Oracle-SAP Suit Won't Clear Third-Party Support Fog

No matter the outcome of Oracle and SAP's sprawling intellectual-property dispute that goes to trial Monday, it will likely fail to clear up questions that have major financial implications for software vendors and customers around the globe.

By Chris Kanaracus
Fri, October 29, 2010

IDG News Service — No matter the outcome of Oracle (ORCL) and SAP's sprawling intellectual-property dispute that goes to trial Monday, it will likely fail to clear up questions that have major financial implications for software vendors and customers around the globe.

The lawsuit revolves around SAP's now-shuttered subsidiary, TomorrowNow, which provided discounted support for Oracle applications. Oracle alleged that TomorrowNow overstepped its bounds, illegally downloading support materials and software in excess of customers' rights.

SAP has accepted liability for wrongdoing by TomorrowNow, and on Thursday also said it would not contest charges SAP itself contributed to copyright infringement. Now it wants the trial to center on damages due to Oracle, which it has estimated to be in the tens of millions. But Oracle wants SAP to cough up billions.

The trial could be a veritable clash of tech titans marked by weeks of colorful testimony, accusations and recriminations, if the recent series of public broadsides from Oracle CEO Larry Ellison is any indication.

But the case's central theme has become like so many others in Silicon Valley: one vendor accusing another of stealing its intellectual property. The issue of third-party support, which has a potential effect on every enterprise software customer, has been largely shunted aside.

That will not be the case with a related but much lower-profile suit Oracle filed early this year against a small company called Rimini Street.

Rimini Street was founded by Seth Ravin, a co-founder of TomorrowNow. Oracle has charged that Rimini Street simply repeats TomorrowNow's "corrupt business model."

But in contrast to SAP, Rimini Street has denied any misdeeds, and says it makes "extraordinary efforts" to protect Oracle's intellectual property rights.

In a previous interview, Ravin said Rimini Street anticipated Oracle's action and budgeted for legal costs accordingly. Ravin hopes the case will finally put to rest legal questions around third-party support, he said.

The stakes don't get much higher for software companies like Oracle and SAP, whose revenues heavily depend on annual support fees.

Charged as a percentage of the cost of licenses in use, usually 22 percent, over time they deliver far more revenue than the initial software sale. Indeed, vendors commonly sell software licenses at steep discounts, simply to get the customer signed up and the maintenance dollars rolling in.

Support revenue is not only plentiful -- it is highly profitable. Oracle, for one, has notched profit margins north of 90 percent on the line item.

Meanwhile, companies like Rimini Street cater to customers with stable systems and little desire for upgrades, which are only available with a vendor support contract.

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