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

Case 1:05-cv-00231-EJD

Document 157-7

Filed 03/07/2008

Page 1 of 25

MELVIN JAGER
Page 118
1 I would normally do.

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

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

2 defined it in my report, and my approach wa to

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

3 determine whether it has the charaterstics of a trade 4 secret, and I said it does. It's a plus that it has
5 enhancements. I did not dig into exactly what the
6 enhancements might be.
7 Q. I undersd that, but now I'm saying if

different than and 7 could be different -- may not be different, but could be
6 legally protectable trade secret, is

you

8 different from, does it have the characteristics of

9 intellectual propert or this fonn of intellectul
1 0 propert called trade secrets? So then I could go to

B knew - I undersd you didn't know, but ifI told you 9 that - that a difference between the COBRA ta strtegy 10 ' and other similar strategies on the maket wa that for
11 the COBRA strtegy they chae more money for the
12 offsetting options, would you view tht as a ty of

1 1 the next step and say that a fee based on a percentage the value, so to speak was it a reasonable approach 12 of 13 to making it a fee?

13 enhancement that would differentiat thè COBRA strtegy

14 If it's ultimately determined that -- if
15 I was taking about patentabilty, an it's ultimately
1 6 not pantable, that stil would mea that my analysis

14 from thes other strateges?
15 MS. GAVIOLI: Objection. Form.
16 A. I don't know enough about the economics of the
17 -- or the ta aspects of it to say whether that's an

1 7 about the appropriateness of the fee strcture would
18 stil be valid. So I was careful to say the

1 B enhcement or not. I'm sorr.

19 characteristics of a trade secret because, you know, I
20 did not and I didn't have the time and I didn't chare
2 i for the time to send letters and investigate throughout

19 Q. (BY MR. DONAHU) Okay. Are you aw of any
2 0 other firm that were offering similar strtegies as the 21 COBRA sttegy?

22 the whole accounting industr about this subject matter.
2 3 I relied upon the documents that I had and came to the

22 A. Well, Jenkins & Gilchrist was involved in
23 aspects ofthis, that's another -- other than E& Y? 24 That's another firm that was involved. There were firm
25 that rendered legal opinions on these strategies, so i '

24 conclusion that it had the charcteristics of a trade

25 secret.
Page 11 9
i Q. Did you ask counsel to provide you with any

Page 121
1 guess they were involved.

2 documents that may elucidate as to what enhancements
3 Ernst & Young provided to this strategy?

2 Q. Are you finished?

4 A. No, I don't recall doing that because I wasn't
5 specifically concerned about the exact detail of

3 A. Yes. 4 Q. Okay. Take a look at page 10, second bullet
5 at the top. You state (as read): Ert & Young was the
6 only company providing the COBRA Investment and Tiu 7 Strategy. i am not aware of an other prmar service

the

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

8 that would be par and parcel of the idea that -- well, 9 you know, they're appropriately chaging a fee for the lOuse of these service which includes ta representation
11 before the IRS, ta strategy, business strategy, and on

8 providers other than E& Y who were offering ths specific

9 COBRA investment ta strategy.

12 top of anyting else they made enhanement to this
13 strategy. I didn't paricularly feel like I had to know
14 exactly what the enhancements were. i 5 Q. IfI told you to assume that one difference

10 Do you see that? 11 A. Yeah. 12 Q. And what is your basis for your conclusion
13 that E& Y was the only, what you call, service provider 14 that was offering a COBRA strategy?

15 A. Well, I - in the documents that I reviewed

16 between this COBRA strtegy and other ta strategies on i 6 and the conversations I had with counsel, I was not 17 awar of any other par that was giving the COBRA i 7 the market was the fact that in the'COBRA strtegy the i 8 strtegy18 client would pay a greater amount of money for the 19 Q. And you-19 offsettng options than in the other strategies, would
20 you view that as an enhancement?
21 A. Pay a greater amount of 20 A. --as a

strategy.

money to whom? I

2 i Q. And you point out in the last sentece tht
22 (as read): This belief is based on my review of

22 mean pay a greater fee? i guess the word -- I don't
23 think we should place too much emphasis on the word

the

23 available documentation and my discusions with couns

24 "enhancement" because it wasn't a major par ofrny the analysis. We have a ta 25 understading of

24 A. Right.

25 Q. What portion of your conclusion -- of this
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31 (Pages iis to 121)

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Document 157-7

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MELVIN JAGER
Page 122
Page 124

conclusion is basd on your discussions with counl? 2 A. What portion? Well, they all -- they went
1

i
2

entities.

Do you see that?
A. I see that reference.
MS. GA VIOLl: Objecton. Form.
!

3
4

hand in hand. I discussed it with counsel and reviewed the documents, I can't say...
Q. What counel did counsl say? A. I don't recall specifically except that I've

3
4

5
6 7
8

5
6 7

Q. (BY MR. DONAHUE) Now, do you know -- do YOl '

9

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

been -- I was provided with everying that -- that i needed to come to that conclusion or tht I -- that would permit me to come to that conclusion. Q. Yeah, well, but did counsel say that there are no other promoters of tax stategies offering similar COBRA-like strategies?

know whether or not the COBRA ta strtegy had that element to it? 8 A. That element? What element is that? just read. 9 Q. The element I

10 11 12 13 MS. GA VIOLI: Objection. Form. 14 A. I really can't tell you what exactly counsel 15 sad at this stae. But when we had those discussions, this was the opinion and conclusion I formed as I stated 16 17 here in this report 18 Q. (BY MR. DONAHUE) I'll hand you whats been 19 marked as Exhibit 2437. I' hand you this one because 20 it has a clip on it. 21 Have you seen ths document before? 22 A. I do not believe so, no. 23 Q. This is the indictment of varous individuals 24 in connection with their design, marketing, and 25 thes ta strategies. And most of implementation of
Page 123
1

MS. GA VIOLl: Objection. Form. I don't
believe the question was clealy staed.

A. No, I do not is the anwer. Q. (BY MR. DONAHUE) Okay. Take a look at the . next sentence. It says (as rea): These shelters were
referrd to by varous names including Short Option

,
¡

Strategy, Spread Option Strgy, Split Option Strtegy,

SOS, Binar Options, Digital Options, Gain Mitigator,

Loss Generator, COINS, BEST, FX Trantion (hereinafter , 80S).
Do you have any knowledge as to what are
the chacteristics of

the varus ta strtegie that

t
~

are referred to in which I just red? A. As SOS?
Q. Any of them.

A. No, I do not.
Page 125

1

2 3 4 5 6 7
8

KPMG. Are you individuals were former employees of familar with the accounting finn KPMG?
A. I've heard that term. That's a -- what does that stand for. Q. It's just the name of the firm. A. KPMG, they represent names I assume, but I've

Q. Do you know to what extent that the COBRA tax
strategy has the sae elements or many of the same

2
3
4 S

element as these tax strategies?
A. 1 do not know. Q. Do you recall that in the indictment that I
read to you for E& Y individuals ther was a reference to

j

9

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

heard that name, yes. Q. Were you aware that roughy about 22 individuals either at KPMG or other entities were indicted in connection with their involvement in fraudulent ta shelte? A. No, I was not. Exhibit 2437. Q. Tum to page 26 of A. Page 26. Q. Do you see at the bottom there's a reference to frudulent SOS shelters? A. I see the reference, yes.
Q. And do you see it states under pargrph 47
(as rea): These shelters wer designed to generate

6 7 8
9

the SOS Strategy?

substantial capital and ordinar ta losses though a series of pre-arged transactions that involved the clients entering into virtually offsetting foreign

currency option positions with the ban, including but not limited to Ban A, sometimes transferring the offstting option positions to a parnership or other

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

Well, let's see her. Its Exhibit 2439. Do you stll have that in front of you? MS. WIRSKYE: What is it? ' MR. DONOHUE: 243,9. MS. WIRSKYE: But what is it? MR DONOHUE: Its the E&Y indictment. Q. (BY MR. DONAHUE) Do you have it in frnt 0 you? A. Yes, I do now.
Q. Okay. Turn to page 16. I red to you before paragrph 26, which is at th bottom. You'll notice
paragraph 26 states (as read): The objective of COBRA

A. Q. A. Q.

i don't recal that, no. Okay.

, ,~ i

But I'll tae your word for it.

,
i

was the complete and permanent elimination of all tax liabilty on whatever amount of ordinar income or
capita gain a client might choose. COBRA, which
. M

t

;

it..... ît't'.rr

ir....ê.;i ;......

32 (Pages 122 to 125)

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Document 157-7

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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 2 options, was E& Y's brand of a strategy also known as the 2 yourlf to do in order to be able to tell a client that 3 Short Option Strategy. 3 their paricular COBRA strategy is, in fac meets this

4 Do yousee that. 5 5 A. I see that? 4
8 ' Short Option Strategy? 8

first requirement of your, that it's novel, it's not

6 Q. And do you recall that I read you in the list 6
7 of sttegies in the KPMG indictment the same tenn, the 7

10 Q. And that's -- if you recall, if you want to go 10
13 A. Let me check

stategies could be a trade secret or have the 11 back to the KPMG indictment -- do you want to go back 1 11 charactenstics of a trade secret. The paries kept

9 A. Is that what SOS stnds for? 9

generally known in the 'industr. and has some type of difference between the other strategies on the market, what would you want to do? MS. GA VIOLI: Objection. Form. these A. Well, in general term eah one of

12 that one? 12
20 27 of

them confidential, trted them as such, and they could

14 Q. Oneplease? i15 that, second. 4 15

just to be sure. What page was 13 be ten trade secrets on -- related or somewhat similar strategies. And that's one of the diffculties in the
trade secret business is to go out and investigate other strategies that are trade seret that are kept they're kept secret, so you don't know what they ar. But what you would do as best you could is determine the characteristics of that paricular business metod or stategy and does it have the charactenstics of a trade secret You can have, for example, a trade secret on a whole senes of components which are known generally, but the combination each of
of those components has

16 MS. WlSKYE: 26. 16 17 THE WITNSS: 26? 17
18 Q. (BY MR. DONAHU) It's on page 27. 18
19 A. The Short Option Strtegy is included on page 19

21 Q. SO were you aware that, in fact, there were a 21
22 whole series of offsetting option transactions that were 22
23 being marketed during the same time period that

Exhibit 2437. 20
the 23
Page 127

24 COBRA strategy was being marketed? 24
25 MS. GA VIOLI: Objection. Form. 25

suffciently this uniquenes or

monochrome of unkowness that I referred to earlier that Page 129

2 Q. (BY MR DONAHUE) Do you -- as you sit here 2 secret.
3 today, do you have any knowledge as to what the 3

1 A. No, I was not. 1
4 differences, if any, ar between these various 4

pennits it to be categorize or charactenze as a trade
In the trade secret busines there's an

secrets saying, well, each one of these components is known and therefore the entire process, for example, is 6 A. That are listed in these documents here -- 6 known. We know a step A, step B, step C, and D. But in totality, the process together, the combination can be 9 No, I could not speak to the difference 9 and is in the law many times found to be or have the 10 between these strategies. 10 charctenstics of a trade secret. your anwe Q. (BY MR. DONAH) You staed off these by saying: Well, in general term each one of

5 strategies? 5
there are any. I

7 Q. Yes. 7

awfl lot ofthat where people defend agains trde

8 A. -- or these indictents? 8

11 Q. If--ar, but 12 11 asume they
12 A. If

13 they're differnt names. I guess that's the difference. 13
1~ Q. If

strategies could be a tre secret or have the

you were going to provide an opinion to a .14 chactenstcs of a tre secret. The pares 15 client that its tax strategy met the charcteristic that 15 them confidential, treated thm as such.
1 6 it was not generally known in the industr and that it 16

kept

How do you know that to be tre?

17 was at leat somewhat different than other ta 17
18 strategies already being marketed in the industr. what 18

20What would 1 do? 21 21 A. you? 20
19 would you do now that you have this information before i 9
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A. Well, how do I knw that to be tre?
Q. Yes.
A. In my understading of

the trade secret law-

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

secret on exactly the same thing, conceptuly. You

22 Q. Yes. In other words, you now know, as I've 22 keep it secret. I keep it secret. Vis-a-vis each

action, other, we may not be able to have any cause of but you stil have a trde secret. It's different from 2 4 time there are a varety of other ta stratgies 24

2 3 pointed out to you, that there are a -- at this point in 23

other intellectual proper subject matt beaus of 25 involving offsetting options. And my question to you 25 "l. ',ib.~':liJn~..IL~J'l';~Ù,;:~ ._Ts...-,i.;a~ .:f"""'i..,,~.~,t:t;i~~_a:~ :~;.',i.h ;';1

33 (Pages 126 to 129)

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MELVIN JAGER
Page 130
1 that characteristic. Now, can you enforce it? Yeah,
2 you tell your client of

Page 132

1 that there are other ta strtegies going by different

your secret and keep it secret.

3 I tell my client my secret and keep it secret.

2 names that, at leas in the indictment, have been 3 chaacterized as esentially the same strategy, would
4 you want to do something more, now that you know this,

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

5 either askig counel to provide you with whatever ~
6 documents you -- they could regaing ths issue or on i 7 your own do something more, now that you know this? ~

6 Q. But you --

7 A. Becaus they're secret.
8 Q. Were you speakng theoretically or were you
9 saying with respect to the varous firms that were

8 MS. GA VIOLI: Objection. Form.;
9 A. Well, I was not asked to investigate the
10 detaled charteristics of the strtegy, and therefore

10 offenng the different ta strategies that I 11 mentioned - I should say the ta strategies that I 12 mentioned. Do you have any ideas as to whether those
13 firms knew that other firms were offering the same ta

11 it wouldn't have done an awf lot of good for me to 12 know the detaled specific difference between the

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

13 strategies because my - my -- my assignent or intent 14 was to determine whether the strategy has the
15 chacteristics of a trade secret, not did it, in fact,

you

18 80 would it affect me? I would like to

16 legally be an enforceable trade secret that might be 17 upheld eventully in court.

19 wanted to determine if the COBRA tax strategy was not
2 0 generally known in the industr and had some slight

21 enhancement over other similar tax strategies and you 22 knew that there were all these other tax strategies out
23 there, what would you want to do to confirm to yourelf

19 know the difference between the various processes, but 20 if they're all secret, I don't think that I could find 21 that out. But if there's -- ifthere's a suffcient 22 enhancement or difference, that alone could speak to the :

23 fact that they have a trade secret and J have a trade ~
24 secret. ABCD ~ime could be a trade secret .compared to ~
25 ABC and D. I

24 that the COBRA ta stategy was and had the 25 characteristics of a trade secret?

Just don't know what the details are. .

Page 131
1
MS. GA VIaLl: Objection. Form.
A. Well, see, that speaks to the dilemma of this

Page 133
1
Q. (BY MR. DONAHE) If

you knew that the variou :

2
3
4

trde secrt business compared to patent business. In
the patent game I could go out and look in the librar

2 3
4 5

firms that were offenng these ta strategies knew that ~
other fir were offering the same or a similar '
strtegy, would that make any difference in your

5

or a patent offce and see if it's, quote, novel, end

opinion?
MS. GA VIaLl: Objection. Form.

6
7
8

quote. But in had a secret process or a secret
business strgy and I want to know what your -whether you have the same strtegy -- if your sttegy

6
7 8

A. Please repeat your question. Q. (BY MR. DONAHUE) Yeah, my question is -- and '
I may be wrng on this. It appe you're making an "
assumption that thes firms do DOt know that other fir

9

is secret, even if I called you up and said tell me your
strategy, you would say no, it's secret. So in that

9

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

respect there's diffculty in doing this invesigation
you're suggesing.

But what you do is you do the best you

can. You investigate the fac. You look at the
circumstaces. You see - a strng indicia is how did

the people trat it that were dealing with it. Wer there confidentiality agreements? Were there understadings that this secret would be - not
disclosd to others? And you do the best you can to
come to that conclusion th it has the chartestic
ofa trde secret. Just like any other areas of the

10 11 12 13 14 15 16 17 18 19

ar offerig the same or a similar ta strtegy. And
I -- my queston is: If

you knew that these fi, in

fact, were aware that other firm were offering the same or a very simiar ta strategy, would that make any difference to your opinion? MS. GA VIOL!: Objection. Form.
A. If I knew they were offering similar ta

sttegies? J would like to consider tht fact. It
would be pa of

the totaity of circumtaces, but,

law, you may, in fact, be wrong, but you've come to that
ascertnment that based on what I know, it has the characteristics of a trde secret.

20 21 22 23 24

again, I keep coming to the fact that I viewed my
assignment not quite that way. I wa tring to

determine whether as trated in this environment, in this case, between these paries did this subject matter

î

have the charteristics of intellectu propert and

Il

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

k#~~'I

~

34 (Pages 130 to 133)

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MELVIN JAGER
Page 134

Page 136

2 use of that intellectual propert. 2

1 it was reasonable to ask for a percentage fee for the 1 under the circumstces to pay a fee for? I was not --

I did not intend to and I did not have the assignent to

3 And the importnt element or the most 3 go out and determine as a mater of absolute proof that that

4 importt element, I gues, is the way the paries 4 this business sttegy was a trade secret. Now, if assignent, it 5 treated it, not whether in the abstact it wa -- you 5 was myhave investedwould tae me a lot more time than what I here. Th wasn't my asignent. 6 have to rely upon the common sense and what you knowar d 6
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 righ in saying that

you didn't conclude that as a facal mater this COBRA
ta stegy had the charteistics of a trde secet? MS. GA VIOLl: Objection. Form.

9 business strategy had the charcteristics of a trde 9
10 secret and that pennitt me to go to the next step and 10 11 say, all right, it would be reasonable under the nonnal 11
12 valuation of

Q. (BY MR. DONAHU) Am I right in that's what
MS. GA VIOLl: Objection. Form.

intellectual propert laws an techniques 12 you're saying?

13 to àpply a percentage fee to the use of that 13
16 you had - you stted that one of

14(BYinformtion. 14 15 Q. MR. DONAH) See, I'm confused. Because 15
your requirements is 16

A. No. No, that's not what I'm saing. Q. (BY MR. DONAHU) Okay. What are you saying~ A. I'm saying what I said in my report. I'm
tring to say it accurately.

1 7 novel in the sense of not generly being known in the 17

18 industr. Am I right on that? 18

Q. What did you mean when you said: I did not go

19 A. Right, of a tre secret, yeah. 19

out and determine as a matter of absolute proof that

secret. 20 Q. Of a trade secret. And I have pointed out to 20 this busines strtegy was a trde that? What did you mean by
21 you that you may -- there may be other -- a lot of other 2 1
A. Well, like I say in my sumar of opinion on . 22 ta strategies just like COBRA. That's the reaon I 22 page 4 of my repor, it has the characteristics of a 23 showed you those indictents.. Of course, indictents 23

24 are allegations. But now that I've pointed this out to 24
2 5 you, you seem to be saying to me well, that really is 2 5

trade secr. For me to aserin whether any

parcular thing in the absolute might have never been

Page 135

Page 137

2 circumstances. 2

i not relevant because I looked at the totalit of 1
3 But I'm specifically saying to you, now 3

known by anybody would take me an awfl lot oftime.
And I did not say, for example, is in fat a specific i

4 that you know this, that there's allegations, that 4
5 there's this same product being offered by other firms, 5 6 what would you want to do to confirm, yourself, that in 6

trade secret. I say it has the charteristics of a trde secret, which for my puroses was what I needed to
know because then my primar assignent was the next
step. Was it reaonable under the circumstances for th

would jusify the charge of a fee for use of the 9 MS. GA VIOLl: Objection. Fonn. I 9 information? it's just like if I were - if I had Now, 10 believe we've covered this already several times. 10 a patent and I licensed you the patent and you pay me a 11 A. You said sae product. You see the -- this 11 milion dollar for the patent, it has value. It has

7 fact the COBRA ta strategy was not generally known in 7 paries to treat this as a body of information that

8 the industr? 8
knowledge can

12 gets a little confusing. But in this intellectal 12
13 propert area information has value. Even non-secret .13

th charstics of a patentable invention. But

years 14 infonnation has value. There's a section of the 14 afer a lawsuit is finished thebut still later, tht may be rendered an invalid patent it had the

15 restatement, Section 759 for example, that taks about 15

1 6 the misuse of non-trade secret information. So the fact 16

chareristies of a patentable invention. I know it

support a fee 17 sounds abst, but this is what we're dealing with. 17 that something - a boy of you told the client Q. But when a client -- if 18 or a reasonable royalty, for example, for the use of - 18
19 which I viewed my assignment to be -- isn't necessarly 19
2 a totally dependent upon it being totally in view of all 20

we're going to allow you to - with our product not pay

any taes at all, wouldn't a client pay money for that

2 1 circumstaces in the abstrct and in realty a, quote, 2 1 regardless of whether or not it was and had the 22 trde secret or a patentable invention. 22 characteristcs of a trde secret?
2 3 Does this have the characteristics of a 2 3

MS. GA VIOLI: Objection. Form.

2 4 trade secret? Is it a valuable body of information? 2 4
25 And is it, therefore, something that would be reaonable 25

A. I really can't speak to tht. Q. (BY MR. DONAHU) But to me it appears to b~

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35 (Pages 134 to 137)

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MELVIN JAGER
Page 138
1 that you're saying because the client ultimately pad

Page 140 ~
1
against

2 money for this product, somehow that relates to the
3 initial issue as to whether or not the ta strategy had

2 3
4

& Gilchrist. Are you aware of

Paul Daugerdas, D-A-U-G-D-A-R-D-A-S, and Jenkins this decision?

4 a -- had the characteristics of a trade secret.

A. I think this is par of the material I referred to ealier that I had seen within the last
couple of days. It's a decision on summar judgment, is

S MS. GA VIOLl: Objection. Fonn. I
6 believe you're mischaracterizing --

5
6

7 MR. DONOHUE: Counsel, let me finish my
8 question before you object.

7
8 9

10 10 ths point. 11 11 MR. DONOHUE: I'm sorr? I apologiz. 12 12 Q. (BY MR. DONAHUE) It appear from what I'm 13
13 hearing that what you're saying is, is that the primar
14 focus or purpose of your assignent was to deterine if
15 this tax strtegy was something in which a client would, ,

9 MS. GA VIOLl: I don't hear a queston at

that what this is? I believe so. Q. So you believe you've seen it before? A. I thnk I've seen it, yes. I haven't seen it in this form, prited form. Q. And who provided you with th matenal?
A. Counsel did.

matal?

Q. And do you know why you were provided that

14

A. Just as background for this deposition.

16 in fact, pay money for. Is that what you've been
17 saying?

15 Q. Were you provided any other matenal besid~ 16 this decision? A.. I saw the complaint, the pleadings. I went 17
through -- there were thee or four documents. I forget exactly what they were. There was some -- somebody who
tried to -- well, I saw some deposition testimony. That

18 19

MR. DONOHUE: You may answer. 20 20 A. Well, as i said in my report and as I've been 21 21 22 tring to say here, my assignment was to detennine 22 23 whether in my opinion the infonnation i was provided fOl 23 24 permitted me to conclude that this business strtegy -- 2 4 25 this business methd, what we called Investment and Tax 25
Page 139
1 Strategy, had the characteristcs of intellectul 1

the question is very unclear. 19

MS. GA VIOLl: Objection. Fonn. I think 18

was prett substatially reacted, so I couldn't really follow all of it And then I saw a motion by somebody

to opn the record and then the mattr ended. I assume it wa settled. Q. Do you know why you were shown these Page 14 1

materials?
A. Because counsel wanted me to have them in

2 propert, which would support a charge of a reasonable 2

3 royalty-type fee for the use of it. And that was my 3
5 And I came to two conclusions. One, it 5
6 had the charactenstics of

4 assignment. 4
MR. DONAHUE) Okay. Let me show

front of me so that if you asked me questons about
them, I would be failar with them, as you ar doing

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

the intellectual propert. 6
you 10

7 And two, therefore I looked at the -- at the fee 7
8 structure and said well, that's not uneaonable. Those 8
10 Q. (BY

we have no questions, let's move

on.

9 were my two steps in my asignment. 9

Q. Not so fast. So did you have a chance to reiew the
the opinion under

11 what's been maked as Governent Exibit 2440. You 11 opinion? A. In generl term, yes. 12 mentoned previously you read some testimony of a 12
13 Mr. Daugerdas. Have you seen this decision before? 13 14 2440 is a decision in a lawsuit by the Diversified Group 14
15 against Paul Daugerdas and Jenins & Gilchrst. 15
Q. Okay. Tu to page 7 of

the

heading OPS, do you see in the fi pargraph it sttes
(as read): A ta stategy is defined as a technique used in a business or investment trsaction designed to

16 THE WITNESS: Before we get to this, 16

17 could we take a five-minute break? 17

achieve a paicular tax result predicated on paricular 18 MR. DONOHUE: Sure. Sure. Any time you 18 economic and ta principals. Is that how you would define a tax

20 THE WITNESS: Than you. 20

i 9 want a brak. 19
,_t;,,.. ~:'\m_: ":.'.'7::'.i~,,,~.."W\.~"".:"..~"- . ;¡,'''n:..-~U'l'~.i~ ;:~

strgy for pur of

you renderng an opinion?

21 (Recess held, 2:2 i 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 tax because there was an 23 Mr. Jager, you've been handed what's been marked as 23 investment component, and I understad some of these

24 Governent Exhibit 2440. As I mentioned previously, 24 paries actuly made a profit, so to speak, from the
25 that is a decision in a lawsuit by the Diversified Group 25

investment, but I'm certinly not going to argue with

36 (Pages 138 to 141)

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MELVIN JAGER
Page 142
Page 144

1 the Cour about their defiition of a ta strategy. 1
2 Q. What is your basis for saying some of

3 clients made a profit, so to spea. What's your basis 3

4 for that? 4
none of

the 2

was: Do you know whether the COBRA ta strtegy hac this element as a feature of it? MS. GA VIOLI: Objection. Fonn.

A. Specifically, no, I don't.

5 A. I thin that the materal that I studied and 5
6 that counsel advised me that they did. 6
7 Q. Could you point to where in the material that 7 these people made a profit 8 8 you saw anyting that any of

sentence says (as read): As a result of these trdes

Q. (BY MR DONAHUE) All righ. The next

and tranfers, the taayer claims that the basis of the

tapayers' parership interest is increased by the cost
of the purhase cal options, but is not reduced as a
result of the parership's assumption of

11 counseL. 11
lOA. No. I'm relying on the repreentations of 10

9 on these trsactions? 9

the tapayers

12 Q. And to what extet did tht representation 12

13 play any par in your opinion? 13
14 A. Well, thats why -- it 16 Q. If

obligaton with respect to the written call options. And my question is: Do you know whethr the COBRA strtegy had that as an element of its -- its

i 5 and Tax Strategy. the 16 15 the clients made a profit on

really is an Investment 14 stategy?

A. No, I do not. As i said in my report I made

18 strtegy? i 20 8 20 A. No, it wouldn't.
i 7 trsaction, would that affect how you referred to this 1 7

19 MS. GA VIOLl: Objection. Form. 19
21 Q. (BY MR. DONAHUE) Even though they didn't mal 21

some assumptions and I didn't get into those details. Q. Would it iaake any difference now, as you sit here today, if you knew that the COBRA strtegy had bo of those as elements to your ultimate opinion? MS. GA VIOLI: Objection. Form.

A. Bot of -- what both?

22 a profit, would you stil refer to it as a, quote, 22

23 Investment arid Tax Strategy? 23
Page 14 3

Q. (BY MR. DONAHUE) Well, I read you two sentences. I'm referrng to those two sentences. And you knew the COBRA ta strtegy ha 24 A. Yes, I would because they had the potential of 24 my question is: If both of those elements, would that make any difference they, in fact, did not, they stil 25 25 making a profit If
Page 14 5
1 to your opinion?

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

2 A. Well, my opinion was assumed on the -- was
3 based on the assumption that this business stategy bad

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

4 both investment charcteristics and ta strategy

5 characteristics. This pagraph you just red to me out
6 of

this opinion talks about some techniques used to
the ta stratgy, it would be within my assumption, but

7 obtain a ta benefit. So to the extent that's a par of
8

9 the taxpayer purchaes and writes options and transfers 1 0 these option positions to a parership so as to create 1 1 substatial increase basis in the parership interest.

9 I ca't tell you whether it is exactly what COBRA is or 10 not. I did not stuy that.
i i Q. But wasn't also one of

the characterstics you

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 deterining whether COBRA was a13 entitled to trde seret protections is whether or not

the COBRA

15 strtegy had that same feature?

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

14 COBRA was generally known in the industr? Wasn't th the elements you looked at? 15 one of 16 MS. GA VIOLI: Objection. Form.

17 opined on, had like I said in my opinion two aspects:

17 A. That's what I - that's one of the
18 charcteristics of a tre secret, yes.

i 8 the potential for profit on the investment an the i 9 potential for ta savings. This spe to one par of
20 that, the tax saving strtegy. If this -- this is OPS,
21 right? I can't tell you what the difference is between

19 Q. (BY MR. DONAHU) And what ths is saying i
20 is that another stategy called OPS or the Option
2 i Parter Strategy has these characteristics. And I'm
22 saying if

22 OPS and COBRA.

23 Q. Well, since you didn't precisely answer the 24 question I asked, let me ask it once again.

you knew that COBRA had the sae 23 characteristcs, would that afect your opinion as to 24 whether or not COBRA was generally known in the

25 i read you that sentence and my question

25 industr? "
37 (Pages 142 to 145)
3353676~7b1-4f38-a24d-ef5c1ee21 03

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MELVIN JAGER
Page 146
Page 148

Its that response that I'm having a hard 1 MS. GA VIOLl: Objection. Form. I 1 time undersding. Is a trade secret something that is 2 believe he's aleady answered this question. 2

3 MR. DONOHU: You may answer it. 3

purely referrd 10 between -- in your view between the
paries or is a trade secrt something that you have to you meet thes legal meet legal chactenstics; and if

4 A. Not necessarly because I have based my 4

5 opinion on the asptions that I stated. There, 5
6 obviously, are other ta-saving strtegies out ther, 6

charcteristics, it provides you with protection

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

thoughout the country?
MS. GA VIOLl: Objection. Form.

ta-savings 8

10 wouldn't chane your opinion? 10

9 strtegies had essentially the identical features, that 9

A. I don't quite understad the question.

Q. (BY MR. DONAH) All right. Let me -- let me
go back then. If you recal, I said if

11 MS. GA VIOLl: Objection. Form. 11

you knew that

12 A. Well, that might change the conclusion as to 12
13 whether or not it's an absolute trde secret, but it i 3

other ta stegies on the market at th sae time as
COBRA had the sae feates as COBRA, if

you knew that,

i 4 wouldn't change the conclusion - and this is a fine 14 I asked would that affect your opinion. Wht is your
15 point -- that the strtegy, as interpreted by these 15
16 pares and as I have studied, have the characteristics 16

answer to that question? ~
MS. GAVIOLI: Objection. Form. You've asked this question severa times now. MR. DONOHUE: You may anwer. A. I think I did anwer that question before and you can read back my question if you can. THE WITNESS: Can you fid the answer to that? Q. (BY MR. DONAHUE) But I read you back your ~
answer and I didn't unerstand your anser. So that's the reason I'm asking it again. Page 14 9

17 ofa tre seret. 17

is Q. (BY MR DONAHUE) Do you know what the natu 18

20 Well, as stated here, I thin there was some 21 Paul Daugerda? 20 21 A.
19 of the lawsuit was between the Diversified Group and 1 9
22 contentions that Mr. Daugerdas breached agreements thàt 22

2 3 he had with the Diversified Group and with his attorney 2 3

24 and breached his attorney-client relationship. i th 24
Page 147
1 Q. Take a look back on page 7, the last

25 that's what this speak to. 25

1 A. Well, your question wasn't -- the answer you

2 pargraph.

3 A. Yes. 4 Q. On the first column, it says (as read): 001
5 asserts that OPS originated sometime in 1988 in a

2 read back wasn't quite the question you just ased me,¡ 3 so please restate your question and I'll tr to answer S
5 Q. All right. My question is: If

4 it d
you knew that
6 there were other ta strtegies on the maret that

6 conversation between Orn Tilevitz, T-I-L-E-V-I-T-Z, an
7 attorney, who at th time was an employee of

7 offered the same feat as COBRA -- I'm askig you if
8 you knew that - how would that affect you opinion? 9 MS. GA VIOLl: Objection. Form.

8 PriceWaterHouse, engaged by DOl to review and develoi
9 tax strategies and R. J. Ruble, a lawyer with the firm

10 Brown & Wood.

lOA. Well, I tred to aner that befor. My
11 assignent was not to deerine in the absolute sense 12 that this was -- ths business strtegy was someting
15 understood it, was to determine if it had the 1 6 characteristcs of intellectual propert, in this cae a

11 Do you see that?

12 A. Yes, I do.

1 3 that was a trde secret in the ultiat or abstct 13 Q. And next it says (as read): According to professional time 1 4 sense. My asignent was to -- my assignent, as I hour of 001 spet hundreds of 14 Haber,

15 developing the OPS into a functional ta strategy.

16 Do you see that?

17 A. Yes, I do.
18 Q. And my questions is -- and it's really gettng
19 back to your pnor response. You stated: That might 20 change the conclusion as to beli~ve it were not an 21 absolute trade secret, but it wouldn't change the 22 conclusion and at that -- in this -- and that is a fine

17 tre secet, or propreta information that the next

18 step would justify the application of a reasonable fee

1 9 to us it. 20 Q. (BY MR DONAHU) Well in your report on page
21 i 0, Exhibit 2398, the second bullet, you say (as read):
22 Ernst & Young was the only company providing the COBRA
23 Investment and Tax Strategy.

23 point. But the strtegy is interpreted by these
24 pares, and as I have studied have the charcteristics

24 Do you see that?
..wU'~,...~~__~ß. :.: ..~..'l~"'

25 A. Yes, I see that 25 of a trade secret. ¥,.ll, i!-mh~.~tu:.,:.;:._~"l-.~;;1.~.-t.Wi~ ~Ð~W~",;¡"'"i~!:¥,,~

38 (Pages 146 to 149)

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

Page 152

is based 1

the question again is because I don't undersd your
affect it or it does affect it, you know, that to me -I could move on. But I need an answer to my questions. MS. GA VIOLl: There's not a question
before the witness.

2 on my review of the available documentation and my 2 previous answer. If you could just say it doesn't

3 discussion with counseL. 3

4 Do you see that? 4

5 Okay. So you doseean opinion that COBRA 6 A. I render that. 5 6 Q.
7 was the only company providing the COBRA Invesent ani 7

8 Tax Strtegy, am I correct? 8

Q. (BY MR. DONAH) So I ask the question again.
If you knew that there were other ta strategies on the

9 A. As I understad COBRA, thats correct 9 market that had the sae features as the COBRA ta
10 Q. And you made - based on your discussions with 10 strtegy, how would that afect your opinion that the 11 counsel and your review of what you call available 11 COBRA ta strtegy met the charcteristic that it was

12 documentaion, you concluded that you had a reasonable 12 not generally known in the industr?

13 basis for that conclusion, correc? 13 14 MS. GAVIOLl: Objection. Form. 14
15 A. Well, see, this -- this was one of

MS. GA VIaLl: Objection. Form. Asked

16 that I considered in determining in my opinion as an 16 question.

the factors 15

and answered.
A. I std on my previous answer to that same

17 intellectual propert lawyer that this subject mattr 17 18 had the characteristics of a tre secret, and therefore 18

22 now. 22
20 for it use. Now, I don't know if you -- I don't

19 would justify the chargig of a fee -- a reasonable fee 19

question? .
MS. GA VIOLl: Objection. A. I've already anwered it, sir. I'm sorr. I
dealt with I wan't given

Q. (BY MR DONAH) So you refu to answer the

know 20

21 how else to state it. I've said that two or three times 21 don't mean to be arguing, but I'll tr to restate it as

best I can, the answer, but I would rather refer to the 23 Q. (BY MR. DONAHU) But you haven't answered tlu 23 previous answer that I gave.

24 question that I just asked you. 24
Page 151

25 MS. GA VIaLl: Counsel, I believe he has 25

Q. (BY MR. DONAH) Well, your previous anwer
the asignment to make a
Page 153

on 2MR. DONOHUE: Please movemake2 from this area. 1 3 don't 3
1 answered the question. I thin its time to.

determination in the absolute sense as to whether or not

the COBRA ta stegy met the characteristics or had the trade secret. You said that, the characteristics of
am I correct?
MS. GA VIOLI: Objecion. Form.

A. That was par of what I said, yes. Q. (BY MR. DONAHUE) But then I pointed out to 8 Q. (BY MR. DONAHU) What my question was -- is 8 you you did render an opinion that the COBRA strategy, 9 you have made a statement here that Ernst & Young was 9 Emst & Young was the only company providing the COBRA ~ 10 the only company providing the COBRA Investment and Tai 1 0 investment. I pointed that out to you. To me that's a
1 1 Strte. And you say your belief is based on my review 1 1 prett dogmatic, absolute statement. And alls I was

4 statements on the record. 4 5 MS. GA VIOLl Objection. Asked and 5

6 answered. 7 7 MR DONOHU: Okay. 6

12 of available documentation and my discssions with 12
13 counsel. And what my question is: If 14 other fis out there were offering this

doing was pointing out that if

you knew that there were

you knew that 13 other companies out there that were, in fact, offerg a

15 strtegy, how would that afect your opinion? 15

strategy that had the samè featues as COBRA, would that affect your opinion? MS. GA VIOLl: Objection. 16 MS. GA VIOLl: Objection. Form. Asked 16

sae ta 1 4

17 and anwered. 1 7

Q. (BY MR. DONAH) And you come bac to tellng
MS. GA VIOLl: Is ther a queston before the witness, Counsel?

18 A. I think I'll deped upon my previous answers 1 B me that you weren't asked to make a determination in the
19 to that question thats been asked several ties, so... 19 absolute sense.

20 Q. (BY MR. DONAHUE) Am I right then, it wouldn't 20

21 affect your opinion at all? 2 1

22 MS. GAVIOLl: Objection. Form. 22 23 Mischaracterize the expert's opinion. 23
24 A. I stand on my previous answers. 24
25 Q. (BY MR. DONAHU) Well, the reason I'm asking 25
ll"",..'"".., "",,¡i.:"

Q. (BY MR. DONAHU) Do you understad where m .
problem lies?

A. Do I understand wher your problem lies? No,

I don't. /.w_-.:.;;M:f""_,""_..'i:__ ""~,,:..;U~~'~_~~. ,_ i"'¡ii;:...lr,,i:s.i;..

39 (Pages 150 to 153)'
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MELVIN JAGER
Page 154

Page 156

1 Q. Okay. Let me specifically go back to your 1
2 conclusion that Ernst & Young was the only company 2

3 providing the COBRA invesent ta strategy. Jfyou 3
4 knew tht wan't true, would tht affect your opinion? 4

at, the totality of circumstaces, and my assignment was not as COBRA strategy that's trade secret to the abstrct, is it -- does it have the charactenstics of a
trade secret. And as I've said to you many times, you

5 MS. GA VIOLI: Objection. Form. 5
6 A. IfI knew that wasn't tre, would that affect 6
7 my

a several-page reprt and I looked at that fact as well a fat that other people knew it besides Ernst & Young and
9 as many other fats, as I've stted. And as I've

opinion? You're pullng out one sentence of a 7

and I both might have COBRA. And you might chae yo clients a fee to use COBRA. I might charge my clients a fee to use COBRA. The'fac that we both know it or the
was charging a fee for it, alone does not

said 9

mae it not

10 many times before, you and I ca both, for example, have 1 0

have the charteristics of a tre secret. That's what

11 the same trade secret. So I would have to say based on 1 1 I'm speaking to. Q. (BY MR. DONAHUE) So in other words, for 12 what I know, tht mayor may not affect it, but I don't 12

13didn't look into the exac COBRA 14 thnk it would. 13 14 I 17 strtegy tht well. 1 7
21 expert witness. I'm saying assume there are other 21

purses of having the charteristic of a trde secret, you ar one -- let me phre it this way. It makes, in your opinion, no differnce 15 sttegy, so I can't answer those detailed questions 15 16 you've been tring to ask me. I don't know the COBRA 16 if someone else is offering the identical product? MS. GA VIOLI: Objection. Form. I don't

18 Q. (BY MR DONAHUE) Well, to answer 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 19 20 are? Ails I'm saying is assume with me. You're an 20 thought I was making myself clear. I'll tr to restate
it.

22 strtegies that have the same features. 2 2

23 MS. GAVIOLI: Objection. Form. Asked 23

24 and answer. 24
Page 155
1 question.

I was tring to determne whether this
had the characteristics of intellectu propert that

would reasnably support the chaing ofa fee. And my
Page 157

25 MR. DONOHUE: Counsel, let me finish my 25 conclusion was yes. And whether you are charging a fee
1 for a similar service or not wouldn't ultimately afect 2 that opinion, ifthats what you are driving at.
3 Q. (BY MR. DONAH) Well, if

2 MS. GA VIOLl: It seems to be the same
3 question you've been -

that's the case,

4 MR. DONOHUE: Counsel, please do not

5 interrpt me until 6 MS. GA VIOLl: -- asking for the las
7 hour. We need to move on.

4 why was it necessar then in your second bullet for your 5 conclusion that Ernst & Young was the only company. 6 providing the COBRA Investment and Tax Strategy, why was
7 that necesar? 8 A. Well, because basically--

a MR. DONOHUE: Please do not interrpt 9 me -- it's improper, it's impolite -- at least until I 10 finish my queston.
i 1 A. Please stae your question.

9 MS. GA VIOLl: Objection. Form.

10 A. Why was it nec? It wa one element of
11 my analysis, and I just stted what one element of my
12 anlysis was at the time I made my analysis.
13 Q. (BY MR. DONÀ.) If

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

14 I ca't - in response to my last
15 queson you seem to be saying, I didn't look into th 16 detals of the COBRA strtegy. And what I pointed out

thought.

there were other firm

1 4 out there in the mat that were offering this same ta

15 strategy and charging a fee and these firms are aw
1 6 that there ar other firm out there charge -- offering

17 to you is, forget about the detals. Just assume that
18 there ar other strtegies on the market that have the

17 the same product and charging a fee for their ta 1 a strategy, which had the same featus as the COBRA
19 strategy, would this make a difference in tes of

19 sae features. And I asked you, would that affect your 20 opinion. And I think what you're saying is no, it would

21 not affect my opinion. Ifthats your answer, fine we 22 can move on. Is that your answer? 23 MS. GA VIOLI: Objecton. Form.

20 whether in your opinion thes stegies had the 21 characteristics of a trade secret? 22 MS. GA VIOLl: Objection. Fonn. Asked
23 and answered.

24 A. Well, I would stand on what I have said
25 previously, but there are severa features that I looked

24 A. It would not affec my ultimate opinion, no.
25 My ultimate opinion was that this bo of intellectual

ø_ .._~

40 (Pages 154 to 157)

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MELVIN JAGER
Page 158
Page 160 ~

1 propert or of this body of information had the 1
2 charcteristics of

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

intellectal proper was suffcient 2

3 to reasonably support a fee and wheter other people 3 yes. 4 were doing it or not in my judgment would not chage 4 Q. Now, did you make any atempt to determine

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
8 was - could have been directy related to the fact that 8

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

A. I believe I did, yes. We looked at the
documents tht are cited just below that statement

9 they were being told that they would save - be able 9 you're reding and looked at the other documents that
1 0 to - not save but eliminate their ta liabilty? 10 ar cited OI page i i and looked at the fact, as I could

11 MS. GA VIOLI: Objection. Form. 11
12 A. I'm sorr. Would you restate the question? 12
13 Q. (BY MR. DONAH) Yeah. Did you conceive

ascertin them, and yes, we have looked into th.

Q. And by the docents, are you referring fo the

confidentialit agrements? A. Well, the one, two- those four bullet points 14 the possibility that the reon that clients were paying 14
of 13

page 11 is what 1 5 a fee for the tax strategy wa because they were being 15 on the bottom of page 10 and the top of 1 6 told that the ta strtegy could. eliminate their tax 1 6 I'm referrg to, for example. The pares guarded this

17 liabilty, did you consider that possibilty? 17

18 MS. GA VIOLI: Objection. Form. 18

19 A. Well, I stated the assumptions upon which my 19
20 opinion was based, and the assumption was that it had 20
2 1 business and ta aspects, and that's -- what you jus 2 1

information by confidentialty agrments and by undersdings between them. That's what I meant by guarding.

2 2 described was a tax aspect of the strtegy. But I 22
24 Q. (BY MR. DONAHUE) If

2 3 stared out with that assumption. 2 3
you recal, you mention~ 24
Page 159

Q. SO in that you were attempting to determine -you were using the confidentiality agreements as what, sort of, circumstatial evidence to the fact that the stategy wa not generally known?

MS. GA VIOLI: Objection. Form. .
Q. (BY MR. DONAHU) Is that what you were doing'. E
Page 161

25 that there were other strtegies, ta strategies that 25
1 had been patented. Do you recall that?

1 A. It's one factor you consider, yes.
2 Q. In your second bullet on page 11 you state (as 3 read): The Investent and Tax Strategy is not

2 A. Yes.
3 Q. Do you know whether any of

these other ta

4 strtegies that had been patented had as a featue of
5 their strategy paying a fee to a finn basd on a
6 percentage of

4 publically available.
5 You say (as read): Based on the
6 information reviewed, the specific Investment and Tax
7 Strategy was not publically accessible or well-known in
8 the financial and the ta services industr.

their tax savings?

7 A. No, I do not know.

S Q. Okay. Let me turn to your secrecy
9 requirement. And if you would, tur to page 10 of

9 What is your basis for that conclusion?

10 Exhibit 2398, the second paragrph, the last sentence 11 you state (as read): Establishing that something is not
12 generaly known and that it is ben guarded -- and it 13 ha been guded aides in convincing a trer offact

10 A. Well, to the extnt 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 and the

14 that the trde secret is valuable.

14 afernon, would you - now that other information has
i 5 been provided to you, do you see any reaon that you
16 would change the wording of

15 And my quesion is: What is your basis
16 for that statement?

that sentence?

17 A. Well, tha's a paraphrasing of a comment I
18 think made by Jim Pooley in his book is what that is -19 James Pooley, I'm sorr. 20 Q. SO it's - in other words, it's your opinion
21 that in order to meet this requirement, it would be

17 A. Well, I have not -- I did not look into
these SOS's or whatever they are are 19 similar or different or to what extent they're different
18 whether any of

20 from th Invesent and Tax Strtegies I am looking at,
21 so as I sit here today I wouldn't change that statement
22 knowing what I know now.

22 helpful to establish that the item is not generally 23 known and that it is guard -- and it has ben guarded? 24 MS. GA VIOLI: Objection. Form. 25 Q. (BY MR. DONAHUE) Am hight?
l"''',,. ~', "~"".'.,, ~/.: .",..".."..-;;,;.::..,,:...~..,_~,,~',~"---,.. ~

23 Q. Would you poibly have a footnote and point 24 out that there are other strategies on the market and I
25 haven't looked into as to what extent they have the same t
11

41 (Pages 158 to 161)

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MELVIN JAGER
Page 162

Page
A. Yea.

164 ~

i features as the COBRA ta strategy? 1 bullet

i
~

2 MS. GA VIOL!: Objection. Form. 2 3 A. I couldn't tell whether I would put it in a 3

4 footnote or not. 4
5 Q. (BY MR. DONAHUE) Would you put it in th 5

7 MS. GA VIOLl: Objection. Form. 7

6 text? 6

10 information? 10
9 mean, would you add something now that you have other 9

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

Q. Did you write tht bullet? A. Did I write it? Q. Yes. The trade secret remains a trade secret even if it's disclosèd to the IRS. A. That was ajoint effort by myself, Rick, and Steve in my offce. One of the questions I asked is well, common sense tells me that if I disclose something ,
to the IRS, it's maintaed in confidence. Just like

for years and year if I disclosd my invention to the 12 that there are other tax stategies out there. And I 12 patent offce, its secret and nobody can get it. And 1 3 don't know wheter they're identical to or different 13 so I -- the premise is, in fact, under The Freedom of 14 from or to what extent they're different from what I 14 Information Act, there's an exception to The Freedom of

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

15 have been told the COBRA strategy was. And as I keep 15
1 6 saying over and over again, my assumption was that this 16

Information Act saying trde secrts can be kept

1 7 strategy had invesent and tax benefits and that it had 17 18 the characteristics of a trade secret. If it may not be 18

confidential from governent ties. So the mere fact that information is
fied with the IRS or with the patent offce doesn't

2 0 a trde secret such that my next conclusion is 20 confidentiaity. It doesn't become automatically in the ~

19 absolutely a trde secret, it had the charcteritics of 19 mean that it no longer has the necessar ;1

2 1 reasonable, that it is reasonable to prepare a fee for 21 public domain is what I'm driving at. I

2 2 chaging it. I've said that as clea as I could. 22
24 that the COBRA tax and investment stateg,

Q. Did you -- were you aware of

Section 6103 of I~

23 Q. I understad that. But you've also concluded 23 the Internal Revenue Code at the time you were writing ~
as you call 24

your report? i
A. I asked counsel to provide me with the
Page 165

25 it, was -- met the secrecy requirement, correct? 25
Page 163

1 A. I said it has the charcteristics of a trade
2 secret and therefore is intellectual propert. That-3 such that it would jusifY a fee for the us of it.
4 Q. If

1 specific section of the code because I assumed that

2 there was one, and they provided that to me. I know

3 that my ta records ar kept confidential by the IRS, I
4 assume.

you turn back to page 10, the thir

5 paragraph, could you read that paragph? 6 A. Which paragh now?

5 Q. Do you know whether or not the COBRA ta 1
6 sttegy or the features of the COBRA tax strategy have i

7 Q. The third paaph, it star with "my
8 opinion." 9 A. Yes. Do you want me to read it out loud?

7 ben anounced by the Internal Revenue Service?

8 A. No, I do not.
9 Q. I'm going to hand you what's been marked as
10 Exhibit 2467. Exhibit 2467 is known as Notice 2044, an(

10 Q. Yes.
11 A. (Asread): My opinon based on the

12 information reviewed is that the Investment and Tax

1 1 it makes reference to ta avoidance using arificially 12 high basis and it indicates it was released in August
13 of

13 Strtegy was adequately maintained as a seret. This is
i 4 evidenced by the following an discussed in the

200. 14 Have you ever seen this notice before?
15 A. I don't recall it. Is it par of 16 documents that I

15 following sections.
1 6 And then I cite those documents - those

the

list in Exibit B? It doesn't have a

17 four or five bullet points.

17 Bates number.

18 Q. Am I right, you did conclude tht bad on the
19 infonnation you reviewed that the COBRA strtegy was

18 Q. You know th rule. You can't ask me
1 9 questions.
20 A. Well, I'll check

20 adequately maintan the secret, that was one of your
2 1 conclusions, right?

just to make -- well, it 21 doesn't have a Bates number, so I assume it wasn't
22 there. I guess the answer is I don't recall.

22 MS. GA VIOLI: Objection. Form.
23 A. That's what I said based upon what I reviewed

24 and cited below, yes.

23 Q. Okay. Are you awar as to whether or not the 24 Internal Revenue Service can make an anouncement

25 Q. (BY MR DONAHUE) Turn to page 11, the last . 25 regarding the feares of a ta strategy without i:..~~~;: .wt'~'-":~_~:c
"""....._'.:""~it~"''!;; ~....

4 2 (Pages i 62 to i 65)

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

Page 16B

that? 1

it was or under what circumstaces it was disclosed or
could be disclosed. I don't know what circumstaces

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 announcement regarding the 4

5 features of a ta strategy would that affect your 5
6 opinion regarding whether or not the secrecy requirement 6

the Internl Revenue Service anounced the strategy, would that afect your the featues of 8 MS. GA VIOLl: Objection. Form. 8 opinion as to whether or not the stategy was secret? 9 A. Let's see, this was released in 2000 -- the 9 MS. GA VIOLI: Objecon. Form. 1 0 end of 20oo? This did not exist at the time of 1999 or 10
an opinion, if

7 was met? 7

you're dealing with. I'm not familar with the way the IRS operates. Q. (BY MR. DONAHUE) But I wasjust referrng tc
the secrecy requirement. And for

pures of renderig

1 1 2000 with respect to the transactions I was looking at, 11

A. If

they did in fact anounce it?

12 so I guess this would - I haven't read this. I don't 12

13 know what's in it. But that would not have been a 13

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

15 basd on. 15
16 Q. (BY MR. DONAHUE) Well, I didn't necessaly 16
1 7 ask a question dealing when it was issued. I just asked 17

Q. (BY MR. DONAHUE) Yes. A. And published it in the -Q. Yes.
A. -- New York Times or whatever?

Q. Well, in an anouncement. A. Well, it's a public document

Q. Yeah, a public document. i 8 a more general question. And generally speaking, to 18 A. Well, then, you know, that would be a major 1 9 what extent would your opinion be afected if the 19 factor to look at beause you've just defined th mattr 2 0 Interal Revenue Service could anounce the features of 20

as being in the public chage 21 the tax strtegy, would that affect your opinion? 21 things, but it would bedomain and that couldhave to one factor you would 22 MS. GA VIOLI: Objection. Form. 22

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

look at.

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

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

1 A. Yea.
those factors you woulØ
2 Q. And you'll notice at page 12 of

Exhibit 2398

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

3 that you refer to the fact that the plaintiff must use
4 reasonable effort in establishing your securty

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

5 requirement. And I'm referring to the third paragrh.
6 Have I correctly stated what your opinion is?

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

8 occurred.

7 MS. GA VIOLl: Objection. Form. reasonable 8 A. Well, I say there the stadard of
9 effort is flexible. Efforts that are reasonable under

9 Q. Well, we'll get to whether it actully -- if
i 0 you knew it could have, in fact, but my question now is 11 simply -- and it's referrng to your reference to 6103,
12 you're saying that the Internal Revenue Servce must 13 maintan information regarding the ta strategy a

i 0 the circumstaces, yea, that's what I'm saying. Its
11 not a question of absolute secrecy; It's a question of

12 reasnable secrecy.
13 Q. (BYMR.OONAHUE) You said

secrecy. Doyo

14 secret. They ca't disclose it. And what I'm saying
15 is, if

14 mea security?
15 A. Reaonable security,"

you knew that the Internal Revenue Servce could

16 disclose the features of the ta strtegy without
17 disclosing the names of

of coure. 16 Q. And wha is your basis for your conclusion
17 that the stadard of

the individuals, would that

reaonable effort is flexible?

1 8 affect your opinion as to whether or not the secrecy

18 A. That cites to James Pooley's referece to it.
you rea thoug the cas law, it depends upon 19 And if 20 the circumstnces as to what's reasonable. I could ciie 21 you examples, but I won't bore you with that. But

19 requirement would be in effect? 20 MS. GA VIOLI: Objection. Form.
21 A. Well, I was not aware of

this notice. I don't

22 know what's in it. I jus saw it. It would be a factor
23 to be considere, I'll put it that way. But would it be 24 the end all and be all and the deciding factor, I ca't 25 say it would be. The fact that it could be doesn't mean

22 reasonable under the circumstces is the test, 23 reasonable security precautions.
24 Q. SO this stadard then was based on your

25 undersing of tle cae law?;c' . ~'.Û::" 1i,.. ..

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43 (Pages 166 to 169)

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Page 14 of 25

MELVIN JAGER
Page i 70
1

Page i 72
1 Particularly of the use of

A. Yes.
of

the term "shelter."

2

3
4

your report on page 12, Exhibit 2398, it states (as

Q. Okay. In the fifth pargraph in that section

2 A. Well, I have not considered that, no. 3 Q. (BY MR. DONAHUE) Even thoug you haven't
4 considered it, if

read): Cour cases have esblished the importance of

you knew that a principal reason that

5 6
7
8

adequate securty precautions as an element of proof in a trade secret case. What cour cases are you referring to?
A. Oh, there's many, many cour cass tht say
tht. And if you look at the sttements and you look at

5 the finn th offered ta strtegies were to conceal 6 the strategy from the Internal Revenue Service, would

7 that affect your opinion at all as to whether or not th
8 strategy met the security requirement?

9

9 MS. GA VIOLI: Objection. Form.

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

the Uniform Act it Trade Secrets of says that one of the components is that the subject
the definition of

lOA. I don't frany understad the question. We
1 1 spoke earlier about the motivaton tht peple might
12 have. I don't have any idea what E& Y's or other 13 people's motivations might be in keeping things
i 4 confdential, so I did not factor in motivation in my

matter was subject to reanable effort to maintain

securty. So it's a fair -- you know, its a commonly

known critea in this business. Q. SO then this reference to the importce of the adequate security precautions is based on your the case law? understading of