Oracle Software Piracy Verdict Hits SAP's Wallet, Reputation

SAP must pay arch-rival Oracle $1.3 billion in damages for downloading software and support documents from an Oracle Web site, according to a federal court jury verdict late Tuesday.

The jury decision is a blow to SAP's reputation and could impact the company's sales and profitability, according to industry analysts.

Oracle said the verdict is the largest amount ever awarded in a software piracy case. The jury decision followed a three-week trial in a U.S. district court in Oakland, Calif., that riveted Silicon Valley.

The verdict came quickly, as the jury began its deliberations Monday after closing arguments and handed down its decision Tuesday afternoon.

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SAP, in a statement, said it is "disappointed by this verdict and will pursue all available options, including post-trial motions and appeal if necessary."

For Oracle, the verdict is vindication of its lengthy pursuit of the case: Oracle filed the lawsuit in March 2007.

"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 cusomers," said Oracle president Safra Catz in a statement issued by the Redwood Shores, Calif.-based company. "Right before the trial began, SAP admitted its guilt and liability; then the trial made it clear that SAP's 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."

The facts of the case reach back to 2005 when SAP acquired TomorrowNow, which provided third-party support services for owners of Oracle applications. SAP hoped to leverage TomorrowNow to get Oracle customers to switch to SAP applications.

But TomorrowNow, which SAP operated as a subsidiary, downloaded copyrighted software and documents from Oracle support Web sites without authorization from Oracle. TomorrowNow then used the downloaded copyrighted material to provide support services to Oracle application users. SAP shut down TomorrowNow in October 2008.

SAP has never denied TomorrowNow's activities and before the trial began Nov. 1 the company admitted liability in the case. The only question left to the jury was the amount of damages SAP owed Oracle.

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SAP, based in Waldorf, Germany, argued that the damages were only around $40 million. But a Nov. 3 story in the New York Times said SAP agreed to pay $120 million to settle at least part of the suit. Oracle attorneys, however, put the damages at $2 billion and Oracle CEO Larry Ellison claimed they were as high as $4 billion.

"This will unfortunately be a prolonged process and we continue to hope that the matter can be resolved appropriately without more years of litigation," SAP said in its statement.

"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."

The jury verdict will likely take a toll on SAP's finances and reputation, judging by published reports. "Even though SAP may appeal the judgment, the huge amount should be negative for the stock price and will weaken SAP's position in the U.S.," said Jacques Abramowicz, an analyst at Silvia Quandt Research, in a Reuters story titled "Oracle Ruling Tarnishes SAP's U.S. Reputation."

"There may be some reputational damage to sales, and government agencies in the U.S. may be particularly sensitive to the trial's outcome," the Reuters story quoted UBS analyst Michael Briest as saying.

There are also questions about how SAP will account for the liability and the impact it will have on the company's finances. A Wall Street Journal story said SAP had only set aside $160 million in anticipation of awarded damages.

The trial ended without testimony from former SAP CEO Leo Apotheker, now CEO at Hewlett-Packard. Oracle tried to subpoena Apotheker to testify in the case after he assumed the HP CEO post Nov. 1, even reportedly hiring private detectives to find him. The issue has damaged the relationship between Oracle and Hewlett-Packard with HP saying Oracle's efforts to get Apotheker to testify were "an effort to harass him and interfere with his duties and responsibilities as HP's CEO."