No clear sign of settlement in Oracle-SAP suit

SAP admits that its TomorrowNow subsidiary had made some 'inappropriate downloads' but continues to fight the legal battle against Oracle

A document filed last week by SAP indicates there may be no quick settlement to its rancorous legal entanglement with rival enterprise software maker Oracle, even though SAP admits that some of Oracle's claims about its former subsidiary TomorrowNow are true.

In its lengthy response to Oracle's even more voluminous third amended complaint in the case, SAP concedes some Oracle claims but overall denies liability and demands a jury trial. A judge has already set a February 2010 date for such a proceeding.

Oracle filed suit SAP in March 2007, charging that workers at SAP's now-shuttered subsidiary TomorrowNow, a provider of support for Oracle's PeopleSoft, J.D. Edwards and Siebel applications, had illegally downloaded material from Oracle's support systems and used them to court Oracle customers.

Oracle has also claimed that with the knowledge of SAP's executive board, SAP workers "made thousands of copies of Oracle's underlying software applications on its computer systems," and that SAP used Oracle's code for training, customer service and "generally to support a business model that was illegal to its core."

SAP's alleged behavior amounted to "corporate theft on the grandest scale," Oracle has said.

Meanwhile, SAP has acknowledged that TomorrowNow staff members made some "inappropriate downloads" from Oracle's Web site and that Oracle's software remained in TomorrowNow's systems. SAP has also strongly rejected Oracle's claims of a broader pattern of wrongdoing.

SAP restated its overall position in the most recent filing. "Because Plaintiffs have publicly admitted that TN had the right, in some instances, to access Plaintiffs' computers and use the Software and Support Materials therein, this case (once parsed of Plaintiffs' rhetoric) is simply about whether [TomorrowNow] exceeded its rights to access Plaintiffs' computers, whether that harmed Plaintiffs, and, if so, by how much," one passage reads.

"Plaintiffs rely on snippets and excerpts of documents to construct a tale of intrigue, when the truth is far simpler, though less exciting -- SAP bought TN with the hope that providing [Oracle] customers a choice in maintenance might give them the time to consider alternative, and better, enterprise software," another section states.

But SAP's filing also confirms some Oracle claims.

"Defendants admit that TN, on behalf of its customers, has downloaded and stored a large quantity of Software and Support Materials, further admit that downloads occurred of materials as to which TN did not have confirmation that the customer in whose name the downloads were being conducted had rights to such materials, and further admit that TN used those materials for customer support," one passage reads.

SAP also admitted that a "business case" it had prepared prior to the purchase of TomorrowNow in 2005 predicted "likely legal action" from Oracle. But SAP denied other allegations in that particular claim, such as "the presentation made clear that TomorrowNow did not operate legally."

In another claim, Oracle alleged that SAP "wrongly predicted Oracle would not sue" and that the TomorrowNow business case stated that "Oracle's legal challenges to TomorrowNow's ability to provide derivative works/support will require Oracle to also sue its customers -- a difficult situation for Oracle."

In responding to that claim, SAP admitted that the paragraph in question "partially quotes various documents" but otherwise denied the allegations, in a pattern that continues through its filing.

SAP also admitted that before a "figurative 'firewall'" was put in place between TomorrowNow and SAP, "a TN employee provided access to a few files containing 'Oracle' materials to a few employees at SAP." But SAP added that it had "admitted that fact in their initial discovery responses in this case well over a year ago."

Both Oracle and SAP declined to comment on SAP's latest filing.

A potentially key event in the case is set to occur on Feb. 23, when the parties will meet for a settlement conference. A judge has ordered SAP and Oracle to provide proposals that include specific dollar amounts for a settlement before that date.

Observers who have been following the case said Monday said it would make sense for the parties to settle -- something they have tried and failed to do before.

"What I found telling was how many times the [SAP] answer said 'we admit or we agree with what Oracle said,'" said Eric Goldman, an associate professor of law at the Santa Clara University School of Law and director of the school's High Tech Law Institute. "They didn't do it that much, but most answers deny everything. That's very unusual to see in an answer."

At the same time, "it's good to see that they've both found something they can agree on," Goldman said.

It would be "unbelievable" if the companies weren't having settlement talks, given the likely multimillion dollar cost of the litigation, he said.

Oracle has not provided a specific damage demand but has said the figure could top $1 billion.

"That sounds like a really big number, but SAP could just decide to afford it," Goldman said. "They have the financial wherewithal to pay something like that without it devastating them." But there's also good reason for SAP to delay the settlement process and try to bring that number down, he added.

It has been speculated that Oracle is willing to keep the suit alive simply for the perceived public relations benefit.

In contrast, there is no "upside for SAP in this litigation hanging around," Goldman said. "They don't look good. They might not look bad, but they don't look good."

Jon Reed, an independent analyst who monitors SAP skills trends and runs the Web site JonERP.com, compared the suit to a "high-stakes poker game."

"Oracle has the better hand this time around. If you use the poker analogy, knowing that shouldn't you just fold your hand?" he said.

However, "the thing about this stuff is that you can't just expect logic to dictate behavior, because personalities and egos get involved," he added.

In paying out a settlement to its bitter rival, SAP executives would have to take a hit to their pride, as well as allow Oracle the "marketing juice" it would gain from such an outcome, he said.

However, "maybe they're so far away on the [settlement] numbers that sanity has to prevail on one side or another," Reed added.

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