SAP could lose more than $1.3B on Oracle verdict

November 24, 2010

It’s party time in Redwood Shores, California. Larry Ellison, the CEO of Oracle, got his vindication, and then some, when an Oakland jury ruled that German competitor SAP should pay $1.3 billion in damages after admitting copyright infringements.

The sum may be reduced on appeal, and SAP may not have to pay for another couple of years. But the damage will be felt beyond the German group’s bottom line, as the verdict’s reputational impact hurts its business.

The sorry saga started in 2005 when the German group bought TomorrowNow, a tiny Texas-based company, in an effort to counter Oracle’s move into its own backyard: the U.S. group had just acquired SAP’s direct rival PeopleSoft. The subsidiary illegally downloaded Oracle files in an effort to poach its customers. TomorrowNow was bought for $10 million, and could cost its owner more than $1 billion.

During the trial, SAP said it shouldn’t have to pay more than $40 million, while Oracle asked for up to $3 billion. Clearly, the jury chose to look not only at the limited number of Oracle clients SAP actually managed to poach, but at the far higher number of customers it could have lured.

This should send a warning to the global software industry, where copyright infringement lawsuits have proliferated of late. If juries and courts decide to consider the intention behind wrongdoing, not just its financial consequences, companies will think twice before getting too close to the line.

SAP’s market value dropped by about 500 million euros ($670 million) following the verdict, suggesting that investors think the sum will be reduced on appeal. In any case, Oracle no doubt has many ideas on how to use the cash when it eventually arrives. One idea would be to use the proceeds to buy companies that compete with SAP, while pointing out that the German group paid for the deal. A nice way to rub it in…

Meanwhile, SAP is not the only Oracle rival to be embarrassed by the verdict. Hewlett-Packard recently hired former SAP head Leo Apotheker as its CEO. Apotheker managed to avoid what could have been a humbling deposition during the lawsuit. Ellison nonetheless has more than one reason to celebrate.

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