_____________________________________________________________________________________________________________________ © 2015, Dennis Courtney. This case study was originally written by Phil Hill and was subsequently revised by Dennis Courtney. The terms on which this case study may be used or modified are available at copyx.org/permission.

Case Study CX013.2 Last revised: April 6, 2015

Oracle v. SAP

Original author: Phil Hill Revised by: Dennis Courtney

The business space of Oracle v. SAP Businesses use enterprise software to manage a broad array of tasks, from recruiting and hiring, to marketing and sales, to accounting and financial planning. Enterprise software is often built on top of large databases — organized repositories of information that businesses generate in the course of their operations. (A manager might, for example, want to know all customers who bought a particular piece of equipment in the last two years, along with the salespeople responsible, and the amounts of any subsequent sales to those customers. All of this information might reside in a database, and the manager will likely get it not directly, but through enterprise software.) Because of the importance of such software to the operation of a business, decisions to change a supplier of this software (or software support services) are not made lightly or frequently. Customers in this space, once lost, are often lost for good. The market for enterprise and database support services is inhabited both by companies that make software and “third party” servicers who service products that they don’t make. At the time of the events in Oracle v. SAP, service relationships were often structured as long term contracts. (This is changing as “cloud-based” platforms erode the distinction between software and services. At the time of the events that gave rise to Oracle v. SAP, however, the cloud was not yet viable, and businesses licensed individual installations of enterprise software.) Third-party servicers often offer more customized service than software vendors — they might offer, for example, service for platforms that vendors no longer support, or service for all of a business’s software, even if it comes from multiple vendors. Third-party servicers often offer their services at a substantial discount, and attempt to characterize vendors as using the high costs associated with changing software to “force” their customers to buy products and services that they don’t need. (Customers might, for example, buy automatic upgrades from a vendor because they fear that an eventual and drastic change from old software to new — mandated by a change in hardware, or a cessation of support for older products — might be more expensive than the cost of incremental upgrades. As third-party servicers tell it, vendors exploit this aversion to risk by making unnecessary changes in new products, and using the threat of discontinuing support for old products as an inducement to buy upgrades.) Relationships between vendors and third-party servicers in this space are highly competitive, and frequently acrimonious.

Oracle v. SAP CX013.2

2

The parties Oracle was founded in California in 1977 as a maker of database software. In the early 2000s, it began a string of acquisitions to make itself a larger supplier of enterprise software and enterprise software support services. In December 2004, Oracle acquired PeopleSoft, a maker of enterprise software. The acquisition was extremely hostile: PeopleSoft challenged Oracle’s acquisition offers in California state court, and PeopleSoft managers publicly stated that Oracle was attempting to buy PeopleSoft for sole purpose of shutting it down, forcing customers to turn to Oracle. (The Department of Justice initially shared these concerns — particularly as PeopleSoft itself had only recently acquired JDEdwards, one of the other players in the enterprise software market — and unsuccessfully challenged Oracle’s acquisition of PeopleSoft on antitrust grounds.) At the same time, SAP, founded in Germany in 1972, was the largest provider of enterprise software. Less than one month after Oracle acquired PeopleSoft, SAP acquired TomorrowNow, a third-party services company founded by former PeopleSoft employees. SAP’s evident goal was to increase its ability to compete with Oracle in the market for PeopleSoft and Oracle support services. The infringement (Since SAP conceded infringement on the eve of trial, we approximately adopt Oracle’s version of events.) Both before and after SAP’s acquisition of TomorrowNow, TomorrowNow employees used improperly obtained copies of PeopleSoft software, and their customers’ own access to Oracle software, to make thousands of illicit copies of PeopleSoft and Oracle software products (including both object code and source code) and support materials. These copies were used for servicing SAP/TomorrowNow customers, training employees, and producing SAP/TomorrowNow-branded updates for PeopleSoft and Oracle products. The apparent goal of this activity was to create a robust, low-cost service program that would entice Oracle/PeopleSoft customers to switch to SAP/TomorrowNow for their software support services — and then, perhaps, for their software as well. This plan was largely unsuccessful: few customers were actually diverted from Oracle to SAP. The lawsuit When Oracle found out about what TomorrowNow had been doing, it brought suit against SAP in the Northern District of California, alleging copyright infringement among many other claims. SAP conceded liability for copyright infringement on the eve of trial, making Oracle v. SAP entirely a dispute about what SAP would have to pay.