SAP Board Knew of Copying, Oracle Says as Trial Opens

Oracle Corp. told a federal jury that SAP AG’s board of directors knew as far back as 2005 that a software maintenance unit was illegally downloading Oracle software and infringing on its copyrights.

Instead of competing fairly after Oracle threatened SAP’s dominance in the business software market through acquisitions, Germany-based SAP purchased a U.S. company in 2005 that was improperly accessing Oracle’s intellectual property, Geoffrey Howard, the company’s attorney, said today. The value of the infringed software is in the billions of dollars, he said.

“It chose to buy TomorrowNow, a company that the board of directors of SAP knew was infringing Oracle’s software,” Howard said in opening arguments at a trial in Oakland, California. “They chose to take that risk because they expected to make enormous amounts of money.”

Leo Apotheker, SAP’s former chief executive officer who is now head of Oracle rival Hewlett-Packard Co., was “very involved” in the purchase of TomorrowNow “and very involved in TomorrowNow after that,” Howard said. He showed a photo of Apotheker on a screen with a quote attributed to the executive: “The entire software industry was founded on IP rights.”

Redwood City, California-based Oracle, the second-largest maker of software for business applications behind SAP, sued in 2007 and seeks at least $2.3 billion in damages for what its German rival acknowledges were TomorrowNow’s “inappropriate” downloads of Oracle materials.

Oracle’s Larry Ellison

Howard told jurors they would hear testimony from Apotheker and other SAP executives, as well as Oracle CEO Larry Ellison and former Oracle president Charles Phillips.

Walldorf, Germany-based SAP says its executives were unaware of the downloading at TomorrowNow, which was closed in 2008. Oracle’s damage estimates are “grossly exaggerated” and the lawsuit is aimed at harassing competitors, SAP’s lawyers said in court filings.

SAP’s damages to Oracle are $35 million to $40 million, not in the billions, Robert Mittelstaedt, SAP’s attorney, told the jury today. SAP should have to pay Oracle for profits Oracle lost, and profits SAP gained, when Oracle customers used TomorrowNow’s services and because of that then bought SAP software, he said.

Oracle Lost Customers

Oracle lost customers for reasons unrelated to TomorrowNow, including fear that Oracle wouldn’t support the software of companies that it acquired, Mittelstaedt said. He cited an e- mail by Oracle co-president Safra Catz, who was present in the courtroom, in which she said Oracle has lost customers to SAP “for other reasons.”

“But now they are trying to get us to compensate that for them and that goes beyond the line I think,” he said.

TomorrowNow, acquired by SAP for $10 million, offered lower-cost software maintenance and support to customers using products by companies that Redwood City, California-based Oracle had bought, including PeopleSoft Inc. and JD Edwards & Co.

Oracle’s attorneys said in court filings that TomorrowNow unlawfully copied software code needed to support customers without buying licenses to access it. TomorrowNow made thousands of duplicates of copyrighted software obtained by illegally accessing electronic materials from Oracle’s customer-support websites, the lawyers said.

There’s an ongoing investigation by the Justice Department and FBI “into some facts and circumstances” involved in the Oracle lawsuit against SAP, according to an Aug. 5 court filing by SAP. Kyle Waldinger, an assistant U.S. Attorney in San Francisco who was present at the trial today, declined to comment.

“We have said we have cooperated,” Bill Wohl, a spokesman for SAP, said in an e-mail.

‘Worst Personnel Decision’

Apotheker went to Hewlett-Packard after Mark Hurd resigned as CEO amid a scandal over a personal relationship with a company contractor. Ellison, 66, hired Hurd, saying in a letter to the New York Times that Hewlett-Packard’s board had made “the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago.”

Apotheker, 57, didn’t become SAP’s sole chief executive until after TomorrowNow was shut down, Wohl said.

Oracle and SAP filed an agreement with the court in Oakland about attorneys’ fees that was sealed from public view. Computerworld reported today that SAP agreed to pay Oracle $120 million in lawyers’ fees, citing a document filed in the case.

Wohl and Oracle spokeswoman Deborah Hellinger declined to comment on that report. Wohl did say SAP increased its reserve for the lawsuit to $160 million from $100 million.

The case is Oracle Corp. v. SAP AG, 07-01658, U.S. District Court, Northern District of California (Oakland).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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