Ninth Circuit Eyes Middle Ground in Oracle-SAP Feud

“The evidence is very strong about how much they expected to earn, but that doesn't necessarily suggest anything about what the license would cost,” she told Sullivan. Was there evidence about what an arm's-length purchaser would have paid to license the software stolen by SAP subsidiary TomorrowNow? she asked.

Sullivan answered by referring to per-customer revenue streams and discounted maintenance contracts, causing Graber to cut her off again.

“Counsel, all of this is fascinating, but so far none of it has answered my question,” she said. Maybe that's “because there isn't any evidence of the kind I'm asking about.”

The court sounded ready to affirm U.S. District Judge Phyllis Hamilton's new trial order, while giving Oracle the option of an increased remittitur, from $288 million to possibly as much as $400 million. That would let Oracle walk away with about $520 million altogether, including legal fees. It might be enough given strong signals from the bench that the evidence allowed in a new trial would be limited.

Oracle v. SAP, No. 12-16944, stems from dueling corporate acquisitions in the mid-2000s. Oracle bought PeopleSoft Inc. for $11 billion in 2004, leaving SAP as its chief rival for business-management software. SAP responded by acquiring TomorrowNow, a Texas-based company that provided support services to a few hundred PeopleSoft customers. SAP hoped to use TomorrowNow to win PeopleSoft customers from Oracle. But it turned out TomorrowNow was systematically downloading PeopleSoft software updates and customer-support documents illegally from Oracle websites. TomorrowNow eventually pleaded guilty to criminal copyright charges.

“This case involves one of the most massive and brazen copyright infringements in history,” Sullivan told the court as she began her argument. While the jury's award of $1.3 billion for copyright infringement might seem like a big number, “this was a very large theft,” Sullivan said.

But Judge Richard Paez immediately pointed out that the award wasn't meant to compensate Oracle for theft, but rather for the value of a hypothetical license. That has to be based on objective evidence of the fair market value, he pointed out.

Sullivan pointed to an SAP document presented to the company's board of directors that projected $897 million in revenues from converting PeopleSoft customers, but Paez noted that even though they come from SAP, those projections are a subjective'not objective'assessment of value.

Fletcher used a stronger phrase'”pie in the sky”'and said the acquisition cost of TomorrowNow might be a better measure. “Did they pay a lot to acquire TomorrowNow?” he asked Sullivan.

“Your honor, they paid a lot less than Oracle did to acquire PeopleSoft,” Sullivan acknowledged.

“Do you know what they did pay?” Fletcher pressed.

“I can't quote it right now,” Sullivan said. “I'll try to come back to it on rebuttal.”

“It's about $10 million,” Fletcher told her.

But Fletcher and his colleagues clearly believed that Hamilton had erred by ruling that a hypothetical license wasn't available to Oracle as a matter of law. Jones Day partner T. Gregory Lanier argued that because Oracle made clear it never would have licensed its software to a competitor, it should be entitled only to actual lost profits and infringer's profits, but Fletcher flat out disagreed.

“I don't read the case law as saying that,” Fletcher said.

“If we disagree with your reading of the case law,” Graber added, “and if we were to conclude that damages of this variety can be obtained in the absence of willingness to license, do you lose?”

Lanier argued the jury's verdict should not be reinstated because it was unduly speculative. There was “no objective evidence of what a willing seller and a willing buyer would pay,” he said.

The court seemed to agree, with some of the judges suggesting a new trial might be a fool's errand.

That brought Graber to the $288 million remittitur Hamilton had offered Oracle when she threw out the jury award. “The remittitur amount seems low to me given the evidence,” Graber told Lanier. Fletcher suggested it failed to account for expert testimony that some customers would stay with SAP following the 2008 shutdown of TomorrowNow.

“We don't know the jury found the expert credible,” Lanier said.

That took him back to the danger zone.

“In light of their award of $1.3 billion,” Paez said, “it looks like they gave him some credibility.”

Scott Graham is an Appellate Reporter with The Recorder, the San Francisco-based ALM sibling of e-Commerce Law & Strategy.

Oracle Corp. may have won half of its battle with SAP AG at the Ninth Circuit on May 13 as a three-judge panel seemed to agree the company can pursue hypothetical license damages for copyright infringement, even though Oracle has no track record of actually licensing its software to competitors.

But that's where the agreement ended. Judges Susan Graber and William Fletcher pushed back hard on the notion that Oracle proved at a 2010 trial that SAP would have had to pay $1.3 billion to license software that a subsidiary copied illegally.

Quinn Emanuel Urquhart & Sullivan's Kathleen Sullivan argued that Oracle had presented a “textbook case of fair market value” by showing both companies' internal revenue projections, but Graber wasn't buying.

“The evidence is very strong about how much they expected to earn, but that doesn't necessarily suggest anything about what the license would cost,” she told Sullivan. Was there evidence about what an arm's-length purchaser would have paid to license the software stolen by SAP subsidiary TomorrowNow? she asked.

Sullivan answered by referring to per-customer revenue streams and discounted maintenance contracts, causing Graber to cut her off again.

“Counsel, all of this is fascinating, but so far none of it has answered my question,” she said. Maybe that's “because there isn't any evidence of the kind I'm asking about.”

The court sounded ready to affirm U.S. District Judge Phyllis Hamilton's new trial order, while giving Oracle the option of an increased remittitur, from $288 million to possibly as much as $400 million. That would let Oracle walk away with about $520 million altogether, including legal fees. It might be enough given strong signals from the bench that the evidence allowed in a new trial would be limited.

Oracle v. SAP, No. 12-16944, stems from dueling corporate acquisitions in the mid-2000s. Oracle bought PeopleSoft Inc. for $11 billion in 2004, leaving SAP as its chief rival for business-management software. SAP responded by acquiring TomorrowNow, a Texas-based company that provided support services to a few hundred PeopleSoft customers. SAP hoped to use TomorrowNow to win PeopleSoft customers from Oracle. But it turned out TomorrowNow was systematically downloading PeopleSoft software updates and customer-support documents illegally from Oracle websites. TomorrowNow eventually pleaded guilty to criminal copyright charges.

“This case involves one of the most massive and brazen copyright infringements in history,” Sullivan told the court as she began her argument. While the jury's award of $1.3 billion for copyright infringement might seem like a big number, “this was a very large theft,” Sullivan said.

But Judge Richard Paez immediately pointed out that the award wasn't meant to compensate Oracle for theft, but rather for the value of a hypothetical license. That has to be based on objective evidence of the fair market value, he pointed out.

Sullivan pointed to an SAP document presented to the company's board of directors that projected $897 million in revenues from converting PeopleSoft customers, but Paez noted that even though they come from SAP, those projections are a subjective'not objective'assessment of value.

Fletcher used a stronger phrase'”pie in the sky”'and said the acquisition cost of TomorrowNow might be a better measure. “Did they pay a lot to acquire TomorrowNow?” he asked Sullivan.

“Your honor, they paid a lot less than Oracle did to acquire PeopleSoft,” Sullivan acknowledged.

“Do you know what they did pay?” Fletcher pressed.

“I can't quote it right now,” Sullivan said. “I'll try to come back to it on rebuttal.”

“It's about $10 million,” Fletcher told her.

But Fletcher and his colleagues clearly believed that Hamilton had erred by ruling that a hypothetical license wasn't available to Oracle as a matter of law. Jones Day partner T. Gregory Lanier argued that because Oracle made clear it never would have licensed its software to a competitor, it should be entitled only to actual lost profits and infringer's profits, but Fletcher flat out disagreed.

“I don't read the case law as saying that,” Fletcher said.

“If we disagree with your reading of the case law,” Graber added, “and if we were to conclude that damages of this variety can be obtained in the absence of willingness to license, do you lose?”

Lanier argued the jury's verdict should not be reinstated because it was unduly speculative. There was “no objective evidence of what a willing seller and a willing buyer would pay,” he said.

The court seemed to agree, with some of the judges suggesting a new trial might be a fool's errand.

That brought Graber to the $288 million remittitur Hamilton had offered Oracle when she threw out the jury award. “The remittitur amount seems low to me given the evidence,” Graber told Lanier. Fletcher suggested it failed to account for expert testimony that some customers would stay with SAP following the 2008 shutdown of TomorrowNow.

“We don't know the jury found the expert credible,” Lanier said.

That took him back to the danger zone.

“In light of their award of $1.3 billion,” Paez said, “it looks like they gave him some credibility.”

Scott Graham is an Appellate Reporter with The Recorder, the San Francisco-based ALM sibling of e-Commerce Law & Strategy.