• November 24, 2010
  • By Juan Martinez, Editorial Assistant, CRM magazine

SAP to Pay Oracle $1.3 Billion in Damages

German software company SAP will pay industry rival Oracle $1.3 billion as a result of their highly publicized legal battle. The trial, which began on November 1, stems from a 2007 lawsuit filed by Oracle claiming a now-defunct SAP subsidiary named TomorrowNow had stolen software and copyrighted material from an Oracle Web site. Initial Oracle filings claimed the case was “about a conspiracy, led by German software conglomerate SAP AG, to engage in and cover-up corporate theft of Oracle intellectual property on the grandest scale.” SAP, which admitted contributory liability but argued it should pay no more than $40 million in damages, will ultimately pay less than the $4 billion dollars for which Oracle originally sued. SAP has claimed all along that its board members had no knowledge of TomorrowNow’s transgressions.

(Editor's Note: For past CRM coverage of the Oracle/SAP trial, view the related articles below.)

“For more than three years, SAP stole thousands of copies of Oracle software and then resold that software and related services to Oracle's own customers,” said Oracle President Safra Catz in a post-trial statement to the media. “Right before the trial began, SAP admitted its guilt and liability; then the trial made it clear that SAP’s most senior executives were aware of the illegal activity from the very beginning.”

Oracle’s contention was that SAP executives knew of TomorrowNow's illegal access to files and electronic documents belonging to Oracle prior to SAP's 2005 acquisition of TomorrowNow, which was at the time a provider of services for Oracle PeopleSoft users. In the suit, Oracle stated that it warned SAP in a pre-acquisition presentation given by TomorrowNow executives that apparently “made clear that TomorrowNow did not operate legally.” Oracle also claimed SAP AG potentially ignored the threats to reap the benefits of TomorrowNow’s maintenance revenue and future application sales of PeopleSoft. (TomorrowNow stopped its operations in October of 2008). 

“They want as much money as they can get from us,” said SAP Spokesperson Jim Dever prior to the ruling. “We have accepted that there was inappropriate behavior of individuals at TomorrowNow and we have maintained all along that the SAP board was unaware and that when we were alerted to it we took action and wound down the operations.”

Dever contested that Oracle should receive damages totaling roughly $30 million, a number he attributes to several factors: TomorrowNow never had more than 358 customers, SAP only paid $10 million for the company, and it was never profitable. Dever claims SAP could only identify 2 customers who switched from Oracle to SAP as a result of working with TomorrowNow.

“TomorrowNow is not the reason [the other customers switched to SAP],” Dever said. “The [customer examination] shows that customers would have left Oracle anyway. We should not be liable for every customer Oracle lost to SAP as it lost them for many reasons.”

A section of the SAP statement following the verdict reads as follows:

“The mark of a leading company is the way it handles its mistakes. As stated in court, we regret the actions of TomorrowNow, we have accepted liability, and have been willing to fairly compensate Oracle.”

SAP will now pursue all available options, “including post-trial motions and appeal if necessary,” according to the statement.

Paul Hamerman, vice president of enterprise applications at Forrester Research, says he didn’t believe the jury would award Oracle so much money.

“I’m really surprised at the size of the verdict,” Hamerman says. “The jury felt this was the fair market value of the software and SAP was unable to convince them to use a different valuation method.”  

Hamerman originally predicted SAP would likely have to pay $40 million and he says he wonders if the complexity of the third party software industry affected how the jury rendered its verdict.

“From a distance I would have to question whether the jury understood the business model,” he says. “One of the jurors was an auto-body technician and although the jurors spent so many hours in the courtroom it’s difficult to say whether or not they [ultimately] had a technical understanding of the software.”

Denis Pombriant, principle at Beagle Research, blogged that he finds the award just but argued that the issue is more complicated than right versus wrong.

“I agree with the decision,” Pombriant blogged. “You have to pay for what you use.  On the other hand, though, the existence of the third party in the first place poses an interesting question for everyone and casts a shadow on the conventional software business model.”

Pombriant predicted in his blog that this verdict will be a “milestone in the march to cloud computing,” because “the conventional enterprise software paradigm is hugely expensive and unsustainable in the long term.”

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