Oracle, SAP battle it out in court dispute
- 26 March, 2007 22:00
Software maintenance -- who provides it and at what price -- is at the heart of the corporate theft lawsuit Oracle filed against arch-rival SAP, one expert said.
Oracle charges SAP, its SAP America division and its Tomorrownow subsidiary with stealing thousands of software products and confidential materials from Oracle. In the suit, filed in the U.S. Federal District Court in the Northern District of California, Oracle said the case is about "corporate theft on a grand scale."
But there's probably more to it than that. "This is totally about third-party maintenance," said Ray Wang, principal analyst at Forrester Research. "If Oracle wins, this decimates the third-party maintenance market."
SAP's Tomorrownow subsidiary provides support services to users of Oracle software. Tomorrownow requires access to certain Oracle technology in order to serve its customers. Oracle appears to be taking issue with the way that Tommorrownow acquires that information, Wang said.
Both SAP and Oracle are involved in delivering third-party maintenance services. Through a partnership with Systime, a subsidiary of CMS Computers, Oracle offers some maintenance for users of certain SAP products. However, SAP has been more successful moving Oracle customers onto its maintenance plans than Oracle has doing the reverse, Wang said.
SAP and Oracle have a long and bitter competitive history, but the current market environment is leading their rivalry into a particularly aggressive stage, which could also be driving this most recent dispute. Large corporations often replace or upgrade their software systems on a seven to ten year cycle. Because many of them bought new platforms in preparation for Y2K, they may be starting to investigate upgrades. In addition, Oracle recently refreshed its full product line and so is particularly keen to win new sales. It's unclear yet how the lawsuit itself may play out.
Jeff Norman, a partner in the IP practice of Kirkland & Ellis LLP, Chicago, said it appears there is a lot of "smoke" in Oracle's complaints, but that doesn't mean there's a fire. Still, if the company could prove that "this was theft of their copyrighted software and trade secrets, it's a pretty serious claim," he said.
Norman said because SAP is a foreign company, it could also be prosecuted by the U.S. Department of Justice for criminal espionage, which would be even more damaging for SAP. "The Justice Department takes these claims very seriously," he said.
Without access to the evidence in the complaint, Norman describes two potential scenarios. One is that TomorrowNow used information from Oracle to offer services to customers whose contracts with Oracle precluded them from using third-party services. The other, and more serious claim, is that TomorrowNow stole trade secrets and intellectual property from Oracle not to serve customers that can legitimately receive service from the SAP subsidiary, but so SAP can compete with Oracle.
Though the claims "look bad" for SAP, Norman said he finds it "hard to believe" SAP would commit such crimes. "SAP is a big company and fairly conservative; I would find it surprising if that were going on," he said.
Denis Pombriant, managing principal of Beagle Research, in Stoughton, Massachusetts, also thinks it's unlikely top-level SAP management had anything to do with the alleged actions by Tomorrownow. However, with the relationship between Oracle and SAP as contentious as it is, "nothing would surprise me," he said.
If SAP did want to obtain proprietary Oracle materials for nefarious purposes, doing it through TomorrowNow would be "an ideal front," Pombriant said.
"They could blame Tomorrownow for the problem if they got caught," he said. "There is plausible deniability here."
Pombriant added that the decision in the case probably will come down to "motive and whether or not it could be proven there was an attempt [by SAP] to cause harm."
China Martens in Boston contributed to this report.