Waste Management, Inc. v. SAP AG was a lawsuit filed on 20 March 2008 in Texas state court by Waste Management against SAP AG and SAP America, Inc., alleging fraud and breach of contract in connection with a 2005 software licence for a waste and recycling revenue management system and SAP’s fixed-fee implementation of it.[1] The case settled in April 2010, when Waste Management received a one-time cash payment.[3] It is a dispute over whether licensed software and its implementation matched what was promised, rather than over licence metrics or usage.
Background
In its quarterly report for the second quarter of 2008, Waste Management described a 2005 software licence from SAP for a waste and recycling revenue management system, together with an agreement for SAP to implement the system on a fixed-fee basis.[1] The company later reported that it had encountered problems with the revenue management application it had been piloting throughout 2007, resulting in the termination of the pilot.[2]
The dispute
Waste Management’s position, as stated in its SEC filing, was that SAP had contracted to provide software that would not require customisation and would be fully implemented throughout the company within 18 months. It said it was pursuing all legal remedies, including recovery of the payments it had made, the costs it had incurred and the savings it had not realised. It also disclosed that it might abandon the system and pursue alternatives, which could result in charges of $45 million to $55 million.[1] As reported by Computerworld, Waste Management claimed more than $100 million spent on the project and more than $350 million in benefits it would have realised had the software worked.[4]
SAP’s position, as reported by Computerworld, was that Waste Management did not “timely and accurately define its business requirements” and did not provide “sufficient, knowledgeable, decision-empowered users and managers” for the project.[4] Waste Management’s annual report for 2009 records $83 million of non-cash impairment charges in that year and lists its decision to abandon the SAP software as its revenue management system as the first of their primary causes.[2]
Decision or outcome
There was no judgment on the merits. Waste Management reported that it settled the lawsuit in April 2010 and received a one-time cash payment, and that the settlement increased its income from operations for the second quarter of 2010 by $77 million.[3] As reported by Computerworld, the settlement terms were confidential, and an SAP spokesperson said that “the matter between Waste Management and SAP has been resolved, and the case has been dismissed”.[4]
Significance for software licensing and SAM practice
The case did not produce a ruling on any licence term. Its relevance is that the software licence was bought together with a fixed-fee implementation promise, and the dispute turned on what the vendor had represented about the software’s fit and delivery time.[1] When a licence is acquired as part of a transformation project, the value of the entitlement depends on whether the project succeeds, and the cost of a failed project can appear as an impairment of capitalised software.[2] SAP licensing disputes that did turn on licence terms include SAP UK v Diageo and SAP v. AB InBev.
Lessons learned
- Contract for the outcome you were sold. Waste Management’s claim rested on representations that the software would need no customisation and would be implemented within 18 months.[1] Scope, customisation limits, timelines and acceptance criteria are easier to enforce when they are written into the licence or services agreement.
- Allocate responsibility for requirements and staffing. SAP’s reported defence was that the customer had not defined its business requirements or provided enough decision-making staff.[4] Recording who owns requirements, sign-offs and resourcing reduces the room for that argument on either side.
- Settlements leave little public guidance. The only public detail of the outcome is the customer’s disclosure of a one-time payment and its accounting effect.[3] Organisations cannot rely on precedent from settled disputes of this kind and should negotiate their own protections.