News Analysis: SAP’s TomorrowNow Debacle Ends With Jury Award Of $1.3B To Oracle

Published on November 23, 2010 by R "Ray" Wang

The recently announced jury award of $1.3B to Oracle marks the end of a tumultuous public trial on intellectual property (IP) theft.  Fellow Constellation Research Board of Adviser, Dennis Howlett provided commentary on the award stating,

“The jury were given the choice of making an award based upon a fair market value license or lost profits. If the jury had looked at lost profits then it is difficult to conceive how they could have awarded anything approaching this amount. Even looking at fair market value, one wonders how they managed to compute such a figure given the number of customers TomorrowNow actually secured and the value of those contracts”

Should the record breaking award be upheld, the decision will serve as a lesson carefully studied by every high tech company on how and how not to handle IP theft cases.  Oracle has made a significant win and SAP acknowledged guilt throughout the case.

The Bottom Line For Customers And Buyers Of Enterprise Software
Though many pundits have commented on the impact to SAP and the overall high tech market, a few key points should be clarified for customers:

  • Penalty award significant in size but not detrimental to SAP. The award will not materially impact SAP’s ability to conduct business or invest in future products.  Insurance, rainy day funds, and other sources of revenue should cover this amount.  Given SAP’s 30%+ profit margins and its ability to generate revenues of $12 to $15B a year, this is a small price to pay for a huge mistake in judgment.  Customers should not be concerned.  SAP can also appeal.
  • Verdict does not impact the third party maintenance market. This trial focused on IP theft.  This trial does not address the issue of whether or not third party maintenance is or is not a right for customers.  This trial does not provide the ground rules on how third party maintenance could be delivered by a solution provider.   The trial does put some frameworks on ownership of support and maintenance IP.  A separate lawsuit by Oracle with RiminiStreet will address this issue of third party maintenance rights.
  • HP escapes with minimal damage. With a settlement out of the way, HP and its new CEO, Léo Apotheker,  can carry on with future plans without the albatross of a lawsuit.  In many ways, Leo avoided the limelight with a little luck and deftness.

Your POV.

Will the lawsuit impact your purchasing plans w/ SAP?  Do you care that Oracle won?  Do you feel the jury made the right decision?  Please post or send on to rwang0 at gmail dot com or r at softwareinsider dot org and we’ll keep your anonymity.

Related Resources And Links

20101123 ZDNet: Irregular Enterprise – Dennis Howlett “Jury Slams SAP With $1.3B In TomorrowNow Lawsuit”

20101123 Wall Street Journal – Cari Tuna “Jury Rules SAP Owes Oracle $1.3B”

20101123 SAP Global Communications – Bill Wohl ” SAP Statement on Jury Verdict in Oracle v. SAP”

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Disclosure

Although we work closely with many mega software vendors, we want you to trust us.  A full disclosure listing will be provided soon on the Constellation Research site.

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

  • Tim – Cobbler’s son has no shoes. I still don’t have a good collab suite =) – Ray

  • Bjoern – thanks! It’s time to keep the field even let’s see what we can do to reeducate the customers so that they aren’t caught off guard. Cheers – Ray

  • Ray, Gordon,

    yes, you are right – this saga is about ip theft, but it´s a fact:
    If you go for 3PM, than the price point is not the only thing you have to think about, it´s also the perception of the market and the customers therein. Very often these are people that do not think abouth these topics as much as we probably do. Up to now, the price of 3PM was the major topic. Only after the case between RiminiS treet and Oracle is finished, we will have certainty on how this works.

    Second: Yes, the customers do have the power of the market, but they do not use it due to the fact, that they have not understood, that the sellers market is over. It will need some time to change this beahviour.

    But I am ready for this fight – even though I am a software vendor.

    Bjoern

  • The whole saga is nothing to do with 3rd party maintenance .If I feel Toyota workshop is expensive , I could also visit any automobile workshop in town.

    I believe the main purpose of SAP to acquire Tommorrow Now was knowing they could access secured Oracle website for competative information . It was an evil intention from the very begining . There is not relate to any competition in 3rd party maintenance support. In fact , there is no true business value to acquire TN at the first place .

    However , Oracle was more cunning that the plain SAP. Oracle must have logged all the download and evil acts by SAP . As a result , SAP had to openly admit the committed crime.

    At the end , the Cowboy( Oracle , US) is more cunning that the Mechanic ( SAP , Germany)

  • Here are my thoughts – we don’t want hidden trade wars under the guise of legal battles between European and US software giantss. Remember Microsoft versus the EU?
    We do want some maturity from Enterprise IT company leaders and we want them to focus on delivering innovation and value for their customers.
    All that is worth fighting for – http://ht.ly/3f1Yx

  • Mike – Thanks for the comment. So long clients demand for 3PM at the time of purchase, we still have an opportunity to push back on vendors. If we fail to do that and seek clarification at time of purchase, then we may have pushed the balance of power too far on the side of the software vendor. Ready to fight this battle on behalf of customers? I am. – Ray

  • Bjoern – Good points. However, 3PM is and should be a right. If we as consumers allow software vendors to lock up the ability to maintain “perpetual software”, we’ve given up to much in the balance of power. That being said, SaaS and Cloud could make this all a moot point as we hand everything over to a independent provider. This is why, it’s paramount that customers and the public sector uphold a consistent Bill of Rights when negotiating w’ vendors. The point of acquisition is the only time customers have any leverage. In this current situation, clients should demand 3PM as a right in all future and new contracts. That will take care of the demand side of the equation – Ray

  • i agree with Denis’s comment on the jury thinking behind the award and on you estimate of its impact on SAP;s bottom line.
    It will be good for the management to be shot of this case (assuming they don’t devote endless hours to an appeal).
    However, I fear it will havea significant impact on the development of third party support – something you’ve championed.
    Whatever the letter of the ruling, CIOs are goign to retreat from third party support and the enterprise software vendors are going to use the court decision to spread FUD about alternatives to their own, over priced support offerings. I think Dave Bradshaw from IDC got it right on CWUK. http://ht.ly/3eUk2

  • Ray,

    very profound analysis of the situation, also on the feeling of SAP employees.

    I beg to differ on the impact of third party maintenance:

    As long as there is not clear ruling, people will now always assume, that third party maintenance is connected to ip theft. At least all sales pitches will now always include questions around ip protection and what happens if Oracle would sue the provider.

    SAP can cope with the financial impact – it hurts, but it´s possible. All other providers will go out of business.

    As long as there is no final verdict and agreement, on how third party maintenance can be provided by not being sued, I see huge obstacles for companies like Rimini Street.

    Just my three cents

    BA

  • Lawrence – I understand how you feel. You don’t want to know that your company or the company you do business with has broken the law. I think in this case, SAP has a new management team that understands what it needs to make amends and isn’t shy about achieving this goal. I’d give them 6 to 12 months and then reassess. I agree that existing SAP staff feel the dismay. The culture of the firm has to shift. Management needs to pay more attention to the data from the field and employees. What do others think? – Ray

  • I beg to differ .. I believe this incident will have profound impact on the future of SAP .

    I believe in future SAP will become more secretive , elusive and evasive in the execution of their plans ..

    SAP will become more timid…shy away from the public and press.

    Even every SAP staff feels dismay ..

    I am a SAP user and I am sleeping with a thief and ironically SAP advocates SAP GRC..

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