all -- we

the record.)

19 all spent the day explaining what we were going to do if 20 permitted to do so.

i 9 Q. (BY MR. DoNAHUE) Mr. Jager, you've ben
20 haded what's been marked as 2472. Is this -- I should 21 ask you, what is this document?

21 MR DONOHUE: And Daubert is
22 D-A-U-B-E-R-T.

22 A. Well, this is an engagement letter frm
23 Meadows Owens to Ocea Torno formalizing what we 24 evidently -- which we obviously agreed to do, and tha

23 Q. (BY MR. DONAHUE) Did you -- were you
2 4 challenged though as an expert witness in that matter?

25 A. Well, not as -- yes and no in the sense that

25 is to help them in this ca as an exper witness.

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6 (Pages 18 to 21)

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Page 7 of 30

MELVIN JAGER
Page 22
Page 24

2 2007; is that correct? 2
1 Q. And you'll notice it's dated Februar 27th of 1

3Q. Approximately how long beforeyeah. 3 A. That's correct, that do you 4 4

5 recall receiving any contat from someone at Meadows 5
7 A. Oh, a week or two before that, somewhere in 7

lO Owens? 10
9 Q. And who contacted you directly from Meadows 9

6tht time frame.6 Owens? 8 8

Q. And when you say you're not shown as biling any time, are you referring to the third page where there's a reference to two other individuals who were

biling hour in the case?
A. y~. Rick Conroy is kind of

the senior man

above Steve, and then Steve. Steve is an associate
assistat -- I guess you would call them associates at
law firm.

Q. And -- but did you during the month of March also have any communications or do any work in
connection with this mater?

11 A. I thnk it was -- I think it was Laura that I 11

12 taed to directly. 12
13 MS. GA VIOLl: I believe so, so... 13
14 Q. (BY MR. DONAHUE) And for the record you're 14

A. Yes, I did.
Q. SO they got a freebie? A. Yeah, that's my loss and their gain. We might
need to corrct tht.
"

15 referring to Laura Gavioli? 15 16 MS.GAVIOLl: Yes. l6

I

17 Q. (BY MR. DONAHUE) G~A-V-I-O-L-I? 17 the month or March or in Marh, provided with
information regading any of the positions or opinions
what they A. Unless it was pa and parcel of wer communicated to me oraly, I did not see any

2A.0 point our initial conversation, is0 in time? 2 21 21 Well, as I reCall
Page 23
1 front I said I'm not a tax attorney, I'm not an

18 A. Yes. 18
2 accountant, but I'm an intellectual propert expert, but
3 i can help you on this area in that field if

Q. Were you at any point in time, either prior to

19 Q. And what were you requested to do at that 19 or conclusions of the Governent's expert witnesses?

22 that we generally talked about what the situation was, 22 written report. Q. Did you ultimately at any time see any report 2 3 the case that they were working on. They tred to 23 24 determine to what extent I could help them, and then i 24 of the Governent's expert witnesses? A. I don't believe I have. 2 5 would have to .- then I determined that well -- right up 25

Page 25 '

1 Q. I'll show you their report. They are, for
2 the record, Exhibits 2436, 2432, and these are -- and

you would

4 like me to consult with you.

5 So we finally said that yes, i would -- i
6 would consult with them and then if necessar or if they 7 want me to be a testifying expert -- then we proceeded

5 before? ~
3 24 i 7. This is 24 i 7 and ths is the report of

4 Dr. DaRosa. For the record have you seen that report 'i
6 A. There may be arguments or concepts or

7 positions taen out of this report that we talked about
8 with the counsel, but I have not seen this report

8 to go though the facts and develop the more detailed
9 analysis that I wanted to go though.

10 Q. But you didn't do that, I assume, that first
1 1 conversation, am i corrct?

9 before. 10 Q. And when you say there may have been argument

11 or positions, do you know what aruments or positions?

12 A. No, i didn't. It was an evolving opinion.
13 Q. Let me show you what's been provided to me as

12 A. No, I don't. We just -- we really taked in

i 4 your bils for March of 2007. It's been mared as
15 Governent Exhibit 2475. That indicates your services 16 that were rendered in March of2oo7. Is that when you
1 7 first began to do work on your analysis of any issues in

1 4 report before. '¡
20 A. No, I have not. I'm sure i would have
21 remembered. That's a big one. 22 Q. And finally, let's see if! can find 2436.
23 It's hiding in the box.

l3 terms of concepts and positions. I have not seen this 1

15 Q. Let me show you what's been marked as i

i 6 Governent Exhibit 2436. Let me first show you what's ì

i 7 been marked as Governent Exhibit 2432. This is the 1.-!,
18 report of Dr. Lae, and have you seen that report;; 19 before?

1 B this matter?

19 A. Well, this -- I noticed that I'm not listed as
20 billng any time. That's one of

my unfortnate

21 situations aftr I retired. I lose some time when i
22 don't record it very well. But, yes, this is the time
23 frame within which Rick and Steve and I and Laura

24 staed taking about the strtegies and the questions 25 that are presented in this case.

24 MS. GA VIOLl: We don't do any light
25 reading around here.

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7 (Pages 22 to 25)

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Page 8 of 30

MELVIN JAGER
Page 26

Page 28 ~

i TH WITNESS: No.
3 report of

i basically. So once I took a look at all those documents j
3 -- you know, the concepts we wer talking about is

2 Q. (BY MR. DONAHUE) This is the expert witness 2 and had fuher discussions i felt like, okay, this is

La Colby. Have you seen tht report

4 before? 5 A. No, I have not.

4 something that I agree with in term of intellectual
5 propert law.

6 Q. Do you -- as you sit here today, do you have
7 any knowledge as to what are the opinions and
8 conclusions of the Governent's expert witnesses?
9 A. Well, I canot tell you what anyone of

6 So we went forwar. And then i studied
7 the materials more and then we stared -- at one point

8 in time, I don't remember, we sted drafting up what

these

i 0 report say because I didn't read them, but my

9 ended up being these opinion letters. 1 0 Q. And just briefly describe that process. You
11 said you don't know when you began to -- the writing

1 1 assignment was more in terms of principa or

1 2 contingents, if you wil, instead of specifically
1 3 responding to any parcula line of testimony or point
1 4 of testimony.

12 process, but do you have a rough idea?
13 A. Well, I don't remember when these were fied. l4 They were fied June --

1 5 My - the asignment that I undersood is

15 THE WITNSS: Is that it?

1 6 what I addressed in the report is to look at the -- the
1 7 paricular ta strategy from an intellectual propert

16 MS. WIRSKYE: June 29t. 17 A. June 29th, oh. Well, the process - they
18 obviously stared sometime in Febru and ended up in 19 June. We would - we would talk by phone. We would

18 stadpoint. And what exactly the Meadows people were

19 going to do with that opinion aftrwards, whether it's a 2 0 rebutt report or not, is somethig that I -- that's

20 talk among ourselves, Rick and Steve and i by phone
2 i again. I would do some research. They would help me.

2 1 not my jursdiction, if you wil.
22 Q. Okay. Well, do you know whether any of

the

22 I don't have a staff at home, so I couldn't do a lot of
23 the mechanics of

23 Governent's expert witneses opined on whether or not
2 4 the tax strategy at issue in this litigation was or was 25 not patentable or eligible for trade secret protection?
Page 27

this or some ofthe research. The

24 offce in Chicago has those tools available to them, so 25 they would do some things at my request.
Page 29

1 A. Not directly. I was just asked to opine that 1

I would look at some cases. We would ~
read something. i would have some questions from an i'
economic standpoint that i didn't quite fully ;

2 it -- whether or not it was. And I wasn't told 2

3 specifically that somebody was saying that it wasn't. 3 4 This is not a patent case as I understand it. I would 4 you would turn it into a patent 5 5 understad it more if

7 Q. Could you briefly describe what the process 7

LO A. Well, we talked at lengt by phone with the 10 that's where we are.
II atorneys, and then Rick and Steve and I taed at 1 1

6these cases? 9 c~ 6 9
8 was in terms of how you got your assignent in -- in 8

understand, and Rick and Steve were better equipped at ~.
that tha I was .because I'm an engineer and a lawyer and I

not an economist. . 1$
And then

Just slowly but surely the

stctue of our report came in place. And then we

drafted it, reviewing it, and then finalizing it, and

Q. (BY MR. DONAHUE) And who was the princip k
but Steve and Rick helped me. It was kind ofa joint ~

12 lengt togethr. And then we std thinng about our 12 author of the reort? A. Oh, everying was done under my supervision, ii 13 approach an what we could do to assist Meadows Owen .13

14 And then at one point in time I got a 14
17 rust that I was a consulting expert, and they didn't 17

15 batch of documents, thee or four binders of documents 15 effort by the thee of us. But I had the final say and i 16 to read through. As I recall We had taen a position at 16 there isn't a word in here that I haven't looked at
severa times and many times. But I don't have, as I
~

18 know whether I was going to be a testifying expert or 18 said, the facilities to generate documents very much 19 not. So I read though all this material and wanted to 1 9 anymore at home. Q. Would it be fair to say that the drafts 20 see what we were dealing with. 20 21 And my general approach over the years 21 initially were generated by Rick or Steve and submitted 22 when I was asked to consider being an expert is to 22 to you for your review? A. That's the general approach, yes. And then i 23 determine whether or not I can agree with the position 2 3
2 4 of the people asking me to be a witness. And I can't 2 4

~

would write sections and talk to them by phone and say :\ ; 25 fully finally agree untilI've seen what the facts are 25 no, we can't do that. I don't agee with that, add

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8 (Pages 26 to 29)

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Page 9 of 30

MELVIN JAGER
Page 30
Page 32

1 this, and I would give them some directions on wher to 1 speak. I think he's a managing director at Ocean Torno i 2 look. Like, here's some cases, take those cases and, 2 in the evaluation deparent. And Steve Powaga is one
3 you know, put this quote in here, put that quote in 3

of his associates that doe his go-to work for him, if
you wil.

4 there, and that kind of thing. It was an evolving 4
5 process, so it's MM it was like most report. trly a :)

7 Q. And at some point did you submit your draf 7

6 joint effort. 6
8 to Meadows Owens for their review? 8

Q. You mentioned in your - I'm sorr. Have you
rea Dr. Gruer's expert witness report?
A. Yes, I thin I say so in my report.
Q. You

10 Q. And do you know when that process 10

Q. And do you know when you were provided that report? A. Let's see if it's reflected in the bils. 12 A. Well, that would have been kind oflate in the 12 (Sotto voce discussion.) 13. process. It probably would be -- I would say beginning 13 A. Oh, yes, here we are. The May -- the May time 14 in May, May, mid-May. The records should show, mayb 14

11 approximately began? 11

9 A. Yes.9

do?

A. Yes.

l5 the biling records would show when that happened. 15

reflected in 2477 says initial review of

Gruner report,

i 6 Q. I'm going to hand you your bils and -- 16 so that occurrd sometme in May. And then the final the Gruner reprt occurred sometime in June. 1 7 A. They're prett cryptic, the bils are. i 7 reiew of 18 Q. I'm going to hand you what's been marked as i 8 It was not done -- it was not in final form until June, 19 Exhibit 2476,2477. and 2479, and see ¡fyou can tell me i 9 so that's when I reviewed it.

Q. (BY MR. DONAHUE) And to what extent in Y01 2 i when you began to submit your draft to Meadows Owen .2 1 forming your conclusions did you either consider or rely

2 0 based on your review of the bils as to approximately 20

22 A. Do we have an April? Oh, this is the April's. 22 upon Dr. Gruner's report?
23 Yeab, in -- on the May report 2476, which reflected time 23

A. Well, we work basically in parallel. My 24 spent in April 1 believe, it shows that by then I was 24 report in many respects and most respects is independent ' 2 5 spending a substantial amount of time. And if you look 2.5 of what he has to say, but I wanted to make sure that he :¡ Page 33 :j Page 31
i at the very cryptic details of professional time. we had

i wasn't in disagreement with me or vice versa. So it

2 the preparation of the report an telecommunication
3 conferences with counsel, so that would be -- certnly

2 turs out that afer we reviewed it, his general report,
3 as I understd it, was addressing the question of can

4 during April is when we startd sharng our idea and
5 the nature of our report with counsel.

4 this kind of strategy have intellectal propert
5 chaacteristics such as patent or trde secrets. And he
6 -- he said -- he agreed that they did, and I agreed with

6 Q. Do you know whether you're -- when ultimately .
7 you completed the report?

7 that position. So we could -- at leas we were not
8 inconsistent with each other.

8 A. The final report was prett much mid-June,
9 towards the - we -- I remember that I was kind of

9 Q. Did you -- afer reviewing his report, did you
i 0 make any changes in your report?

10 rushing it because I had a trip to Zurich to get ready

11 for in June, and I wanted to finish it before that.
12 THE WITNESS: Is that right? Yeah.

11 A. I'm sure we made chages in the report but I i.
i 2 don't recall making any changes based up the Gruer I

13 A. So we -- we finalized it the first couple of
14 weeks in June for sure. 15 Q. (BY MR. DONAHUE) I noticed in your biling
i 6 report for June 1 st through the 3 Oth, which has been
i 7 marked as 2479, that you have timed -- or you're shown

i 3 report directly. I kind of did my own analysis and my ~
14 own reseah.

15 Q. You mentioned that you were supplied a stack l
i 6 of materials.

17 A. Uh-huh.
18 Q. Tur to Exhibit B of

18 time consultation with Melvin Jager. Do you see where
i 9 I'm referrng? I don't -- I'm sorr -- not Melvin

the Tesoro reort, which

i 9 is 239.8.

20 Jager. Strike that.
2 i That's your time correct, tqat 13 hours?

20 A. Yes.

2l Q. And ar those the materials that -- or could
22 you describe what in Exhibit B were materials that were l.

22 A. Yes.

23 Q. And Conway -- con- -- Conroy, that time is-24 who is Mr. Conway (sic) again?
25 A. Conroy is the second guy in command, so to
. .~. .... ,~'~:: '-."'k~;;;Y.N',"'~;'_ i~.. ....~ ." .";.," "~S.',;" ..-.."-..-;~~,.."..,;,,,~-,.~,.',",;'.'

23 provided to you by Meadows Owens? ~
24 A. This is prett much those materials. I ca't
25 say that everying that I finally relied upon was in ,...1

9 (Pages 30 to 33)

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MELVIN JAGER
Page 34

Page 36 i
J

1 that stack of materials. I might have not relied upon 1 2 some, but certinly this is what -- is the guts of what 2
4 Q. An when

3 I was presented. 3
you say this - for example, I assume 4 5 you don't mean, however, the ta patent materials, which 5
6 are on the first page of

other materials in the record? *
say because I wanted to make sure that we were in sync
with each other. And if not. i couldn't say in my

Q. At some point after you reviewed the information they provided to you, did you ask to see

~

A. Other than the Gruner report, I can't remember I asking to see anything else. I did insist on seeing the ~

7 don't mean they - Meadows Owens provided you with tho e 7

8 materials? 8

Exhibit B. I asume that you 6 Gruner report before I finalized anyting I was going to l
report that i read his report and ageed with it. i

12 A. Yea. 12
15 Q. Yes. Yes. That's under 22 A. Yeah, so I would not

10 Q. Take a look at the first page in the heading i 0

9 A. Where are you taking about? 9

1 1 tax patent materis. 11

recall if after reviewing the materials they provided ¡

Q. But other than the Gruner reort, do you j.1

you, you asked as to whether or not there were other j

13 Q. Did they provide you with those materials? 13 materials in the record that you would like to review? 'i, A. I don't recall asking for other matrials. ~ 14 A. The materials that's underneath here? 14
16 A. There was a whole stack of testimony before 16 1 7 Congres, house hearngs that I remember reviewing. 17 18 TI WITNESS: Is tht what this refers 18

20 MS. GA VIOLl: Yes. I can -- all of those 20 from Meadows Owens, had you, yourself, had seen any of ~ 21 were provided by us, so... 21 those paricular documents or read any of those ~ partcular documents before? ;;

1 9 ~? 19
Page 35

that section. 15

Exhibitdid. ~~ A. Yes, I B. ~
;

Q. You mentioned that they provided you with the ¡ materials under the heading ta patent materials inl

Q. Did you -- prior to receiving these materials 1

have -- 22

23 MR. DONOHUE: Let me make a statement. 23 2 4 I'm sorr to interrpt, but counsel canot unfortunately 2 4

2 5 help the witness with his responses. 2 5

A. No, i had not. Q. How failar were you with the issue of
whether tax strategies could be patented before you
~

Page 37 ¡
, j

;

1 Q. (BY MR. DONAHUE) Mr. Jager, my question is: 1 received those materials? A. i was very familar with the law and the 2 Do you recall if you were provided those documents by 2 concepts relating to the patenting of business methods. 3 Meadows Owens or whether those are documents that eithe 3

5 obtained? 5
4 your own tea provided ~ YOlj or you, yourself, 4

That was related -- a very important development from
the patent law stadpoint in the last 15 year, and so you .couldn't practice law without being aware ofthat.
Business methods, financial methods, I know the first ~

6 A. Under the heading ta patent materials in 6

7 Exhibit B, I was provided with those materials by 7

couple of cases that came down with this were financial method patents, some kind of mutual fund, I don't 10 that are on ths document, Exhibit B, were supplied to 10 remember the exact case, but the theory of business 11 you by Meadows Owens? 1 i methods being patentable came out of a finacial patent 12 A. Well, let me check. Yes, as far as I ca 12 that was fied and allowed. So i was very familar with that concept. 13 determine with a review ofit, all of I did not specifically -- I was not

8Q. Okay. So in other words, all the materials8 Meadows Owens. 9 9

1

14 provided by Meadows Owens. 14

those were 13

15 Q. First, do you know, did you ask them to 15

specifically focused on whether or not a ta stategy,

16 provide you with certin materials or did you simply 1 6 per se, would be a business method tht would be

20Q. Okay.20 21 are. 21
22 A. So pleae provide me whatever you have that 22

17 wind up reciving materials that they provided to you? l7 patentable before this ca came up. I never had a 18 A. Well, I asked in gener terms. i said I 1 8 reason to consider it. I hope I never do again. 19 ca't rech any opinions until i know what the facts 1 9 Q. So is it fair to say, then, your analysis of
whether or not a ta strateg could be patented was

based on the matenals that were under the section of Exhibit B called tax patent materials? A. Well, it began there. I wanted to see what 23 would give me a basis for understding what the facts 2 3 24 are. And then in general term i asked for that, and 2 4 other people were saying. I was pacularly interested 25 then they provided me with this information. 2 5 in the statement by the general counsel for the patent
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i 0 (Pages 34 to 37)
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Page 11 of 30

MELVIN JAGER
Page 38

Page 40

1 offce, James Toupin, just to see the -- the approach
2 to -- to the patenting of

ta stategies. And when 1--

3 you know, when I saw there were 41 patents that had 4 issued in that area and 60 or so pending, it beame
5 clea to me that there's not an issue about the

1 and numerous other documents, were provided by the 2 Deutsche Ban Jenkins & Gilchrst, and various other that? 3 third pares, were you aware of
4 A. I think you have to assume that thre was an

5 awfl lot orE-mails that flew around in this case, but
6 I did not see any E-mails, tht I can recall, from

6 patentailty of it at leat under the currnt law.
7 And thàt would have been the conclusion I would have
8 come to independently.
9 When I firs staed practicing law,

7 Deutshe Ban or the places tht you just mentioned.

B Q. Tur to in Exhibit 2398 page 10. 9 A. Okay.
bullet, the last sentence, i 1 yöu make reference to a -- your belief is based on my
10 Q. And on the second 12 review of

10 there was the old cliche that methods of doing business
i i aren't patentable, but that changed with that Alapatt

12 case or something like tht 20 years ago. So they are
i 3 patentable now and they have always been conceptually

the available documentaion.

13 Do you see that reference? It's the
i 4 second bullet, las sentence.
15 A. Yes,

14 something you could keep as a trade secret, business i 5 methods, that is. you look at in Exhibit 2398, footnote 20, I 16 Q. If
17 notice you cite the Robert Hanson deposition, page 7.

I see it.

i 6 Q. And what did you mean by available i 7 documentation?

18 A. Yes.

lB A. Well, I meat that the documenttion that I
19 had available to me and that I reviewed formed the basis

19 Q. And I didn't see that listed in the materials
20 relied on, unless I missed it, which is possible. Am I
2l corrt, you did rely on at leas some portion of the

20 for my belief. I did not form a belief baed on the
2 i stff that I didn't see.

22 deposition testimony Mr. Hanson, am I corrct?
23 A. I've read excerpts of

22 Q. Okay. And did anyone tell you, for exaple,
23 that there's well over a milion pages of discovery

his deposition, yes. If

24 its not in that list, it probably should have been. 25 Q. IS there anything else, to your knowledge,
Page 39

2 4 documents that have been generated in connection with

25 this matter?
Page 41

1 that you relied on that's not listed in Exhibit B? 1
2 A. I can't think of anything else. If

there is, 2 3 then we could certinly correct the record. 3 4 Q. For example, any other depositions, do you 4

5 recall reviewing any other depositions? 5 6 A. After this report was fied, I remember 6
7 reviewing some documents and -- like a court packet and 7
8 a deposition of

A. No, and I'm glad they didn't. Q. I wish I had known Now, you mentioned you had discussions with counsel at varous points in the preparation of your report. Did you at any point meet with counsel? A. With -- yes, we met yesterda here in this
offce to discuss the deposition today with counsel.

10 Q. Daugerdas, yes. 10
11 A. Daugerdas. But I didn't have that in frnt of 11
12 me at the time I prepared the report and that would not 12

9 pronounce it? 9

Mr. Daugerdas -- Daugerdas -- how do yo 8 That was the first time I met these lovely ladies. Q. And prior to that time you had -- you had no
face-to-face meetings?
A. That's corrt.
Q. All your communications were done by

i 3Was therelisted here.which 14 be anything in that deposition 13 14 Q.
20 discovery in this case, were you informed of

telephone?

A. That's corrct.
Q. And approximately how many telephone

15 had an affect on any of your opinions that you rendered 15

l6 in the report? 16
2 i A. No, I wasn't. 21

conversations did you have with counsel?

17 A. It does not change my opinion, no. i 7

A. Oh, between five and ten. I don't know 'i
with Rick that I was not -- paricipated in. See, I wa ' down in Sanibell tring to enjoy the sun while a lot of ~
this was going on.

18 Q. Were you informed as to th factthat various 18 exactly how many. There might have been communicatoJ "
19 third paries have produced numerous documents in 19

that? 20

22 Q. Okay. Are you awar -- for example, your own 22

Q. Tur back to page 1 0 of your reort.
A. Yes.

23 report cites, for example, E-mails, an Ernst & Young 23
24 E-mail to take the one example. Were you aware, for 24

Q. You make reference to the second -- and,

again, in the second bullet - to the COBRA Investment 25 example, numerous E-mails, not only from Ernst & Y oung2 5 .~ .... "¡""........,,,~.,,..~.;~,~Wt ~-;fr'-.'l.~:.,:.~.....1'_l!i::i.....o...'l,,~:. . '.'1'" _ ,,;,""""'-~~' k'''.l:..ob ',~,"..,!;-..~." "'""-"~". ".""'", ." ',: ",-';0"_,:",.1;,, ...,;;:;....~, '_'""_,,:: .:_.,,.., "_''';'~V~

11 (Pages 38 to 41)

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043

Case 1:06-cv-00245-EJD

Document 45-6

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Page 12 of 30

MELVIN JAGER
Page 42
i and Tax Strtegy. Do you see where I'm referrng in the

Page 44 i

1 A. No, I don't.
2 Q. Do you know the approximate term of

!

2 heading?

the
,
~
~

3 A. Yes.
4 Q. Where you say (as read): Ernt & Young is the 5 only company providing the COBRA investment ta

3 options?

4 A. No, I do not.
5 Q. Do you know why the strategy ha as a step the
the options to a parership? 6 assignent of 7 M.S. GA VIaLl: Objection. Form.
a A. Those are ta and economic questions that i
9 can't answer. That was not my specific assignment.

6 strtegy.
7 Could you, as you sit here today, give me
8 your understading of what the COBRA strtegy is? 9 A. Probably nol It has ben explained to me and
i 0 I've been told to assume things, which I as an engineer

~

l
E

10 Q. (BY MR. DONAH) Do you know what the

1 i and a noneconomic person did, in fact, asume. It had
12 something to do -- and I think I mentioned it briefly in 13 the assignent or the backgrund in the report. It has

12 options are asigned? ~

i 1 business purose is of the partnership to which the :

13 M.S. GA VIaLl: Objection. Form. :1

i 4 someting to do with a purchase of options and then the
15 sale of options or puts and cals.

14 A. No, i do not. ~
17 connection with the strtegy? j
19 year myself

.,

and then the
"to an S

16 conversion of

thse to a parership and then

15 Q. (BY MR. DONAH) Do you know what the purpose .: 1 6 is for the formation of a subchapter S Corporation in L
18 A. What the purose is? Well, ('ve over the i
had an S Corporation, and i understand the '

17 Corporation and then the generation of potential income

i 8 profit and then potential ta savings. Thats in 1 9 general terms my understding of it.

20 Q. But ca you - as you sit here today, can you
2 i give me a rather specific explanation of each of the

20 general puroses of an S Corpration based upon that ¡

22 sepàate steps of the COBRA strtegy?

21 experience. But specifically in this case, I don't 22 understad why they would do it. i did it so that I
23 would limit my liabilty and have the benefit of

23 A. No, I can not.

24 MS. GA VIOLI: Objection. i would like to
25 just have a running objection to the term "steps" of

having 24 the expenses be personal and the income be personal.
25 The typical S Corporaion approach.
Page 45 ~

the

Page 43

2 MR. DONOHUE: I believe your objection is 2
3 to form. There are no speaking objections. 3

i transaction. 1

4 Q. (BY MR. DONAHUE) Mr. Jager, without lookin ~ 4 5 at any documents, can you go though and describe to me 5 purpse. " A. Well, ( understand in general terms -- like i

Q. Do you know what the business purpose was for the S Corporation? MS. GA VIOLl: Objection. Form. I would like to state a running objection to the term "business

~

7 A. No, I could not except what I just generally 7 said in my report, I've assumed that there were economic

6 the COBRA strategy? 6

10 Do you recall that? i 0

11 A. Yes. 11 13 those options were? 13
9 Q. For example, you mentioned offsetting options. 9

B described. 8

profit potential benefits and ta saving potential benefits for this venture, and that's how I stared out

with my opinion. That was my assumption. I was told to ~

assume that. Now, you're dealing with the details of ~
that assumption, and I sta with the asumption. I
Q. (BY MR. DONAHUE) Okay. If

12 Q: Do you -- can you describe what the nature of i 2

your assumptio .!

14 A. It has been explained to me in general terms, i 4

15 but I canlt describe them to you. As I've sad many 15 opinion? A. Well, ifmy asumptions are incorrect, I would ~ i 6 times, I'm not a ta man or an economic expert so - 1 6 have to review the whole thing and star -- maybe not ~

turns out to be incorrect, how would that afect your ' ~

i 7 I'm just a patent lawyer. 17
22 Q. Do you know, what is the position of

l8 Q. Do you know, for exaple, the strike price 18

20 and short options in the strtegy? 20

21 A. No, I do not. 21 the 22

star over again, but I would have to determine and 19 and the difference in the stike prices between the long 1 9 confirm whether that change in my asumption is

suffcient to change my opinion. But this is all at this point speculation.

Q. I'm going to show you what's been marked as

23 taxpayer regarding the basis in the short option when 2 3 Government Exhibit 2452. For the record, this is a
24 the short option and long options are assigned to a 2 4 letter dated March 19th, 2007. It's addressed to you and it is signed by Sarah Q. Wirskye--

25 parnership? 25

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12 (Pages 42 to 45)

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MELVIN JAGER
Page 46
Page 4 B
A. Vh-huh.

1 MS. GA VIOLl: Wirskye. 1
2 Q. (BY MR. DONAHE) -- Wyrskie, W-Y-R-S-K-I-I. 2

3 Did you receive this letter? 3

4 A. I recall receiving it. I thin I refer to 4

5 that in my opinion, don't I? 5
6 Q. You 8 descripton of

7 A. Okay. Yes. This was - this was the 7

10. A. Yes, it wa. 10
13 A. I franly don't recall, but it's certainly 13
15 understading of

9 Q. And-- 9
the COBRA strtegy to me, as I remember. 8

do. 6

Q. Did you make an attempt to review -- the steps go on. But did you mae an attempt to actually

undersd what those steps were? A. Not in any depth. And this is - this is kind
of

where we come out with the assumptions because I ma

it clear to Meadows Owens' peple that I'm not a ta

11 Q. Did you request this description or was it 11

12 just provided to you? 12
17 this because it's kind of -- it's one thing to descrbe 17

14 something that I would like to have a basic 14
before I stared. So somehow this -- 15

16 either they gave it to me or I requested knowledge of 16
18 something on the phone. It's another thing to put it 18 19 down on paer and understad it where you can refer to 19

attorney. I'm not a ta expe. I'm not an accountat of any sort. I'm, as I said, a lawyer and an engineer. this as So i could not spe to the detiled aspects of an expert. So I said I'm jus going to have to assume that tls is as stated. And I did not make any independent examnation ofthis - this document. I did see this document. Q. But when you said I am just going to have to assume that this is as stted, what are you referrng to "this is"?

A. Well, that the COBRA strtegy is as staed,
like it is on this letter of2452.

20 it. So this is -- they provided this to me for 20

21 background information 21

22 Q. And to what extent after you received this did 22

Q. SO in other words, even though you did review rendering your opinion, you relied upon the factual presentation
Exhibit 2447, you stil-- for purses of

23 you make any attempt to verifY any ofthe factal 23 that's in Exhibit 2452?

2 4 allegations in this document? 2 4
Page 47

A. I did. That's a fair statement.

25 A. I did not make any independent examination of 25

Q. Okay. Let's tu again to your Tesoro report

Page 49

1 this. I relied upon this document. 1

2 Q. SO in other words, is it fair to say you 2
3 assumed the facts in this document were tre? 3

at page 3. You make reference there to your assignment. And in the second sentence you make reference to the
fact that you've been asked to provide analysis and

4 A. That's tre. 4

10 A. Yes, I did. lO

7investent strategy?7 A. Yes. 9 9
5 Q. For example, the first sentence refers to 5

value of certain investent transactions, which you
referrdto as the Investment and Tax Strategy

possible testimony regaring the intellectual propert
associated with this case.
Is th tenn "investment" and "ta

6 COBRA as an investment strategy. Do you see that? 6

8 Q. And did you assume that COBRA was an 8

strategy" something you saw in Exhbit 2452? A. I don't -- I don't recall whether those words

1 i Q. For example, in the second sentence there's a II

are spcifically he, but that's what we -- we at Ocea
Invesent and Tax Strategy.

12 reference to the fact that th short and long options i 2 Torno gave as a name for ths strtegy. Instea of 13 were at different strike prices. Did you make any i ~ . calling it genericaly COBRA. It was genencally an
14 attempt to detennine, for example, what the difference 14

15 in the strike prices were? 15

16 Okay. I'm going to hand younot. 16 A. No, I did what's been 17 17 Q. 19 this document? 1 9 20 A. I've seen this before, yes. It's par of the 20
18 marked as Governent Exhibit 2447. Do you recognize 18

I correct, both the investment aspects of the strtegy
and the tax aspects am I correct?

Q. Investment ta strategy taes into account am

A. That's what I think it was meant to convey. Yes, it has two prongs. Q. Did you make any analysis as to which would be
and which were the principal focus of the strateg, the investment side or the ta side?

21 materials that I reviewed, yes. 2 i 22 Q. Okay. Do you -- other than review it, did you 22
2 3 attempt to understand the vanous steps that are 2 3

A. No, I did not.
Q. I'm going to give you what's been marked as

24 referred to staring on page 3 of the document. Do you 2 4

25 see where it says, step one option contract? 25

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Governent Exhibit 2368. It's probably 2268. Let me

13 (Pages 46 to 49)

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045

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Page 14 of 30

MELVIN JAGER
Page 50
1

Page 52
Excuse me a minute. Sure. Would you please repeat the question? Yes. The queson is if you turn to page 3 of 4 5 your report which has been marked as 2398, l' ask as 6 to whether or not your report addresses two separate 7 questions. 8 A. That's correct. 9 Q. And the firt question is whether the 10 Investment and Tax Strategy ca be categorized as 11 intellectual propert. Am I right? 12 A. Thts correct. 13 Q. Now, on that -- your firs opinion, am I right 14 that there's two par to that opinion, from reading 15 your report? That the fir par deals with what are
2 3

2 3
4

take a look. I think I'm looking -- that's -- yes, you're absolutely right. I saw an E-maiL. MR. DONOHUE: Off the record.
(Discussion held off

i

the record.)

A. Q. A. Q.

5
6 7
8

Q. (BY MR. DONAHUE) Take a look at 2368. A. One oftbe milions of documents. Wow, what
is this? Q. Now,
you -- if you turn to the second page if of2368, you'll see what that is is simply another set of COBRA slides. Do you see that? A. The second page? Q. Yes, of Exhibit 2368. A. Yes, I was just comparing it to 2447. It looks similar to what I saw before. Q. Take a look at the second last page of the document. It's Bates stap No. 3766. A. Yes. Q. You'll notice that there is a table there of

. ,

,

9

10 11 12 13
14

.,
l
1-

.
~ 1

15 16 17
1S

16 the legal characteristics of, for example, a trde
17 secret and the second par is whether or not the 18 strategy -- tax and investment strategy has such 19 characteristics? 20 A. And well, then there's a third pa of the 21 report that what's a fair way - a typical way of
ta

.
..

19 20 21 22 23 24 25
1

the various consequences of -- and an ordinar loss of

$50 milion. Do you see that? A. Well, this is -- yes, i see it now, but I have not studied it. Yes, i see it. Q. It is somewhat similar to, for example, a table which is in the back of the set of slides which
is Governent Exhibit 2447, that you did review.

22 evaluating or placing a value on intellectual propert, 23 that's point two here. 24 Q. Right. But i haven't gotten to the point two 25 yet. I'm just --

l

!

~ ~

Page 51
2 3
4

Page
1

53 ~
¡ ~1 ~ j! 1 i~ ~ ~ .'¡

5 6 7
8

A. Okay. Q. You'll notioe that there is similar slides -or similar tables in the last two pages? A. Yes. Q. So if you look at, for example, 24 -Exhibit 2368, you'll notice that under the first colwnn

2
3 4

A. I'm sorr. Q. -- trying to understand point one. And is

5 6
7
8

point one really divided into two par based on your report? Is it one par dealing with what are the legal charcteristics of a trade secret and two, whether or
not the COBRA strategy had such charcteristics?

Win Betlin Tax percent retu after fees, do you see
the number 31.58 percent? A. Uh-huh.

A. Well, I analyzed it a Uttle broader. It was
intellectu propert, whether or not this strategy had

~ ~

9

9

10 Q. In other words, a ret of 3 i -- rougly 11 about 32 percent. Do you see that? 12 A. Yes, I do. 13 Q. And then below that it gives an after ta 14 return. And do you notice that the after tax retrn is 15 roughly about 513 percent. Do you see that? 16 A. Yes, I do. i7 Q. Did you in any of your analysis make any 18 effon to detennine as to -- for this transaction, as to the stateg, the 19 which was th predominant featu of 20 investment feature or the tax feature? 21 A. No, I didn't. I assumed that it had both 22 aspects. 23 Q. Okay. Let's turn back to your report and, 24 again, on page 3. And am I correct that you on page 3 25 make reference to addressing two separte quesons?

iO 11 12 13 14 15 16 17 18 19

the characteristics of intellectual propert. Trade intellectual propert, for secrets is one fonn of example. As we went thoug this, we looked at it quickly from the patent stadpoint, from the copyright
stadpoint, the trademark stadpoint, and the trde

,~

secret stndpoint. And those are the four basic
components of intellectual propert, if

l
~ ~ (~

you wil.

I'm not aware of any copyrights. I'm not

aware of any trademarks in this cas. I'm not awar of any patent that has issued on this stegy. So it came
down with a quetion: Does this qualify in my judgment

"

20 as a tre secret or would it have the characteristics 21 of a trade secret? Charåcteristics -- you know, the 22 attbutes of a trade secret and that's where I 23 addrssed. So yes, that was the scenario. 24 First, is it the type of information tht 25 could be intellectual propert. And then secondly, of

J

i

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14 (Pages 50 to 53)

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046

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Page 15 of 30

MELVIN JAGER
Page 54
Page 56 ~
~

2 does it fall? It's not a trademark. It's not a 2

i those four components of intellectual propert, where i

unlear the law,