September 01, 2011, 2:43 PM —
A federal judge has overturned the $1.3 billion judgment Oracle won against SAP in its corporate theft trial, according to a ruling made Thursday.
SAP had admitted liability for illegal downloads of Oracle software and support materials performed by a former subsidiary, TomorrowNow, which provided lower-cost support for Oracle applications, but decried the jury's award as far too large.
Judge Phyllis Hamilton also approved SAP's request that Oracle accept a lower award of $272 million, which would negate the need for a new trial.
Oracle had argued that SAP should pay damages based on "hypothetical" costs that SAP would have had to pay to license the software legally.
In her ruling, Hamilton strongly rebuked that line of reasoning and called the jury's award "grossly" excessive.
"The court finds that the $1.3 billion verdict is contrary to the weight of the evidence," Hamilton wrote. "Rather than providing evidence of SAP's actual use of the copyrighted works, and objectively verifiable number of customers lost as a result, Oracle presented evidence of the purported value of the intellectual property as a whole, elicited self-serving testimony from its executives regarding the price they claim they would have demanded in an admittedly fictional negotiation, and proffered the speculative opinion of its damages expert, which was based on little more than guesses about the parties' expectations."
"At the same time, Oracle urged the jury to disregard evidence of Oracle's actual customer losses resulting from infringement," she added. "Thus, the verdict grossly exceeded the actual harm to Oracle in the form of lost customers, which was quantified by Oracle's expert at $408.7 million, and alternatively at $272 million, and by SAP's expert at $28 million."
However, Oracle is still entitled to receive compensation from SAP, given that it has already admitted liability, but the amount of damages should be in the form of lost profits or infringer's profits, Hamilton wrote. "A contrary result would be unjust and would constitute a miscarriage of justice."
Oracle indicated it may appeal the ruling.
"There was voluminous evidence regarding the massive scope of the theft, clear involvement of SAP management in the misconduct and the tremendous value of the IP stolen. We believe the jury got it right and we intend to pursue the full measure of damages that we believe are owed to Oracle," a spokeswoman said in a statement.
"We are very gratified with the Court's decision," an SAP spokesman said in a statement. "We believed the jury's verdict was wrong and are pleased at the significant reduction in damages. We hope the Court's action will help drive this matter to a final resolution. SAP is focused on our customers and innovation as opposed to litigation."
Third-party support is a sore spot for enterprise applications vendors like SAP and Oracle, since support provides healthy profit margins and rolls in each quarter even when new software license sales are soft.
With TomorrowNow, SAP hoped to eventually migrate Oracle customers over to its CRM (customer-relationship-management) and ERP (enterprise-resource-planning) systems, under a program dubbed Safe Passage.
Third-party support tends to appeal to customers running older, stable versions of an application, and who are therefore less inclined to pay full price for vendor-provided support.
Providers of third-party support include Rimini Street, which was founded by former TomorrowNow executive Seth Ravin. Oracle has sued Rimini Street as well, saying the company duplicates TomorrowNow's "corrupt business model."
Rimini Street has maintained it is breaking no laws and acts within its customers' rights.
Oracle's hypothetical license argument had a "fundamental flaw" in the view of analyst Ray Wang, CEO of Constellation Research. For one, fair market value can't be determined based on the software's list price, given that during sales negotiations discounting can go as high as 90%, he said.
"There should be a market for third-party maintenance if you do it right, which means you are respecting the IP rights of the software vendor," Wang added.
Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris's e-mail address is Chris_Kanaracus@idg.com