SAP Admits Wrongdoing, But Says Most Of Oracle's Lawsuit Claims Are FalseSAP Admits Wrongdoing, But Says Most Of Oracle's Lawsuit Claims Are False

In a response to a March lawsuit filed by Oracle alleging "corporate theft on a grand scale," SAP admits its TomorrowNow subsidiary downloaded some documents it didn't have legal rights to, but claims most of Oracle's allegations are false. Meanwhile, the U.S. Justice Department last week requested that SAP and TomorrowNow provide certain "internal documents," said SAP CEO Henning Kagermann in a conference call Tuesday.

In a 20-page response to Oracle's lawsuit, SAP strived to create a distinction between itself and TomorrowNow. It could prove to be a good ploy, said Erik Phelps, a former IT director and an attorney with Michael Best & Friedrich LLP who specializes in intellectual property and software licensing.

Even though TomorrowNow is a subsidiary, it's legally a separate entity from SAP, Phelps noted. "It will be incumbent on Oracle to prove, to support some of their claims, that the documents TomorrowNow had access to were actually shared with other corporate entities," Phelps said. "If they weren't, why should SAP be held liable to criminal exposure if they didn't do anything?"

If Oracle can prove SAP was involved, it could spell big trouble for the company. "Anything criminal on the part of SAP found by Justice would be a very scary result," Phelps said. If Oracle can show its intellectual property made its way into SAP products, it could get a chunk of SAP's revenues or a court injunction preventing SAP from selling certain products, he said.

But despite its admission, SAP's characterization of what happened is significantly different from Oracle's claims. TomorrowNow, which SAP acquired in 2005, provides third-party support and technical services to users of Oracle's PeopleSoft and J.D. Edwards software. SAP said in its response that TomorrowNow was authorized to download materials from Oracle's Web site on behalf of its customers. "Even Oracle admits the appropriateness of this approach," Kagermann said in the conference call.

SAP, however, admits that in late 2006, TomorrowNow downloaded thousands of documents on the behalf of some of its customers, including documents related to applications not licensed by those customers. Customers involved in the inappropriate downloading included Honeywell, Merck, OCE, SPX, Metro Machine, and Yazaki.

In its lawsuit, Oracle alleged SAP employees pretended to be Oracle customers to log on to its Web site and copy proprietary technical and customer-support data. Describing SAP's actions as "corporate theft on a grand scale," Oracle claims that SAP gathered the support documentation to provide cut-rate support for Oracle products, then shift those companies to SAP products.

SAP responded that it never got access to Oracle intellectual property via TomorrowNow, and the inappropriately downloaded documents stayed in TomorrowNow's separate systems. If what SAP says is true, and it has no connection to the materials, than it's unclear what TomorrowNow planned to do with the documents. One scenario SAP may point to is that TomorrowNow was using the documents Oracle created to better enhance its own support materials. While that could support Oracle's copyright infringement claims, it's very different from the allegation that SAP was using the documents to steal customers. "Downloading support materials is not harmful to a company," Kagermann said.

Oracle, however, claims there is a clear connection between TomorrowNow and SAP's plan to lure Oracle customers. Consider that both the TomorrowNow acquisition and SAP's Safe Passage program for Oracle employees were announced on the same day, Jan. 15, 2005, and in the same press release. In that release, SAP said it was providing "companies a safe passage away from the uncertainties arising out of the acquisition of those software brands by Oracle Corporation and a clear road map to assist these companies in evolving to the next generation of business software."

But in its response to Oracle' lawsuit, SAP says the allegation of corporate theft is "simply untrue." And SAP tooks a few swings at Oracle in its response, like this one: "Oracle professes surprise and confusion about how TN can provide services more cost-effectively than Oracle. The answer is simple -- TN does not force its service customers to pay artificially inflated prices for service to fund Oracle's future acquisition and integration of products that customers do not want or need."

In the conference call, Kagermann expressed his disappointment with Oracle's handling of the matter. "When we learned of the Oracle complaint on March 22, I personally was surprised and disappointed that Oracle had not chosen to talk directly to me as soon as they felt something was wrong," Kagermann said. "We are strong competitors but we are also partners within the industry, with an established practices of addressing concerns first [instead] of going directly to the courts."

SAP said it has instituted changes at TomorrowNow, including appointing SAP America's chief operating officer and CFO, Mark White, as executive chairman of the subsidiary (TomorrowNow CEO Andrew Nelson will report to White); enforcement of existing procedures and policies; and renewed training for TomorrowNow employees to "assure understanding" of policies and procedures.

Oracle, meanwhile, replied to SAP's response: "SAP CEO Henning Kagermann has now admitted to the repeated and illegal downloading of Oracle's intellectual property," said Oracle attorney Geoff Howard in a statement. He added that Oracle will cooperate with the Justice Department on its investigation.

But while SAP's legal team is looking to "address the matter as quickly as possible," Kagermann said, that may impossible considering the Justice Department's involvement. Expect to see a full electronic discovery process of documents and e-mails initiated by Oracle and/or the Justice Department. Says Phelps, "This will go on for awhile."