In response to a competitor's suit, German software giant acknowledges its subsidiary crossed the line.
Posted Jul 3, 2007
In a response filed yesterday in federal court, SAP acknowledged that a subsidiary had wrongly accessed files and electronic documents belonging to Oracle Corp. The filing was the German software giant's first official response to a complaint filed by Oracle in March 2007.
Oracle's lawsuit against SAP, SAP America, and TomorrowNow--originally filed on March 22, 2007, and then amended on June 1--alleges copyright infringement and breach-of-contract, along with fraud, unfair competition, and civil conspiracy. SAP's filing reveals that the subsidiary, TomorrowNow, a Texas-based software support service, had utilized unauthorized access to Oracle support systems in late 2006 and into 2007, in order to obtain documents for TomorrowNow clients that were users of Oracle software.
In a statement released to the press, and in a conference call held Tuesday morning, SAP chief executive officer Henning Kagermann and other SAP executives repeatedly stressed that although there were some documents illegally downloaded by TomorrowNow, most were accessed legally and SAP itself never had possession of or access to any information contained therein. "Even a single inappropriate download is unacceptable from my perspective," Kagermann said, in a written statement. "We regret very much that this occurred."
Despite the admission, Kagermann told CRM magazine that SAP continues to downplay Oracle's legal assertion of damages. "We denied in our filing that harm occurred to Oracle because we believe that downloading the support material is not harm[ful] to the company." Kagermann did note that while downloading support materials is a normal procedure, the downloading that took place was considered illegal because the material obtained was "more than should have been downloaded" and "customers [in the complaint] should not have had access to those documents."
During the company's conference call, Kagermann said that, of the 150-plus allegations made by Oracle, many of the key points "appear to be unfounded." The complaint regarding SAP's access to TomorrowNow's downloaded content has no evidential support, he said, and, in fact, did not occur because of the firewall that blocks such information from crossing over between SAP and its subsidiary. SAP is continuing to conduct internal investigations but Kagermann said he was unable to report how far along the process was. He also stressed that SAP has resolved to employ new operational oversight at TomorrowNow and is taking measures to ensure that customers will not experience any service disruptions.
Kagermann made clear during the conference call that SAP's primary concern is the effect of this lawsuit on its customers. "[SAP customers] trust the reputation of SAP and [the illegal action] was something that was done by employees of TomorrowNow and not by employees of SAP," he said, adding that even TomorrowNow's customers shouldn't be too concerned.
The emphasis on service comes as no surprise to industry observers. According to William Band, principal analyst at Forrester Research, "the battle front has shifted from product innovation and winning new customers to protecting the maintenance and services revenue streams from each company's customer base. Therefore, neither side can tolerate tactics that allow the other to gain deeper access to the other's customers." He adds, "this dispute is a symptom of the larger challenge faced by the two CRM applications market leaders: a largely saturated CRM market among enterprise-class customers, and the close parity of the respective Oracle (Siebel) CRM and mySAP CRM products."
The charges of customer poaching are central to Oracle's suit, which alleges that the downloaded files were an attempt by TomorrowNow to essentially "woo" away some of Oracle's customers, as part of the increasingly popular third-party maintenance market. Band recognizes that by relying on TomorrowNow as its proxy in that market, SAP wanted to deploy a "tactic to create a competitive 'wedge' in an account to distance buyers from the original vendor." Oracle, Band says, "cannot tolerate this threat to its customer base and is pushing back hard with legal tactics to discourage customers to consider TommorrowNow as a legitimate product support option."
Despite all the accusations, Kagermann believes that TomorrowNow can still stay competitive in the market. He states that since no evidence supports the allegations that the downloaded materials were used for any illegal gain, there cannot be an accurate measure on the negative impact on the company's competitiveness. Nevertheless, SAP announced steps to burnish TomorrowNow's image. SAP America Chief Operating Officer and former Chief Financial Officer Mark White has been appointed as TomorrowNow's Executive Chairman, and the company promises to enforce existing procedures, implement new policies, and begin renewed training for employees. Kagermann says that he has full confidence that White will be able to lead TomorrowNow through this ordeal. "We trust in Mark that once he starts overseeing the operations, there won't be anymore inappropriate downloads," he adds.
In response to SAP's filing, Geoff Howard, counsel for Oracle, released a statement acknowledging SAP's "repeated and illegal downloading of Oracle's intellectual property." Howard's statement reaffirmed the intent of the suit: "Oracle filed suit to discover the magnitude of the illegal downloads and fully understand how SAP used Oracle's intellectual property in its business." The next step is scheduled to take place on September 4, with a case management process during which all parties involved are due to discuss possible alternative conflict resolutions.
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