Oracle-SAP suit exposes contract weaknesses

The ongoing legal dispute in which Oracle accuses SAP of “corporate theft on a grand scale” brings to the fore the delicate nature of contractual agreements between software companies.

A suit by Oracle last March alleged SAP’s subsidiary, TomorrowNow, hacked into its customer support Web site and stole data. Although SAP admits to “inappropriate downloads,” it contends it’s a matter of “contract interpretation” and not theft and has asked a judge to push for a settlement. Oracle is calling for a deeper investigation.

TomorrowNow provides support to PeopleSoft and JD Edwards customers. If an agreement with a customer is in place, SAP would be able to get access to information from Oracle-owned systems.

The contract dispute is based, in part, on the competitive climate between these two industry heavyweights duking it out for market share, said Ravi Shukla, IT counsel with Toronto, Ont.-based law firm Lang Michener LLP. “This is a large tectonic situation that you have between two mega organizations. The space they compete in is very lucrative.”

The Oracle suit demonstrates how far some companies will go to use litigation to influence the competitive arena, agreed Julie Machal-Fulks, director of legal services with Dallas, Tx.-based law firm Scott & Scott LLP.

And “there is always a risk that litigation can result as a consequence of a misinterpretation or differing interpretations of a contractual agreement,” she said, adding that while such suits are not frequent, there does appear to be increased use of litigation to determine the outcome of competitors in the industry.

It’s not uncommon to have agreements whereby third-parties are granted access to databases, for instance to support customers as in SAP’s case, said Shukla – but the contracts should be clarified in light of the real potential for confusion around what is deemed appropriate behaviour. “[The suit] does highlight the need for people to take a look at the contract and see exactly what their rights are,” he said.

According to Machal-Fulks, companies that are licensed to use another’s software can aim to avoid future accusations of misuse by ensuring, from the start, they understand their obligations under the agreement, what they’re permitted to do, and what the restrictions are.

“If there is an ambiguity, that’s where things start to get a little tricky.”

Whether such breaches stem from sheer ignorance or outright intent, said Shukla, they’re indicative of the culture of the IT industry where less than optimum time is spent on paperwork in order to keep time-pressured projects moving. “People will do things on a handshake. On occasion, legal niceties can get missed.”

Large enterprises are generally diligent around contracts given their large in-house legal departments, he said. However, smaller organizations often lack the resources and tend to behave in such a way as to remain nimble and fast.

Furthermore, the prevailing opinion, he said, is to not understand the purpose of legal documents, which are perceived to merely “sit on a shelf”. But it’s really the process of creating a contract that’s important because that promotes dialogue around certain points on the companies’ checklist – such as ownership of intellectual property – and ultimately clarifies the business model.

“That discussion tends to shine the light on shadows in the relationship.”

Part of the problem may be that IT does not regard licensing agreements, for instance, as contracts because of the informal manner in which they are conveyed – pasted to the side of a box or sent via e-mail so a user can click “accept” – said Machal-Fulks.

Oftentimes, license agreements are accepted by employees – sometimes administrators – with no authority to bind the company to adhere to terms of such a contract, she said. “Because it was a license agreement, because it was on the computer, and because you could click it with a mouse, the admin never considered it to be a contract in the first place.”

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