Largest jury award ever for not purchasing licenses to Oracle software

Oracle CEO Larry Ellison jubilant over suit with SAP (photo hellocompany.org)

When SAP purchased a TomorrowNow, an Oracle support company, in 2005 it was trying to expand its business by going after Oracle accounts.

This week a jury awarded Oracle $1.3 billion against rival SAP in the largest copyright infringement case in history.

The previous record for a jury award in a copyright lawsuit was the RIAA $136 million award against Media group for unlicensed distribution of music including Elvis Presley songs.

Many companies are in the dark on licensing. Failure to acquire software licenses legally can result in punitive fines and jury awards. Microsoft routinely audits its business customers for copyright  and license infringement. 

SAP knew TomorrowNow was infringing

SAP admitted in court testimony that it knew it’s subsidiary TomorrowNow was infringing Oracle’s copyright. The SAP Board thought they had a firewall against Oracle’s rights.

TomorrowNow was actively engaged in downloading Oracle client sites, including Oracle software, and trying to convince the customer to convert to SAP.

Oracle knew this and considered it theft of intellectual property. SAP agreed but thought the damages would be only $40 million. They had set aside $100 million in their last financial statements as a contingency against the Oracle lawsuit.

Of 4,000 potential Oracle customers, TomorrowNow only sold SAP software to 38 firms.

“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 President Safra Catz said in an e-mailed statement. “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.”  Businessweek

SAP is appealing the size of the jury award. The FBI are said to be investigating some of the facts in the case.

Business at risk

Many businesses have learned they must legally license software; however the lesson is learned the hard way. Microsoft has a large audit and legal team which investigates and prosecutes license infringement, a polite term for using pirated software.

“They hit him in the wallet. Nearly $10,000 on Microsoft Exchange mailbox licenses for which the company unknowingly hadn’t paid. Even worse, close to $100,000 in license and legal fees to Autodesk Inc., maker of popular design software AutoCAD.” SearchCompliance.com

Software vendors often run into clients buying one copy of a program and using it on multiple machines. When there is only one copy of Autodesk in a firm of engineers and architects who purchase 10 or 20 AutoCAD workstations something illegal is happening.

It can happen inadvertently when a business is expanding and pass around a MS Server or Office CD. Businesses may also not purchase licenses to save money. The penalties are punishing.

Microsoft and other software vendors receive information about businesses from sources like disgruntled or fired employees. Survey’s show about 25% of employees at any given time have a gripe against their employers.

One firm was subject to an software license audit and fired the employee who reported a few missed licenses. They were irritated about a $3,000 bill from Microsoft. They weren’t aware the dismissed employee might inform Microsoft that hundreds of other license violations were hidden by their former employer.

Penalties can be ten times the license fee, up to $150,000 per license.

“The maximum penalty is $150,000 per license “deficiency”. Typically, this is negotiated down, and a company found deficient at around $8,000 will pay a penalty of around $85,000 (and have to buy the $8,000 in software too). Information services for the city of Virginia Beach, VA were practically shut down for over a month and 50 employees were tied up trying to put its licensing in order to answer a random audit demand by Microsoft. Eventually the city was fined $129,000 for missing licenses the city had probably paid for but couldn’t match to paperwork.” Axxnet

Once the software vendor discovers there is a copyright or license violation it is too late to go out and buy the appropriate licenses. It might help to reduce penalties but it won’t make them disappear.

With Oracle story from Businessweek