Strategic CIO // IT Strategy
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10/29/2010
01:36 PM
Fritz Nelson
Fritz Nelson
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Oracle v. SAP: Daytime Drama

Part 1 – Trial Preview: A trial nearly four years in the making is finally upon us. Oracle and SAP counsel will put on a dramatic show thanks to star witnesses, a trail of illegal activity, and accusations of misconduct at the highest levels.

Financial Damages

The question about how much financial damage any of SAP's illegal activity caused Oracle is really what the trial proceedings will attempt to decide. Oracle is claiming damages based not on actual customers lost, but on the value of the software misappropriated. Oracle's trial brief puts the "fair market value" of stolen software at $2 billion. Other aspects of Oracle's case take the number higher.

Meanwhile, a reading of SAP's trial brief puts their damage estimates at anywhere from zero to tens of millions of dollars. It rebuts nearly every monetary claim. For example, SAP says that nary a customer chose SAP because of TomorrowNow; and TomorrowNow never earned a profit (precisely, it lost $90 million while part of SAP, according to the trial documents). In other words, no harm, no foul.

Oracle's trial brief points to internal SAP statements about the potential SAP business growth resulting from the purchase of TomorrowNow. SAP allegedly forecast $897 million in benefits to its business just between 2005 and 2007, as it aimed to lure almost 5,000 PeopleSoft customers, or nearly half of those Oracle had just acquired in the PeopleSoft deal. But SAP claims that "at no time prior to the launch of Safe Passage did SAP ever quantify the extent to which TomorrowNow itself would cause sales of SAP software that SAP would not otherwise have made."

SAP's brief claims that Oracle's internal statements reveal that it didn't see the possibility of customers switching either. In fact, SAP claims, the 86 TomorrowNow customers that switched to SAP from PeopleSoft, and the 800 or so customers that took advantage of Safe Passage (most of which, SAP claims, didn't buy TomorrowNow support), all did so based on the merits of SAP software alone, and not because of TomorrowNow's support. SAP portrays its purchase of TomorrowNow as a complete failure.

This fun little dance sidesteps the fact that the end goal for SAP was to establish a relationship with Oracle customers, not so much to hook them on TomorrowNow services. The trial could come down to placing a value on those 86 customers; Oracle must prove a linkage. The trial briefs show that each side has its own interpretation of why customers switch. This is a big deal; after all, the cost of ripping out and switching platforms isn't one that CIOs take lightly. The associated risks are extremely high.

While Oracle wants damages tied to the value of stolen software, SAP wants to limit the damages to lost maintenance sales from customers that chose support from TomorrowNow. SAP's brief displays a belief that Oracle needs to show actual and provable damages from copyright infringement (for example, the value of the infringed software to SAP and/or TomorrowNow).

SAP's brief demonstrates it will rebut every monetary claim, but it pegs the infringement loss at no more than $40 million, while it says Oracle pegs it somewhere between $91 million and $318 million. SAP says that most of these customers would have used some third-party support service anyway -- again, no harm, no foul. But even if Oracle wouldn't have directly profited (the point SAP is trying to make), SAP and TomorrowNow actually did.

SAP seems to believe that Oracle is basing its $2 billion damage figure on its desire to exact some of the PeopleSoft purchase price out of SAP, and the claim that SAP would have gone on to acquire thousands of PeopleSoft customers rather than the 86 that SAP cites.

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