October 27, 2010 9:47 pm

Oracle boss turns up courtoom heat on SAP

The software that resides in the guts of corporate IT systems does not normally make for high drama. But if Larry Ellison, chief executive of Oracle, has his way, a trial due to start in a courtroom in northern California on Monday will turn the intricacies of how complex software programs are maintained into very public theatre.

It will also shine a spotlight on a highly profitable corner of the software business that Oracle is very keen to protect – and over which it has already shown itself willing to fight.

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The case springs from the 2005 purchase of an obscure, Texas-based company by SAP, Oracle’s arch-rival in the applications software business. Called TomorrowNow, the company provided maintenance and support for software programs, making it a cheaper alternative to the fees charged by the software’s makers, which typically amount to 22 per cent of the original purchase price, payable every year.

TomorrowNow was meant to play a central role in SAP’s counter-attack after Oracle bought PeopleSoft, turning it into SAP’s biggest rival in the applications market. By providing maintenance and support at a knock-down price, it hoped to lure PeopleSoft customers away from Oracle, before selling them SAP software as a replacement.

The strategy proved a disaster for SAP. After Oracle changed course and promised to continue developing new generations of PeopleSoft applications, the incentive for customers to defect evaporated. TomorrowNow never attracted more than a few hundred customers or made a profit, according to one person familiar with its operations. Worse quickly followed. To provide its service, TomorrowNow’s employees used customers’ passwords to log on to Oracle’s systems and download updates and other information needed to maintain the software. But they took a disastrous short-cut: rather than accessing only the information needed to support a particular customer while signed on in that customer’s name, they downloaded data wholesale, “scraping” Oracle’s servers and taking millions of copies of its documents and software “patches”.

To Oracle, this amounted to widespread theft of intellectual property, triggering a three-year legal battle that has resulted in damages claims that could reach $2bn.

A beleaguered SAP has admitted to the illegal access and copying of Oracle data, leaving the jury in next week’s trial with only the task of deciding on the level of damages.

As important as the financial compensation to Oracle will be the publicity it affords. Henning Kagerman, SAP’s chief executive at the time of the TomorrowNow acquisition, is scheduled to appear as a witness in the trial’s second week. But Oracle has even bigger game in its sights in the shape of Leo Apotheker, the former SAP executive who is now head of Hewlett-Packard – a company on the receiving end of a spate of competitive barbs from Mr Ellison in recent weeks.

Oracle had added Mr Apotheker to a list of witnesses it wanted to call for the trial, but this week Mr Ellison went further, publicly goading the HP boss over whether or not he would show up in court.

As a foreign citizen Mr Apotheker may not be obliged to appear, according to one person familiar with the case, and if he is outside California when the trial starts then Oracle will be unable to subpoena him.

That prospect has not been lost on Mr Ellison, who called attention to it in a public statement this week that indirectly challenged Mr Apotheker to show up.

“I hope I’m wrong, but my guess is that HP’s new chairman, [Ray] Lane, will keep HP’s new CEO, Mr Apotheker, far, far away from the courthouse until this trial is over,” Mr Ellison sneered.

The theatre has obscured a more serious side to the TomorrowNow trial.

Through its lawsuit – and another case against a similar company called Rimini Street – Oracle has left a chill over the independent maintenance business, according to some analysts.

“Oracle is using that tactic to intimidate entrants into the market,” says Paul Hamerman, an analyst at Forrester Research.

With more than 70 per cent of his software revenues coming from maintenance and support, the tactic is understandable.

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