Jury: SAP must pay nemesis Oracle $1.3 billion

[November 24, 2010]  SAN FRANCISCO (AP) -- Oracle Corp.'s courtroom clash with archenemy SAP AG has paid off handsomely.

A jury on Tuesday ordered SAP to pay $1.3 billion -- more than half of its total profit last year -- for a subsidiary's skullduggery in stealing a stockpile of software and customer-support documents from password-protected Oracle websites.

The German software company was caught off guard by the size of the verdict. It had only set aside $160 million for anticipated damages, and already paid $120 million of that to Oracle's lawyers.

The penalty is one of the largest on record for software piracy, and has the potential to reshape the business software landscape because of the extent of the damage to the pocketbook and reputation of one of its biggest players.

The verdict came after less than a full day of jury deliberations, and followed a three-week trial that turned into a Silicon Valley sideshow.

Stoking the drama were colorful public provocations by Oracle's outspoken CEO Larry Ellison, the looming possibility of a crushing verdict against a company that makes ubiquitous business software, and the specter of Silicon Valley's most elusive new celebrity, Hewlett-Packard Co. CEO Leo Apotheker.

In the end, Oracle turned the trial into a double feature: a grinding attack on SAP, whose dominance in business applications is under assault from Oracle, and HP, another technology industry heavyweight with which Oracle shares a decades-long partnership that is now coursing with bad blood.

"For more than three years, SAP stole thousands of copies of Oracle software and then resold that software and related services to Oracle's own customers," Oracle co-president Safra Catz said after the verdict. "Right before the trial began, SAP admitted its guilt and liability. Then the trial made it clear that SAP's most senior executives were aware of the illegal activity from the very beginning."

Representatives of SAP, which is based in Walldorf, Germany, expressed disappointment and said the company will "pursue all available options, including post-trial motions and appeal if necessary."

If the size of the punishment is ultimately allowed to stand, SAP's takeover in 2005 of a small software-support firm called TomorrowNow, which dragged the company into this mess, will end up costing SAP significantly more than the $10 million it paid for the acquisition.

"This will unfortunately be a prolonged process and we continue to hope that the matter can be resolved appropriately without more years of litigation," SAP said in a statement. "The mark of a leading company is the way it handles its mistakes. As stated in court, we regret the actions of TomorrowNow, we have accepted liability, and have been willing to fairly compensate Oracle. ... Our focus now is looking forward."

SAP faces another potential problem as well. It previously disclosed that the U.S. Department of Justice is investigating the matter.

It's difficult to think of a more thorough legal victory for a software maker pursuing a copyright infringement claim, said Santa Clara University law professor Eric Goldman.

Besides collecting the damages, Oracle was able to publicly humiliate one of its biggest rivals while making another competitor, HP, squirm as it skirted questions concerning the whereabouts of its new CEO, Leo Apotheker. Oracle repeatedly tried to serve a subpoena on Apotheker, a former CEO and top sales executive at SAP, but couldn't find him within the jurisdiction of the Oakland federal court.

"Oracle has always dreamed big in this case and all their dreams came true," Goldman said. "It just turned out to be a real windfall for them."

SAP boxed itself into a corner by admitting it had trampled on Oracle's copyrights before the trial began. That left SAP with little to do but plead for leniency and "it turned out to be a tough sales pitch," Goldman said. "This was just a bad case for SAP, up and down the board."

Oracle, based in Redwood Shores, is the leading maker of database software, which helps companies organize their information. Its aggressive expansion into business applications has forced Oracle into a faceoff with SAP, the leader in that space.

HP was a late addition to the dustup: After HP's former CEO, Mark Hurd, was ousted in August in the wake of a sexual harassment investigation, Oracle hired Hurd, HP hired Apotheker, and Ellison used both of HP's decisions as reasons to blast the company.

At the heart of Oracle's claim against SAP was a series of golden gotcha moments, in which Oracle noticed unusual behavior on secured websites it maintained to help customers solve problems, and uncovered a scheme in which an extraordinary amount of software and documents were being plundered and shipped back to TomorrowNow servers.

Oracle technicians spotted the scam by investigating accounts that were registered with clearly bad information (such as phone numbers like "777-7777") and user names seemingly connected to the SAP subsidiary (names such as "Tom Now").

SAP admitted that the now-shuttered subsidiary was secretly siphoning off instruction manuals and technical specifications for Oracle's software. But its lawyers argued that Oracle's claims of injury were exaggerated.

Oracle demanded billions based on its estimate of the value of its intellectual property and business it lost.

SAP posited that TomorrowNow actually wasn't that good at stealing customers from Oracle, and that SAP should only pay for money it made from the 358 customers it gained with the stolen data.

The jury sided with Oracle's argument that the value of its intellectual property is vast, and that aggressively enforcing copyrights is critical to nourishing a healthy technology industry and funding innovation.

SAP conceivably could ask the judge to lower the damages determined by the jury, but that is usually a difficult argument to win, Goldman said.

"The size of this verdict further reduces SAP's flexibility," he said.

SAP shares fell 67 cents, or 1.4 percent, to $48.02 in extended U.S. trading, after the verdict was announced. The stock had fallen 71 cents, or 1.4 percent, to finish the regular trading session at $48.69.

Oracle shares rose 37 cents, or 1.4 percent, to $27.56 in extended trading, after falling 86 cents, or 3.1 percent, to finish the regular session at $27.19.

[Associated Press; By JORDAN ROBERTSON]

AP Technology Writer Michael Liedtke contributed reporting from San Francisco.

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