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Thursday, March 22, 2007

Oracle sues SAP and its TomorrowNow unit

Today, two days after it announced third quarter blow-out quarterly results, Oracle filed suit against SAP for massive theft of its intellectual property. The complaint targets activities of SAP's TomorrowNow subsidiary, which offers third-party support for several of Oracle's products, namely, PeopleSoft, J.D. Edwards, and Siebel.

The allegations
The complaint, filed in U.S. district court in San Francisco, alleges that TomorrowNow (TN) personnel repeatedly accessed Oracle's customer support system, using customer passwords, to download thousands of support documents, bug fixes, and other Oracle property, allowing TN to build its own library of Oracle materials to use in servicing customers that do not have Oracle contracts.

If what Oracle claims is true, it doesn't look good for SAP. It appears that Oracle has been monitoring server logs for its customer support website going back to last November and has come to a number of conclusions:
  • Oracle claims that TN personnel used the login credentials of customers who were ending their Oracle maintenance contracts to download materials related to products those customers hadn't even licensed. (Apparently, Oracle does not check which products the customer has license rights to when providing access to its support site.)

  • Oracle claims that TN personnel accessed Oracle materials from TN's offices, which are connected to SAP's worldwide network. The filing doesn't say so, but the question arises--did any of these materials find their way into the rest of SAP's organization? I'm sure Oracle will be asking a lot of questions along this line during discovery.

  • Oracle claims that TN used automated methods to search and download entire libraries of material. The number of requests was so many that it is not feasible that a user could actually review the results of each request before going on to the next.

  • Oracle claims that TN downloaded materials intended only for Oracle's internal use. (It is not clear why such documents would be accessible through Oracle's customer support site.)
To be clear, Oracle does not appear to be claiming that it would be illegal for TN to access materials on behalf of and in support of customers' existing Oracle contracts. The complaint is focused on TN allegedly using its customers access to build a library of support software and documentation, saving itself the expense of duplicating Oracle's effort.

What were they thinking?
Could SAP be this stupid? I've interviewed Andrew Nelson, CEO of TN, in the past, and I always had the impression that they were quite sensitive to potential legal issues. I would have thought that TN would try to be super-clean about how it handled Oracle's property. Of course, Oracle's complaint presents one side of the story. On the other hand, it's hard to believe that Oracle would be making this up.

Certainly, TN can't say they didn't know Oracle was watching them. Two years ago, when SAP acquired TN, I noted that Larry Ellison was threatening legal action. At that time, he said:
SAP has every right to provide support for PeopleSoft applications as long as they don't violate our intellectual and contractual property rights. It might make it awkward for them. That's our intellectual property, and they should be cautious.
Oracle does not seem to taking aim at any of the customers or former customers that appear to have allowed TN personnel to use their access credentials, although Oracle would probably have a pretty good case, especially if customers knowingly allowed TN to misappropriate passwords. From a public relations standpoint, however, I don't think Oracle wants to be suing customers.

Implications for the third-party support industry
The other side to this story is what it means for the nascent third-party support industry. Other providers, such as Rimini Street, are also growing software contract maintenance businesses. Ironically, Oracle itself has a partnership with SYSTIME to provide third-party support for SAP. To some extent, any consulting firm that provides tech support to Oracle's installed customers could be considered a competitor to Oracle in its maintenance business, although few of them offer what could be considered replacements for Oracle support. Oracle has never acted like it feels threatened by the host of small players that offer services to its customers. A thriving support community can be considered a sign of a vibrant ecosystem around a software vendor.

I've been sympathetic to third-party service providers, such as TN and Rimini Street, because I think they serve as a counter-balance to software vendors that might otherwise become greedy with customer support dollars. I would hope that there could be a thriving industry of third-party providers, but clearly they need to do so without misappropriating the intellectual property of others. If Oracle believes that SAP has stolen its intellectual property, Oracle is right to take legal action.

If even a portion of the allegations are true, it would appear Oracle has a strong case against SAP. Oracle is seeking injunctive relief: it is asking the court to order SAP to stop doing what Oracle says it is doing and immediately to return all materials it has allegedly stolen. It is also asking for unspecified punitive damages, restitution of ill-gotten gains, damages, attorneys' fees, and other compensation. The complaint also indicates that Oracle is in the process of filing copyright registration for materials, which if Oracle is successful in its litigation, may entitle it to statutory damages for copyright infringement.

You can read Oracle's complaint on the Wall Street Journal website.

Update, Mar. 23. Some commentators (Motley Fool, InfoWorld), are comparing SAP's alleged actions to Oracle's actions in appropriating Red Hat's Linux distribution for Oracle's own Linux support services, undercutting Red Hat's pricing in the process. Such comparisons miss the point: Red Hat's licenses allow (actually, must allow) redistribution of materials licensed under open source licenses. Oracle's license agreements expressly do not. Oracle is an aggressive competitor, but its actions toward Red Hat do not misappropriate Red Hat's intellectual property.

Related posts
Oracle/SAP lawsuit: view from Rimini Street
SAP subject to criminal charges?
TomorrowNow a threat to Oracle's maintenance business?
Rimini Street expands 3rd party maintenance for Oracle products
Oracle faces threat to Siebel maintenance fees
Ellison threatens SAP regarding PeopleSoft support
SAP to provide maintenance for PeopleSoft products
High software maintenance fees and what to do about them

by Frank Scavo, 3/22/2007 01:24:00 PM | permalink | e-mail this!

 Reader Comments:

The ORCL vs. SAP suit echoed the suit i2 filed against SAP in Sep. 2006 for infringement of i2's 7 very important patents involving some 250 cases.

i2 is seeking court injunction and may even ask for damage compensation too.

It's the behavior pattern of SAP that got them in trouble and they only have themselves to blame.

SAP had done lots of unfair/damaging deeds against i2 and i2 vowed to get justice as soon as they got their house in order and they did....
Frank, you seem very pro-SAP in your postings. I am neither for or against but clearly Oracle chose to take the steps of a lawsuit because it is SAP. Are they wrong for sitting back and collecting evidence? I think not! If accused without evidence SAP would simply deny.
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