A court case with many hidden implications

Readers who follow computer-related court cases will be aware that SAP AG, a European enterprise software provider, recently lost a lawsuit brought against it by Oracle Corp., a US vendor of competing software. SAP must pay Oracle $1.3 billion in damages (although the verdict will surely be appealed).

I've been puzzled by Oracle Corp.'s motives in bringing the lawsuit. Sure, there was clear and unmistakeable evidence that SAP had - through a Canadian subsidiary - engaged in illegal practices to Oracle's detriment: but SAP had already admitted this, and offered to pay damages that, on the face of it, appeared fair and reasonable. Oracle's insistence on a high-profile trial seemed strange to me, going to extremes. Other observers apparently feel likewise. Chris O'Brien suggests that Oracle was looking to intimidate another competitor, Hewlett-Packard, which recently hired a new chief executive who'd formerly worked for SAP.

It's a crafty bit of psychological warfare that is classic Ellison. And it's already having the desired effect. At the last minute, Oracle decided to subpoena former SAP CEO Léo Apotheker after he was appointed president and CEO of HP. Ellison even taunted HP, daring it to keep Apotheker out of the country to avoid testifying. And lo, that appears to be exactly what happened.

So now we have the bizarre spectacle of the new CEO of the largest technology company in the world unable to show his face in Silicon Valley since taking the helm Nov. 1.

HP should have seen this coming from the day Redwood City-based Oracle bought Sun Microsystems and put itself in direct competition with the Palo Alto tech giant. And it should have expected nothing less from Ellison, Silicon Valley's most cunning corporate fighter, one who draws his energy and focus by creating a clearly defined enemy.

. . .

Yes, Oracle probably could have settled this case. But why pass up a glorious chance to subpoena Apotheker and send your new opponent running in circles?

Wherever Apotheker is, he better be sharpening the sword he's going to need to lead HP. Ellison might have been sitting in the witness stand Monday with his heel firmly planted on SAP's throat. But he was looking right at HP.

There's more at the link.

Therese Poletti, on the other hand, suggests that Oracle simply wanted to tarnish SAP's reputation as badly as possible.

After opening arguments and testimony from the first three witnesses in Oracle Corp.’s lawsuit against their arch-rival in software, the real motive behind the trial seemed clearer.

It looks like Oracle Chief Executive Larry Ellison’s central goal in going all the way to a trial over damages in the company’s 2007 lawsuit against SAP is to get as much dirty laundry aired in the courtroom as possible.

Sure, a huge award for damages would be nice, but that’s not the primary objective, even though that is what the jury is supposed to decide.

The goal is to present evidence that makes the TomorrowNow business unit acquired by SAP in January 2005 — and therefore the executive suite of SAP, which once included Hewlett-Packard Co.’s new CEO Leo Apotheker — look like a den of thieves.

. . .

This trial is providing a rare glimpse into the ugly underbelly of the corporate software business. And that exposure, so far in Oracle’s case, is its biggest weapon. Ellison’s favorite strategist, Sun Tzu, encapsulates the company’s legal strategy in the ancient Chinese military treatise 'The Art of War': “If your opponent is of choleric temper, seek to irritate him.”

Again, there's more at the link.

The Wall Street Journal suggests a third reason for Oracle's persistence with the lawsuit - perhaps the most compelling explanation I've yet heard.

Oracle Corp.'s success in winning a $1.3 billion jury verdict against rival SAP AG sent tremors through a small but fast-growing niche in the technology sector: companies that provide technical support for other companies' software.

So-called third-party support companies supply maintenance and repairs — though not software upgrades — for a variety of business programs. The verdict Tuesday stemmed from the actions of a now-closed SAP unit called TomorrowNow that supported Oracle products. Oracle has also sued another third-party maintenance company, Rimini Street Inc., and the possibility of other legal action in the field has become a hot topic.

The third-party market is still tiny, accounting for just $100 million of the $20 billion spent on software maintenance overall, estimated Paul Hamerman, an analyst at consulting firm Forrester Research. But the entire support market is growing roughly 8% a year.

Now, some support companies say potential clients are asking before signing contracts about the possibility of legal problems, although the support companies haven't lost existing customers so far.

. . .

Third-party support companies typically attract customers on pricing; software giants such as Oracle and SAP charge as much as 22% of the value of an initial license for annual support, which includes regular maintenance, bug fixes and upgrades. Profit margins on support can be upward of 90%, according to industry estimates.

An Oracle spokeswoman declined to comment on the verdict's impact on the third-party maintenance market. But Geoffrey M. Howard, a Bingham McCutchen LLP attorney representing Oracle, on Monday said the litigation will warn off others in the industry from intellectual-property infringement.

Kevin Cahill, a consultant at Panorama Consulting Group, predicted the verdict will embolden Oracle and its peers to take legal action.

"It's going to open the door for Oracle and SAP to go after other third-party support companies," said Mr. Cahill, a former Oracle employee. "They're going to be very vigorous in protecting their rights."

More at the link.

It's fascinating to discover the 'wheels within wheels', the tactical maneuvering and convoluted reasoning that so often underlie what appear to be otherwise routine business decisions. In business, more than any other field, it's always about the money: but whose money, and where and how derived, aren't necessarily always what they seem.

Peter