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Monday, February 17, 2014

Oracle's Partial Victory Against Rimini Street and Customer Implications

The US District court in Las Vegas issued a ruling in the Oracle vs. Rimini Street lawsuit last week. Oracle issued a press release on it this morning, pointing out the parts of the ruling in Oracle's favor, but did not provide a complete view. I've since received an actual copy of the Court's ruling and have had a chance to digest it.

I've contacted Rimini Street, and they indicate that a statement will be coming later today.  I'll update this post when I receive that.

Summarizing the Court's Findings

The Court's rulings are complex, as is fitting in this case (full text here). Let me summarize them as I see them:
  1. The Court's ruling is largely focused on Rimini Street's alleged copyright infringement of Oracle's PeopleSoft software in serving four customers:

    "Oracle’s claim for copyright infringement, as it relates to the present motion, arises from Rimini’s copying of Oracle’s copyright protected PeopleSoft, J.D. Edwards, and Siebel-branded Enterprise Software programs on Rimini’s company systems in order to provide software support services to four separate customers: the City of Flint, Michigan (“City of Flint”); the school district of Pittsburgh, Pennsylvania (“Pittsburgh Public Schools”); Giant Cement Holding, Inc. (“Giant Cement”); and Novell, Inc. (“Novell”)."

  2. Whether Rimini Street has the right to copy Oracle's software depends on the terms of the license agreements to these four companies.

    In this action, it is undisputed that Rimini does not have its own software license from Oracle for any of the identified Enterprise Software programs copied on its systems. Instead, Rimini contends that Oracle’s software licensing agreements with the four customers at issue in this motion expressly authorize it to copy, keep, and maintain copies of the copyrighted software on its company systems and under its control in order to provide contracted software support services to those customers. ....  As each customer’s software licensing agreement is different, the court must evaluate Rimini’s express license affirmative defenses separately for each customer at issue in this motion.
  3. Concerning the City of Flint, the Court rules in Oracle's favor, that the City's license agreement with Oracle does not permit Rimini Street to maintain copies of Oracle's PeopleSoft software. 

    Based on the court’s rulings above, none of Rimini’s asserted license provisions (Sections 1.2(b), 1.2(c), or 14.2) expressly authorize Rimini’s copying of Oracle’s copyrighted PeopleSoft-branded software as a matter of law. Therefore, the court finds that Oracle is entitled to summary judgment on Rimini’s express license affirmative defense as it relates to the City of Flint, and the court shall grant Oracle’s motion accordingly.
  4. Concerning Pittsburgh Public Schools, the Court rules in Oracle's favor, in regards to Rimini Street's copying of Oracle's PeopleSoft software.

    Here, the court finds that the Pittsburgh Public Schools’ license contains language similar to the City of Flint’s license....

    Based on the rulings above, the court finds that none of Rimini’s asserted license provisions (Sections 1.1, 1.2, or 10.2) expressly authorize Rimini’s copying of Oracle’s copyrighted PeopleSoft-branded software as a matter of law. Therefore, the court finds that Oracle is entitled to summary judgment on Rimini’s express license affirmative defense as it relates to the Pittsburgh Public Schools, and the court shall grant Oracle’s motion accordingly.
  5. Concerning Giant Cement, the Court denied Oracle's request for summary judgment against Rimini Street, refusing to find that Rimini Street had used copies of Giant Cement's in ways conflicting with Oracle's license agreement for J.D. Edwards.

    Based on this record, the court finds that there are disputed issues of material
    fact as to whether Rimini’s use of the development environment associated with Giant Cement was for archival purposes or whether Rimini accessed the software’s source code. Accordingly, the court shall deny Oracle’s motion for summary judgment on Rimini’s express license affirmative defense as it relates to Giant Cement.

  6. Concerning Novell, the Court denied Oracle's request for summary judgment, ruling that Novell's license agreement allows Rimini Street to maintain copies of Siebel software on its own servers.

    First, the court finds that the plain language of Section 2.1(iv) authorizes Novell to make archival, emergency backup, or disaster-recovery testing copies. Further, the court finds that the plain language of Section 2.1(viii) permits Novell to allow Rimini, or another third-party, to install the software for archival, emergency back-up, or disaster recovery purposes.

    Therefore the court finds that Novell’s license allows for archival and/or back-up copies of the software on a third-party system. Accordingly, the court shall deny Oracle’s motion for summary judgment on Rimini’s express license affirmative defense as it relates to Novell.
  7. The Court also ruled on Rimini Street's claim that Oracle's shipping of software to Rimini Street locations granted an "implied license" to Rimini Street. Here, the Court did not agree with Rimini Street's claim and granted Oracle's motion for summary judgment against Rimini Street.

    In its affirmative defense, Rimini argues that for years Oracle shipped back-up copies of its customer’s software installation media to Rimini’s facilities with full knowledge that the installation media were not only being shipped to Rimini’s facilities, but that Rimini was using the installation media to create copies of the software on its own systems to provide support services to Oracle’s customers....

    The court has reviewed the documents and pleadings on file in this matter and finds that the evidence before the court does not support Rimini’s affirmative defenses of implied license and consent of use....

    First, other evidence before the court establishes that these back-up copies, although ultimately shipped to Rimini, were shipped after Oracle’s customers submitted requests to Oracle describing Rimini’s address as the customers’ “secondary offsite backup location.”...

    Second, Rimini admits that the purpose behind the obfuscated shipping requests was to allow Rimini to create development environments to service Rimini’s customers without Oracle’s knowledge....

    Additionally, there is no evidence that Oracle knew of Rimini’s use of the shipped installation media to create copies of the software on Rimini’s systems. Rimini admits that the shipping requests were designed so that Oracle would not know that Rimini was using these backup copies of the licensed software.
In a nutshell, although Oracle's press release does not mention the Court's refusal to grant summary judgment regarding Giant Cement and Novell, the Court's ruling is, in fact, largely in Oracle's favor. The Court granted summary judgment in the case of the City of Flint and Pittsburgh Public Schools, and in regards to Rimini's claims of "consent of use" and "implied license."  At most, Rimini Street can only claim that there is no decision yet concerning Giant Cement and Novell.

[Update] Ruling Specifically Deals with Rimini-Hosted Environments

Rimini Street sent a letter to its customers today, outlining its position on the Court's ruling. In it, it points out that the legality of third-party maintenance is not at issue. Rather, the Court's ruling last week is specifically about how Rimini Street delivers those services--whether through hosting Oracle software on Rimini Street computers, or providing them directly to customers who maintain their own development environments:
This case is NOT about the legality of independent enterprise software support. Oracle agrees that it is legal for third parties to offer independent enterprise software support to Oracle licensees, and Oracle licensees have a legal right to purchase Rimini Street support services instead of Oracle annual support services. Competitive motivations aside, this case is primarily about the specific processes Rimini Street used to support a portion of its clients.
Rimini Street also points out that the terms and conditions of Oracle licenses have varied through the years and that the Court's ruling therefore does not apply to all of Rimini Street's customers that use Oracle software. In addition, Rimini Street stopped offering Rimini-hosted environments in 2012. Therefore, going forward, Rimini Street believes that its operations will comply with the Court's recent ruling.

What Does It Mean for Enterprise Software Customers?

For those hoping that this case would set a legal precedent for third-party maintenance services, the Court's ruling is not a positive development. The Court has essentially ruled that in two of the four customers in dispute, Oracle's license agreements did not give Rimini Street the rights to do what it did. Concerning the other two, the Court did not rule that Rimini Street had the rights, only that it declined to rule at this time, reserving a decision for a later point in the process.

It is too soon to tell whether Oracle will prevail at trial. But at this point, one thing is clear for customers: do not enter into a license agreement with a software vendor without ensuring that your rights to third party maintenance are explicit. As the Court's ruling last week shows, it all comes down to what rights you have in your license agreement. Sign the vendor's license agreement as-is and it's likely that your rights to third-party maintenance will be limited to having the third-party provider only able to work on your own installation of the software.  [But see Update #3, below.] 

Our research at Computer Economics shows widespread dissatisfaction with both the cost and the quality of service for the Tier I ERP vendors' maintenance programs. If there are not viable and healthy third-party maintenance providers in enterprise software, it will just hasten the demise of the traditional software license model.

In other words, Oracle may win the battle, but long term, lose the war.

Update: 12:30 p.m. PDT: Changed concluding section to point out that limitation is on where the software is installed.
Update: 1:00 p.m. PDT: Added section on Rimini Street's customer letter.
Update: 2:30 p.m. PDT.  In a briefing with Rimini Street, CEO Seth Ravin insists that this particular court ruling does not impact Rimini Street's ability to deliver maintenance services, as it is already moving all PeopleSoft customers to client self-hosting.
Update: 2:50 p.m. PDT. Dennis Howlett has a good breakdown of the court ruling, with additional perspective from Rimini Street. 

Related posts

Rimini Street to Oracle: don't expect us to roll over
SAP and third-party maintenance: good for me but not for thee
Legal basis for third-party ERP support industry
Oracle slams Rimini Street with lawsuit over third-party maintenance

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by Frank Scavo, 2/17/2014 12:28:00 PM | permalink | e-mail this!

 Reader Comments:

Seems like the Court is setting the stage to rule on the basis of the language in each customer's individual license agreement. Watch for Oracle to immediately change their standard licensing agreement to leverage the language from last week's ruling.
Floyd, I seem to recall that there may already be some language like that in Oracle's standard contract. But either way, that confirms my point that customers should push back on any such language to preserve their rights as much as possible.
Floyd, one more thing. Have you considered that if Oracle were to try to incorporate this ruling into its standard contracts it would essentially forbid customers to host Oracle software on third-party hosting services?
Good insight Frank, however, as you note I'm not sure there is that much impact on Rimini.

From the limited understanding I have it just means that customers will have to maintain their own development environment and allow Rimini access to that environment. For many customers (even many small and mid-sized customers) this will not be much of a burden. Many of them already have development environments.

Just means a small adjustment to the business model and it does not look like the ruling does much to address 3rd party maintenance directly at all.
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