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11/23/2010
09:50 PM
Fritz Nelson
Fritz Nelson
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Jury Decides: SAP To Pay Oracle $1.3 Billion

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.

First, it will create some concern for customers of both companies regarding third-party support. As I wrote about here, Oracle and SAP both prohibit anyone except authorized customers from downloading software and support material. With another Oracle lawsuit hovering over third-party support provider Rimini Street, which has said it believes it has the right to download software on behalf of its customers, we're sure to get more clarity, but the case against SAP hasn't clarified the issue, and the Rimini Street trial is potentially years away; Rimini Street has countersued Oracle for restricting trade. Companies like Accenture and IBM also provide forms of third-party support. Some customers opt for self support.

Second, SAP will struggle to come out of this scenario in tact. It certainly hadn't accounted for a damage award of this size, and had already agreed to pay Oracle's legal fees to the tune of $120 million. While it is a growing and profitable company, $1.3 billion is big no matter how lofty your profits or prospects. However Jason Maynard, a Wells Fargo analyst, noted in an advisory that the ruling "shouldn't have material impact on the company's acquisition plans." SAP had "$2.8 billion Euro on its balance sheet" and "recently completed a $500 million private placement on October 15," the advisory said.

Shareholders may also ask how the company could have proceeded with a deal like TomorrowNow knowing the risks; and how top management could have turned a blind eye (at best), or encouraged the practice (at worst). SAP has a dynamic, polished new co-CEO in Bill McDermott, and he's already made a tremendous impact, but this is a challenge on the grandest of scales.

Third, Oracle is a machine on a mission. With the departure of one of its most successful executives, Charles Phillips, it turned around and plucked Mark Hurd, who turned HP's fortunes around practically overnight. But among all of them, including Mark Benioff, now with Salesforce.com, the diminutive Safra Catz perhaps stands tallest. She was a major force in this trial, and despite her limited public exposure, is a major force at Oracle. She, along with IBM's Steve Mills, may be two of the most unsung software executives the industry has ever seen. Both are capable of serving at the helm of large companies.

At the trial, Oracle had a soundbite factory in Catz, who in her final testimony as a rebuttal witness said, in response to SAP's defense that it only paid $10 million for TomorrowNow: "It's like I bought a $15 crowbar, then I break into a house and clean it out. What I pay for the crowbar is irrelevant." She also compared it to Warner Brothers taking Disney's entire library, charging $2 for each movie and then proposing to pay back merely what it took in. "It's the value of what they took," she said, "not what they made."

When talking about SAP's claims that its assumptions were just wild guesses, not business plans, Catz said: "Assumptions are really what you believe are the important drivers of what you think will happen . . . I have whole presentations where the most important things are the assumptions . . . it's where the real management work is done." When asked if you can go back and change those assumptions, she replied: "No, not at the job where I work."

Fourth, while HP and SAP have painted Oracle's pursuit of Leo Apotheker as villainous, the new HP chief does have some explaining to do, as he was, allegedly, deeply involved in TomorrowNow's business. While Oracle's decision not to show Apotheker's deposition was clearly a ploy, as was its continued proclamations about his hiding, an appeal is likely to cast a longer shadow over his tenure than HP would like. As Oracle continues to play its Sun Microsystems card, a damaged HP would surely help its ever-growing fortunes.

Finally, this case is sure to be studied in law schools for decades. Not only is this the largest copyright infringement award ever granted, but it relied mostly on patent case law as precedent -- most notably Georgia Pacific v. United States Plywood (1970) and "book of wisdom" from Sinclair Refining v Jenkins Petroleum (1933).

Following is some recommended reading.

Oracle v. SAP: Daytime Drama

SAP Admitting Infringement In Oracle Case

Oracle v. SAP Trial Begins With Bang

Oracle V. SAP: Courtroom Diary

Oracle-SAP Trial: Phillips Says SAP Owes 'Billions,' Oracle Can't Find Apotheker

SAP CFO Werner Brandt Baffles Oracle As Trial Girds for Ellison

Oracle CEO Ellison Demands $4 Billion In Damages From SAP

Oracle V. SAP: Writing Is On The Wall

Fritz Nelson is the editorial director for InformationWeek and the Executive Producer of TechWebTV. Fritz writes about startups and established companies alike, but likes to exploit multiple forms of media into his writing.

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