Maintenance contracts at heart of Oracle, SAP dispute
Oracle's suit against SAP is about business rivalry and theft, but it is also very much about third-party maintenance of software
Follow @infoworldSoftware 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 and 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.
There's good reason that the companies are fighting over software maintenance. The market for software maintenance is growing about 9 percent each year, compared with software licensing revenue growing closer to 7 percent, Wang said. On a $1 million software licensing contract, a company might spend more than $200,000 a year to the software provider on maintenance, he said. Third-party companies like TomorrowNow, however, tend to charge 10 percent to 15 percent of the cost of the software, rather than 20 percent to 25 percent, for maintenance, 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 10-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 intellectual property 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.
