Oracle's $1.3 Billion U.S Verdict against SAP

Oracle’s $1.3 Billion U.S. Verdict Against SAP Thrown Out

September 02, 2011, 4:26 AM EDT

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By Karen Gullo

(Updates with SAP provisions in sixth paragraph.)

Sept. 2 (Bloomberg) -- Oracle Corp.’s $1.3 billion copyright-infringement verdict against SAP AG, the largest maker of business-management software, was overturned by a federal judge who called the award “grossly excessive.”.

U.S. District Judge Phyllis Hamilton in Oakland, California, yesterday granted SAP’s motion to throw out the verdict. She ruled that SAP should get a new trial for damages if Oracle rejects her decision to reduce the amount to $272 million, which she said should be the maximum in damages based on the evidence at trial.

“The verdict grossly exceeded the actual harm to Oracle,” Hamilton wrote. The jury verdict “was contrary to the weight of the evidence, and was grossly excessive,” she said.

The jury award in November was a record for copyright infringement. In the 11-day trial, Oracle accused SAP’s TomorrowNow software-maintenance unit of making hundreds of thousands of illegal downloads and several thousand copies of Oracle’s software. Oracle said SAP’s aim was allegedly to avoid paying licensing fees and to steal customers.

“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,” Deborah Hellinger, an Oracle spokeswoman, said in an e-mail. “We believe the jury got it right and we intend to pursue the full measure of damages that we believe are owed to Oracle.”

The initial $1.3 billion verdict led SAP to make a provision of 933 million euros, or 586 million euros after tax, for the fourth quarter. SAP spokesman Guenter Gaugler said today the company is reviewing provisions on a quarterly basis.

Hypothetical License

SAP and Redwood City, California-based Oracle, the second- biggest maker of business software, are competitors in the market for programs that businesses use to automate payroll, human resources, accounting and other tasks.

SAP, based in Walldorf, Germany, didn’t contest that it was liable for the infringement by TomorrowNow, which it closed in 2008. Jurors based their award on the value of a hypothetical license that SAP would have needed to use Oracle’s software.

Such a license would never have existed between two fierce competitors, so the damage award should have been based on profit that Oracle lost and SAP gained as a result of the infringement, SAP said in court filings. That amount was $28 million to $408.7 million, SAP said.

“We are very gratified with the court’s decision,” Jim Dever, an SAP spokesman, said in an e-mail. “We believe the jury’s verdict was wrong and are pleased at the significant reduction in damages.”

SAP dropped 0.6 percent to 37.62 euros in Frankfurt trading as of 9:26 a.m., while Germany’s benchmark DAX index declined 2 percent. Oracle fell 0.4 percent to the equivalent of $27.60 in German trading after dropping 0.8 percent in New York yesterday.

‘Final Resolution’

TomorrowNow offered technical support and software fixes for customers of companies Oracle acquired, including PeopleSoft Inc. TomorrowNow, which was based in Texas, made thousands of duplicates of copyrighted software by accessing electronic material from Oracle’s customer support websites, Oracle lawyers said at trial.

Oracle Chief Executive Larry Ellison told the jury that SAP might have paid $4 billion to license Oracle’s software and could have taken several thousand customers from its PeopleSoft unit through its access to Oracle copyrights.

TomorrowNow garnered 358 customers out of about 3,000 potential customers and only 86 of them bought products from SAP. A small portion of those customers converted to SAP software because of the infringement, SAP attorneys told the jury.

Evidence

Hamilton said there was no evidence that Oracle had ever granted a license that would permit a competitor to use its software to compete for Oracle customers. Oracle can’t recover lost license fees because, without such evidence, any award would be subjective and speculative and not based on objective evidence, she said.

The jury was instructed that a damage award must be based on evidence, not speculation or guesswork, Hamilton said.

“Oracle’s suggestion, that upon proof of infringement, copyright plaintiffs are automatically entitled to seek ‘hypothetical’ license damages because they are presumed to have suffered harm in the form of lost license fees, has no support in the law,” she said.

Oracle is still entitled to damages, given SAP’s admission of liability, Hamilton said. Oracle’s expert had estimated that that Oracle’s lost profit and SAP’s gains from the use of copyrighted works was between $408.7 million and $272 million.

She said the lower figure was supported by evidence and gave Oracle until Sept. 30 to tell her whether it will accept her ruling.

The case is Oracle Corp. v. SAP AG, 07-01658, U.S. District Court, Northern District of California (Oakland).

--Editors: Andrew Dunn, Fred Strasser
To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net