Rimini Street sues Oracle for unfair competition and other abuses

This just in: Rimini Street is fighting back against Oracle's lawsuit by filing its own lawsuit against Oracle for copyright misuse, defamation, disparagement, trade libel, and unfair competition.

Note: this post has been updated with further information gathered today along with extended excerpts of the Rimini Street court filings.
Background: Rimini Street offers third-party maintenance services in competition with Oracle's own applications maintenance and support services. Oracle sued Rimini Street in January for copyright infringement in a case similar to its suit against SAP's now discontinued TomorrowNow unit.

Rimini Street's press release
I am waiting for a copy of the actual filing and a briefing by Rimini Street. In the meantime, here is the text of the press release on this matter from Rimini Street (lightly edited)

Rimini Street Sues Oracle
Rimini Street, Inc., ... today announced that it filed suit against Oracle in U.S. District Court for the District of Nevada by presenting counterclaims alleging copyright misuse, defamation, disparagement, trade libel, and unfair competition under the California Business and Professions Code. With its filing, Rimini Street aims to end Oracle’s five year campaign of anticompetitive tactics against Rimini Street that most recently includes a baseless lawsuit. Additionally, Rimini Street announced today that it filed its response to Oracle’s complaint, showing Rimini Street’s business processes and procedures are entirely legal and vehemently denying Oracle’s false and malicious allegations.

Rimini Street is Oracle’s Primary Competition for Annual Support Services
Rimini Street is Oracle’s fastest-growing and leading competitor for the annual support of Oracle’s Siebel, PeopleSoft, and JD Edwards software products. In 2009, Rimini Street saw growth of more than 270 percent in year-over-year revenue, doubled its global workforce to 160 professionals, and accumulated nearly $150 million in sales backlog serving hundreds of Global, Fortune 500, mid-market, and public sector organizations around the world.

Oracle has a Long History of Trying to Stifle Rimini Street Competition
Oracle and its predecessors began a systematic campaign to disrupt and halt Rimini Street’s business since the inception of the company in 2005. As Rimini Street’s success grew, so did Oracle’s apparent determination and efforts to disrupt Rimini Street’s growth. Rimini Street’s response to Oracle’s complaint details examples of Oracle’s business interference over many years including:

• Initially, beginning in September 2005, Oracle’s efforts consisted of numerous hostile letters. Over the years, Rimini Street responded to each letter, explained the appropriateness of Rimini Street’s practices and procedures, and repeatedly offered to meet and discuss any questions or concerns Oracle might have about Rimini Street processes and procedures.
  
• In June 2007, Oracle interfered with authorized work on behalf of Rimini Street clients by changing its website usage terms. Rimini Street wrote Oracle about the anticompetitive tactic against Rimini Street and informed Oracle that the change was likely a breach of Oracle’s client license agreements, which expressly prevent service rights degradation. As such, the changes were not enforceable.
  
• In December 2008, Oracle escalated its tactics by intentionally blocking Rimini Street’s IP addresses and interfering with Rimini Street’s authorized work on behalf of a large client switching from Oracle to Rimini Street support. After correspondence from both the client and Rimini Street demanding Oracle cease and desist, Oracle stopped the interference.
  
• Most recently, in January 2010, Oracle once again escalated its anticompetitive tactics, this time through litigation. Oracle filed a baseless lawsuit against Rimini Street, choosing to ignore Rimini Street’s numerous invitations for dialogue, offer to view internal Rimini Street information, and even the opportunity to engage a third party auditor.

Oracle Chooses Competition in the Courtroom Rather than the Marketplace

In February 2009, Rimini Street sought to stop Oracle’s campaign of anticompetitive actions once and for all by again requesting and finally being granted a call with Oracle representatives. On the call, Rimini Street offered to share Rimini Street internal information and/or work out an agreement that would utilize an independent third party auditor reporting back to both parties to confirm Rimini Street’s compliance with its standard processes and procedures. Oracle never responded to any of Rimini Street’s proposals.

Instead, Oracle filed a baseless lawsuit against Rimini Street in an apparent effort to try and protect its 95% dominant market share and monopoly-like 92% gross margins on the annual support of its products.

Rimini Street Vehemently Denies Oracle’s False Accusations

Rimini Street’s business processes and procedures are entirely legal, and Rimini Street vehemently denies Oracle’s accusations. Rimini Street has implemented extraordinary processes and procedures to assure the proper use of Oracle’s intellectual property as detailed more fully in Rimini Street’s response to Oracle’s complaint. For example:

• Each client authorizes Rimini Street to perform work on its behalf
  
• Rimini Street only delivers Oracle software and support materials to each client who is entitled to receive such materials
  
• Rimini Street uses separate data “silos” for each client and has policies against co-mingling data
  
• Rimini Street is authorized by its clients to possess and use copies of their Oracle licensed products to provide services to them, just like IBM, AT&T, Accenture, CedarCrestone and virtually every other hosting service provider working with copies of their client’s licensed products

Rimini Street's answer and counter-claims against Oracle
In their motion to dismiss Oracle's suit, Rimini Street lawyers argue, generally, that Oracle has not been specific in detailing how Oracle has been harmed by Rimini Street's, or what specific actions Rimini Street committed that caused harm to Oracle. Again and again, the response argues that "Oracle’s allegations do not even attempt to identify which facts might support Oracle’s otherwise conclusory regurgitation of statutory language."

In addition, Rimini Street filed a motion to dismiss claims against Seth Ravin, CEO and founder of Rimini Street, claiming that Oracle had failed to point to any specific acts that Ravin committed that would hold him personally liable.

But the real punch comes in Rimini Street's counterclaims against Oracle. I have reproduced most of Rimini Street's "Answer and Counter-Claims" at the end of this post. Please read through this, as it outlines the Rimini Street's case much more clearly than I can summarize.
My Take
Many of us have been hoping for a vigorous response by Rimini Street and it appears this is what Rimini Street is doing. As I've pointed out in the past, this case is going to bring increased legal scrutiny of Oracle and other major software providers in terms of how they lock in customers to their maintenance and support programs. Oracle runs a risk in filing this lawsuit. If Oracle does not prevail against Rimini Street, the case will strongly establish the legal basis for the third-party support industry.

Update: Dennis Howlett weighs in, and includes a terse statement he received in response to his request for comment from Oracle. Though the response is minimal, it does appear to go beyond Oracle's policy of not commenting on litigation.

Update, 3:00 p.m.: In a call with Seth Ravin this afternoon, he expressed confidence in his firm's prospects both in refuting Oracle's allegations and odds for prevailing against Oracle in Rimini Street's counter-claims. If Oracle had been betting on a response from Rimini Street along the lines of the mea culpa response it got from SAP/TomorrowNow, it bet wrong.

Update, 3:30 p.m.: I have no idea if this is related to Rimini's counter-claim against Oracle, but the U.S. stock markets are up today about one-half percent, while Oracle's stock price is down about one-half percent.

Related posts
Oracle slams Rimini Street with lawsuit over third-party maintenance
No recession for Rimini Street third-party maintenance business
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

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Extended Excerpts of Rimini Street's Answer and Counter-Claims to Oracle
The full PDF may be downloaded, from ZDnet.
....
I. FACTUAL BACKGROUND
1. “We believe we should be the ones to support our customers, . . . . If you’re a third party support provider offering multivendor support, we’re coming, we’re coming.” (Juergen Rottler, Oracle’s Executive Vice President of Global Customer Services, threatening third-party support vendors that compete with Oracle).1 Oracle made this public threat just one day after filing its Complaint against Rimini Street.

A. Rimini Street Vehemently Denies Oracle’s Knowingly False Accusations.
2. Oracle maliciously alleges that Rimini Street’s business is an “illegal business model,” an “illegal scheme,” and that there has been “massive theft of Oracle’s software and related support materials by Rimini Street.” These accusations are false, and Rimini Street vehemently denies them.

3. Rimini Street’s business processes and procedures are entirely legal, and Rimini Street has not committed “massive theft,” or any theft at all. Rimini Street is authorized by every one of its clients to perform work on their behalf, and, as a matter of process and procedure, has delivered Oracle Software and Support Materials2 only to clients who were entitled to them and only within the scope of that client’s entitlement.

4. Far from Oracle’s “massive theft” allegation, Rimini Street has implemented extraordinary processes and procedures to assure the proper use of Oracle’s intellectual property. For example, Rimini Street performs a unique download of Oracle Software and Support Materials on behalf of each client that authorizes and requests such service. Rimini Street maintains downloaded material only on behalf of the client for whom the download was performed. And, as a matter of process and procedure, each client is assigned a separate data “silo” where Oracle Software and Support Materials for only that client are maintained. Rimini Street does not co-mingle the independent downloads of clients.

5. With respect to Oracle’s complaint about Rimini Street possessing copies of Oracle customer licensed software, Oracle customers authorize Rimini Street to possess and use such copies. Not only is possessing and using the copies legal, it is an industry standard for third party vendors like IBM, AT&T, Accenture, CedarCrestone, and countless others who work with the same Oracle customer licensed software. Oracle is well aware of Rimini Street’s authorized possession and usage of customer licensed software because Oracle itself delivered the software to Rimini Street for hundreds of its customers.

6. Oracle is fully aware of Rimini Street’s processes and procedures. If Oracle had genuine concerns about Rimini Street’s use of its intellectual property, Oracle could have accepted Rimini Street’s numerous offers since September 2005 to openly and transparently review and discuss Rimini Street processes and procedures, or Oracle could have even accepted Rimini Street’s invitation to review internal materials and Rimini Street’s invitation to have a third-party independent auditor review Rimini Street’s compliance with its processes and procedures.

7. Instead, Oracle chose to ignore the fact that Rimini Street’s processes and procedures are legal and supported by industry-leading practices. Oracle initiated this baseless litigation as another anticompetitive tactic to try and slow Rimini Street’s fast-paced growth and protect Oracle’s dominant 95% market share and monopoly-like 92% gross profit margins on the after-market support of its products.

8. Rimini Street will aggressively defend against this baseless litigation and has counterclaimed herein so as to end Oracle’s five year campaign of illegal anticompetitive tactics against Rimini Street and to hold Oracle accountable for its actions, related costs and damages.

B. Oracle Prefers Competition in the Courtroom Rather than the Marketplace.
9. Oracle is the world’s largest enterprise software company. Rimini Street provides after-market support services for enterprise software applications—including software applications licensed by Oracle.

10. Rimini Street is Oracle’s fastest-growing competitor for the after-market support business of Oracle’s Siebel, PeopleSoft and JD Edwards enterprise software products. Hundreds of Fortune 500, mid market, small and public sector organizations around the world have already made the switch to Rimini Street’s innovative, award-winning and highly-praised support model. Rimini Street has been forecasting significant continued year-over-year growth based on sales pipeline data.

11. Rimini Street’s success and growing industry acceptance as a proven alternative to Oracle’s much more expensive after-market support offerings is now threatening Oracle’s market control and pricing power. In response, Oracle has now turned to the courtroom instead of choosing to compete in an open and fair market. Oracle’s strategy is to use this calculated litigation to protect its share of the after-market support business for Oracle software products and preserve or increase its profit margin on those services.

12. With a staggering $800 million in quarterly losses in its core businesses, Oracle’s power, profits and financial strength can only be maintained if it can continue coercing its customers into paying exorbitant annual fees for after-market support of its products.

C. Rimini Street is Oracle’s Primary Competition for After-Market Support.
13. In 2009, Rimini Street saw growth of more than 270% in year-over-year revenue, more than doubled its global client base to nearly 300, added substantial new international clients, accumulated nearly $150 million in sales backlog, and more than doubled its global workforce to 160 professionals. Rimini Street achieved a 95% annual client renewal rate and more than a 99% client satisfaction rating.

14. One reason Oracle’s support customers switch to Rimini Street support is a 50% annual fee savings. Rimini Street is able to spend more money on each support client and offer lower fees by simply eliminating the excessive profits Oracle demands from its support customers. Also, due to Rimini Street’s dramatically different support model that includes no required upgrades or updates for a minimum of ten years, Rimini Street clients can achieve a total operating cost savings up to 90% over a decade compared to Oracle’s support model.

15. In addition to significant savings, Rimini Street’s different support model provides clients with “concierge” level, ultra-responsive service. Unlike Oracle’s generic call center approach, Rimini Street assigns each client a named, highly experienced Primary Support Engineer. Support services are available 24x7x365 with guaranteed 30 minute response time anywhere in the world and 90% guaranteed live call answering during the day. Rimini Street’s track-record of meeting these service level commitments and providing excellent service is well documented by leading industry analysts who work with Rimini Street clients, media interviews with Rimini Street clients, client side-by-side live service comparisons, client satisfaction surveys, and hundreds of client reference calls made by Rimini Street prospects.

16. Rimini Street’s different support model also includes many innovative services at no additional charge that go beyond the features of Oracle’s standard support. The additional Rimini Street services include performance support, interoperability support, and support for application customizations. The inclusion of these services represents significant cost savings for Rimini Street clients compared to the additional consulting fees Oracle would generally charge its customers for similar services.

17. Another benefit for Oracle clients who switch to Rimini Street support is a more robust and timely tax, legal and regulatory service spanning up to 190 countries for PeopleSoft and JD Edwards products. Rimini Street’s tax, legal and regulatory update design and development operation is led by veteran tax specialists, attorneys, executives, and engineers who bring a blend of international tax, legal and regulatory expertise. As part of Rimini Street’s commitment to the highest quality deliverables, Rimini Street’s tax, legal and regulatory development process has been audited from scoping to delivery for Sarbanes Oxley 404 process compliance by a Big Four accounting firm.

18. Rimini Street has already delivered more than 5,000 high-quality tax, legal and regulatory updates to its clients over the years, and is currently responsible for the accurate processing of billions of dollars in transactions a month. Further, Rimini Street has delivered every one of its tax, legal and regulatory updates to clients ahead of Oracle’s planned delivery date for its equivalent updates since the inception of the company. Rimini Street clients praise the quality, comprehensiveness and timely delivery of Rimini Street’s tax, legal and regulatory updates in media interviews, client references for prospects, and press materials.

19. Rimini Street respects the intellectual property rights of Oracle. As detailed herein, Rimini Street takes extraordinary efforts, in both process and procedure, to ensure that Oracle’s intellectual property rights are respected by Rimini Street employees working with Oracle Software and Support Materials.

D. Oracle has a Long History of Trying to Stifle Rimini Street Competition.
20. The present lawsuit is only Oracle’s latest effort to stifle the competitive threat posed by Rimini Street.

21. Rimini Street began operations in September 2005, offering a competitive aftermarket support offering for Siebel Systems software products.

22. At about the same time Rimini Street began operations, Oracle Corporation announced that it intended to acquire Siebel Systems. Oracle completed the acquisition of Siebel Systems shortly thereafter.

23. Rimini Street added support offerings for Oracle’s PeopleSoft products in April 2006 and Oracle’s JD Edwards products in September 2006.

24. Since shortly after Rimini Street’s inception, Oracle began a systematic campaign to disrupt and halt Rimini Street’s business. Initially, Oracle’s efforts consisted of numerous hostile letters, some of which were published in the media as early as 2005 as examples of how Oracle was trying to forestall after-market competition from a just-launched Rimini Street.

25. Over the years, Rimini Street responded to each Oracle letter, explained the appropriateness of Rimini Street’s practices and procedures, and repeatedly offered to meet and discuss any questions or concerns Oracle might have about Rimini Street’s processes and procedures.

26. As Rimini Street’s success grew, so did Oracle’s determination and efforts to disrupt Rimini Street’s growth. Since the inception of the company, Rimini Street used automated download tools to help its clients identify and take delivery of the large volume of Oracle Software and Support Materials they paid for and were entitled to possess and use (potentially tens of thousand of files for a single customer). Using such automated tools was necessary because Oracle refused to help its customers identify and take delivery of such large volumes of materials.

27. In June 2007, Oracle attempted to intentionally interfere with Rimini Street’s authorized client downloads by changing its website terms and conditions to no longer allow use of such automated download tools. Rimini Street wrote Oracle when it became aware of the change, warning that Rimini Street believed Oracle’s actions were not only anti-competitive against Rimini Street, but also constituted a breach of its license agreements with Oracle clients that have protections against reductions in service rights resulting from changes by Oracle in support terms and conditions. As such, the reductions in service rights were not enforceable.
28. Oracle’s efforts escalated in December 2008 when Oracle began interfering with Rimini Street’s performance of an authorized download for a large client switching from Oracle to Rimini Street support by blocking Rimini Street access to the Oracle support websites. After correspondence from both the client and Rimini Street demanding Oracle cease and desist its accessblocking tactics, Oracle stopped the interference.

29. At this point, as a good-faith attempt at conflict reduction with Oracle, Rimini Street unilaterally agreed to cease using automated download tools in January 2009 and notified Oracle’s representatives of this decision in early February 2009.

30. Further, to prevent Oracle’s anti-competitive actions from occurring in the future, Rimini Street asked for and was finally granted a call with Oracle representatives in early February 2009. On the call, Rimini Street offered to share Rimini Street internal information with Oracle and/or to work out an agreement that would utilize an independent third party auditor reporting back to both parties to confirm Rimini Street’s compliance with its standard processes and procedures. Oracle never responded to any of Rimini Street’s proposals.

E. Oracle Ignores Truth, Turns to False Allegations
31. Ignoring Rimini Street’s open invitation to view internal information, engage a third party auditor, or even hold additional dialogue, Oracle filed this baseless lawsuit in an attempt to disrupt Rimini Street’s growth and damage Rimini Street’s business through false statements and disparagement.

32. For example, Oracle maliciously casts Rimini Street as a “sham” company that steals Oracle Software and Support Materials and resells them at half the price Oracle charges. Oracle further disparages Rimini Street’s business by branding it an “illegal business model” and “illegal scheme.” Similarly, Oracle falsely states that there has been “massive theft of Oracle’s software and related support materials by Rimini Street.” As Oracle is well aware, these characterizations of Rimini Street’s business are not only completely false, but they could not be further from the truth.

33. Rimini Street has informed Oracle that, as a matter of process and procedure, Rimini Street’s clients are only delivered the Oracle Software and Support Materials to which they are legally entitled. In fact, Rimini Street performs a unique download of Oracle Software and Support Materials from Oracle’s web sites on behalf of each of its clients who: (a) requests and authorizes Rimini Street to download from Oracle on their behalf a unique set of Oracle Software and Support Materials the customer is entitled to use based on their licensed products and Oracle Annual Support product coverage; and (b) represents they are presently an Oracle Annual Support customer whose Oracle Annual Support period has not expired.

34. Oracle is further aware that each of Rimini Street’s clients has a unique data “silo” for storing clients’ Oracle Software and Support Materials. Therefore, the clients’ Oracle Software and Support Materials are not physically co-mingled together. Despite its awareness of Rimini Street’s processes and procedures, Oracle states that Rimini Street has “stockpile[d] a library” of Oracle’s intellectual property “to support its present and prospective customers.” Such a “library” has never existed at Rimini Street, and Oracle is aware of that fact and could easily have confirmed it by simply accepting Rimini Street’s offer of third party verification.

35. If Oracle really had genuine concerns about the use of its intellectual property and its aims were to simply find the truth and to protect its intellectual property, Oracle has had unlimited opportunities over nearly five years to dialogue and work directly with Rimini Street per the numerous open invitations extended in Rimini Street letters to Oracle. But, as the facts demonstrate, that is not Oracle’s objective. Instead, Oracle’s goal is to forestall after-market product support competition from Rimini Street. Litigation is Oracle’s strategy.

36. While Oracle attempts to disparage Rimini Street and falsely cast this case as being about a “massive theft” that does not exist, the truth is this case is only about Oracle’s attempt to protect its 95% dominant market share and monopoly-like 92% gross margins on after-market support of its products.

RIMINI STREET’S COUNTERCLAIMS
For its Counterclaims against Plaintiffs, Rimini Street states as follows:
….
COUNT ONE—DEFAMATION, BUSINESS DISPARAGEMENT AND TRADE LIBEL
42. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–41 as though fully set forth herein.

43. Oracle has responded to Rimini Street’s success, not through fair marketplace competition, but with incendiary and unfounded allegations that Rimini Street and its employees are thieves carrying out a “corrupt” and “illegal business model.”

44. On information and belief, defamatory statements have been published and republished by Oracle and its agents to members of the media and analyst community, Rimini Street’s customers and potential customers, as well as to the public at large. For example, an Oracle representative contacted a senior analyst for an influential analyst firm and made statements insinuating that Rimini Street’s practices were illegal. Similar allegations of illegality were made to other analysts, analyst firms and members of the media, reflecting an attempt by Oracle to severely tarnish Rimini Street’s standing in the industry. On information and belief, Rimini Street expects discovery will illuminate a pattern of similar defamatory communications by Oracle representatives.

45. Oracle’s false and disparaging statements were intended to harm Rimini Street’s standing in the business community and, ultimately, to hinder Rimini Street’s ability to conduct and grow its business.

46. Oracle published its disparaging statements about Rimini Street’s business maliciously, knowing such statements are false or with reckless disregard to their falsity.

47. Dating back to the launch of Rimini Street in 2005, Oracle and Rimini Street have had a long history of communications. Given these interactions, Oracle is well aware that Rimini Street’s business practices are not illegal as Oracle has alleged and published.

48. And, Oracle has had no basis to believe in this stated illegality of Rimini Street’s business practices. Oracle attempts to equate Rimini Street’s business with that of TomorrowNow, an unrelated and different third-party support vendor owned by SAP AG, another vendor of enterprise software. Oracle filed suit against TomorrowNow and SAP AG in 2007. Although Oracle’s present Complaint against Rimini Street is highly similar to Oracle’s Complaint against SAP AG, et al., in Case No. 07-CV-1658 in the Northern District of California, Oracle is well aware of the significant differences between Rimini Street’s practices and procedures and those of SAP’s TomorrowNow. For instance, Rimini Street does not have or make available a “single repository” of downloaded Oracle Software and Support Materials as Oracle states. Nor does Rimini Street mixed or consolidated Oracle Software and Support Materials such that unique downloads for one client are co-mingled with unique downloads from other clients, and support materials are not indiscriminately downloaded and stored for general use.

49. Oracle is further aware that Rimini Street performs a unique download of Oracle Software and Support Materials on behalf of each client that requests such service. Each client (authorizing Rimini Street to act on client’s behalf) warrants to Rimini Street that it has the rights to access Oracle’s support web sites and take possession of the requested Oracle Software and Support Materials. Rimini Street then maintains downloaded material only on behalf of the client for whom the download was performed. To safeguard against improper use of downloaded materials, as a matter of process and procedure, each client is assigned a separate data “silo” where Oracle Software and Support Materials for that client are maintained, and Rimini Street does not co-mingle the independent downloads of clients.

50. Rimini Street delivers to each client only the software and support material that each client is entitled to receive, which often are quite voluminous and can consist of thousands or even tens of thousands of materials.

51. Oracle is further aware that Rimini Street has consistently released its own independently-created regulatory and tax updates before the release date of Oracle’s equivalent update, forestalling any arguments that Rimini Street copied Oracle’s updates.

52. Finally, Oracle cannot truthfully claim that Rimini Street is not authorized to possess copies of Oracle’s software. First, every Rimini Street client contract authorizes Rimini Street to possess or access copies of the client’s licensed software. Second, as Oracle is well aware, it is common industry practice by other third party consulting venders such as IBM, AT&T, Accenture, Navisite, WTS, CedarCrestone, and virtually every other hosting service provider to possess and work with copies of their client’s licensed software products. Third, until recently Oracle itself directly mailed or made available to Rimini Street through authorized downloads, as an authorized agent of Oracle’s licensees, copies of the clients’ licensed Oracle software. Oracle and Rimini Street personnel worked closely together over the years in the software order-to-ship process for hundreds of clients. Here again, Oracle had full knowledge that Rimini Street’s actions were authorized by Oracle’s customers. Far from acting as “fraudulent thieves,” Rimini Street has acted legally, openly (and often with Oracle’s full cooperation), and in accordance with the agreements held by Rimini Street’s clients.

53. Oracle is aware of the falsity of its statements because it was directly informed by Rimini Street of the true facts. Further, Rimini Street offered to allow Oracle to employ a neutral third party to audit Rimini Street’s compliance with its processes and procedures. Instead of undertaking this reasonable confirmatory exercise, Oracle purposely and recklessly made the above identified false and disparaging statements regarding Rimini Street.

54. Rimini Street has been damaged by Oracle’s conduct as complained of herein, in an amount to be determined at trial. On information and belief, Oracle’s false and disparaging statements regarding Rimini Street’s business have directly led to economic loss on the part of Rimini Street through specific loss of sales.

COUNT TWO—DECLARATION OF UNENFORCEABILITY FOR COPYRIGHT MISUSE
55. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–54 as though fully set forth herein.

56. Oracle claims to own a valid and enforceable copyright in, or have exclusive license to, all of their software applications and software and support materials.

57. Oracle disseminates Oracle Software and Support Materials via electronic transmissions over a computer network. Oracle’s Software and Support Materials websites contain “browser-wrap” or “click-wrap” agreements.

58. Oracle has admitted that its software licensees have every right to use third-party maintenance and support vendors (such as Rimini Street). However, Oracle has attempted to use the design of its support website and terms of its “browser-wrap” or “click-wrap” agreements on various Oracle web sites to forestall such legal competition from Rimini Street and to interfere with a customer’s ability to select a support vendor other than Oracle. This attempt to influence competition in an area beyond the scope of Oracle’s copyrights constitutes copyrights misuse.

59. Instead of simply providing its customers each of the support files they are entitled to possess under their respective licenses and unexpired Oracle annual support, Oracle requires customers to self-identify and individually download each such file from Oracle’s support material web portal. This portal contains millions of files to sort through and all are accessible to every client, regardless of which products a customer has licensed or whether or not a product is covered by an unexpired Oracle support agreement. Oracle provides no assistance to its support customers in the identification of all Oracle Software and Support Materials such customer is entitled to possess and use.

60. Though Oracle’s support material web portal does not provide a method for customers to easily identify and download all the files they are entitled to possess and use, Oracle has changed its web site terms to prohibit the use of automated tools that can help an Oracle customer identify and download a significant volume of Oracle Software and Support Materials to which an Oracle licensee and support customer is entitled. Further, Oracle’s “click-wrap” agreement has once again been changed, and now includes a provision that prohibits access to and download of support materials unless such access or download “is in furtherance of the relationship between customer and Oracle.” This provision is another clear example of Oracle’s systematic use of anticompetitive tactics to try and maintain a stranglehold over its customers by effectively requiring them to either continue purchasing after-market support only from Oracle or forego critical support materials to which they are entitled and for which they have already paid.

61. Through its various license agreements and changing web site access and use terms and conditions, Oracle is attempting to use its copyright in a manner adverse to the public policy embodied in copyright law.

62. The requirements Oracle places on the ability of customers (or their agents) to obtain licensed software and support materials gives Oracle a substantial and unfair advantage over its support and maintenance competitors, and these requirements constitute a misuse of copyright by Oracle.

63. Rimini Street has been directly harmed by Oracle’s anticompetitive misuse of its copyrights and license agreements.

64. Rimini Street is therefore entitled to a declaratory judgment finding Oracle’s copyrights to be unenforceable until that time that Oracle discontinues use of the terms that led to misuse of its copyrights.

COUNT THREE—UNFAIR COMPETITION—CAL. BUS. & PROF. CODE § 17200
65. Rimini Street repeats and incorporates by reference the averments set forth in Paragraphs 1–64 as though fully set forth herein.

66. Oracle has engaged in fraudulent business acts or practices by false and misleading statements, deceptive business practices, ever-changing contract terms and policies, processes, and procedures.

67. As evidence of Oracle’s fraudulent business practices, on information and belief, Oracle caused false and disparaging allegations to be published and republished by Oracle and its agents to members of the media and analyst community, Rimini Street’s customers and potential customers, as well as to the public at large. These allegations were made with Plaintiffs’ intent to, and are likely to, deceive members of the public.

68. Oracle has also employed unlawful and/or fraudulent business practices in its dealings with industry analysts, reporters and Rimini Street’s customers and potential customers. For example, Oracle has provided false and misleading information about Rimini Street to customers with which Rimini Street had established a potential business relationship.

69. The acts and conduct of Oracle constitute fraudulent conduct as defined by California Bus. & Prof. Code §§ 17200, et seq.

70. As a result of Oracle’s actions, Rimini Street has suffered irreparable injury, and Rimini Street’s standing in the business community has been harmed. Unless Oracle is enjoined, Rimini Street will continue to suffer irreparable harm and Oracle’s conduct will continue to harm Rimini Street’s standing in the business community, and ultimately hinder Rimini Street’s ability to conduct and grow its business.

71. Oracle should be compelled to disgorge and/or restore any and all revenues, earnings, profits, compensation, and benefits they may have obtained in violation of California Business & Professions Code § 17200 et seq., including, but not limited to, returning any revenue earned as a proximate result of the unlawful publication of the deceptive statements made to the public.

Rimini Street to Oracle: don't expect us to roll over

As everyone knows by now, Oracle won a huge ($1.3 billion) judgment in its lawsuit against SAP/TomorrowNow (TN) for copyright infringement. SAP had acquired its now-shuttered TN unit to provide third-party support for some Oracle business applications in hopes of winning those customers over to SAP. SAP is considering an appeal of the jury verdict, the largest ever in a copyright case.

In the meantime, Oracle has a lawsuit pending against another third-party support provider, Rimini Street. At first glance, Rimini Street "looks like" TN in that both are/were providers of third-party support for Oracle applications. Furthermore, Oracle's lawsuit makes similar allegations--some of it appears to have been cut and pasted from its suit against SAP.

So it would be easy to assume that Oracle's hand against Rimini Street has been strengthened by its win against SAP.

Why Rimini Street isn't TomorrowNow

It would be easy, but it would be wrong. Here's why:

• Admission of liability. Nearly from the start, SAP admitted that something was wrong down at its TN unit. By the time the case went to trial, SAP had basically thrown in the towel, admitting not only that TN had violated Oracle's copyrights but that SAP itself knew about the illegal behavior.
  
  In contrast, Rimini Street is making no such admissions. It has from the beginning steadfastly rejected all allegations that it is violating or has violated Oracle's IP rights. In several interviews I've conducted with the firm's executives over the past three years, it has claimed to have established clear policies and standards to prevent such misuse and has offered to have Oracle audit its practices. Oracle has refused such offers, choosing instead to file a lawsuit. So much for allowing Rimini Street to compete fairly.
  
  
• Counter-punching. From the start, SAP was playing defense against Oracle's allegations. It never counter-sued or alleged misdeeds on the part of Oracle.
  
  In constrast, Rimini Street is fighting back. In a statement sent to me by Rimini Street last week, the firm writes, "While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle."
  
  It goes on, "While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct."
  
  In other words, if Oracle thought Rimini Street would simply roll over, it thought wrong.
  

I suspect Oracle would like to have these two lawsuits run together in the mind of customers, prospects, and the general public. But, Rimini Street appears determined not to let that happen.

SAP's hands were tied against Oracle

The ironic part of the Oracle v. SAP/TN case is that SAP couldn't mount a vigorous defense without shooting itself (forget about the foot!) in the head. SAP, like Oracle, is addicted to its lucrative maintenance business. It is baffling why SAP chose to acquire TN in the first place, for some tactical advantage in converting a few Oracle customers to SAP? While undermining its whole business model for sustaining revenues from its installed base? What was SAP thinking?

So, when Oracle filed suit against SAP, what was SAP supposed to do--counter-sue Oracle for restraint of trade and unfair competition, and thereby conceding to any large hungry system integrator or competitor (think, IBM or HP) that its own installed base maintenance revenues were ripe for picking? Of course, SAP had to defend itself. But it couldn't defend itself too strongly, lest it wind up giving legal precedent to the third-party support industry. As it turns out, as the case proceeded through discovery, Rimini Street announced it would begin offering third-party support services for SAP's customers in addition to the services it was offering to Oracle customers. So, SAP was stuck between the proverbial rock and a hard place.

Rimini Street has no such baggage. It can and appears to be willing to mount a vigorous defense of its own rights to offer third-party support services, based on the contractual rights of customers to self-maintain their licensed software, while respecting the IP rights of OEM software vendors.

Why Rimini Street's case is important

As Rimini Street stresses in its statement this week, "both Oracle and SAP have acknowledged that third-party support is legal." I covered this point back in 2008 in a post entitled, Legal basis for third-party ERP support industry. In a little-noticed letter filed by SAP as part of pretrial discovery, TomorrowNow strongly asserted its legal right to offer third-party support for PeopleSoft customers, and PeopleSoft backed down from its claim that such support was illegal. Furthermore, to my knowledge, Oracle has not gone so far as to argue that TN had no right to offer support. Only that it did so by stealing Oracle's IP.

Rimini Street is strongly claiming not to be infringing on Oracle's IP. If it can back up that claim in court, then, in my opinion, a strong legal precedent will be established for the third-party support industry. Furthermore, if Rimini Street is successful in its counter-claim against Oracle, it will strongly restrict the attempts of vendors to prevent customers from seeking third-party support--which, ironically, SAP itself appears to have tried to do in 2009!

Strange, isn't it? SAP was defending itself as a provider of third-party support for Oracle customers, while at the same time apparently trying to prevent its own customers from using third-party support.

So, SAP was fighting Oracle with one hand tied behind its back. As Rimini Street's statement now points out, "Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. "

So, why is the Rimini Street case important? Because the rights of customers to not be locked into a single source for maintenance and support needs to be preserved. As I've written many times in the past, when you buy a Lexus, you have the right to take that Lexus to any third-party repair shop. Lexus cannot try to stop you or threaten to void your warranty if you do so. If they tried, the US Department of Justice (DoJ) and 50 state attorneys general probably would file suit. Why should the enterprise software industry be any different?

DoJ is reported to be looking into the Oracle/SAP matter. If so, and while it's learning about this industry, it should also take a look at the restraint of trade and antitrust implications of both SAP and Oracle's behavior in attempting to prevent a viable third-party support industry.

Statement from Rimini Street

Here is the full statement from Rimini Street, sent to me last week.

While SAP chose not to challenge Oracle's allegations of liability, Rimini Street is aggressively challenging Oracle's allegations and prosecuting its own claims against Oracle.

We believe the resolution of the Oracle vs. SAP case does not impact Rimini Street’s case against Oracle and does not change anything in the fast-growing third-party support market.

A few key facts:

Both Oracle and SAP have acknowledged that third-party support is legal. Oracle's claims relate to the specific processes and procedures used to provide support for their products. The processes and procedures used by Rimini Street are very different from those used by SAP.

The only substantive similarity between the offerings of SAP/TN and Rimini Street is that they both provide third party support at 50% off the software vendor's annual fees. As clearly articulated in the court documents and the thousands of pages of process documents provided to Oracle by Rimini Street, every other aspect of Rimini Street’s operations is significantly different that the operations of SAP/TN. Oracle knows this to be true.

We believe the magnitude of the damages award is a result of SAP's peculiar decision to concede liability and ultimately not challenge Oracle's claims. It bears noting that SAP, like Oracle, derives many billions of dollars from maintenance and update services to its customers with profit margins not unlike Oracle’s.

SAP’s practices and conduct in their attempts to chill growth of third party maintenance are similar to Oracle’s. Had SAP availed itself of the claims and defenses pleaded by Rimini Street in its case against Oracle, SAP would have placed its own policies and third party revenues in jeopardy. SAP abandoned these claims and defenses at its own peril, as the size of the damages award illustrates. While SAP chose not to challenge Oracle's allegations, Rimini Street intends to stop what it believes are Oracle's illegal anti-competitive actions and will hold Oracle responsible for its actions.

While SAP chose not to challenge Oracle's allegations, Rimini Street has countersued, accusing Oracle of defamation and using illegal and unfair practices to stifle competition for the lucrative support and maintenance business. Rimini Street intends to stop what it believes are Oracle's illegal actions and is seeking to hold Oracle responsible for its conduct.

Update, 1:40 p.m.: Dennis Howlett has a good post on the long-term implications for customers if vendors can get away with squashing the nascent third-party maintenance industry.

Related posts

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

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

Rimini Street expands 3rd party maintenance for Oracle products

I interviewed Seth Ravin, founder of Rimini Street, today about his firm's efforts to expand their support offerings for Oracle's Siebel, PeopleSoft, and J.D. Edwards product lines.

I covered Rimini Street exactly one year ago, when the company was first founded to provide an alternative to Siebel's support organization. At the time, I predicted: "Oracle will downplay the existence of Rimini Street for now. But if Ravin's new firm starts to get traction, it wouldn't surprise me if Oracle threatens legal action."

So far, Oracle has indeed been acting as though it is unconcerned about Rimini Street. Ravin today said that Oracle has taken the high road--Oracle's co-CEO Charles Phillips says that it's good for Oracle customers to have choices. However, as Ravin points out, it would be awkward for Oracle to attack Rimini Street for providing third-party support for Oracle customers while Oracle itself is, at the same time, promoting its partnership with SYSTIME to provide third-party support for SAP.

Rimini Street Customer Base
Of course, in terms of size, Rimini Street is not yet a major threat to Oracle's maintenance revenues. The firm only employs about 30 people today, according to Ravin. He also indicated the number of clients, which he asked me to not disclose until his firm announces it at Oracle's Open World conference next month. Without giving the exact figure, let me say that it's not a big number. It comprises 60-70% Siebel customers and 30% PeopleSoft customers, with offerings for JDE customers just begun.

Although the number today is not large, it does include some very large companies--Fortune 500 firms. The conventional wisdom has been that third-party support appeals mainly to small companies looking to save a buck. But, as it turns out, large companies also want to save money--especially large companies that have heavily modified the vendor's software and have no plans to upgrade. Some of these companies are not willing to continue paying 22% of the sales price to Oracle for product upgrades that they are not likely to ever install. Also, having mature systems, they don't need Oracle's help desk support.

Retail, healthcare, and governmental organizations also seem to be receptive to Rimini Street's offerings--the last especially in cases where there are significant budgetary constraints.

Beyond the Traditional Support Contract
One interesting point: Rimini Street has been expanding its support offerings to go beyond what is typically offered in software maintenance contracts. The company is now offering support, not just for vanilla code, but for the client's own customizations. There are certain restrictions (e.g. the code has to be working in the client's production environment), but once the customizations are put under maintenance, Rimini Street guarantees that they will continue to work with whatever changes Rimini Street introduces to the code. The firm also provides certain support to ensure interoperability, data quality, and system performance--the kind of real-world problems that traditional vendor support contracts do not cover.

Actually, what Rimini Street is doing is really not so radical. It is really just a system implementation consulting firm, or a system integrator, that happens to sell its services under a service contract instead of a break-fix arrangement. It is not a software company. Ravin points out that in a perfect world, Rimini Street ought to be an Oracle partner. Just because they compete with Oracle for maintenance contract dollars shouldn't make a difference--Oracle competes with its partners all the time. Just ask any of Oracle's implementation partners how often Oracle Consulting competes with them for services deals.

As I've indicated in the past, it is the software vendors' own money grab that has opened the door for third-party support organizations, such as Rimini Street. Vendors have been treating their installed client base as a captive audience, jacking up support prices to provide revenue to fund the rest of their operations. This creates a value-gap that third-parties can fill by offering tailor-made services that meet the needs of the customer for significantly less money.

In the case of Rimini Street, contract prices start at about 50% of what Oracle charges. Then, if the customer is paying maintenance for products he has not implemented, or user seats that he is not using, the price drops even further.

It's hard to see what's wrong with this picture.

Related posts
Oracle faces threat to Siebel maintenance fees
SAP to provide maintenance for PeopleSoft products
Ellison threatens SAP regarding PeopleSoft support
High software maintenance fees and what to do about them

Rimini Street, SAP, and the future of third-party maintenance

At last year's SAP SAPPHIRE conference, Rimini Street indicated its intention to expand into third-party maintenance for SAP customers. Now, right on schedule, at this year's SAPPHIRE event, Rimini Street is announcing the availability of its support services for SAP customers, building on its similar offerings for Oracle's J.D. Edwards, PeopleSoft, and Siebel customers. It's a good move for Rimini Street and hopefully provides further validation for the third-party maintenance model.

I spoke with Rimini Street's CEO, Seth Ravin this morning about the launch. Seth indicated that his firm already has several SAP customers on board, with strong interest from many others driven by SAP's increasing prices for its own maintenance program. SAP has since backtracked on its forced march to Enterprise Support, but its original stated intention to increase maintenance fees to 22% of original license cost appears to have been enough to start SAP customers looking for alternatives.

The mood is nowhere better evidenced than by the response of German SAP users. Until now, few competitors dared challenge SAP on its home turf. But that changed when 30 CIOs invited Rimini Street to present to them in Berlin, according to Ravin. Rimini Street already has several of them as early adopters of its SAP support services.

Spread Thin?
Seth assured me that his resources are adequate to support multiple ERP vendors. Each product is supported by a separate leader and dedicated resources. In the case of Rimini Street's SAP unit, the leader is Shawn du Plessis, a "16 year SAP veteran who has held leadership roles across more than 15 major SAP full life cycle implementations with global companies such as Nestle, Sebastian International and Siemens," according to Rimini Street's press release.

But the launch of its SAP offerings has forced Rimini Street to go global. It has put up a German version of its website, and it plans to hire local resources in Europe and the Far East, complementing its workforce that until now has been limited to North America. Contrary to the practice of SAP and Oracle, it does not believe in an offshore service delivery model.

Flexible Contract Options
Seth indicated that the phrase "flexible contract options" in his press release does not refer to tiered pricing options. Rather it indicates flexibility in the contracting period. Most customers sign up for a five year term, but others buy into ten or even 15 year periods. Others adopt shorter periods, for "gap coverage," while they migrate from one system to another. Flexibility refers to the ability to tailor the contract length to the actual need. I also note that Rimini Street provides support for customer modifications or extensions to the base system, something that goes beyond what SAP or Oracle offer to their own customers. Generally, modifying base code "voids the warranty" with SAP or Oracle, as so to speak.

Why Not More Third-Party Maintenance Providers?
Why haven't there been more players like Rimini Street rising up to meet the market demand for third-party maintenance? Seth believes there are significant barriers to entry. In the case of SAP or Oracle, a potential service provider has to be willing to take on two powerful multinational organizations. Existing business partners of SAP and Oracle, those that are best qualified to offer third-party maintenance, are reluctant to offer services that compete with the parties that they rely on for sales leads, training, product access, and general good will. Finally, it takes significant resources, including funding, to build a 24/7 support organization, much of which must be built before the first customer is brought on board.

My Take
I agree with Seth that the barriers to entry are significant, though not insurmountable. The Tier I enterprise software market is ripe for disruption by third-party maintenance providers. With SAP and Oracle realizing gross margins in the neighborhood of 90% on their maintenance business, the economics are simply too strong for third party maintenance providers not to rise up.

Rumor has it that there are smaller, niche players besides Rimini Street already offering third-party maintenance contracts "under the radar," on a case-by-case basis. But they are reluctant to publicize their offerings out of fear of incurring the wrath of their business partners. Oracle's lawsuit against SAP and its former TomorrowNow unit, which provided third-party maintenance for Oracle products, only heightened these fears.

As I've written before, it may take one or two antitrust lawsuits before larger service providers feel comfortable venturing into meeting this market need. Interestingly, today's Wall Street Journal notes that the U.S. Department of Justice plans to step up antitrust actions against illegal monopoly conduct. One can only hope that one of the first markets they explore is enterprise software maintenance and support.

Related posts
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

No recession for Rimini Street third-party maintenance business

Rimini Street, which offers alternative maintenance and support contracts for Oracle and SAP customers, reports today that its books in the first half of 2009 increased four-fold over the same period last year. It gets better: second quarter bookings increased six-fold over the same quarter last year.

In further evidence of a surging business, Rimini Street reports:

• A four-fold increase over last year in its J.D. Edwards client base
• US-based staff growth of almost 25%, while expanding its support operations into Europe and Asia-Pacific
• Signing up its first SAP clients, complementing its support for Oracle JDE and Siebel customers
• Delivery of tax and regulatory updates ahead of the "primary software vendor’s planned release date for similar updates"

It's remarkable to do all this in a time of economic recession. But the recession may in fact be helping Rimini Street's business as Oracle and SAP customers are pressed to look for alternatives to inflated maintenance fees from these two vendors.

I also note Rimini Street's report of a strategic investment from private equity firm Adams Street Partners. The money will be used to fund Rimini Street's global expansion. Apart from this, however, to me this is a serious endorsment of the third-party maintenance model in general, and Rimini Street in particular. No doubt, Adam Street did their due diligence. If they came to the conclusion that third-party maintenance is a worth investment target, will others be far behind?

I hope not. I would like to see other private equity firms funding other third-party maintenance providers as well. The more the better.

Rimini Street's press release has details.

Update, July 31: Bob Evans at Information Week has an excellent article on the excessive nature of Oracle's and SAP's 22% maintenance fee practices and the door that this has opened for Rimini Street, and hopefully others. One tidbit:

Some CIOs object, usually in language most charitably described as "colorful," that because the world's two largest enterprise software companies have built such wildly successful cash cows out of their support and maintenance businesses, SAP and Oracle have completely lost sight of the customer connection in that context. Most grating of all to these CIOs have been public comments made separately by top-level executives at the two companies indicating quite explicitly that whatever customers might or might not think about the 22% fees, that revenue is indispensable to the stock valuation of each company and so cannot be changed.

This article should be required reading for any enterprise software buyer or CIO.

Related posts
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

Oracle slams Rimini Street with lawsuit over third-party maintenance

Chris Kanaracus at Computerworld alerted me, via email, to the news that Oracle filed has filed a lawsuit against Rimini Street, alleging massive theft of Oracle's intellectual property, in connection with Rimini Street's delivery of third-party maintenance services.

Chris was kind enough to send me a PDF of the actual complaint. A quick read reveals allegations similar to those Oracle made in its lawsuit two years ago against SAP in connection with SAP's now-discontinued TomorrowNow operation. For example, "massive theft of Oracle's software and related support materials through an illegal business model." I won't repeat them here. Read Chris's reporting for a summary of the lawsuit.

As I wrote in response to Chris, I'm not a lawyer and cannot comment on the legal aspects of this case. But I do suspect it will have a chilling effect on others that are contemplating the delivery of third-party maintenance services, at least for now.

Having said that, however, I am told that Rimini Street has had top notch legal advisors from the beginning, and I expect that they've prepared for this contingency, both in terms of their internal procedures and their legal standing to do what they do. I do not expect them to roll over.

A risk to Oracle
In fact, there may be a silver lining in this case for those of us who want to see a viable third-party maintenance industry. That is, this case is going to bring increased legal scrutiny of Oracle and other major software providers in terms of how they lock in customers to their maintenance and support programs. Oracle runs a risk in filing this lawsuit. If Oracle does not prevail against Rimini Street, the case will strongly establish the legal basis for the third-party support industry.

I see an analogy in the court rulings that forced IBM to unbundle its software and hardware, creating the IBM-plug compatible mainframe industry in the 1970s, led by third-party hardware providers such as Amdahl, Fijitsu, and Hitachi. The unbundling created competition in the mainframe hardware market, the lack of which had led to inordinate profits in IBM's mainframe business.

Today, can anyone argue that Oracle (and SAP for that matter) earn excessive profits on their maintenance and support contracts? They have a 90% profit margin, by Oracle's own admission. The only reason that Oracle (and SAP) can do this is because there are a lack of alternative support providers. Is this not a case for antitrust action?

As I've written in the past, I don't need to go to my Lexus dealer for routine auto maintenance. There are a whole array of authorized third-party support organizations for the major automobile manufacturers. Why should enterprise software be any different?

I've written many posts in the past on this subject, only a few of which are listed in the Related Posts section below. To find the rest, use the search field on the right to search for "Rimini" or "TomorrowNow."

Updates:
Shane Schick has a very good take on the lawsuit as well, "The vampires vs. Rimini Street."

Helmut Gumbel has a good post, making some of my same arguments, plus some others. Worth reading.

Related posts
No recession for Rimini Street third-party maintenance business
Rimini Street, SAP, and the future of third-party maintenance
Rimini Street to provide third-party support for SAP
Legal basis for third-party ERP support industry

Rimini Street to provide third-party support for SAP

As if it didn't have enough on its plate providing third-party support contracts for Oracle customers, Rimini Street is getting ready to do the same thing for the SAP installed base.

So says a press release from Rimini Street this morning from SAP's Sapphire conference in Orlando. (The release is not yet posted on the firm's website.) Rimini Street claims much interest from SAP's installed base in having an alternative to SAP's support contracts.

Vendors' money grab
One major driver in the interest from SAP clients is SAP's increase in maintenance fees. Formerly an annual charge of 17% of the client's software license cost, software maintenance pricing now risen to 22%, which just happens to match Oracle's pricing.

From SAP's perspective, I suppose it felt it was leaving money on the table. From the client's perspective, however, it's hard to understand why it is necessary, in essence, to completely repay for their system every four years.

The ability of Oracle and SAP to get away with charging 22% for software maintenance shows how much pricing power is in the hands of the major vendors. They may do whatever it takes in terms of initial license fees to win the deal, knowing that once they are the incumbent, the 22% is a recurring revenue stream. More and more, for these two players, ERP is all about maintenance revenues. I don't know of any customers that feel this level of pricing is justified.

The business case for third-party support
Rimini Street, which claims its revenue quadrupled in 2007, is taking advantage of this gap between the vendors' price and value delivered. Ironically, SAP itself tried to exploit the same situation by buying TomorrowNow, which offers third-party support for Oracle products. (In another twist, TomorrowNow was co-founded by Seth Ravin, the founder of Rimini Street). But Oracle was able to, essentially, shut down TomorrowNow's business by suing SAP and TomorrowNow last year for "massive theft" of Oracle's intellectual property. That case is still in the discovery phase.

How long can Rimini Street avoid being in the cross-hairs of Oracle (and now SAP)? I have no doubt that the firm has plenty of legal advice and all the necessary policies, procedures, and practices in place to defend itself in the event of a lawsuit similar to that brought by Oracle against TomorrowNow. At the same time, you can't stop someone from suing you.

I regret that Oracle's legal action against TomorrowNow is probably scaring away other potential new entrants into the third-party maintenance business for SAP and Oracle. That's too bad. A thriving third-party support industry would go a long way toward keeping the vendor's money grab in check.

Related posts
Rimini Street says no thanks to SAP and TomorrowNow
Court orders mediation in Oracle vs. SAP/TomorrowNow case
Oracle wants to broaden lawsuit against SAP and TomorrowNow
SAP lists TomorrowNow as a discontinued operation
TomorrowNow and the future of third-party support providers

Rimini Street says no thanks to SAP and TomorrowNow

Rimini Street has decided to pass on the opportunity buy TomorrowNow, SAP's third-party support business for Oracle. Rimini Street offers similar third-party maintenance services to Oracle customers running PeopleSoft, J.D. Edwards, and Siebel products. Such services reportedly can save customers as much as 50% compared to the vendor's maintenance fees.

Why did Rimini Street pass on the opportunity? Apparently, many TomorrowNow clients are already jumping ship to Rimini Street anyway, as the result of Oracle's lawsuit against SAP and TomorrowNow alleging theft of intellectual property.

"We see no need to pay for what we are already receiving, without any legal, structural or operational baggage related to TomorrowNow," said David Rowe, in an email message to me this morning. "For example, if you look at SAP's most recent Annual Report, the TomorrowNow subsidiary had an operating loss of about US $35 million in 2007. Our resources are better focused on the success of our existing and new clients."

The shift of TomorrowNow clients to Rimini Street contributed to the latter's reported 100% growth in first quarter bookings and revenue, according to Rowe.

A press release on Rimini Street's website has more on this subject.

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SAP considering sale of TomorrowNow

TomorrowNow, which offers third-party support for several of Oracle's products (PeopleSoft, J.D. Edwards, and Siebel) has been under much scrutiny since Oracle sued SAP and TomorrowNow for massive theft of Oracle's intellectual property.

Back in July, as part of its response to the suit, SAP appointed former SAP Americas COO Mark White to oversee TN, with founder and CEO Andrew Nelson reporting to White. The news this week is that Andrew Nelson is leaving TomorrowNow altogether.

In a press release, SAP said that it is "considering several options for the future of the TomorrowNow business, including possible sale."

What's going on? It would appear that SAP is coming to the conclusion that acquisition of TomorrowNow was a mistake in the first place. Taking maintenance and support business away from Oracle, getting involved so closely with Oracle's customers, and handling Oracle's intellectual property--even if all done within the law--is simply too difficult for Oracle's main competitor to manage. Whatever benefits SAP might gain by facilitating customers' migration away from Oracle are probably not worth the difficulty in avoiding the potential legal risk.

It's too bad, because the nascent third-party support model has a lot to offer as an alternative to direct vendor support. It gives customers choices and puts the primary vendor on notice that it cannot take its maintenance and support business for granted. Unfortunately, SAP's misstep with TomorrowNow has been a setback for the model.

Update, Nov. 23. The Financial Times is reporting that Rimini Street may be interested in taking Tomorrownow off the hands of SAP. Rimini Street is the main competitor to Tomorrownow as a third-party support provider to Oracle clients. If a deal materializes, it would be full circle for Seth Ravin, CEO of Rimini Street. Seth was co-founder of Tomorrownow and was with the firm until it was sold to SAP.

Seth is quoted, "We are interested, but we are proceeding cautiously and need to analyse it first." He also declined to say whether he was talking to SAP about a deal.

Update, Nov. 27. Datamation has more on the possibility of Rimini Street taking Tomorrownow off the hands of SAP. It reports that Rimini Street's business has "quadrupled" since Oracle filed suit against SAP, according to Dave Rowe at Rimini Street.

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Oracle faces threat to Siebel maintenance fees

The Oracle/Siebel deal hasn't even closed yet, and a third party is already eyeing the lucrative Siebel maintenance revenue stream.

The company, Rimini Street, is so new that the its website hasn't even been spotted yet by Google. But it was the subject of a Wall Street Journal article this morning, which will no doubt give it a huge publicity boost.

Third party support organizations are not unusual. But this one is interesting because it is headed by Seth Ravin, who was already a thorn in Oracle's side when he was running TomorrowNow, a third-party PeopleSoft support organization. Ravin left TomorrowNow in March when it was purchased by SAP, prompting a veiled threat from Larry Ellison. Prior to starting TomorrowNow, Ravin was an executive at PeopleSoft.

It's a pretty good bet that SAP's buyout terms included a non-compete clause for Ravin, to prohibit him from setting up another PeopleSoft support organization. But that wouldn't stop him from taking SAP's money and setting up a third-party maintenance group for Siebel customers. Who knows, maybe he'll build up Rimini Street to the point where he can do another deal with SAP.

Ravin says he will offer support at 50% of the cost of Siebel's current fees, which is similar to what he did for PeopleSoft. Finding engineers to provide Siebel customer support shouldn't be difficult. Oracle is expected to quickly cut staff as part of the deal to integrate Siebel. That should put a number of skilled Siebel resources on the street. In addition, there may be a certain number of Siebel engineers that would prefer to work for someone like Rimini Street than become part of Oracle.

In terms of absolute dollars, it's doubtful that Ravin will take a large amount of business away from Oracle. To illustrate, TomorrowNow only reached a total of 30 people before Ravine sold out to SAP. Furthermore, most customers are not going to want to give up the rights to Oracle's product roadmap, code-named Fusion. Rimini Street will appeal primarily to customers that have heavily modified Siebel's program code and don't particularly need or want access to future releases.

But the mere availability of maintenance support from Ramini Street will be a check on Oracle's ability to dictate terms to Siebel customers. Maintenance fees accounted for $469M in revenue to Siebel last year, over one third of its revenue. With competition for new license sales extremely competitive these days, software vendors increasingly count on maintenance fees to stay profitable. In the case of Siebel, which has a particularly tough time on the revenue front, those maintenance fees certainly count for a lot in Oracle's arithmetic.

My prediction? Oracle will downplay the existence of Rimini Street for now. But if Ravin's new firm starts to get traction, it wouldn't surprise me if Oracle threatens legal action.

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SAP lists TomorrowNow as a discontinued operation

Buried in a footnote in an SAP press release last week is this tidbit: SAP is now accounting for its TomorrowNow business as a "discontinued operation."

Under US GAAP SAP is required to present its results of discontinued operations (TomorrowNow) separately from its results from continuing operations. The preliminary figures contained in this release include results of both continuing and discontinued operations as a single line item.

From an accounting standpoint, what this means is that SAP no longer considers TomorrowNow as part of its business in the future. SAP already announced back in November that it was considering sale of TomorrowNow. The footnote in its recent press release just makes it official. No word on whether a buyer has been identified.

The handwriting has been on the wall for TomorrowNow ever since Oracle sued SAP and TomorrowNow for theft of its intellectual property. The case is many months away from going to trial, but SAP isn't waiting for a resolution.

While SAP is shutting the doors on its ill-fated foray into third-party Oracle support, its main competitor, Rimini Street, is enjoying a windfall in new business. It just announced that revenue for 2007 quadrupled.

To get more insight on these developments, I called David Rowe, Rimini Street's VP, Global Marketing and Alliances. David confirmed that some of Rimini Street's increase in sales has come from TomorrowNow customers jumping ship. But, in fact, they are only a small percentage of the firm's increased sales. He pointed out that SAP only announced it was looking to sell TomorrowNow recently, so the impact of that announcement will be greater in the future.

Would Rimini Street consider purchase of TomorrowNow from SAP? Rowe was careful in his answer. "We would certainly be interested," he said. "But if those customers are going to come to us anyway, we would need to evaluate exactly what it is we would be buying" in an acquisition of TomorrowNow.

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Oracle v. Rimini Street Lawsuit Verdict: Good for Third-Party Maintenance

Earlier this month, the jury in Las Vegas reached its verdict in the Oracle v. Rimini Street lawsuit, a closely-watched case involving third-party maintenance (3PM) in the enterprise software industry.

Although the jury awarded Oracle approximately $50 million in damages, the amount was far below what Oracle expected. Moreover, the jury found that Rimini Street’s copyright infringement was “innocent,” not “willful,” that Oracle suffered no lost profits as a result, and that neither Rimini Street nor its CEO, Seth Ravin, engaged in any tortious business conduct.

Assuming the jury’s verdict stands up against potential appeals, the case sets an important precedent for how 3PM providers should operate to ensure they are not violating the intellectual property rights of software owners. We expect customer use of third-party maintenance will increase as a result of this verdict.

Read this entire post on the Strativa blog: Oracle v. Rimini Street Verdict Clarifies Ground Rules for Third-Party Maintenance