Oracle Corp. v. SAP AG is a United States copyright case that Oracle brought in 2007 against SAP and its subsidiary TomorrowNow, Inc., a third-party provider of maintenance and support for Oracle enterprise software. SAP stipulated to liability on Oracle’s copyright claims, and the case was tried on damages only. A jury awarded Oracle $1.3 billion in November 2010. The district court set the verdict aside, and the Court of Appeals for the Ninth Circuit affirmed that ruling in 2014.[1] Final judgment was entered on 14 November 2014 for $356.7 million plus post-judgment interest. SAP filed a satisfaction of judgment on 25 November 2014.[2]
A separate federal criminal case followed. In 2011 TomorrowNow pleaded guilty to unauthorized-access and criminal copyright infringement charges and was ordered to pay a $20 million fine.[3]
Background
The Ninth Circuit described Oracle and SAP as self-described “fierce” competitors in enterprise software. Oracle acquired PeopleSoft, which had itself acquired J.D. Edwards, in 2005 for $11 billion. SAP responded with a marketing programme called Safe Harbor, later Safe Passage. As a key part of that programme, SAP acquired TomorrowNow in 2005 for $10 million.[1]
Former PeopleSoft employees had founded TomorrowNow. According to the court, it provided software maintenance to PeopleSoft and J.D. Edwards customers “at half the price charged by Oracle”. After Oracle acquired Siebel Systems in 2006, TomorrowNow expanded its services to Siebel software. The court said SAP hoped to use TomorrowNow’s customer relationships to persuade some of those customers to switch to SAP software.[1]
The dispute
Oracle’s claims
The court’s account of the case’s origin is as follows. In 2006 an Oracle employee noticed thousands of suspicious downloads of Oracle software. Oracle investigated and concluded that TomorrowNow had illegally downloaded millions of PeopleSoft, J.D. Edwards, Siebel and Oracle Database files. The court said TomorrowNow went on providing maintenance to Oracle customers using these downloads until sometime in 2008.[1]
Oracle filed its complaint on 22 March 2007.[2][4] It alleged copyright infringement and other federal and state claims. Shortly before trial, SAP stipulated to liability on the copyright claims, and Oracle dismissed all of its non-copyright claims with prejudice.[1] Oracle’s 10-Q states that Oracle had earlier received $120 million in attorneys’ fees from SAP during the trial.[2]
The damages trial
The damages trial lasted thirteen days. The judge told the jury it could award either (1) hypothetical-license damages or (2) Oracle’s lost profits plus the infringer’s profits. Oracle’s expert testified that a license covering the downloaded software for the infringement period would have had a fair market value of $1.656 billion, based on a negotiation hypothesised to take place before the infringement began. In November 2010 the jury returned a verdict of $1.3 billion, which it found to be the fair market value of a hypothetical license.[1]
SAP sought judgment as a matter of law (JMOL) on two grounds. First, it argued that Oracle would never actually have granted such a license. Second, it argued that the evidence was too speculative to support the license price.[1]
Decision and outcome
District court
On 1 September 2011 the district court granted SAP’s motion for JMOL and for a new trial.[2] Its sole ground was that “the evidence Oracle presented was insufficient to establish an objective non-speculative license price”. It offered Oracle a choice: accept a remittitur of $272 million, measured by lost profits plus infringer’s profits, or go to a new trial. It also ruled that Oracle could not seek hypothetical-license damages at any new trial. Oracle rejected the remittitur.[1] To speed up an appeal, the parties stipulated on 2 August 2012 to a $306 million judgment, and the court entered it the next day.[2]
Ninth Circuit
On 29 August 2014 the Ninth Circuit affirmed in part and vacated in part:[1]
- No need to prove a license would have been granted. The court agreed that, as a matter of fact, Oracle would never have licensed TomorrowNow. It still held that a copyright owner does not have to show it would have granted a license in order to recover hypothetical-license damages. It said “a copyright holder has the right to refuse to license its work and should not be penalized for exercising that right.”
- The $1.3 billion award was speculative. The court affirmed JMOL because the hypothetical-license award was based on undue speculation.
- No second attempt at a license measure. It affirmed that Oracle could not pursue hypothetical-license damages at a second trial.
- Higher remittitur. The $272 million remittitur was below “the maximum amount sustainable by the proof”. The court remanded with instructions to condition any new trial on Oracle rejecting a $356.7 million remittitur.
Final judgment
After remand, Oracle accepted the remittitur. Final judgment was entered on 14 November 2014 for $356.7 million plus post-judgment interest of about $2.5 million. Oracle reported that it received about $359.2 million in total during its second quarter of fiscal 2015. SAP filed a satisfaction of judgment on 25 November 2014, and Oracle’s filing describes the action as concluded.[2]
Related criminal case
On 14 September 2011 the United States Attorney for the Northern District of California announced that TomorrowNow, then described as “a non-operating subsidiary of SAP”, had been sentenced to probation and ordered to pay a $20 million fine. The charges were unauthorized access to Oracle computer servers and wilful infringement of Oracle copyrights. TomorrowNow entered guilty pleas through a corporate representative immediately before sentencing by Judge Phyllis J. Hamilton.[3]
According to the release, TomorrowNow admitted in the plea agreement that between December 2006 and April 2007 its employees downloaded Oracle software and documentation from Oracle’s servers when either:
- the customer log-in credentials they used had expired, or
- the items downloaded went beyond the access rights Oracle had granted those customers under their license agreements.
It also admitted that after March 2005 its employees made at least 6,189 “environment” copies of PeopleSoft software, 29 of J.D. Edwards software and 31 of Siebel software on TomorrowNow’s systems.[3]
Significance for software licensing and SAM practice
- Download rights follow the license and the support contract. In the criminal case, the government’s account was that a customer’s right to download from Oracle’s support servers was governed by the customer’s license agreement and by the terms of use on Oracle’s websites.[3] The downloads TomorrowNow admitted to were unauthorized because the credentials had expired or the items exceeded the customer’s entitlement. Downloads and patch access are therefore part of an entitlement position, alongside installations. See Oracle technical support policies and Software maintenance and support.
- Hypothetical-license damages. The Ninth Circuit confirmed that under 17 U.S.C. §504(b), actual damages can be measured by what “a willing buyer would have been reasonably required to pay a willing seller” for the use actually made. This applies even where the copyright owner would never have licensed the infringer. The award must still rest on objective, non-speculative evidence.[1]
- Third-party support is lawful competition; copying beyond the license is not. The court treated TomorrowNow’s maintenance business as a competitive offering. Liability arose from the downloads and copies, which SAP conceded were infringing.[1] The later Oracle v. Rimini Street litigation examined in more detail which copies Oracle’s license terms allow a third-party support provider to make.
Lessons learned
- Downloads are part of the entitlement. In the criminal case, the government’s account was that the right to download from Oracle’s support servers was governed by the customer’s licence agreement and the website terms of use.[3] Access to patches and documentation should be tracked alongside installations.
- Expired or out-of-scope access is unauthorised. TomorrowNow admitted downloads made with expired customer credentials or going beyond the customer’s licensed access rights.[3] Support portal accounts should be closed or restricted when support ends or when the entitlement changes.
- Third-party support is lawful, but copying must stay within the licence. The Ninth Circuit treated TomorrowNow’s maintenance business as competition, and liability arose from the downloads and copies that SAP conceded were infringing.[1] Organisations using a third-party provider can ask how it obtains and stores the vendor’s software.
- Damages can be based on a hypothetical licence. The court held that actual damages can be measured by what a willing buyer would have paid a willing seller, even where the copyright owner would never have licensed the infringer, provided the figure rests on non-speculative evidence.[1]