ORACLE V. SAP SUIT HIGHLIGHTS RISKS OF IP INFRINGEMENTS FOR MERGERS & ACQUISITIONS

John Harris

On October 28, 2010, SAP admitted contributory liability in a court filing in a case brought against it in 2007 for copyright infringement arising from SAP’s acquisition of a company called TomorrowNow. The case highlights the IP risks that acquiring companies face from actions taken by their target companies and knowledge of such actions. The case also suggests the advisability of additional levels of IP due diligence before and during the M&A activities, and the possible need for fast action post-acquisition.

An article in InformationWeek discussing the recent admission by SAP of its role in the accused infringement can be found here:

http://www.informationweek.com/story/showArticle.jhtml?articleID=228000313

Prior to the admission, there were questions as to the extent of knowledge of the allegedly infringing activities of TomorrowNow by SAP personnel around the time of the acquisition and thereafter. SAP was accused in the complaint of being directly involved in the infringement.
An ostensible purpose for the admission of liability by SAP at this stage (immediately before trial) is to limit the collateral public relations harm by moving quickly to a resolution that involves paying damages, which SAP thinks would actually be fairly limited.
The lawsuit was based on allegations that TomorrowNow, without lawful authorization, accessed Oracle’s password-protected customer support and maintenance site and downloaded copyrighted software and support materials. TomorrowNow, which SAP acquired in 2005, offered support and maintenance to PeopleSoft and J.D. Edwards customers. SAP and TomorrowNow launched a major marketing campaign to attract customers shortly after Oracle acquired PeopleSoft and J.D. Edwards in 2005.
SAP/TomorrowNow employees allegedly used log-in IDs of multiple PeopleSoft and J.D. Edwards customers to access Oracle’s Customer Connection system, but then supplied bogus e-mail addresses, user names and phone numbers.
The case to some degree involves the question of the extent to which a third party maintenance company (like TomorrowNow at the time) can use IP licensed by a customer from a software vendor (like Oracle) to service that customer (and only that customer). That question is not firmly settled in the law.

Those who watch the computer industry will know that this case has “legs” beyond the accused IP infringement by SAP/TomorrowNow. Oracle, known to be aggressive both in business and with its legal arsenal, is purportedly using the case as part of larger marketing and PR campaign against its rival Hewlett-Packard. Details on these assertions can be found here:

http://www.zdnet.com/blog/btl/sap-calls-audible-in-oracle-lawsuit-seeks-to-focus-trial-limit-media-circus/41087

Some lessons and observations from the case include the following:

1. Successful companies (like Oracle) can and often do use their IP rights to slow down or thwart competitors.

2. Due diligence about target companies needs to begin early enough to identify situations that might provoke IP rights assertions by competitors.

3. Companies acquiring technology companies need to understand the business models of the target companies and assess how IP rights might come into play from competitors that are affected by the acquisition.

4. Business models premised on access to proprietary materials of vendors (such as code, upgrades, maintenance materials, etc.) can be risky or rendered obsolete by license provisions of the vendors or changes in the vendor’s support schemes.

5. It can be important to act quickly to stop potentially infringing activities before significant damages can accrue.

6. Acquiring companies need to monitor the activities of their targets before the deal closes, and move swiftly to take corrective action post-closing if infringement issues arise.

This information does not represent the opinions of Morris, Manning & Martin or its clients. This article is presented for educational purposes and is not intended to constitute legal advice; see disclaimer at http://www.www.mmmtechlaw.com/privacy-policy-and-disclaimer/. Contact John Harris for more information at jrh@mmmlaw.com