SAP Admits to Claims in Oracle Lawsuit

CEO Kagermann says a subsidiary inappropriately downloaded files, but downplays potential harm to Oracle.

In a dramatic turnabout, officials at software giant SAP admitted what bitter rival Oracle had claimed in a lawsuit: that one of SAPs subsidiaries had inappropriately downloaded some Oracle files.

SAP CEO Henning Kagermann, in two news conferences July 3, said employees of TomorrowNow—a third-party support company SAP bought in 2005 after seeing Oracle acquire PeopleSoft in late 2004—had downloaded more information than they should have through their support of Oracle customers.

Kagermann also said the U.S. Department of Justice has requested some documents from SAP and TomorrowNow, an indication that the Department of Justice at the very least could get involved in the suit, or in the worst case press criminal charges against SAP and its subsidiary. Oracle, not surprisingly, responded in a statement that it would cooperate fully with the DOJ.

The admission by SAP, based in Walldorf, Germany, was the latest event in what has become an increasingly bitter competition with Oracle for dominance in the enterprise application space. The companys admission of wrongdoing was its first formal response to the lawsuit filed by Oracle March 22 that claims corporate theft on a grand scale, with more than 150 allegations against SAP that include illegal downloading by TomorrowNow of Oracles support documentation and other intellectual property.

Oracle amended the suit in June to add additional charges of patent infringement and breach of contract.

In past responses to the media, Kagermann has said SAP would vigorously defend itself against Oracles claims.

That changed "several days ago," Kagermann said, when the company discovered during its own investigation into Oracles claims that employees at TomorrowNow had indeed downloaded more information than the company had rightful access to.

With SAPs admission—and the Justice Departments involvement—a key question will be the impact all this will have on customer confidence in SAP and in its burgeoning third-party support practice—which, with its deeply discounted prices, could have an impact not only on Oracle revenues but on SAPs as well. At the same time, Oracle will be asked whether its harming itself by exposing competitive tactics that could shed a bad light on itself as well as SAP.

/zimages/3/28571.gifClick here to read more about the competition between Oracle and SAP in the enterprise applications market.

Ovum analyst David Mitchell said in a July 3 research note that irrespective of how the legal wrangling turns out, the real battle will come down to how SAP and Oracle public relations flacks handle the spin on this suit. The PR arena, Mitchell said, is where this battle will be won or lost.

"SAPs Henning Kagermann is taking a stance very similar to that taken by [Hewlett-Packard President and CEO] Mark Hurd when it experienced difficulties concerning inappropriate corporate behavior, being quoted as saying even a single inappropriate download is unacceptable and taking action to strengthen controls at TomorrowNow. This is sensible and entirely appropriate public relations response, and exhibits a proper recognition of the potential impact on both SAP and Oracle," Mitchell said.

Mitchell said Oracle, headquartered in Redwood Shores, Calif., is also taking a strong PR perspective, "avoiding the temptation to enter into hand-wringing righteous indignation."

In a statement July 3, Kagermann made several key points in its defense: that most of the Oracle documents were downloaded properly; that SAP does not have access to the wrongfully downloaded documents—or any Oracle support documentation—as TomorrowNows data is strictly confined behind a firewall; that SAP had proper downloading procedures in place that were not followed; and that SAP is taking immediate corrective action to make sure the problem doesnt occur again.

Kagermann said he has appointed SAP Americas Chief Operating Officer Mark White as TomorrowNows executive chairman charged with managing operations and a compliance program at the subsidiary. TomorrowNow CEO Andrew Nelson will report to White.

Kagermann said White will do "whatever is necessary" to ensure that the proper procedures for downloading support documentation are followed. He also hinted that White will take corrective actions that might include firing the people who actually downloaded the documents in question, and pressing criminal charges. Kagermann said it did not appear that Nelson, TomorrowNows longtime leader, had any knowledge of the wrongdoing, so he is likely to stay on board.

Business at the subsidiary will continue as normal, Kagermann said, and customers should feel reassured that the proper procedures will be followed.

Oracles suit has its roots in the increasingly bitter battle for enterprise dominance that started with Oracles hostile takeover of PeopleSoft (once the No. 2 competitor behind SAP, a spot that Oracle now holds). After Oracle acquired PeopleSoft, SAP bought TomorrowNow, which provides third-party support for Oracles acquired assets from PeopleSoft, JD Edwards and Siebel Systems—at about 50 cents on the dollar. TomorrowNows comparatively cheap support is a key piece of SAPs "Safe Passage" program, designed to lure Oracle customers over to SAP.

Oracle has spent billions of dollars to buying more than 30 companies over the past two years with the express purpose of knocking SAP out of the top spot in the business applications market.

/zimages/3/28571.gifCheck out eWEEK.coms for the latest news, reviews and analysis about productivity and business solutions.