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11/9/2010
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Judge Allows Federal Fraud Suit Against Oracle

The software firm tried to convince the court that the government didn't have a legitimate claim that it bilked taxpayers out of millions of dollars.

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A federal court last week said that it would move forward with a lawsuit claiming that Oracle bilked the federal government and taxpayers out of tens of millions of dollars by failing to disclose deep discounts.

Oracle contract specialist Paul Frascella filed the suit in May 2007 under the False Claims Act, which allows private citizens to sue on behalf of the government and collect a portion of the damages. He claimed Oracle shaved as much as 92% of the sticker price off its products for its most favored customers, but gave the federal government much smaller discounts, contrary to requirements that the federal government receive prices that match the best price. The Department of Justice (DoJ) joined the suit in June with additional claims.

In a preliminary ruling on November 2, the U.S. District Court for the Eastern District of Virginia agreed with Oracle that certain of the federal government's claims were too old and therefore barred by the statute of limitations, but said that others still stand, as do Frascella's initial claims.

Among Frascella's claims was an allegation that Oracle improperly told employees that discount requirements applied only to database and computer tools, not to enterprise software. After Oracle employees expressed concern about the distinction between database and other enterprise software, Frascella claims, Oracle VP of global practices Ellen Eder, the highest-ranking official named in the complaint, said that her office wouldn't respond in writing because it would create a paper trail.

In addition, Frascella's complaint detailed schemes he says were designed to give commercial customers deeper discounts than the government, including having resellers sell below the maximum allowable discount and whiting out list prices and discounts on contracts and leaving only a net fee visible.

The government, meanwhile, said that it had been fraudulently induced into the contract with Oracle, that Oracle had breached its contracts with the government, and that Oracle had falsely represented and fraudulently omitted facts about its discount and pricing practices in its dealings with the government.

In response, Oracle moved to dismiss the government's case for failure to state a claim, meaning that even if the government's allegations are all true, the government had no case. "The government's complaint is a hodgepodge of inadequately pled, inconsistent, and, in many cases, untimely theories of liability that no set of facts can rescue," the motion said. The court obviously found merit only in part of this argument.

False Claims Act charges aren't infrequent, and sometimes result in significant settlements or damage awards, though many such cases settle out of court. In September, the DoJ announced that Cisco Systems and networking reseller Westcon Group agreed to pay $48 million to settle claims that they had "knowingly provided incomplete information" to government contracting officers, resulting in the government being overcharged for Cisco products.

In May, EMC reached a settlement with the DoJ to pay the government $87.5 million to settle similar charges, and NetApp reached a $128 million settlement with the government in April 2009. Oracle itself agreed in October 2006 to pay the government $98.5 million to settle a case in which PeopleSoft -- an Oracle acquisition -- was alleged of providing false pricing information to the General Services Administration.

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