Oracle wins its landmark copyright infringement case in a landslide, as the jury awards an unprecedented figure. The case is likely to be appealed, and its outcome will linger for years.
Three years of legal due diligence, packed into three weeks of trial, and finally we have a verdict after less than a day of jury deliberation: SAP owes Oracle $1.3 billion for copyright infringement in a landmark judgment that will likely drag on through appeals. But this case promises to reach further -- into the tenuous world of third-party support, into law school classrooms for decades to come, and quite possibly into a world of shareholder lawsuits and justice department investigation.
After watching almost every minute of this trial unfold, it was impossible to predict such an outcome, which intellectual property consultant Sam Wiley called "the largest ever" copyright infringement award. Third-party software support provider TomorrowNow, which SAP acquired at the beginning of 2005, downloaded millions of Oracle files, including software, source code and support materials. SAP knew about it before the acquisition, and the practice continued long after, until Oracle filed suit in 2007. The acquisition of TomorrowNow took place just as Oracle was completing its hostile takeover of PeopleSoft (which included JD Edwards).
SAP claimed to have put out an edict to stop the illegal downloading. During the trial, some SAP executives said that they had assumed this put a stop to the practice, but nobody ever followed up, at least according to their testimony. SAP admitted liability, copping to contributory liability just days before the trial began; this form of liability meant that SAP wasn't just taking accountability for TomorrowNow's actions, but included its own negligence in the matter.
The jury had to decide between two methods of determining damages. First, a hypothetical negotiation that would have taken place on the day SAP acquired TomorrowNow, with both sides having full knowledge of each others' intentions. Oracle, then, would have known that SAP's business assumptions included a three-year plan to entice PeopleSoft and JD Edwards customers to TomorrowNow support, get them to purchase other SAP software (like NetWeaver), and then convert them to SAP ERP and other enterprise applications. SAP planned to make almost $900 million over three years through this plan, called Safe Passage.
SAP executives called those assumptions "marketing plans" in an attempt to downplay them (during the trial, both sides displayed the $900 million document countless times, and it became known as The Zieman Document, for its creator, SAP services chief, Thomas Zieman). Instead, SAP wanted the jury to consider a "lost profits" scenario, whereby its damage expert calculated the money Oracle lost in customer conversions, and the profit SAP accrued through its use of Oracle's software. Both sides agreed that 358 customers left Oracle through Safe Passage, and 86 of them became SAP customers. From there, the sides disagreed about pretty much every customer's reason for leaving Oracle.
Oracle's hypothetical negotiation numbers totaled "at least" $1.66 billion; that number had been limited by Judge Phyllis Hamilton during the course of the trial. Oracle's damage expert also calculated a lost profits number of $409 million. SAP's damage expert put the number at about $40 million. Obviously, the final jury verdict was much closer to Oracle's number -- perhaps not a surprise to some, given the excessiveness of the infringement.
In an official statement, Oracle President Safra Catz said: "For more than three years, SAP stole thousands of copies of Oracle software and then resold that software and related services to Oracle's own customers. Right before the trial began, SAP admitted its guilt and liability; then the trial made it clear that SAPs most senior executives were aware of the illegal activity from the very beginning. As a result, a United States Federal Court has ordered SAP to pay Oracle $1.3 billion. This is the largest amount ever awarded for software piracy."
William Wohl, VP of SAP Global Communications also responded to the verdict: "We are, of course, disappointed by this verdict and will pursue all available options, including post-trial motions and appeal if necessary. This will unfortunately be a prolonged process and we continue to hope that the matter can be resolved appropriately without more years of litigation. The mark of a leading company is the way it handles its mistakes. As stated in court, we regret the actions of TomorrowNow, we have accepted liability, and have been willing to fairly compensate Oracle. Throughout this matter, our customers, employees and partners have stood by us and, for that, we are grateful. Our focus now is looking forward, helping our customers be best run businesses, and extending our legacy of industry leadership well into the future. We thank the jury for its diligent service through this lengthy trial and the Court for its supervision of this complex case."
Experts I spoke with believe that there will be a complicated series of motions and appeals that will extend this case indefinitely. Judges are also known to lower awards that they deem excessive; Judge Hamilton has not indicated yet whether she will do that, and it seems unlikely.
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