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$1.3 Billion Ruling in Oracle-SAP Piracy Lawsuit

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Imagine your company were forced to pony up $3.3 million in damages for software license infringement. Unbelievable though it may seem, this was the actual amount of the judgment in a 2007 piracy lawsuit against an unnamed international media firm. The ruling broke the record for the largest copyright infringement penalty in the BSA’s history–a record that towered far above all others for over three years.

Now, imagine the judgment against your company were for $1.3 BILLION (equivalent to the entire GDP of Belize!). Inconceivable? Absolutely–up until last week, when SAP assumed the role of the world’s most ignominious software pirate after being convicted of copyright infringement by a California jury.

The high-profile case involved charges stemming from SAP’s acquisition of TomorrowNow, a company that provided services and support to customers of PeopleSoft and JD Edwards, both of which were acquired by Oracle in 2005. TomorrowNow, under new ownership of SAP, was accused by Oracle of routinely (and illegally) downloading Oracle software outside the scope of patches and bug fixes to which TomorrowNow’s existing customers were contractually entitled. Initially, Oracle filed ten charges against SAP, among them copyright infringement, unlawful computer access, unfair competition, and breach of contract.

A few interesting notes about the sequence of events: In the months leading up to the trial, SAP agreed not to dispute accusations that software was illegally downloaded by TomorrowNow in exchange for an agreement by Oracle to limit the charges to the single count of copyright infringement. Oracle presumably accepted the deal to keep the jurors focused on the one issue that represented the largest potential payoff. Then, just days before jury selection began, SAP reversed its original position that top executives weren’t aware of the illegal activities. Though it seemed like a puzzling maneuver, by not arguing that its leadership was blameless, SAP may have been gambling that the move would actually have the positive net effect of keeping some of its executives off the witness stand and keep the proceedings focused on monetary damages.

$1.3 billion dollars is a staggering penalty by any measure, and it’s hard to imagine how a greater discrepancy could be observed between a plaintiff’s and a defendant’s estimations of the value of the economic damage: Oracle claimed that SAP should pay damages in the billions, representing the fair market value of a hypothetical license covering every copy of software it stole. SAP, on the other hand, argued it should only pay Oracle for the profits lost to SAP when Oracle customers defected to TomorrowNow–a figure they claimed was in the tens of millions. While many industry experts believe the penalty was exceptionally disproportionate to the actual economic harm inflicted upon Oracle, the jury appears to have upheld a fairly strict definition of piracy–that the end user must pay for every copy of software in its posession, whether it’s being used, resold or not.

In the end, Oracle appears to have come out a big winner, both financially and in the PR battle it’s waged against SAP. While SAP is already laying the groundwork to appeal the ruling, the injury to its reputation and public perception of its internal governance will be very difficult to repair.

For more reading, here are some articles of interest:

Oracle awarded $1.3 billion in SAP lawsuit

Oracle vs. SAP lawsuit: 27 most popular questions about the TomorrowNow case

SAP-Oracle feud could hurt business, customers say

SAP fine is excessive, says Forrester analyst