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

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 1 of 33

IN THE UNITED STATES COURT OF FEDERAL CLAIMS

No. 05-231 T (Chief Judge Damich)

JZ Buckingham Investments LLC as Tax Matters Parer
of JBJZ Parers, a South Carolina general parership,

Plaintiff,
v.

United States of America,
Defendant.

APPENDIX

Exhibit 1

Expert Report ofMe1vinF. Jager, June 29, 2007.
Deposition Transcript of

Pages 001-032
Pages 033-087

Exhibit 2
Exhibit 3

Melvin Jager,
Gar Woods,

August 2, 2007.
. Pages 51 though 53, deposition of

Pages 088-089

June 21, 2007.

Exhibit 4

Powerpoint presentation presented to Gar Woods.

Pages 090-104

-v-

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 2 of 33

OCEAN TOMO
INTELLECTUAL CAPITAL EQUITY

JZ Buckingham Investments, LLC, §
as Tax Matters Partner of JBJZ Partners, §

v. §

Plaintiffs, §
§ §

§

UNTED STATES OF AMRICA, §

Defendant. §
§

EXPERT REPORT OF MELVI F. JAGER

June 29, 2007

~ GOVERNMENT

i EXHIBI
ii

ii
I

001

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 3 of 33

Q INTELLECTAL CAITAL EQUITY

TABLE OF CONTENTS

1. FIRM BACKGROUND AND QUALIFICA TIONS........................._........................................................i
2. ASSI G NMENT .......... ................ ............... ..... ... ........._... ....... ........... ............. ........... .......... .............................3

3. SUMMARY OF OPINIONS...........................................................................................................................4

4. INVESTMENT AND TAX STRATEGY OVERVIEW...................................................................;...5

5. INTELLECTUAL PROPERT,Y ...............................................................................................................5
5. i OVERVIEW .. .... .... ........ ........ ... ..... ............. ..... ... ...... .................. ............ ......... ............ ............. ..................5 5 .2 PATES... ........ ..... .................. ....... ............... ......... ..... ....... ............ ............... ............................ .................5 5.3 TRDEMARKS..............................................................................................................................................6
5.4 COPYRGHTS ...................... .... ............ ..... ......... ........... ........ ........ ................ ....... ........... ........... ...................6 5.5 TRADE SECRETS .... ...... ........... ........ ......... ...... .......... ..................... ............... ................... ........... .................. 7

6. TRADE SECRET CONSIDERA TIONS ......................................................................................................9
6.1 NOVELTY ....................................................................................................................................................9 6.2 SECRECY .......................................................... .......................................................... .......................... 1 0 6.3 SECURITY ..................... .......... ....... .... .... ...... ...... ....... ......... ..... ...... ................................... ............ ............ 1 1 6.4 V ALUE......................................................................................................................................................12

7. COMPENSA TION FOR USE OF TRADE 8ECRET8..._.......................................................................14
7.1 INVSTMENT AND TAX STRTEGY COMPENSATION STRUCTURE ............................................................ 14 7.2 THE 25% RULE OF THMB ......................................................................................................................14 7.3 PUBLICLY AVAILABLE TRADE SECRE LICENSING ................................................................................15

7.4 TRAE SECRET LICENSING AS A RESULT OF LITGATION ......................................................................... 16

8. CON CL USION ................................................................................. ......................... ................. i 9
9. 81 GN A TV RE ............................. ................................ ............... ................. .......... ......... ..............................20

Highly Confidetial Infonnation Subject to th Protectve Order - Attorney's Eyes Ony

002

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 4 of 33

1. FIRM BACKGROUND AND QUALIFICATIONS
My name is Melvin F. Jager. I am of Counsel for Ocean Torno, an integrated intellectul capital merchant banc providing expert services, valuation services, asset management, M&A advisory, and risk management services. Ocean Torno asists clients - corporations, law firms, governents, and instituonal investors - in maximizing their Intellectual Capital EquityTM value. Ocean Torno seeks to maxmize the value and benefits inherent within the rapid growth of intellectual propert as an asset class.

Prior to joining Ocea Torno I engaged for 42 years in the private practice ofintellectual propert law in
Washington, D.C. and Chicago, Ilinois. The majority of of the Chicago-based intellectual propert firm of

my time practicing was as a parer/shareholder

Brinks Hofer Gilson and Lione and its predecessors.

During this time I advised and consulted with clients on a full rage of intellectual propert issues. I have

engaged extensively in the preparation and prosecution of patent applications before the U.S. Patent and Trademark Offce. I also have been engaged as an attorney in a variety of patent infringement suits as the to enforce patents, and as an attorney for the defendat to defend against attorney for the plaintiff allegations of patent infringement.

My practice of intellectual propert law also included advising, consulting and litigation in related legal areas involving trade secrets, trademarks, copyrights and unfair competition. I also regularly have
intellectual propert, including the the licensing of engaged thoughout my practice in all aspects of negotiation and drafting of license agrements, the analysis of existing licenses, the enforcement of

licenses and consultation with clients on matters related to licensing. I have also served as an expert licensing witness in patent and trade secret litigation, and have been an arbitrtor in an interational dispute.
I have been active in teaching intellectual propert courses thoughout my career. From 1992 to 2004 I
held the position ofan adjunct professor oflaw in the College of Law at the University of

Ilinois in

Champaign, Ilinois, where I have taught courses in Patet Law and Patent Litigation. Before that I taught Trade Secrets Law in the Masters Level Progra at The John Marshall Law School in Chicago, Law. I have lectud on Ilinois. I also taught Patent Law at the Nortern Ilinois (Lewis) College of Patents, Trade Secrets and Licensing as a visiting adjunct professor and guest lectuer at the University of
Victoria College of Law in Victoria, B.C., and at St. Peter's College of

Law, Oxford University, in

Oxford, U.K.

I have written arcles and treatises on intellectul propert law topics. I am the autor of a thee volume
treatise, TRAE SECRETS LAW, published by West Group Publishing in New York. I am also the

author of an anual LICENSING LAW HADaOOK and the editor of a thee volwne treatise TRDE
SECRETS THROUGHOUT THE WORLD, both of

which ar also published by West Group Publishing.

I fuher have authored or edited articles on intellectual propert law and licensing which have been the Licensing Executives Society, in American Bar published in Les Nouvelle, the scholarly publication of Association Monographs, in Developments in Intellectual Propert, published by The John Marhall Law
School and in books on intellectual propert published by the Practicing Law Institute.

Throughout my career I also have been an active paricipant in the educational and professional activities associations relating to intellectual propert and licensing. In 2002-2003, I was President of professional of the Licensing Executives Society International, a professional association of 12,000 members in 30 technology on a worldwide basis. countries who are engaged in the creation, protection and transfer of As the president and a member of LESI, I lectured on patent, trade secret and licensing issues in many countries, including the United Sta~es, Japan, Europe, China, Korea, Austrlia, Sout Afrca and Mexico.
Highly Confidential Infonnation Subject to the Protective Order - Attorny's Eyes Ony
Page lof20

003

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 5 of 33

President ofthe Licensing Executive Society US and Canada, the largest society within LESI, and was a reguar lectur at the association's annual Technology Transfer Institute. I am a founding member and Past President ofthe Licensing Executive Society Foundation, a not-for-. profit foundation dedicated to educational and outreach programs relating to intellectual propert creation, licensing and technology tranfer.
In 1994 1 held the position of

I have also been active in the more traditional professional associations concerned with intellectual Chicago, and formerly was the Intellectual Propert Law Association of propert. I am past president of the American Bar Association Litigation the Intellectual Properties Litigation Committee of Chair of the Ilinois Bar Association Patent Trademark and Copyright CounciL. As an active Section, and Chair of these and other professional associations i have given speeches and made presentations on a member of topics relating to intellectual propert procurement, protection, enforcement and licensing. I varety of further presented speeches and papers on licensing in the new global economy and on using patent licensing to manage patent litigation risks at the 2004 and 2005 Annual Meetings of the Japan Instute for Invention & Innovation in Tokyo, Japan.
I am a graduate of th University of

Ilinois, with a B.S. degree in General Mechanical Engineering.
Law from the College of Law at the University of

also hold a degree as a Juris Doctor of

Ilinois.

I have included a copy of my CV along with this report.

Ocean Torno is presently being compensated for my work in this mattr at a rate of$595 per hour. Other Ocean Torno consultants are assisting me in this engagement and are being compensated at various rates
under $595. No par of my compensation depends upon the outcome of

this litigation.

Highy Confidetial Infonnation Subject to the Protective Order - Attorney's Eyes Ony

Page 2 of20

004

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 6 of 33

2. ASSIGNMENT
Ocean Torno wa retained by counel for the plaintiffs, Jerr Zucker and Jam G. Boyd (heraf referred
to as "Zucker and Boyd"), in connection with this mater. I was asked to provide analysis and possible

testimony regarding the intellectual propert value of certin investment transactions (the "Investment
and Tax Strategy") associated with this cae. Specifically, my report discusses (1) whether the

Investent and Tax Strtegy can be categorized as intellectual propert, and (2) wheter an appropriate compensation strcture for use of intellectual propert is a percent of the potential benefit it enables.
A detailed listing of documents reviewed by Ocean Torno in connection with this litigation to date is attached as Exhibit B.

The following report and accompanying analyses summarize my currnt opinions whether th Investment and Tax Strategy can be categorized as intelIectuaJ propert, and whether an approprate compensation structure for use of such intellectual propert is a percent of the benefit enabled by the intellectual property. The information in this report is based upon discovery to date and other currntly available information. Accordingly, my opinions described herein should be considered preliminar and subject to change based on any new documents, as well as future discovery, the testimony of other exprt, and other case developments. In addition to this report I may rely on excerpts taen from video taped depositions and/or demonstrative exhibits that ilustrate the concepts and conclusions contained in this report.

Highly Confidential Information Subject to the Protecive Order - Attorney's Eyes Ony

Page 3 of 20

005

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 7 of 33

3. SUMMARY OF OPINIONS
I have reviewed Professor Gruner's expert report and am in agreeent with his conclusions regarding the

Investment and Tax Strategy's trade secret characteristics. At tral, I wil offer my opinion that the
Investment and Tax Strtegy had the characteristcs of a trade secret at the time the sttegy was

implemented. Also, I wil offer my opinion that compensation in the fonn of a pecentage of the potential benefits, such as cost savings, enabled by intellectual propert is a common strctre in intellectual propert licensing.
My opinion is based on my understading of the facts and circumstaces of this cae and my review of
the produced documentation, testimony, and third par infonnation available to date. The analyses and

opinions described herein are subject to change based upon additional discovery or other developments.

Highly ConfideniiaI Infonnation Subject to the Protective Order - Attorey's Eyes Ony
Page 4 of 20

006

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 8 of 33

4. INVESTMENT AND TAX STRATEGY OVERVIEW
I understad this case primarily involves a dispute with the Investment and Tax Strategy over the validitY

have not formed an opinion on this issue, and I was asked to assume by counsel that the plaintiff entered into an Investment and Tax Strategy
of the invesor's treatment of a short option for tax purpses. I

similar to the one described by counsel in a lettr dated March i 9, 2007 an in the COBRA Slideshow. i

This Investment and Tax Strategy was known as "COBRA" - Curency Options Bring Reward Alternatives.
I assume the anticipated benefits of implementation of the Investment and Tax Strtegy are comprised of
two components; investment retuns and ta savings. It is my understanding that one potential benefit

was that the investor reaped tax benefits by using a loss generated with this Investment and Tax Strtegy to offset income reported on his tax rern, and another benefit was the potential investment returs on the
invested monies.

5. INTELLECTUAL PROPERTY
5.1 Overview
The term intellectual property refers to patents, trademarks, copyrights, and trade secrets or know-how. Intellectual property is a special classification of intangible propert and is unique because the owner of
intellectual propert is protected by law from unauthorized exploitation of it by others. Merriam-

Webster's dictionar defines intellectual propert as "propert (as an idea, invention, or process) that
the mind or intellect; also: an application, right or registration relating to this.',2 The intellectual propert owner can either interally use its benefits, or tranfer interess in the intellectual
derives from the work of

propert to others who may exploit it. .
An overview of

the main classes ofintellectuaJ propert is provided in the following sections, as well as discussion on the applicabilty of each to this case.

5.2 Patents

A patent is the legal process whereby technology, ideas, or proprieta methods may be turned into propert with defined rights associated with ownership. In the U.S., a patent is the grant of a propert right by the U.S. governent to the inventor (or asignee) by acton of the Patent and Trademark Offce.
According to 35 U.s.C. § 154 (Contents and Term of

Patent), patent rights provide the owner with the right to exclude others from manfactung, using, or selling the inventon. For patents fied on or after
June 8, 1995, these rights extend for twenty years frm the date of

patent filing. Competitors legally cannot, without license, commercially employ the patented elements of a product or process. The patent

i COBRA Slideshow, DOJ007654 et seq.
2 http://www .merriam-webster.coni!dictionarv /intellectual%20propert .

Highly Confidential Infonnation Subject to th Protective Order. Attorny's Eyes Ony

Page 5 of20

007

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 9 of 33

owner enjoys commercial and competitive advantages by making, marketing, or licensing the patented invention for the useful life of the patent.
5.2.1 Patentabilty of

Tax Strategies

As stated by James Toupin, General Counsel for the V.S. Patent and Trademark Offce before the House patentabilty, the Patent Act Committee on Ways and Means "The curent Act that details the standars of of 1952, specifies four basic sttutory requirements that must be met to obtan a patent: (1) the claimed invention must define eligible subject matter and have utilty, (2) it must be novel, (3) it must not have been obvious to a person having ordinar skil in the ar at the time the invention was made, and (4) it the patent application to show 'in the text (specification) of must be fully and unambiguously disclosed that the inventor has possession ofthe claimed invention upon fiing and that the skiled pracitioner
would be able to practice the claimed invention without undue experimentation.'03

Furermore, Mr. Toupin indicates that a new subclass has been dedicated to ta strtegies. "Recently, subclass 36T in (patent) Class 705 has been established and dedicated to tax strategies. We have 41 issued patents related to tax strategy. Furter, 61 published applications, not yet examined, identified
relate to tax strategy.""

Additionally, legal tax strategies need not be patented to insure protection; they could be kept as trade
secrets. For instance, as Mr. Toupin stated regarding ta strategies per se "An alterntive strategy to

patenting is to keep (tax) strategies as trae secrets. Now those trade secrts may be known to some

advisers and not other advisers. The existence of a patent - the trade-off for the existence of a patent is to whether a patent would make a strategy more or less make it known to the world...So, in terms of between whether the cost ofthe license that might be requested outweighs trade-off available, it is a bit of
the cost of each ta adviser inventing the same strtegy for each client.',s
1 am not aware of

patents associated with the Investment and Tax Strtegy.

5.3 Trademarks
According to 15 V.S.C. § 1127, a trademark is any word, name, symbol, or device, or any combination
thereof-(used by a person) to identify and distinguish his or her goods, including a unique product, from

that source is the goods, even if unknown. A trademark also serves as an assurance of quality - the consumer comes to associate a level of quality with the goods and services being given a trademark.
those manufactured or sold by others and to indicate the source of I am not aware of

trdemaks associated with the Investment and Tax Strategy.

5.4 Copyrights
According to § 102 of

the V.S. Code, a copyright is defined as follows: copyright protection Title 17 of subsists, in accordance with this title, in original works of authorship fixed in any tagible medium of

3 EX000035. 4 EX 000036-037. 5 EX000080-081.
Highly Confidential Infonnation Subjec to th Protective Order - Attorey's Eyes Qiy
Page 6 of20

008

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 10 of 33

expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.

The Investment and Tax Strtegy idea per se would not be copyrightale; however, documents memorializing the idea may be copyrightable. I am not aware of registered copyrights associated with the
Investment and Tax Strtegy.

5.5 Trade Secrets
Trade secrets have been defined in several ways:6
. "Trade secref' means information, including a formula, pattern, compilation, program, device,

method, technique, or process, that: (i) derives independent economic value, actual or potential,
from not being generally known to, and not being readily ascertinable by proper means, by other persons who ca obtan economic value from its disclosure or use, and (ii) is the subject of effort
that are reasonable under the circumstances to maintan its secrecy. (Section 1(4) of

the Uniform

Trade Secrets Actf
. A trade secret is any information that can be used in the operation of a business or other

enterprise and that is suffciently valuable and secrt to aford an actual or potential economic
advantage over others. (New Restatement of

the Law Third, Unfair Competition, § 39)

. A trade secret may consist of any formula, pattern, device or compilation of information which is

used in one's business, and which gives him an opportnity to obtain an advantage over competitors who do not know or use it. It may be a formula for a chemical compound, a process of manufacturing, treating or preserving materal, a pattern for a machine or other device, or a list
of customers. (Restatement of

Tort, §757 (1939))

These sources, as well as judicial decisions, suggest a number of factors to be considered in assessing whether the requisite elements are present to classify something as a trade secret. Frorn this array of information, it is possible to synthesize some fundamental concepts. A trade secret has four aspects:8
. It must consist of qualifying information; that is, one must be able (at least in general ters) to

ariculate what it is in such a way that it may be distinguished from general knowledge and skil;
. It must be secret, in the sense that it is not well known or easy to compile;

. The owner must have made reasonable efforts to preserve secrecy; and
. The secret must have value as reflected in some competitive advantage that it gives to the owner.

Said differently, the key elements of a trade secret include that it: (1) is novel in the sense of not being generally known in the indust, (2) is suffciently secret and is not readily ascertable by proper means

(e.g., reverse engineering), (3) is subject to reaonable securty measures and (4) has economic value.
trade secrets requires appropriate secrecy and maintenanae. Trade secrets require a continuous effort to
Trade secrets are different from the other forms of intellectal prope in that the protection of

6 http://my.execc.coml-mhallgntradesec.htrl.
7 Most states have modified their laws to conform to the provisions of the Uniform Trade Secrets Act. 8 Pooley, James. §4.01 (1), Trade Sects, 4-3. Law Journal Press, 1997.

Highly Confidetial Infonnation Subject to the Protective Order - Attorney's Eyes Ony

Page 7 of20

009

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 11 of 33

maintain secrecy in order to allow defense by lawsuits against misappropriators at a later time, rather than a single application and grant by a governent agency (e.g., the U.S. Patent and Trademark Offce).

Yet trade secret protection offers much broader scope than other intellectual propert such as patents. Although some trade secrets are patentable, they are often not patented in order to avoid making them public and to avoid limiting their rights to the statuory life of a patent. Trade secret rights can exis as long as the information is maintaned secret.
To determine whether the Investment and Tax Strategy had the characteristics of a tre secret at the time
of implementaion, I discuss each of

the four fundamental elements ofa trade secret in the following

section.

Highly Confidential Inforation Subject to the Protective Order - Attorney's Eyes Ony
Page 8 of 20

010

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 12 of 33

6. TRADE SECRET CONSIDERATIONS
As stated previously, the key characterstics of a trade secret are:
. Novelt - the information is novel in the sense of not being generally known in the industry;

· Secrecy - the informaton is suffciently secret and is not readily ascertinable by proper means;
· Seeurity - the information is subject to reasonable security measures; and
· Value - the information provides value or potential value to the user of

the information.

this case, I concluded that, at the time the Investment and Tax Strategy was implemented, it had the essential characteristics of a trade secret.
Based on my analysis presented in this section and my understanding the facts and circumstances of

6.1 Novelty

In order to be patentable, an invention must be "novel"; that is, in relation to all that is known in the the technology, it must be seen as new. This novelty requirement is not applicable to relevant field of judicial opinions do not even mention it as an element. Trade secret protection does trade secrets. Most require, however, that the matter not be generally known. Thus, there must be something at least modestly "special" about the information-the law will not intervene to protect matter that is only trivially different from the known ar.9
Based on the information reviewed, it appears the parties involved believed the Investment and Tax Strategy was not generally known in the financial and tax services industr. This is evidenced by the following:
. Advisor Confidentiality Agreements. Before a presentation about the Investment and Tax

Strategy, it was the stdard practice ofEmst & Young to require its advisors to sign a
confidentiality agreement. 10

· Clear Statement That Information Is Confidential From Ernst & Young. Example languge in the

Ernst & Young engagement letter is "All advice and other services pursuant to this arangement
are intended solely for your benefit and that of the Partership and are not for the benefit of

anyone else. Accordingly, our advice may not be relied upon by any other person or persons, used in connection with any other transaction, or used for any other purpose without our prior communications made by us in any oral or written written consent. Furermore, the content of connection with this engagement shall not be communicated to the public or otherwise publicized

in any maner without our prior wrttn consent."ii
· Enhancements Were Added By Ernst & Young. An Ernst & Young email states, "Our fee is fare
(sic) based on the consultation. the enhancements we have made to the strategy to give more
business purse to the parership and economics... (sic ),,12

9 Pooley, James. §4.03 (1), Trade Secrets, 4-19. Law Journal Press, 1997.
10 2003EY00009 - ternplate agrment used by Ernst & Young for marketing.

II DOJ007650.
12 DOJ005334.

Highly Confidetial Information Subjec to the Protective Order - Attorny's Eyes Only

Page 9 of20

011

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 13 of 33

. Ernst & Young Was The Only Company Providing The COBRA Investment and Tax Strategy. I

am not awar of any other primar service providers other than E& Y who were offering the
may have been offering similar strtegies. This beliefis baed on my review of

speific COBRA Investment and Tax Strategy, although I am aware that other service providers the available
documentation and my discusions with counseL.

. Ert & Young and Jenkens & Gilchrist Entered Into a Non-Disclosure Agreement. Sample

langue frm an agreement states tht ''Undersigned agrees that all Confidential Information is,
and shall remain, proprieta to 1&0, and that Undersigned wil disclose such information only to

such ofits internal personnel to whom such disclosure is necessary to evaluate the (financial)
Structures."

13

6.2 Secrecy

An important charcteristic of a trade secret is that it is, in fact, secret. The secrecy element of trade secret law is not just a requirement that the subject matter not be generally known. It also reflects the assumption that anything suffciently importnt to take to court should already have been the subject of
14
adequate attention and care by its owner.

The examination of secrecy involves a dua path. One path is concerned with the extent to which the

secret is known (i.e., relative secrecy), and the second path is the extent to which the secret could be known with but a modicum of effort (Le., ready ascertainabilty). Establishing that something is not generally known and that it has been guarded aids in convincing a trier of fact that the trade secret is
valuable.

15

My opinion, based on the information reviewed, is that the Invesment and Tax Strategy was adequately
maintained as secret. This is evidenced by the following (and discussed in the following sections):
. Advisor Confidentiality Agreements. Before a presentation about the Investment and Tax

Strategy, it was the stadard practice ofEms & Young to require its advisors to sign a confidentiality agreement.16
. Clear Statement That Information Is Confdential From Ernst & Young. Example language in the

Ernst & Young engagement lettr is "All advice and other servces pursuat to this arrangernent
are intended solely for your benefit and that of

the Parnership and are not for the benefit on

anyone else. Accordingly, our advice may not be relied upon by any other person or persons, used in connection with any other transaction, or used for any other purpose without our prior
wrtten consent. Furthennore, any content of any oral or written communications made by us in
connection with this engagement shall not be communicated to the public or otherse publicized
in any

maner without our prior written consent.,,17

. Investment and Tax Strategy Not Publicly Available. Basd on the information reviewed, the

specific Investment and Tax Strtegy was not publicly accessible or well-known in the financial

13 CANC01623 _ CANC01625 14 Pooley, James.§4.04 (1), Trade Secets, 4-24. Law Jourl Press, 1997. 15 Pooley, James. §4.04 (1), Trade Secret, 4-24 and 4-25. Law Journl Press, 1997.
16 2003EYOOOO9 - template agreement used by Ernst & Young for marketing.

11 EY 14000. .
Highly Confidentiallnfonnaiion Subject to the Protective Order - Attorn's Eyes Ony
Page 10 of20

012

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 14 of 33

and ta services industry. In fact Ernst & Young only implemented the COBRA Investment and
Tax Strategy 16 times.

IS

. The Trade Secret Remains A Trade Secret Even if

Disclosed To The IRS. According to 26 U.S.C § 6103, tapayer information remains confidential. I understad this confidentiality protects taxpayer return information from disclosure, including requests fied under the Freedom of
Information Act. 19 Also it should be noted that information provided to other governental

agencies may be kept confidentiaL. For instance, patent applications fied at the U.S. Patent and Trademark Offce are not published for 18 months.20 This gives the fier the abilty to abandon a . patent application for his invention while simultaeously maintaining trade secret status for this same invention within this 18 month widow.

6.2.1 Degree of

Secrecy Required

The only perfect secret is that which is known to but one person. However, trde secret law was

the industral and information ages. Thus the concept of developed to accommodate the realities of "relative secrecy": a secret remains protectable even when it is shared, so long as it has not escaped into the mainstream ofpubJic knowledge or commonly knwn to people in the relevant industry. As a result, it is well settled that a trade secret owner may without fear of losing its rights reveal trade secrets to employees and others in a similar confidential relationship. Secrets may also be shared with vendors and other business partners with a common interest in the matter, who either by contract or implication wil be
held to a standard of

trust. I understd the corrct rule is that a secret can be reasonably shared with

anyone who has a need to know it and who knows it is confidential.2J
6.2.2 Ready Ascertainabilty

the matter to be protected, rather than the owner's effort Ready ascertainabilty depends on the nature of to protect it. It is clea that a formula or process that canot be revealed by examination ofthe end
product may be an impenetrble secret. However, a secret less than impenetrble may yet be exceedingly

diffcult and time consuming to "reverse engineer", As the diffculty of ascertinment increases, the information becomes qualified as a trade secret 22
That something is not readily ascertainable can be proved by circumstntial evidence. The precations
taen by the trde secret owner to protect the informaton are relevant to the issue. The apparent inabilty

of potential competitors to duplicate the information as well as the wilingness of others to pay for it may be considered?3
6.3 Security

18 Robert Hanson Deposition, 5/24/2007, pp. 7.
1926 U.S.C § 6103.

20 htto://www.usoto.gov/web/offces!com/soeeches/OO-72.htm
21 Pooley, Jarnes. §4.04 (2)(a), Trade Secret, 4-25 and 4-26. Law Journal Press, 1997. 22 Pooley, James. §4.04 (4), Trade Secrets, 4-40 to 4-43. Law Journal Press, 1997.
23 Pooley, James. §4.04 (4), Trade Secrets, 4-44. Law Journal Press, 1997.

Highly Confidential Information Subject to th Protective Order - Attorny's Eyes Ony

Page)) of20

013

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 15 of 33

Under the Uniform Trade Secrets Act, the plaintiff

must prove that "reasonable effort" were taken to

protect against loss.

My opinion, based on the information reviewed, is that adequate security was in-place for the Investment and Tax Strategy. This is evidenced by the same reasons as discussed in Section 6.2.
The standard of

reasonable efforts is flexible, and in considering what are "effort that are reasonable

under the circumstaces", one must focus on the paricular facts at hand.24 The guiding principles seem to

boil down to what is reasonable and praccal under the circumstaces. Within a very broad band of discretion, the trade secret owner is to consider the value of the secret, the nature of the threat to disclosure, and the cost and practicality of any paricular security mechanism. It is recognized that no security system is perfect, and the people who put it to use certainly are not perfect; therefore, some mistakes are permitted.
Nondisclosure agreements ("NDAs") are a common trade secret practice. They fundamentally define the the information as valuable, and the relationship as a trst. While not many courts wil say that nature of nondisclosure agreements is alone suffcient to meet the reasonable efforts requirement, many the use of will see it as probative evidence of secrecy.
\ Court cases have established the importce of adequate security precautions as an element of proof in a
trde secret case. Based on the information reviewed in this case (e.g., the engagement letter,

the service provider's business, it is my current opinion that adequate security measures were in-place to protect the Investment and Tax Strategy.
confidentiality agreement) and nature of Please refer to section 6.2 for a list ofthe security measures taken to insure the secrecy of

the Investment and Tax Strategy. Given these measures, it is apparent that the Investment and Tax Strategy generally exhibited the charcteristics of a trade secret at the time of the Investment and Tax Strategy's implementation.

6.4 Value
As far as the law is concerned, secrets are protectable if

they have some actul or potential commercial value. A fundamental element of trde secrecy is that the information be shown to provide some advantage over the competition. The Uniform Trade Secrets Act requires that a plaintiff prove the claimed secret "derives independent economic value, actal or potential, frorn not being generaly known." In order for information to quality, its secrecy must provide some real advantage over what is
generally known. Slight variations on similar procsses used thoughout an industr may not suffce. It

is also not enough that the secret is merely different, "unique" or "unortodox". However, the incremental value of thè secrt need not be great, just not trivial.25

My opinion is that, at the time the Investent and Tax Strategy was implemented, it had suffcient value to meet the value-related characteristic of a trde secret This is evidenced by the fact that clients paid to their overll loss as fees to Ernst & Young, use the Investment and Tax Strategy. Clients paid a percent of Jenkens & Gilchrist, and others. It should also be noted that for Zucker and Boyd, Ernt & Young agreed

24 Pooley, Jarnes. §4.04 (2)(b), Trade Secrets, 4-27 and 4-28. Law Joural Press, 1997.
25 Pooley, James. §4.05 (1), Trade Secets, 4-45 to 4-47. Law Journal Press, 1997.

Highly Confidential Infonnation Subjec to th Prtective Order - Attorney's Eyes Ony

Page 12 of20

014

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 16 of 33

to representthem in front of

the IRS, should the need arise.26 This valuable service is directly related to
the benefits. Zucker

the Investment and Tax Strategy and is included in the fee structure as a percent of

the Investment and Tax Strtegy. As shown in the following table provided by counsel, the actual fees for the total loss. Zucker and Boyd was 4.3% of
and Boyd agreed to an estimad fee of 4.5% ofthe tota ta loss prior to implementation of

Fee Paid as a Percentage of

Tax Savings

Ordiary Loss/Short Ter Capita Loss

$
S

Long Ter Capital Loss
Total Loss Amount
Ernst & Young Fee - 1.5% of Jenkns & Gilchrt Fee - 3% of Loss Loss

31,466,419 18,177,695 49,644,114
744,662 1,489,323 60,000

$ $
$ $ $

Flat Fee Paid to Brown & Wood
Total Actual Fees Paid
STCL Tax Savigs

2,135,000
12,460,702 3,635,539
16,096,241

LTCL Tax Savis

$ $
$

Combined Anticipated Tax Savigs
Fees Paid as a Percentage of

Tax Savings

13.26%
7

For Zucker and Boyd the total losses were $49.6 milion, and this translates to approximately $16.1 the benefits derived milion in anticipated ta savings. Given that anticipated tax savings were one of
from the use of as a fee for use of the Investment and Tax Strategy, it is useful to deteine the percent of the Investment and Tax Strategy, as opposed to a percent of

the benefits paid

the total losses. In the case of Zucker and Boyd i 3 .26% of the benefits were paid to utilze the Investment and Tax Stitegy. It this the underlying investments are not included as an aspect of should be noted that the performance of calculaton.

26 Z001291 27 EXOOOl45
Highly Confidential Infonnation Subject to th Protective Order - Attorney's Eye Ony

Page 13 of20

015

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 17 of 33

7. COMPENSATION FOR USE OF TRDE SECRETS
The second par of my assignment is to opine on whether it is common to provide compensation for the
use of intellectual propert, including trde secrets, in the form of a percent of the benefit or potential

benefit, such as cost savings, provided by using the intellectual propert.

Based on my licensing and intellectal propert experience, analysis presented in this section, and my this cas, I conclude that the aforementioned the facts and circumstaces of understanding of intellectual propert, including trade secrets. compensation arangement is commonplace for the use of
7.1 Investment and Tax Strategy Compensation Structure

their overall loss to utilize the trade secret. That is, the users implicitly paid some portion (i.e., a royalty rate) the trade secret. the transaction to the providers and imp1ementors of of the expected benefits of
As has been previously discussed, the users ofthe Investment and Tax Strategy paid a percent of

A concept generally accepted by intellectual propert practitioners is that the owner of propert should the profits, revenue, cost savings) the potential benefits (e.g., an allocation of receive some portion of enabled by the intellectual propert they have created and given someone else the right to use. This thumb", which is discussed in the following concept is clearly stated in the well-known "25% rule of
section.
7.2 The 25% Rule ofTbumb

The need to split or share the anticipated benefits "pool" between an intellectual propert ownerllcensor and the user/licensee of intellectul propert has been recognized and endorsed by licensing practitioners,
Tax Court case law,2s.29.3o and Internal Revenue Service regulations.31 Several methodologies have been
used or suggested for achieving an appropriate split, and most of

these approaches, ultimately, attmpt to accomplish the same result: a division of anticipated benefits that is commensurate with the natu of the intellectual propert and the functions performed and risks assumed by each part to the transaction.
Within the aforementioned cases and regulations, profits have been apportioned using both objective and thumb is referred to as the 25% Rule.
thumb" suggests a licensee might regard one-four of

subjective methods. A common rule of

The so-called "25% rule of

its expected profits

. from products incorprang a given intellectal proper as a starting point in negotiating a license for
that propert. The theoretical foundaton of

thumb is that the licensor and licensee should "this role of share in the profitabilty of products embodying the patented technology r or other type of intellectul that the licensee should retain a majority (Le., 75%) of the profits propert). The a priori assumption is
because it has underten substaal development, operational and commercialization risks, contrbutd other technology/IP and/or brought to bear its own development, operaional and commercialization

7: Ciba-Geigy v. Comm'r, 85 T.C. 172,229 (Tax Court, 1985). 29 Bausch & Lomb v. Comm'r, 92 T.C. 525, 608, aftd 91-1 USTC 50,244 (Tax Court 1989).

30 Hospital Corporation of America v. Comm'r, 81 T.C. 520,601 (Tax Court, 1983).
31 Section 482 of

the Intenal Revenue Code (§482).
Highly Confidential Information Subject to the Protective Order - Attorney's Eyes Ony

Page 14 of20

016

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 18 of 33

contributions.,,32

with respect to deteImining how widely it is used or reflected in actual

This "rule ofthumb" has been frquently discussed and debated in licensing publications, parcularly licensing practice and the most appropriate meihod for its application. Robert Goldscheider has been one ofthe most prolific proponents thumb". He has acknowledged that it is a "rough tool" to be used in conjunction with other of the "rule of methods of analyses. In addition, Goldscheider et al. note, "IP is often pnced based on the enhanced that excess revenues and/or reduced costs that it generates versus th next best alternative. The extent of
(or incremental value), holding all else constant, may form the upper bound for the appropriate price." thumb," a rational licensee wil typically the "rule of the royalty implied by application of Regardless of implementing the the patent and the net cost of consider the net returns anticipated from employment of next best alternative to the patent as highly informative of a reasonable royalty.
The "rule of thumb" is not a rigid "rule oflaw" or a precise term ofm33 Use of the "rule of

thumb"

necessarily implies the intellectual propert in question maes some quantifiable contnbution to the

realization of profits, which is not always the case. However, it is not the only method used to determine many tools. Ultimate royalty a reasonable royalty. As Goldscheider et a1. observe, "The Rule...is one of rates often are higher or lower than 25 per cent of profits, depending on a host of quantitative and qualitative factors that can and should affect a negotiation (or Iitigation).,,)4 Said another way, the "rule
of

thumb" is one potential staing point only, and furter analysis should then be performed.

7.3 Publicly Available Trade Secret Licensing

In addition to considering trade secret compensation in litigation that is discussed in a subsequent section,
I have also considered publicly available licensing data. In that regard, I have reviewed sumares of20 publicly available license agreements that I obtained from Royalty Source, a compay that maintans an
intellectual propert license database. In five of

the licenses, patents compnsed a significant portion of
the benefits.

the licensed propert. In an effort to focus on trade secret licensing, I chose to exclude these five

agreements. Ultimately, I summarzed fifteen license agreement surnmaries in the following table; these
demonstrate that trade secrets are commonly licensed by sharing a portion of

32 Goldscheider, R. Jarosz, J., Mulhern, C., "Use Of

The 25 Per Cent Rule in Valuing IP," les Nouvelles, Decmber

2002. I will refer to this aricle hereaftr as "te Goldscheider et aI. aricle."
33 Razgaitis, R., Valuation and Pricing of

Technology-bad Intellectual Propert, 2003. 34 Georgia Pacifc v. United States Plyood Corp., 318 F. Supp. 1 i 16 (S.D.N.Y. 1970) rnodified and afrmed, 446

F.2d (2d Cir. 1971) This-case list 15 factors which should be considered in determining a reasonable royalty. These
factors include, but are not Iirnited to the commercial relationship beteen the licensor and licensee, rate paid in

the product utilizing the subjec technology, the utilty use of the invention by the licensee, and the amount that a wiling buyer and a willng seller would agr to in a hypothetical negotiation.
comparle rnarket trnsactions, the comrnercial succs of the invention, the benefits of and advantages of the invention conveyed to the licensee, the probable extent of

Highly Confidential Information Subject to the Protective Orr. Attorney's Eyes Only

Page 15 of20

017

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 19 of 33

1''' Seciet Licaiti..
Liccnic

Lieciei
BiD Bsp Ltd.
Huiin AD

0..
"'/ia'
513/t98.

Lícela PrD-l

A..tø Pin. Fna La
C~wid1lnç.
Crup B.nei S'piimiliic.

ØalpiyiAt .,ia

~ N_
,..

O.í6% ao.. ø...: Au..d Gio.. Re_ui

s. "san cLIrDc~.
Bu_a _dt Rhd ui bJr I1lCrl",
..ai "Cru 8_.-, ...iM

t.c Upl-l fer. $5,0 Ro.i1J ø...: Hel s.
Pnc.M___ lly. nm,ø
3.~ I\pk l- 8i fCCIl 10,0.0 __ of

BceT Co_URiIi Corp

a/t/zoi

._~arr.cm"
DP EnUt Ine.

__..c:_ii,si.ol._ lOya" 1f or$s.o -i Mu_ cflio..
Ro Bale Net IrKma

TeIeMe Inlci:.ii.i

G....
Vari.

7/n/lm
5/29/1986

TI ccmcc of wi. peai "Mc.nl

10 pw... mUl. in.

fuininiiic.

Mu.pm know.how

...
0...'"

Ro,. Be Gra.i sø., AciiMi l% IOIJ

fee.n C.. s....1t .._1 M;

Iritift... fe .12S.1 netplU&"

In~i.lc.rp

InroCnt (A......) ~~

2/14/200

Kn_Ii_ rd-l to ~n leiM pØJ"¡dcr.vimicaCl.telean cl.l- ~__. iciluol
Sorrw."

Ro ø...: L-. Upri- Fn- l25O.o

IQNeICorp.

Virtu Teleom I...
5diolanic Inc.

2lr/199S
1997

,...
12..

Royaty s.: Ne. s..
Ro Bu GI' Sai. Th. is . fta.blo

MWlMctr I*:.
MetD Co_1tacr l.td.

Lec i-i difl tu

""dr ..Ie l..& r.... 10% 10 15%.
12/17/1Ol
4,6/ZO3
3/1/l9fJl

VarUl
Ecw £ntflln. Group

M.1klreeahlao,..~
8t1.;..~ ....dd. prcrWb" .l-Ii~.t1d

'S..

R.)' Bue Sù
ccnYblc pslcac sbues
Røph Ba~ Ni Lv~ 150.0 0.. A

NetiiL: Inc.
Soda A1i:. $.

I~.

..~..

2..
0.15%

SoexM Nutotl 5... Inc.
Ho.t lni.røeå-l I.e.
£_-l hoi.

Min....nt Iu.,Ja.
MN.pml'nt knw-how

Roya Ban: Grii i-..

Si.urIcCot.
Sya'Y..
T.ipo c:.i:._.

1/3/1998

2._

3/3l/1l91
3/2')/1991

Taçhnau. .-1i.luw
M__rm-Ð 1:-n.'W eM tø_r"

i_
~OO

. JI We. of plO.. bå

Royeiy B_: Go i. 5% rodJ nle on

Roty B- Ga. s.i.. nu".. _iii.
lO.lry flte -l flUii i,., to S%
R.,a B_: CoIl aeu..

Gro lll.

eo eo..niun.ti.

So"""$: ll.l..ru l..u.Cl_l r.opC11J D.i.buc: ~l. on liril i. ZO? (or "Bwu_1ohihd".

As evidenced from the above table, which also appears in Exhibit C, in real-world ars-length licensing
situations the royalty base is commonly some measure of secret. Additionally, some percntage of the potential benefits enabled by the.

trade

this potential benefit, however the specific paries choose to

measure it, is allocated between the licensor and the licensee though use of a royalty rate.
In much the same way the COBRA Investment and Tax Strategy allocates the benefits between the owner
and those utilzing the stategy.

7.4 Trade Secret LicensIng as a Result of

Litigation
thumb" and publicly available trade secret licenses, I next looked at
trade serets.
in real world licensing scenarios in asessing

After investigating the "25% rule of

the methodologies employed by the Court in cases involving the misappropriation of

While I understand this case does not involve the misappropriation of any trade secret, the following
information indicates the Cour often emulat what is seen trade secret damages - an allocation of

the benefits enabled by the asset between the licensor and the benefits, such as cost saving, realized by licesee. This reinforces, once again, that a percent of utilzing a trade secret is an appropriate and widespread licensing technique.

Highy Confidential Inforation Subject 10 the Protective Order - Attory's Eyes Ony

Page 16of20

018

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 20 of 33

By at least 1978, 80% to 94% of licensor.3s Additionally, the majority of

technology licenses utilze a ruing royalty rate to compensate the
technology that is trsferred within the U.S. is not patented.

Such unpatented technology is defined and protected by the trade secret laws of States. The value of

the 50 staes in the United

Circuit the Seventh Cour of Appeals in Rockwell Graphic Systems Inc. v. Dev. Indus. Inc. He discussed trade secrets and intellectul propert, stated: "It is an importnt case because trade secret protection is an importt par of
trade secret protecion was summarized by Judge Posner of a form of

propert that is a growing importce to the competitiveness of American Industr.'.36

An excerpt from the 1985 Amendments to the Uniform Trade Secrets Act discusses damages
quantification using royalty rates:37

In lieu of damages measured by any other methods, the damages caused be misappropriation may be measured by imposition of liabilty for a reasnable royalty for a misappropriator's unauthorized disclosure or use of a trade secret.

Furtermore, it is clear that case law agrees that "damages recoverable in action for misappropriation of trade secrets may be measured either by plaintiffs losses or by profits unjustly received by defendant.,,38 This sentiment is reiterated iii many cases, including:
. University Computing Company v. Lykes-Youngstown Corporation;39

. "Generaly, proper measure of damages in case of a trade secret appropriation is to
be determined by refernce to analogous line of cases involving patent

infringement, just as patent infringement cases are used by analogy to determine damages for copyright infringement."
. "If defendant enjoyed acal profits from misappropriation of

trade secret, a tye of

restitutionar remedy can be afforded plaintiff, either recovering the full total of

defendant's profits or some apportioned amount designed to correspond to the actual contribution plaintiffs trade secret made to defendant's commercial
success."
. Vermont Microsystems, Inc v. Autodesk, Inc.;40

. "To approximate the paries agreement, had they bargaied in good.faith at the time
of the misappropriation, the trier of fact should consider such facrs as the
resulting and foreseeable changes in the paries' competitive postue; the prices

the secret to the the the use the defendan secret to the plaintiffs business; the natue and extent of inteded for the secret; and finally whatever other unique factor in the paricular case which might have affcted the paries' agreement, such as the ready
past purchasers or licensees may have paid; the total value of plaintiff, including the plaintiffs development costs and the importce of

availabilit of alternative processes."

35 Finnegan, Marcus B., Mintz, Herber H., "Determination of a Reasonable Royalty in Negotiating a Licese

Agreernent: Practical Pricing for Successful Technology Transfer" Licensing La and Business Report, June-July
1978. 36 Jager, M., Licensing Law Handbook, 200-2007 Edition, 41-42.
37 Section 3(a) of

the 1985 Arnendments to Uniform Trade Secrets Act. 38 A.F.A. Tours Inc. v. Whitchurch; 937 F.2d 82. (C.A.2 (N.Y.), 1991).
39 University Computing Co. v. Lykes-Youngstown Corp.; 504 F.2d518. (CA.Ga., 1974).
40 Vermont Microsystems. Inc v. Autodesk, Inc.; 88 F.3d 142. (C.A.2 (Vl), 1996).

Highly Confidential Informion Subject to !he Protective Order - Attorney's Eyes Ony

Page 170f20

019

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 21 of 33

. LinkeD, Inc. v. Fujitsu, Ltd.;41
. "There are two obvious ways to calculate plaintiffs damages. First, damages may
be measured according to any losses plaintiff measurd by the defendant's unjust ennchment as a result of

suffered... Second, damages may be

the misappropriation. Unjust enrchment is meaured by the profits the defendan obtained from using the trade secret."

· "A reasonable royalty may be computed in various ways, including a lump sum royalty based on expected sales or a running royalty based on a percentage of
actual sales."

. Softel, Inc. v. Dragon Medical and Scientfic Communications Ltd.;42

· "Both plaintiff and defendants suggest in their pre-trail briefs that a 'reasonable royalty' or license fee determination might be an appropriate measure of damages."
The cases above ilustrate that reasonable royalties are regularly utilzed in legal settings. Additionally, it
is clear that a portion of

the expected or realized benefits is frequently used to value trade secrets. It

should come as no surprise that this method is cçmceptuaIIy similar to the benefit allocation described by the 25% rule, and to the benefit allocation though use of a royalty rate as seen previously above in the publicly available trade secret licenses.

i.

41 Linkeo, Inc. v. Fujitsu. Ltd.; 232 F.Supp.2d 182. (S.D.N.Y., 2002).

42 Sofie/, Inc. v. Dragon Medical and Scientifc Communications Ltd.; 891 F.Supp 935. (S.D.N.Y., 1995).
Highly Confidential Infonation Subject to th Protective Orer. Attor's Eyes Only
Page 18 of20

020

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 22 of 33

8. CONCLUSION
It is my opinion, basd on the information reviewed to date~ that the Investment and Tax Strategy implemented on behalf of Zucker and Boyd had the characteristics of a trade secret at the time the
strtegy was implemented. The COBRA trsaction was apparently not generally known in the financial and ta services indust and it was appaently suffciently secret as evidenced by the confidentiality
statements. Fw1her, reasonable security measures appeared to be in place, and the Investment and Tax
Strategy had not only potential value, but real value, as ilustrated by the wilingness

v

of Zucker and Boyd

to pay for the invention.

Additionally, it is evident from the preceding discussions of the 25% Rule, trade secret litigation, and the benefits enabled by trade ars-length trade secret licensing agreements, that apportioning a percent of secrets between a licensee and a licensor is a common formula utilzed in trde secrt licenses.
The 25% Rule is one of

the most commonly used techniques in licensing. While it is frequently used as a staing point to determine royalty rates for patent licensing, it is also applicable to trade secrets.
Furtermore, the benefits allocation concept embedded in the "25% Rule" is actually practiced in real

world arms-length trnsactions. The trde secret licensing examples frm the Royalty Source database unequivocally demonstrate that licensors and licensees regularly enter into trade secret licensing that
utilze a royalty rate that represents a portion of

the benefits. Lastly, it is instructive to look to the Courts
the benefits to the owner of

to determine a value assessment methodology. Research indicates that the Cour have regularly looked
to resolve misappropriation disputes by allocating a porton of

the trde

secret.

From the preceding analysis and based on the information reviewed, my opinion is the Investment and Tax Strategy had the characteristics of a trade secret at the time the strategy was used. Moreover, assurning the Investment and Tax Strategy was believed to provide real or potential benefits, an the tax aspect ofthe Investment and Tax Strategy would have appropriate way to compensate for use of been to charge a percent of the realized or potential ta benefits in the form of a royalty rate applied to a
royalty base.

Highly Confidential lnfonnation Subject to th Protectve Order. Attorny's Eyes Only

Page 19 of20

021

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 23 of 33

9. SIGNATURE
I declare under penalty of perjury that the foregoing is true and correct.
Respectfully submitted,

Melvin F. Jr.

Æ:t

6/;/9/ ¿??
Date

OCEAN TOMO
1:\'T:i.i.ix."IAI. C;\PlT,\I. EQUITY

Q

200 West Madison, 37th Floor

Chicago, Ilinois 60606
(312) 327-4400 Ph (312) 327-4401 Fx www.oceantomo.com

Highly Confideptial Inlannatian Subject to the Protective Order. Attorney's Eyes Only

-- Page 20 of20

~

i. ~~.

0; -

022

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 24 of 33

Q INTELLECTAL CAITAL EQUI1Y

Exhibit A

Highly Confidetial Infonnation Subject to th Protectve Order'- Attorn's Eyes Ony

023

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 25 of 33

MELVIN F. JAGER CURRICULUM VITAE
Januar 1,2007

president of

Melvin F. Jager is a practicing intellectual propert lawyer, consultant and expert witness. He is the past The Licensing Executives Society International; the Licensing Executives Society US and Canada; and the LES (US and Canad) Licensing Foundation. In 2004-2005 he was a Managing Direor of
Oce Tomo LLC, an Intellecl Capit Merchant Bank and Financial Consulting firm. From 1965

thugh 2004 he was engaged in the private pracce of intellectal propert law for 35 years as a senior

the the firm of Brinks Hofer Gilson and Lione in Chicago, Ilinois, where he was chair of rnember of Licensing Practice Group. His law practice concentrated in IP litigation, patent prosecution, licensing and general IP counseling. He has participated in litigation and licensing activities throughout the United States and in other countres. He also continues to act as an exprt witness in patent and trade secret lawsuits, and
as an arbitrator in international

licesing disputes.

Mr. Jager is the author of a leading three-volume ttetise on Trade Secrets Law which has been published New York since 1981. He is also an author and editor of the three-volume Publishing of annually by West treatise entitled Trade Secrts Thrughout the World This international treatise involves contrbuing
authors from 36 countres and was introduced by West Publishing in 2005. He is furter the author ofthe

the treatises and texts are updated annually. Mr. Jager has written other numerous additional articles on patents, trade secrets and licensing. He also has presented speeches on IP and licensing in rnany countries throughout the world, including presentations and articles for The Licensing Executives Society, the Practicing Law Institute, the John Marshall Intellectual Propert Law Institute, the LES Technology Transfer Institute, and the Japan Institute for Invention and Law at the Patet Law and Litigation in the College of Innovation. Mr. Jager was an adjunct professor of University of Illnois at Urbana-Champaign, and formerly taught Trade Sec Law in the Masters Level
Licensing Law Handbook published by West in 2005. Each of

Program at The John Marshall Law School in Chicago. He also has bee an adjunct profesr and guest
lecturer in patents, trade secrets and licensing at the Law School at the University of B.C. and at St Peters College of

Victoria, in Victoria

Law at Oxford University in Oxford, UK.

In his positions in the Ilinois Bar and the American Law Insttute he was the major proponent of Ilinois 'Frae Secret Act and an advisor for the Resttement of codifying the rnodern cornrnon law of the Law of

the Unfair Cornpetition (1995)

trade secrets.

Prior to becoming active in The Licensing Executives Society, Mr. Jager was chair of

the IP Litigation Comrnittee for the Litigation Section of the American Bar Assciation, chair of the Patent Trademark and Copyright Section of the Ilinois Bar Association and president of the Intellecua Propert Law
Chicago. He is also a rnernber of

Association of

the American Law Insttute.

EDUCATION

B.S. in Mechanical Engin'eering, University of

Ilinois Urbana-Champaign,

1960
University of Ilinois College of

Law, JD in Law, 1962

EXPERIENCE

Managing Directr, IIClMIB Ocean Torno, 200 -2005

024

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 26 of 33

Parter/Shareholder, Bnnks Hofer Gilson and Lione, Chicago, llinois, 19651980 and 1985 to 2004.
Parter, Niro, Jager and Scavone, Chicago, Ilinois, 1984-1985.

Parter, Lee, Srnith and Jager, Chicago, Ilinois, 1981-1984.
Associate, Irons, Birch Swindler and McKie, Washington D.C., 1962- 1 965

Mernber, llinois and Distrct of Columbia Bars; adrnitt to pracice before the

United States Suprerne Court the Cour of Appels for the Federal Circuit and other Distict and Appellate Courts, and the United States Patent and Traemark ' Offce.

TEACHING POSITIONS

Law, Champaign Law, Univerity of Ilinois College of Urbana, lIinois (patent Law and Patent Litigation) 1992 to 2004.
Adjunct Professor of

Adjunct Professor, The Joh Marhall Law School, Chicago, Ilinois (Masters Level Trade Secrets Law) 1991-1992.
Adjunct Professor of Law, Nortem Ilinois (Lewis) College of

Law (Patent

Law),1978-1979.
Visiting Adjunct Professor of Law, University ofVictorIa College of

Law

rrrade Secrets and Licensing Law), 2003.
Visiting Adjunct Professor of

Law, Oxford Law, St. Peter's College of University (patent, Trade Secret and Licensing Law), 2003.

PROFESSIONAL ACTIVITIES

Licensing Executives Society International, Past President 2003-2004, President 2002-2003; President Elec 2001-2002; Treaurer 1998-2001, International Delegate 1988-1998; Co-Chair, International Activities Comrnittee
(LESIAC), 1994- 1 998; Co-Chair Endowment Committ 2004-present; speer on Patent and Trade Sea Licensing at LESI International Conferences or
rneeings in the Unite St, Japa, Korea, Gerany, Australia, Hong Kong,

Singapore, South Africa and Mexico.

Licensing Executives Society US and Canada, Past President 1994-1995;
President 1993- 1994; President Elect 1992- 1 993; Vice President, Central

Region 1990-1992; Truste 1988-89; Chair, Annual LES Meeting in Hawaii on

Technology Prtection and Transfer in the Pacifc Rim, 1989; Workshops Chair, LES Annual Meeting in Los Angeles, 1986; Co-Chair, LES Regional Meeting
1982; Lectrer on Patent and Tra Secret Licensing at LES Technology
Trasfer Institute, 1986-1995;

Licensing Executives Society Foundation, Founding rnernber and President, 2000 to 2004.
American Bar Association Litigation Seetion, Chair ofIntellectual Propeies Litigation Committe, i 985-1989; Chair and Moderator of seminars on trial
2

025

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 27 of 33

procedures and demonstrtions in patent, trde secret and copyright trials and

the exarnination of expert witnesses; lecturer, Computer Law Seminar.

American Bar Association Intellectual Propert Law Section, Chair, Tax and
Environmental Law Cornrnittes, Chair and Moderator for Serninar on Jur

Selection in Patent Cas; Annual Meeting Speaer on The Prtection of
Confidential Informion beeen Ernployers and Ernployees.

Amencan Bar Association Fellow
Illnois Bar Association, Chair of Patent Tradèrnark and Copyright Council,

1983-1984; Chair, Trade Secret Law Committ, 1984-1985; Chair of Committee to Revise and Propose the Ilinois Uniform Trade Secre Act, 19871988.

Amencan Intellectual Propert Law Asciation, Speaer at AIPLA Computer Law Institute, 1992 and Mid-Winter Meetings, 1989 and 1991.

Intellectual Propery Law Association of Cbicago, President, 1997-1998; President Elect 1996-1997; mernbe of the Board of Goverors 1995-1997;
Chair, IPLAC Annual Dinner in Honor of

the Federal Judges.

Practicing Law Institute, Chair, Trade Secrets Law Symposium, 1987-1989; Speaker, Technology Licensing Syrnposiurn, 1987- 1 990; Mernbe of PLI
Intellectual Propert Law Advisory Board.
Tbe Soutbwest Legal Foundation, Speaker on Trade Secrets Law Update,

1982-1983.
Tbe John Marshall Intellectual Propert Law Institute, Speaker on Review
of

Trade Secrets Law, 1984, 1987, 1990 and 1998.

Amencan Law Insttute, Consultat on the Restatent (Third) of

the Law of

Unfair Cornpetition restating Trade Secrets Common Law, 1995.
Japan Institute for Invention and Innovatin, speker on Patents and
Licensing,

2003-2004

PUBLICATIONS

M. Jager, TRDE SECRES LAW, the volurne treatise published by West
Publishing, Inc. of

New York.

M. Jager, TRDE SECRETS THROUGHOUT THE WORLD, three volume tratise published by West Publishing, Inc. of New York

M. Jager, LICENSING LAW HANDBOOK, published by Wes Publishing, Inc, of New York
M. Jager, A Cornparison of

Trade Secrets Laws in Asia, Lea Nouvelles (June

1997).

M. Jager, The Enforcernent of Hybrid Patent and Trade Secret Licenses, Les
Nouvelles (1984).

3

026

Case 1:05-cv-00231-EJD

Document 157-5

Filed 03/07/2008

Page 28 of 33

M. Jager, The Rights to the Trae Secrets and Ideas ofErnployees and Third Paries, ABA Monograph (1980).
Contributing Editor, Developments in Intellectal Propert, The John Marshall

Law School (198