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In re Oracle Corp. Derivative Litigation11/24/2004
hat Ellison should have realized that Oracle was going to fall miserably short of the mark, because December had been a dismal month that portended a poor overall quarter.
The problem with their argument is that it is not rationally supported by record evidence.
For starters, the plaintiffs can't play pretend. As much as they would like to imagine otherwise, they need to accept that the Covisint transaction occurred and that it generated real revenue that counted towards Oracle's achievement of the Market Estimates. It was solid revenue that Ellison knew would help Oracle make the mark.
Counting that real revenue, Oracle's total license revenue for December 2000 constituted $240 million or approximately 18% of the $1.31 billion license revenue forecasted in its Market Estimates. A figure of 18% was not a disturbing one that was out of line with past experience. As discussed, the third month of each quarter was the most important one.
First months of quarters were not regarded by Oracle insiders as an accurate predictor of final quarterly performance and the plaintiffs have adduced no rational evidence suggesting that an accurate prediction of Oracle's final quarterly performance can be made from first month results. In 3Q 00, for example, Oracle's December license revenues constituted only 17% of its estimated quarterly license revenues. Yet, Oracle went on to achieve its estimate for that quarter.
The prior December was not aberrational as far as Oracle "first months of quarters" went. For the 22 quarters preceding 3Q 01, Oracle had, on average, achieved 14.5% of its license revenue in the first months of quarters. That percentage is identical to Oracle's December 2000 license revenue as a percentage of the Market Estimates, excluding Covisint entirely. But, of course, to exclude Covisint entirely is to ignore reality. Although it was Oracle's biggest deal, Oracle had landed big contracts before. To account for that, any reliable analysis of the contributions of past first months as a predictor of performance in 3Q 01 would also have to exclude any very large transactions that happened in those quarters, too; otherwise, the total exclusion of Covisint would be entirely unprincipled.
For the sake of completeness, it is worth noting that even if half of the Covisint deal was excluded, Oracle still achieved 16% of the Market Estimates' license revenue projection - a percentage almost identical to that achieved in December of 3Q 00, a quarter when Oracle hit the target. This assumption - which I viewed to be unwarranted as a matter of business reality and law - demonstrates that Oracle's December performance was not out of line with recent experience during quarters when it met its quarterly projections.
In sum, the record indisputably indicates that Oracle in fact achieved 18% of the license revenue growth projected for 3Q 01 in December 2000, a level of success that was consistent with its performance in preceding quarters in which it managed to meet its revenue target. And, even without Covisint, Oracle's December 2000 performance equaled the average of first months for the preceding 22 quarters. Thus, the December 2000 results are precisely the sort of intraquarter data that courts have considered immaterial, as they did not create any substantial likelihood that Oracle would fall short of the Market Estimates.
Lastly, it should be unsurprising that the December 2000 results were not of great concern to Ellison, Henley, or Minton. With Covisint, Oracle had clearly dropped enough revenue in the license bucket to be on the way to filling it at the end of the quarter. What Oracle insiders were most concerned with w
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