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Tuesday, January 26, 2010

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."

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

by Frank Scavo, 1/26/2010 04:07:00 PM | permalink | e-mail this!

 Reader Comments:

Dang, Frank- "...excessive profits..."; you a Democrat or something? Or a Freetard (to quote Fake Steve)? What do you figure is an appropriate margin for a component of Oracles business?

I don't mind 3rd-party support. I do mind stealing Oracles intellectual property. Would it be ok with you if I re-printed Strativas work for my personal gain? Pretty sure I can run some coin if I undercut your consulting firms rates by 33-50%. Using your material.

Your Lexus analogy is bogus. You can have ANYBODY change the oil in it but you CAN'T buy just any old 3rd-party fuel injection system for it. Know why? That system consists of Lexus' intellectual property as well as their mfg expertise. And the barriers to entry duplicating same are significant. Don't hate the player hate the game.

This is my second attempt at getting my points across to you.
Hoo boy, where do I begin?

1. No, I'm a free market capitalist.

2. No, I don't know what an appropriate margin is for Oracle's maintenance business, but I'm pretty sure in a truly competitive market it would be less than the 90+ percent that Oracle admits it gets on its maintenance business.

3. Regarding theft of Oracle's IP, you are begging the question. That Rimini Street stole Oracle's IP is the allegation in Oracle's lawsuit. That fact has NOT been established. We'll have to wait for the court to decide whether that is the case in this case.

4. The Lexus analogy is not bogus. I can receive service for my Lexus from independent repair shops and it does not void the warranty. I am not restricted to only receive services from Lexus or its dealers.

4. Furthermore, the free-market principle of unbundling service from software is analogous to the unbundling of software from hardware, as dealt with by the US DOJ in the IBM case of the 1970s, as I pointed out.

5. I have no idea whether this is your second attempt. You know who I am, but I don't know who you are, since you choose to post comments to the Spectator anonymously.

By the way, how's the weather tonight in Vancouver, WA?
Dank, Frank - what I absolutely hate is card carrying socialists like you who then have the gall to drive a Lexus.

BTW - I bet you third party maintenance will be found as cause of brake failure on Lexuses.

and a word of advice for your car. with all the IP thieves around put the Klub on your Lexus. Don't be fooled by imitations. The original is worth every penny of the thousands I paid for it.

I hear they make 89% margins. Heheh, we make 94%.

Our stuff goes down real smooth ..the first word above was not dang ...if you catch my drift :)
My company recently moved support from Oracle to RiminiStreet. I firmly believe that Oracle suit is baseless.

Riministreet is providing far superior support than Oracle ever did IMHO. I think Oracle has under estimated the market and RiminStreet -- would not be surprised if one day RiminStreet didn't own Oracle since I'm not sure where Oracle is going to be capturing revenue from going forward. Nice thing about capitalism is customer always want the value for dollars spent -- you don't provide value or a quality product you will go out of business. Forcing customer to upgrade there systems for fucntionality they don't need isn't providing value and the the quality of support received from RiminStreet kicks the crap out of Oracle's hands down. Go capitalists!!!!

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