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Oracle and its NetSuite cloud-based ERP platform are again under legal fire. Veronica’s Auto Insurance Services, Inc. (“VAI”), a California-based insurance company, has filed a lawsuit in San Francisco Superior Court alleging Oracle and NetSuite fraudulently induced it into purchasing a flawed ERP system that ultimately failed to function as promised. The complaint, filed on April 17, 2025, asserts claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraudulent and negligent misrepresentation, and violation of California’s Unfair Competition Law (Bus. & Prof. Code § 17200).
Alleged Misrepresentations and Broken Promises According to the complaint, NetSuite sales representatives made a series of specific promises before contract execution to win VAI’s business. These included assurances that the system was tailored for the insurance industry, would require no third-party add-ons, and would be implemented with full Spanish-language support—essential for the client’s predominantly Spanish-speaking workforce. Relying on these representations, VAI signed a Professional Services Agreement and Statement of Work with NetSuite in April 2021, committing to more than $111,000 in fees. Once implementation began, however, it became clear the representations were untrue. Key functionalities were either missing or required costly third-party plugins. Data migration failed. Core features like vendor payment processing, financial reporting, and role-based user access didn’t work as promised. Worse still, the promised Spanish-language training never materialized, leaving key staff unable to use the system. Ultimately, Veronica’s abandoned the system entirely in 2024, absorbing substantial financial losses. A Growing Pattern: Oracle ERP Litigation Landscape Expands The lawsuit filed by VAI is just the latest in a mounting series of legal actions that paint a troubling picture of Oracle’s conduct in selling and implementing its ERP software. In recent years, a variety of businesses across industries have come forward alleging that Oracle misrepresented the capabilities, readiness, or suitability of its ERP solution—often promising a turnkey system that ultimately required extensive customization, failed to deliver key functionality, or came with hidden costs such as required and expensive third party add-ons. For example, in River Supply v. Oracle, filed by our law firm, Plaintiff alleged that Oracle made sweeping misrepresentations during the pre-contract sales cycle, touting NetSuite as a ready-to-go solution that could be quickly configured to go live within months at a fixed price. But like in VAI’s case, implementation challenges emerged early and often. In Realscape Group LLC v. Oracle, a class action lawsuit filed in the Northern District of Ohio, the plaintiff has accused Oracle of misrepresenting its ERP system as “off-the-shelf” while concealing the need for significant additional development and expensive third-party software purchases as add-on costs. Advance Lifts, Inc. similarly claimed Oracle sold it on functionality that did not yet exist. Additional lawsuits by Morse Communications and Elkay Manufacturing underscore the recurring nature of the same type of complaints raised by the Plaintiff here. Janco Foods, Inc. v. Oracle America, Inc. provides another stark example. In Janco, a Texas-based food distributor alleged that Oracle failed to deliver on an ERP implementation. The project was never completed, forcing Janco to abandon the system altogether. The complaint alleged breach of contract and fraudulent inducement, claiming Oracle misrepresented both its capabilities and the system’s readiness for the food distribution sector. Another case, Barrett Business Services, Inc.v. Oracle America, Inc., filed in San Francisco Superior Court, further illustrate how NetSuite implementations often unravel. Barrett, a staffing company, alleged the software failed to meet basic payroll and compliance needs, as well as suffering from other defects. And problems with Oracle’s ERP product are not limited to this side of the pond. Recently, an auditor hired by the City of Birmingham in England issued a scathing report finding fault with the solution. According to one article, “Since it replaced aging SAP finance software with Oracle's cloud-based Fusion for HR, payroll, ERP, and finance in April 2022, Europe's largest local authority found the system "effectively crippled" its ability to manage and report on finances, auditors found. It was still not "safe and compliant" two-and-a-half years after the replacement went live.”https://www.theregister.com/2025/03/11/birmingham_oracle_auditors/?td=keepreading The project to “replace an aging SAP system began in October 2019 with an expected budget of £19 million ($23.6 million) and go-live dates of December 2020 and February 2021. Auditors now say the costs may be as much as £130 million ($161 million), and although the new software went live in April 2022, the council is "unlikely to have a fully functioning finance system until at least 2026." https://www.theregister.com/2025/01/29/birmingham_oracle/ Together, these lawsuits and others, point to a systemic problem in how Oracle and NetSuite market, contract for, and deliver their ERP solutions. Businesses considering Oracle ERP software should proceed with caution, ensure detailed written documentation of all representations, and fully understand the binding legal terms—often buried in hard-to-access agreements like the Subscription Services Agreement, which is nothing more than a grayed out hyperlink on the Estimate Form. Implications and Advice for NetSuite Customers The Veronica Auto Insurance lawsuit adds to the growing body of litigation alleging that Oracle/NetSuite uses a bait-and-switch model to sell ERP systems that fail to perform as represented. For businesses considering a NetSuite or other Oracle ERP solution, or currently entangled in a troubled implementation, these cases highlight the importance of documenting all pre-contract representations and seeking legal counsel early. It also reinforces the need to scrutinize every referenced agreement—including "click-through" and incorporated terms not provided upfront. Tactical Law continues to monitor Oracle litigation closely and represents businesses harmed by Oracle and NetSuite’s practices. If your company has experienced similar issues with Oracle or NetSuite, we invite you to contact us to evaluate potential claims. Cases
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By Pam Fulmer
Yesterday a three-judge panel of the Ninth Circuit issued a significant ruling in the longstanding copyright and false advertising dispute between Oracle International Corporation and Rimini Street, Inc., a third-party software support provider and Oracle competitor. This latest decision, vacating and remanding key aspects of the district court’s permanent injunction, brings new clarity to derivative works under the Copyright Act, defenses under Section 117(a), and the application of the Lanham Act to commercial statements and what constitutes puffery versus actual misrepresentations. Case Background Oracle, a developer of enterprise software including Database and PeopleSoft, has been in litigation with Rimini since 2010. In prior rulings, Rimini was found to have infringed Oracle’s copyrights through processes like “cross-use,” where copies of Oracle’s software were stored on Rimini’s systems. Following these decisions, Rimini restructured its business model into “Process 2.0” and sought a declaratory judgment that its new methods no longer infringed. Oracle counterclaimed for further copyright infringement and false advertising under the Lanham Act. The district court sided with Oracle, issuing a sweeping injunction requiring Rimini to delete software files and correct alleged misstatements. The court vacated rulings that Rimini infringed Oracle's Database and PeopleSoft copyrights. For Database, the licensing agreement did not prohibit third parties from possessing copies to support clients' operations. For PeopleSoft, the district court's rulings relied on an erroneous view of derivative works. The court found that the district court erred by focusing on mere interoperability of the software and emphasized that instead the analysis must focus on whether the work substantially incorporates the copyrighted work. The court also found that the lower court must conduct a further analysis as to whether the Oracle customers owned a copy of the software so as to make a Section 117(a) defense potentially applicable. Finally, the Ninth Circuit ruled that several of Rimini's marketing related statements were not actionable as mere puffery, but did find that Rimini's statement that it provided a "holistic" and "multilayered" security actionable. All in all a big win for Rimini, and a crippling loss for Oracle. What were the key holdings from the case? Key Ninth Circuit Holdings 1. Derivative Works (Copyright Act) A copyright owner has the exclusive right to prohibit or authorize the preparation of derivative works. The Ninth Circuit found that “[t]he district court held Rimini-written files and updates developed during the “Process 2.0” period were infringing derivative works because they “only interact[] and [are] useable with” Oracle software. Oracle Int’l Corp., 2023 WL 4706127, at *66. The Ninth Circuit criticized the district court for adopting “an “interoperability” test for derivative works—if a product can only interoperate with a preexisting copyrighted work, then it must be derivative.” “A derivative work must actually incorporate Oracle’s copyrighted work, either literally or nonliterally.” The panel emphasized that “mere interoperability” is insufficient to establish derivative status under the Copyright Act, vacating the lower court's findings. According to the Court: Here, “[t]he examples of derivative works provided by the Act all physically incorporate the underlying work or works.” Lewis Galoob Toys, Inc. v. Nintendo of Am., Inc., 964 F.2d 965, 967 (9th Cir. 1992). Take a “translation.” Translating a novel from English incorporates the original expression of the novel in a new language. A motion picture takes elements of the novel’s original expression and incorporates them into an audio-visual experience. The same goes for an abridgment—it incorporates the novel’s original expression into a condensed version. Thus, Congress’s list of examples suggests that a “derivative work” must be in the subset of works substantially incorporating the preexisting work. Once again, whether a work is interoperable with another work doesn’t tell us if it substantially incorporates the other work." Based on this textual analysis, we’ve said that “a work is not derivative unless it has been substantially copied from the prior work.” Litchfield v. Spielberg, 736 F.2d 1352, 1357 (9th Cir. 1984); see also 1 Nimmer on Copyright § 3.01 (2024) (“A work is not derivative unless it has substantially copied from a prior work.”). And we have held that “[a] derivative work must incorporate a protected work in some concrete or permanent ‘form.’” Lewis Galoob Toys, Inc., 964 F.2d at 967. What does it means to incorporate a work in the software context? According to the Ninth Circuit: [T]he incorporation of a preexisting work can take several forms. First, the incorporation can be “literal.” See Best Carpet Values, Inc. v. Google, LLC, 90 F.4th 962, 971 (9th Cir. 2024) (holding that a website’s source code is a “copyrightable literal element[]”). So copying substantial portions of PeopleSoft’s copyrighted code outright would be an example of literal incorporation. Second, the incorporation can be nonliteral, such as copying the “total concept and feel” of a preexisting work. Litchfield, 736 F.2d at 1357; see also SAS Inst., Inc. v. World Programming Ltd., 64 F.4th 1319, 1326 (Fed. Cir. 2023) (stating that the nonliteral elements of a computer program “include the program architecture, structure, sequence and organization, operational modules, and user interface”). The Court vacated the lower court’s ruling that Rimini created a derivative work based solely on Rimini’s “programs’ interoperability with Oracle’s programs.” 2. Section 117(a) Defense: Ownership of a Copy Survives It is well settled that no copyright infringement exists under the Copyright Act if an “owner of a copy of a computer program . . . mak[es] . . . another copy or adaptation of that computer program” for certain purposes, such as when it’s an “essential step” in using the program. 17 U.S.C. § 117(a). Courts have described this provision as an “affirmative defense to infringement.” According to the Ninth Circuit: To determine whether a party is an “owner of a copy” of a computer program, we look to whether the party has “sufficient incidents of ownership” over the copy of the software program. See UMG Recordings, Inc. v. Augusto, 628 F.3d 1175, 1183 (9th Cir. 2011) (simplified). And the question is not about ownership of the copyrighted material—it’s about ownership of a copy of the copyrighted material. The court vacated the district court's ruling striking Rimini's affirmative defense under 17 U.S.C. § 117(a). The court ruled that other incidents of ownership should be considered to determine if Oracle's customers are owners or licensees of the software copies. The Ninth Circuit ruled that labeling an agreement a “license” does not automatically foreclose ownership claims, and is just one factor to be considered. On remand, the district court must examine the “totality of the incidents of ownership,” such as transfer restrictions or limitations on use. 3. False Advertising Under the Lanham Act The court reversed most of the district court's rulings on Rimini's security-related statements as false advertising under the Lanham Act. Many statements were deemed puffery rather than actionable claims. However, the court affirmed that Rimini's claim of offering "holistic security" was false advertising. Notable rulings include:
"doubtful that any of Oracle’s customers would be fooled about its own security needs merely based on Rimini’s fanciful but vague statements. Indeed, Oracle could not identify “any customers that left Oracle and went to Rimini because of a statement about security.” Nor did Oracle present any evidence of a security breach suffered by a Rimini client. So while these statements border on falsehood, we cannot say that they are so specific and measurable to become actionable under the Lanham Act. We thus reverse." Notably, Judge Bybee dissented in part, arguing that Rimini’s statement that Oracle patches were “no longer relevant” was sufficiently specific and absolute to be actionable. 4. The court vacated rulings that Rimini infringed Oracle's Database and PeopleSoft copyrights. Database For Database, the licensing agreement did not prohibit third parties from possessing copies to support Oracle customers’ operations. The court noted that [t]he plain language of the Oracle Database licensing agreement did not prohibit third-party support providers, like Rimini, from possessing a copy of Oracle’s software to further a client’s “internal business operations.” Rimini St., 81 F.4th at 854–55. In the appeal of the contempt proceedings, “Oracle [could not] point[] to [any] location restriction” in the Oracle Database licensing agreement. Id. at 855. Nor did the district court here identify a “location restriction” in the use of Oracle Database. While we affirmed any activity that directly fell within Rimini I’s injunction, we declined to extend it to a “different situation.” See id. We thus vacate the district court’s ruling that the 18 “gap customer” environments containing Oracle Database violated Oracle’s licensing agreement. PeopleSoft For PeopleSoft, the district court's rulings relied on an erroneous view of derivative works. Rimini challenged the district court’s ruling that both (1) its use of “automated tools” to deliver PeopleSoft updates from one client to another and (2) the “outright” delivery of PeopleSoft updates to clients without further testing in the clients’ environments constitute copyright infringement. The Ninth Circuit instructed the lower court to reexamine the use of automated tools in light of the legal standard articulated for “derivative work” before deciding whether Rimini’s “automated tools” violate copyright laws. With regard to “outright” delivery, the district court found that Rimini violated Oracle’s copyright when it developed an update in the City of Eugene’s PeopleSoft environment and then delivered it “outright” to three other clients. But again based on the derivative use standard articulated in the decision, the Panel found that the lower court’s analysis did not go far enough. Instead, "The district court must first determine whether this update copies Oracle’s protected expression, either literally or nonliterally. If the district court finds protected expression in this update, it would be relevant to know if any extra copies of the update were created in the City’s environment solely because Rimini planned to distribute the update to other clients. In other words, further explanation is required of why “prototyping” the update in the City’s environment for non-City clients “necessarily” violates the “internal data processing operations” provision." Implications This decision has far-reaching implications for software providers and third-party support businesses. By rejecting an overly broad definition of “derivative works” and reinforcing the Section 117(a) defense, the Ninth Circuit has provided stronger defenses to software users and their support partners. Simultaneously, it highlights the risks of overstating service capabilities under the Lanham Act, but also demonstrates a reluctance to reign in misleading statements, as long as the statements are made to sophisticated companies like the ones who use Oracle database software. The Ninth Circuit vacated significant portions of the injunction and remanded the case for further proceedings under its clarified legal standards. All in all, a huge win for Rimini Street and a bitter defeat for Oracle. One thing is guaranteed. We have not heard the end of it. By Pam Fulmer
In the world of enterprise software, Oracle stands out not only for its expansive product offerings but also for its aggressive tactics in enforcing licensing compliance. Among Oracle's most controversial practices is its use of online agreements for software like Java SE and VirtualBox. These agreements allow individuals to download the software free of charge for "certain non-commercial uses," but when those conditions are violated—often unwittingly—companies find themselves on the receiving end of hefty licensing demands. Oracle's strategy raises serious questions about transparency and fairness in software licensing. This blog explores the issues surrounding Java SE and VirtualBox, the potential legal implications of Oracle’s practices under California law, and potential remedies for affected companies. The Software at the Heart of the Issue: Java SE and VirtualBox Java SE (Standard Edition) and VirtualBox are two widely used Oracle products with free versions available for download. Both come with licensing restrictions that create traps for the unwary:
How Oracle Traps Companies The mechanics of Oracle’s entrapment are straightforward yet highly effective:
The Role of Click-Through Agreements The crux of Oracle’s strategy lies in the click-through agreements that individuals accept when downloading the software. These agreements are often dense and filled with legalese, making it unlikely that employees fully understand the implications. Oracle relies on these agreements to assert that:
Legal and Ethical Concerns Oracle’s practices potentially raise significant ethical and legal questions. In addition, under California law, which governs many of Oracle's contracts, companies might have claims against Oracle for deceptive business practices. Deceptive Business Practices Under California Law California’s Unfair Competition Law (UCL) (California Business & Professions Code § 17200) prohibits “any unlawful, unfair, or fraudulent business act or practice.” Oracle’s actions may fall within this framework for several reasons:
Employee Actions and Agency Law Another legal issue arises from whether employees have the authority to bind their employers by accepting Oracle’s licensing terms. Under general principles of agency law, employees typically do not have the authority to enter into contracts on behalf of their employer unless explicitly authorized. Companies could argue that Oracle’s reliance on click-through agreements to impose licensing obligations is invalid unless the employee had actual or apparent authority to act on behalf of the company in the IT context. What Companies Can Do to Protect Themselves Given Oracle’s aggressive tactics, companies should take proactive steps to mitigate risks:
The Path Forward: Legal Remedies for Companies Companies targeted by Oracle’s practices may consider legal action to challenge licensing demands. Potential claims may include:
Conclusion Oracle’s monetary demands for the alleged non-compliance are no joke and can run into the millions of dollars. Oracle’s use of online agreements for “free” Java SE and VirtualBox software creates significant risks for companies that have employees who unwittingly download and use the software. For companies, the best defense is a combination of proactive measures and legal vigilance. By restricting employee downloads, auditing software use, and challenging Oracle’s claims when warranted, businesses can reduce their exposure to Oracle’s aggressive licensing practices. Tactical Law assists companies that are contacted by Oracle about Java and Virtual Box non-compliance to resolve their licensing disputes with Oracle. How Oracle Attempts to Limit its Liability With its SuiteSuccess Subscription Services Agreement10/4/2024 By Pam Fulmer
When a company signs a cloud SuiteSuccess ERP agreement with Oracle America, Inc. and NetSuite, Inc. (collectively “Oracle”), it is important to understand the legal framework behind the deal. Oracle's June 1, 2024 Subscription Services Agreement (SSA) for its cloud ERP solutions is instructive and contains several provisions that benefit Oracle by either drastically limiting liability or escaping liability all together. In this blog post, we will explore these provisions and explain why such agreements should never be hidden in hyperlinks buried within a document described as an “Estimate Form”. Prospective Oracle customers need to be alert and understand how Oracle often presents its contractual documents to its customers in the ERP cloud solution space. This may sound like a familiar story if you have dealt with Oracle. Whether the customer initially reaches out to Oracle, or whether Oracle locates the potential prospect, the playbook is the same. Oracle deploys an aggressive sales team, which sets up multiple Zoom meetings ostensibly to gather the customer’s requirements for the ERP solution. Oracle devotes a good deal of resources to these initial meetings giving the customer the impression that Oracle will devote lots of resources to the implementation. Oracle customers in litigation allege that oral promises are made during these meetings, which are often not documented properly or at all in the final contract documents. Instead, customers allege that Oracle simply uses its standard paper promising only a NetSuite standard solution rather than the functionality that was agreed to on the Zoom calls. Oracle’s aggressive sales team often does not present the contractual documents ahead of time. But even if they do, normally they do not include a PDF of the SSA, with the other PDFs provided. We believe that this is intentionally done as it is our opinion that Oracle hopes that the prospect will miss the onerous terms of the SSA altogether, which are buried in a disguised hyperlink. And even if the prospect does click on the grayed out and barely discernable hyperlink, the link does not take the reader right to the document. Instead, the prospect is forced to click through several confusing pages on Oracle’s website to locate the SSA. The documents that Oracle eventually presents via a DocuSign do not include a PDF of the SSA. Instead, the documents are often presented to the customer in a pressured environment where the Oracle sales team says that if the documents are not executed immediately, the steep discounts will go away. Many NetSuite SuiteSuccess customers do not have legal counsel to review and advise them on the contract. Instead, they succumb to the highly orchestrated pressure campaign and sign the documents without proper vetting. At that point Oracle has them, because Oracle now has the many protections of the lopsided agreement, which we explain in more detail below. 1. Disclaimer of Warranties The SSA includes a section that disclaims many types of warranties, including those involving third-party applications and services. Oracle does not guarantee that its services will be error-free or uninterrupted and explicitly states that it is not responsible for issues caused by third-party applications. (SSA ¶9). This limits Oracle's liability, especially in complex cloud environments where multiple third-party vendors are involved. For example, if a third-party contractor recommended by Oracle causes issues with the service, Oracle can claim it bears no responsibility. 2. Limitation of Liability Oracle limits its liability significantly in the SSA.( SSA ¶10) According to the agreement, Oracle will not be liable for indirect, consequential, or special damages, and the total liability is capped at the amount paid by the customer in the last twelve months. This means that even in the event of a major issue, the customer cannot recover losses beyond the value of their most recent subscription fees. This provision is a major risk for customers, especially if they experience business interruptions or data breaches caused by Oracle's services. Limiting damages to the subscription fee amount offers minimal financial recourse for the customer. The limitation of liability is one of the most favorable provisions for Oracle, which caps Oracle’s responsibility at the amount of fees paid by the customer within the past 12 months. For a large corporation like Oracle, this minimal liability offers substantial protection, even in cases of significant service failure. In contrast, customers are exposed to greater risk, particularly in cases where service failures lead to business losses far exceeding the capped liability. 3. Responsibility for Third-Party Applications Oracle disclaims any responsibility for third-party applications or implementation partners, even where these were recommended by Oracle. SSA ¶¶ 6.5, 14.2.3. The agreement emphasizes that Oracle is not liable for data loss, errors, or interruptions caused by third-party applications, even if they are listed in the SuiteApp marketplace or are recommended by Oracle. Likewise, the SSA provides that Oracle is not liable for deficient work of Oracle implementation partners, even where Oracle recommended them in the first place. This limits Oracle’s exposure to liability when issues arise from third-party software or services, even if these services are crucial for the ERP solution to function. Customers are left responsible for the risks associated with such third-party tools or third party Oracle partners. 4. Termination and Suspension Provisions Oracle reserves the right to suspend services if the customer’s account becomes delinquent or if it believes there is a significant threat to the functionality, security, or integrity of the services. SSA ¶7. This provision gives Oracle broad discretion to suspend services without bearing liability for interruptions caused by these suspensions. While this protects Oracle's interests in maintaining secure services, it leaves customers vulnerable to sudden service interruptions that could impact their business operations. This provision lacks balance in protecting the customer’s need for operational continuity. A close analysis of the termination provision in Oracle’s SSA reveals that the agreement can only be terminated by the customer for cause, not for convenience. This means that a customer can only end the agreement if Oracle materially breaches the contract and fails to remedy the breach within 30 days after receiving written notice. (SSA ¶7.3). While this provision might appear bilateral at first glance, since both parties have the right to terminate for cause, it actually benefits Oracle more. The reason is that customers are locked into the contract for its full term, regardless of changes in their business needs or satisfaction with Oracle’s services. Oracle, however, can terminate the contract if the customer breaches any material term, such as payment delinquency, which gives Oracle more leverage in enforcing the contract. And as mentioned above, it has the power to suspend the services. Moreover, the agreement includes automatic renewal provisions, where the subscription will renew for an additional year unless the customer provides written notice of non-renewal at least 30 days before the expiration of the current term. (SSA 4.A). This ensures Oracle retains long-term contractual commitments, as customers must actively manage the renewal process to avoid being automatically bound by another term. The provision primarily benefits Oracle by locking customers into the agreement unless there’s a breach, while also ensuring automatic renewals unless the customer is proactive in canceling. 5. Confidentiality and Security Although Oracle claims to protect Customer Data with reasonable safeguards, the agreement places the burden on customers to ensure the accuracy, legality, and reliability of their data. This leaves the customer responsible for many aspects of data integrity and security, which is crucial in cloud environments where sensitive information is stored. (SSA ¶8). While Oracle commits to basic security measures, this provision helps shield Oracle from liability if the customer's data is compromised. (SSA ¶6.10) 6. No Warranties for Performance The SSA provides that Oracle does not guarantee that all service issues will be fixed or that its services will meet customer expectations. (SSA ¶9(b)). This is particularly risky for businesses that depend on Oracle’s services for mission-critical operations. If the cloud ERP solution underperforms or causes delays, Oracle’s limited warranties and liability protection leave customers with little recourse. 7. Integration Clause Seeks to Bar Oral Discussions Pre-Contract The integration clause in Oracle’s SSA could be used against the customer by limiting the customer's ability to rely on any promises, statements, or agreements that are not explicitly included in the contract. This clause typically states that the agreement constitutes the entire understanding between the parties and supersedes all prior discussions, negotiations, or other agreements, whether written or oral (SSA ¶14.1). Oracle could use this clause to its advantage in several ways: 1. Prevents reliance on prior representations: If Oracle’s sales team made specific promises about the performance, capabilities, or features of the service that are not expressly included in the SSA, Oracle will argue that the customer cannot later claim these promises as part of the contract. For instance, if Oracle's representatives verbally assured the customer of certain included functionality, but those terms are not in the written agreement, Oracle can argue that such assurances are not enforceable. 2. Limits modifications to written amendments: The clause stipulates that any changes to the agreement must be made in writing and signed by both parties. This means that even if Oracle’s representatives agree to make certain accommodations or offer concessions during the course of service, those will not be binding unless they are formally documented. 3. Nullifies external documents: Oracle could reject any attempt by the customer to rely on external materials such as marketing brochures, proposals, or emails as part of the contractual obligations, arguing that the integration clause bars the inclusion of any terms or representations outside the SSA. In essence, Oracle could use the integration clause to solidify that only the specific terms written in the contract are binding, eliminating the possibility of the customer introducing external agreements or promises in case of a dispute. This can work strongly in Oracle’s favor, especially if the customer was led to believe certain non-contractual assurances would apply. 8. Why the SSA Should Never Be Hidden in Hyperlinks An agreement like the SSA should never be hidden behind a disguised hyperlink in an estimate form for several reasons: 1. Transparency and Fairness: Hiding critical legal terms makes it difficult for customers to fully understand the terms they are agreeing to. This undermines transparency and could lead to customers unknowingly accepting provisions that are not in their best interest. 2. Informed Decision Making: The SSA contains clauses that significantly affect the customer’s legal rights and liabilities. If these terms are hidden, it prevents customers from making informed decisions based on the true scope of their risk. In other words, the customer will be taking on risk but it won’t even know of the risk. This flies in the face of the requirement that there must be a “meeting of the minds” in order for a binding contract to be formed. 3. Potential for Disputes: A hidden SSA can lead to future legal disputes, as customers may claim they were unaware of the provisions. Making such a critical document accessible only through obscure hypelinks could be seen as an attempt to downplay or obfuscate important terms. For example, if Oracle customers don’t know of the SSA then they don’t know about the requirement for a written notice of breach and a mandatory cure period of 30-days. That is why when the customer approaches Oracle it usually asks to “cancel” the contract, not understanding that there are certain requirements that must be met to terminate. Oracle usually responds that the contract cannot be “cancelled”, neglecting to provide the customer with a copy of the SSA and the termination provision, which allows for termination for material breach and a failure to cure. 4. Industry Best Practices: It is a best practice to present all critical agreements directly to customers for review before they sign any contractual forms. This builds trust and ensures that all parties are clear on the terms from the outset. In conclusion, Oracle’s Subscription Services Agreement is designed to limit its liability and protect its interests, often at the expense of the customer. From disclaimers about third-party applications to limitations on termination rights and automatic renewals, the contract places significant responsibility on the customer while minimizing Oracle’s exposure. Provisions like the integration clause further strengthen Oracle’s position by ensuring only the written terms are enforceable, leaving customers with little recourse for any external promises unless they can meet the heavy burden of proving fraud in the inducement. This highlights the importance of thoroughly understanding the terms of such agreements and ensuring they are presented transparently, not hidden behind hyperlinks. By Pam Fulmer
In a legal battle unfolding in the United States District Court for the Northern District of Ohio, Realscape Group LLC, dba Realogic Solutions (“Realogic”), a small Ohio-based company, has sued Oracle America, Inc. (“Oracle”), one of the largest software corporations in the world. The case highlights the growing concerns around the deceptive business practices of large tech firms, particularly regarding the enforceability of hidden contract terms in software agreements. The Core Issue: Software That Never Delivered Realogic contends that Oracle represented that its NetSuite software was an "off-the-shelf" solution that would meet the company's business needs. However, after contract execution, Realogic soon discovered that the software did not perform as represented. The case centers around Oracle’s alleged failure to provide functional software as promised, locking Realogic and other customers into expensive subscription fee agreements without delivering a product that works. Oracle, in response, has moved to dismiss the case or transfer it to the Northern District of California, which Realogic is contesting. Realogic's Argument: Deceptive Practices and Hidden Contract Terms At the heart of Realogic’s case is its claim that Oracle engaged in deceptive business practices by using misleading contract structures to attempt to bind customers to terms they never knowingly agreed to. Realogic asserts that Oracle never explicitly disclosed the terms and conditions of its Subscription Services Agreement (SSA). Instead, the SSA was hidden behind a complex series of hyperlinks in documents described as “Estimates” during the sales process. Realogic makes the following points: 1. Lack of Transparency: Oracle failed to provide clear and upfront notice of the terms and conditions that would govern the transaction. The terms were embedded in fine print and nondescript and disguised hyperlinks, buried deep in a complex document that was initially labeled an "Estimate." 2. No Meeting of the Minds: Realogic claims there was never a “meeting of the minds” on Oracle’s contract terms. Realogic argues that in contract law, both parties must know about and agree to the same terms for a contract to be enforceable. Given the deceptive manner in which the terms were presented, Realogic maintains it never agreed to Oracle’s SSA. 3. Unenforceable Contract Terms: Ohio law allows contract terms to be incorporated by reference only when they are clear and specifically identified. Realogic contends that Oracle’s terms were not disclosed, rendering them unenforceable. Courts have often rejected contracts where terms were hidden behind inconspicuous hyperlinks, and Realogic argues this situation fits that precedent. Oracle’s Defense: A Motion to Dismiss or Transfer Oracle, on the other hand, argues that the case should be dismissed or, at the very least, transferred to a court in California. Oracle’s defense hinges on the assumption that Realogic agreed to the terms and conditions of Oracle’s SSA, including a forum selection clause, which would require the case to be heard in California. Realogic vehemently opposes this transfer, arguing that it never knowingly agreed to any terms that would set jurisdiction in California. Oracle will likely argue that much of the legal authority cited by Realogic does not apply, because many of those cases are in the consumer context and are not business to business disputes. Oracle may argue that businesses are held to a higher standard and cannot evade contractual obligations by neglecting to read contracts, even when those contracts are presented in a disguised hyperlink and not linked directly. But we think the better question is can Oracle bind unsuspecting companies to one-sided contracts only referenced but not adequately disclosed in disguised hyperlinks? Given this deceptive presentation, is there truly a meeting of the minds so as to form a binding contract? As Realogic explains in its legal brief, the hyperlink does not link directly to the SSA. Instead, the prospect is directed to a set of confusing pages on Oracle’s website and forced to search through multiple links for the applicable agreement. Does anyone believe that the disguised and greyed out hyperlink (which is not set off in a conspicuous manner) that leads to a confusing web page and not the actual SSA is just happenstance? Of course not. In fact, we would not be surprised if Oracle used focus groups to determine the best way to present the SSA to prospects, so as to almost ensure that the hyperlinks are missed. And for those folks that actually see the hyperlink and click on it, Oracle has arranged its website in such a way as to confuse the average lay person about what is the applicable agreement. Perhaps a judge or a lawyer would not find the presentation confusing, but we know from experience that the type of companies that buy the NetSuite SuiteSuccess software product sure do. Oracle is a very large, legally sophisticated, crafty, and ruthless company with legions of smart and talented in-house lawyers and some of the best outside counsel in the world. The average SuiteSuccess customer is a small business, which is often owned by a husband-and-wife team. These mom & pop companies are not in the business of enterprise software, and they rely on the representations and expertise of software experts like Oracle to accurately describe included functionality and to provide a working product. They are honest companies that have grown their business through hard work and sacrifices, but who have reached the point that investing in an ERP software makes sense, so they can realize greater efficiencies and their businesses will prosper. The cost of the software is not cheap, and the investment for the company is significant. None of these companies can afford to pay tens of thousands, if not hundreds of thousands of dollars to Oracle, for software that does not work. Implications for Small Businesses This case could have important implications for small businesses that rely on enterprise software solutions provided by large corporations. It brings into focus the issues of fairness and transparency in contract agreements, especially when dealing with highly technical and complex products like software and large and sophisticated companies such as Oracle. Conclusion: A Fight for Accountability Realogic’s battle with Oracle highlights an all-too-common issue in the world of business software: unclear contracts and hidden terms that disproportionately benefit the software vendor. For now, the court must decide whether Realogic’s claims hold water, and whether Oracle’s attempts to dismiss or transfer the case are valid. Regardless of the decision, this case serves as a reminder for businesses—big and small—of the importance of clear and transparent contractual agreements. Tactical Law helps companies resolve disputes with Oracle and other vendors over ERP software subscriptions and implementations. We also advise companies on the pitfalls of Oracle contracts and what steps may be taken to potentially lower your risk of contracting with Oracle. By Pam Fulmer
Oracle America, Inc. (“Oracle”) has moved to dismiss in response to a class action lawsuit complaint involving its SuiteSuccess ERP solution filed in the Northern District of Ohio. The Complaint, filed by Realscape Group LLC d/b/a Realogic Solutions against Oracle America, Inc., alleges that Oracle defrauded small to medium-sized businesses by selling them NetSuite software under false pretenses. Oracle purportedly marketed the software as an "off the shelf" solution requiring minimal implementation, but in reality, the software was not functional without extensive customization. Oracle is accused of misleading businesses into financing agreements, then selling these contracts to third parties while failing to ensure the software's functionality, which effectively relieved Oracle of its obligation to perform while guaranteeing that customers must continue to pay for deficient or non-existent work. The lawsuit seeks to certify a class of businesses with under 1,000 employees who purchased NetSuite software in the past four years and paid for implementation services but did not receive fully functioning software. Overview of Oracle's Motion to Dismiss Oracle's motion to dismiss hinges on several key arguments, each targeting different aspects of Realogic's claims: 1. Mandatory Forum-Selection Clause: Oracle argues that Realogic's case should be dismissed or transferred to the Northern District of California based on the forum-selection clause in their contract. 2. Failure to Provide Notice and Opportunity to Cure: Oracle claims Realogic did not provide the required written notice of breach and a chance for Oracle to cure those breaches before filing the lawsuit. 3. Integration Clause and Lack of Specific Delivery Date: Oracle points to the contract's integration clause and the absence of any specified date for software delivery, countering Realogic's breach of contract claims. 4. Limited, Exclusive Warranty: Oracle asserts that the contract's limited, exclusive warranty precludes the breach of warranty claims. 5. Economic Loss Doctrine: Oracle argues that claims for unjust enrichment, negligence, and negligent misrepresentation cannot stand because they are rooted in contractual obligations and are barred by the economic loss doctrine. 6. Declaratory Relief: Oracle states that Realogic’s claim for declaratory relief is not an independent cause of action and should be dismissed. Analysis of Contract-Based Arguments 1. Forum-Selection Clause Oracle's Argument: Oracle asserts that the contract mandates any legal disputes be resolved in California courts, thus the case should be dismissed or transferred from Ohio to California. Potential Weakness: • Enforceability Under Fraud Allegations: Courts may not enforce forum-selection clauses if the plaintiff can demonstrate that the clause itself stemmed from fraud or overreaching. Realogic could argue that the entire agreement, including the forum-selection clause, was induced by fraudulent misrepresentations by Oracle. Oracle relies on its Subscription Services Agreement (“SSA”), which is found in a grayed-out hyperlink on the Estimate Form, which Oracle claims is the governing agreement. The hyperlink appears to be intentionally designed to be inconspicuous and is not set off in a different color or highlighted in any way. Clicking on the link does not take the reader directly to the agreement. Instead, the reader is forced to search around on the Oracle website for the relevant agreement. Most Oracle SuiteSuccess customers who we have spoken with do not even know that the SSA exists. A court could find that such a contract procured by fraud and under these circumstances should not be enforceable. 2. Failure to Provide Notice and Opportunity to Cure Oracle's Argument: Oracle argues that Realogic did not follow the contractual obligation to provide notice of the breach and an opportunity to cure the issue before filing the lawsuit. As discussed above, most Oracle customers are unaware of the notice provision of the SSA because they are unaware of the very existence of the SSA. As a result, they fail to give notice of breach pursuant to this provision. Instead, if Oracle is unable to deliver the promised solution, Oracle customers typically request that the contract be “cancelled”. Usually Oracle, without citing to the termination for cause provision of the SSA, then tells the customer that they cannot cancel. The entire practice is very deceptive. Potential Weakness: • The Contract was Fraudulently Induced: As discussed above, Realogic may argue that the contract was fraudulently induced and the contract should be void. But as currently pled, the Complaint does not have a fraud in the inducement claim. Realogic’s time for responding to the Complaint has not run. It will be interesting to see if Realogic amends to assert a fraud in the inducement claim. • Unilateral Mistake: Oracle customers are mistaken about a material fact, and Oracle knew or should have known of the mistake and took advantage of it. The material fact being that Oracle knows that most customers are unaware of the SSA, and the requirements for providing notice of breach or notice of deficient work under the warranty provisions. They exploit the customer’s mistake and lack of knowledge to game the relationship. • Unconscionability: The customers that Oracle appears to target for its SuiteSuccess solution are usually unsophisticated small mom & pop owned businesses. Indeed, many businesses are owned by a husband-and-wife team. The companies do not have legal departments. They are more like consumers, and have no chance against a large, sophisticated entity like Oracle. • Ambiguity in Notice Requirements: Realogic may argue that the notice and cure provisions were not clear or were otherwise impractical given the circumstances of the alleged breaches. They might also argue that immediate legal action was necessary due to the extent of the alleged fraud and resulting damages. 3. Integration Clause and Lack of Specific Delivery Date Oracle's Argument: Oracle claims the contract's integration clause invalidates any prior oral agreements, and the contract did not specify a delivery date for the software. Potential Weakness: • Reliance on Prior Representations: Realogic could argue that they relied on Oracle’s verbal promises regarding the delivery date and that these promises were material to their decision to enter into the contract. This could invoke the concept of promissory estoppel, where a party is prevented from going back on a promise even if a formal contract were not signed concerning that promise. • Fraud in the Inducement: Under California law, an argument can be made that an integration clause does not preclude evidence of oral misrepresentations that induced a contract. This is because the law allows for claims of fraud in the inducement of a contract, even when an integration clause is present. We are not sure what the law is in Ohio, but this will be an interesting issue to watch if the case stays in Ohio and is not transferred to California, and the Court declines to apply California law. One issue with these SuiteSuccess cases is always the time to go live. Typically, the parties discuss the time to go live in pre-contract execution discussions because this is material to most SuiteSuccess customers and induces them into going with the Oracle solution, rather than that of a competitor. Although this is a major topic of conversation, and Oracle sales provides dates for go live, when Oracle tenders the contract it has no “go live” date specified. Oracle SuiteSuccess customers should request in writing that the contract specify a go live date, and if Oracle declines to provide one, perhaps the customer should take a pass. Also, the customer should require that Oracle provide a copy of the complete contract upfront so that the customer has a chance to meaningfully review it, and not allow Oracle to dump it on the customer at the last moment and then claim that discounts will go away unless it is immediately signed. Finally, require that Oracle provide a PDF copy of all agreements contained in the hyperlinks well before contract execution, and this includes the SSA. Then review the contracts carefully, preferably with legal counsel. 4. Limited, Exclusive Warranty Oracle's Argument: The contract contains a limited, exclusive warranty which precludes Realogic's claims for breach of warranty. Potential Weakness: • Unconscionability of Warranty Terms: Realogic might challenge the limited warranty as unconscionable if it leaves them and other customers without a meaningful remedy for Oracle’s failure to deliver the promised software functionality. Courts sometimes refuse to enforce warranty limitations that are found unfair or that significantly deprive one party of the contract's benefits. In its warranty provision, Oracle includes a sentence that says essentially that Oracle is not responsible for ensuring that the services meet the customer’s requirements or expectations. So essentially Oracle is not responsible if the solution does not work. A court could find this unconscionable. 5. Economic Loss Doctrine Oracle's Argument: Oracle contends that claims for unjust enrichment, negligence, and negligent misrepresentation are invalid because they do not exist independently of the contract, and are barred by the economic loss doctrine. Potential Weakness: • Exceptions to Economic Loss Doctrine: Realogic could argue that the economic loss doctrine does not apply if Oracle's actions amounted to fraud in the inducement or intentional misrepresentation, which are exceptions to the doctrine under California law. Furthermore, they might claim that the unjust enrichment claim is based on benefits conferred on Oracle beyond the scope of the contract. However, a fraud in the inducement claim would need to be added. 6. Declaratory Relief Oracle's Argument: Oracle argues that declaratory relief is not an independent claim, and depends on the other claims to be asserted. Oracle also argues that the Plaintiff’s allegations in the claim for declaratory relief are inconsistent with the breach of contract and breach of warranty claim so that those claims should be disregarded for declaratory relief. For the fraud-based claims and unjust enrichment, Oracle has moved to dismiss those claims and asks that the declaratory relief claim be dismissed should the Court dismiss those claims. Potential Weakness: • Relevance of Declaratory Judgment: Realogic may assert that while declaratory relief is not an independent cause of action, it is a necessary remedy to resolve the uncertainty surrounding the contractual obligations and to prevent further damage to Oracle customers from Oracle’s alleged breaches and related tortious conduct. • Declaratory Relief re Financing Agreement and Related OCC Assignments: A key issue raised in the Complaint involves the Oracle Credit Corporation (“OCC”) financing agreements and the enforceability of the assignments to third party financing institutions such as Banc of America Leasing, Bank of America, N.A., Wells Fargo Bank, Dext Capital and others. Essentially, Oracle offers to finance the costs of the solution and the implementation to sweeten the deal and induce the contracts. Then shortly after contract execution and usually before the implementation has had time to completely go off the rails, OCC assigns the financing agreement to a third party. Oracle’s clever financing contract scheme allows it to assign the financing agreement to a third party without the consent of the borrower. But the OCC contract also provides if Oracle can’t deliver the promised solution, the Oracle customer cannot interpose defenses that it may have against Oracle to cut off the payment obligations to the third parties. And litigious third parties such as Banc of America Leasing are hitting these SuiteSuccess customers with collection lawsuits, mainly in California state court in San Mateo County. So, it is a real weapon that Oracle and the financial institutions are welding against small and medium size Oracle customers. Importantly, Oracle seems to bring in the same cast of characters as the assignee banks. We believe that these banks have knowledge that many of the implementations fail and that is why the customer quits paying. So they do not appear to be bona fide assignees that come to the table without knowledge of the Oracle scheme. We hope that this issue gets litigated. Conclusion We will be watching with interest to see what the plaintiff does here. Will they amend and include a fraud in the inducement claim? Or will they oppose the motion on the merits? We will know shortly. Check back here for updates. The case is Realscape Group, LLC. v. Oracle America, Inc., Case Number 1:24-cv-00558 CEF, venued in the Northern District of Ohio. Tactical Law advises Oracle customers who have disputes with Oracle arising out of ERP related cloud and other Oracle contracts, including litigation and counseling arising out of OCC’s assignment of financing agreements to third parties and related collection actions. By Dee A. Ware
While there are prescribed standards for conducting several types of audits, external software license audits remain unregulated and ripe for legislative intervention. Until then, companies must fend for themselves. From our experience, a software publisher’s motivation to conduct an audit falls into at least one of the following buckets:
From a legal perspective, the first line of defense is to negotiate a license agreement that contains clear definitions, such as, what constitutes “use” of a license, who qualifies as a “user,” the environment where the software can be deployed and, if applicable, how the software can be incorporated, marketed, sold or distributed. Once the parameters are established, the company should adopt internal processes to ensure compliance. In the absence of federal or state regulation, the parties to a licensing agreement can also agree in advance how a software audit is to be conducted, allowing the company to negotiate terms that offer some protection from unreasonable demands or spurious results. For example, the audit provision in the license agreement can address:
Lastly, what should a company do if the software publisher demands an audit? Remember that the best defense is (sometimes) a good offense. The company should not automatically capitulate to an audit request without first seeking legal counsel to evaluate the applicable audit provision and guide the company through the process to minimize exposure and reduce the risk of subsequent litigation. In a significant legal victory for Tactical Law Group's client River Supply, Inc. ("RSI"), a federal district court in California has rejected Oracle's argument that the Economic Loss Rule bars RSI's fraud based claims, including a claim under Penal Code Section 496 for theft of money. In her ruling, Judge Beeler granted in part and denied in part Oracle's motion to dismiss RSI's Second Amended Complaint ("SAC"). A copy of the Court's Order can be found here. RSI will be allowed to proceed with its claims against Oracle for fraud in the inducement, negligent misrepresentation, breach of contract, breach of warranty, negligence and for violation of California Penal Code Section 496.
Like a dog on a bone and citing a number of products liability cases, Oracle had argued vehemently in both its first and second motion to dismiss that because RSI had not suffered personal injury or damages to property, the Economic Loss Rule precluded its claims. The Court soundly rejected this argument. According to the Court, "Again citing product-liability cases, Oracle contends that there must be personal injury or property damage for extracontractual recovery. That makes sense in product-liability cases: what other damage is there. See Yarber v. Kia Am. Inc. No. 22-CV-03411-HSG, 2023 WL 2654186, at *2 N.D. Cal. Mar. 27, 2023) (automobile-defect case that claimed fraudulent concealment, not fraudulent inducement; the economic-loss doctrine barred the claim because the plaintiff alleged only economic loss, not personal injury or damage to property); Barela v. FCA US, LLC, No. EDCV-22-01444 (JGB), 2022 WL 19333334, at *2 (C.D. Cal. Oct. 11, 2022) (automobile defect); Sum v. FAC US, LLC, No. 2:22-cv-00213-RGK-RAO, 2022 WL 2189628, at *2–3 (C.D. Cal. Apr. 25, 2022) (automobile defect). But it does not follow that that extracontractual recovery allows recovery only in cases involving injury to person or property because the economic-loss doctrine does not bar claims for fraud in the inducement." In her ruling the Court further reasoned that: "In concluding that the economic-loss doctrine did not preclude the misrepresentation claims here, the court rejected Oracle’s argument that courts apply the fraud exception only in product- liability cases. The fraud exception does make sense in product-liability cases: as a matter of policy, it allows recovery for extra-contractual injury (injury to person or property) and allocates the duty to the party most able to identify the risk of that injury (the manufacturer).15 See Erlich, 21 Cal. 4th at 550–51 (contract law enforces the intentions of the parties to the agreement, and “tort law is primarily designed to vindicate ‘social policy.’”). But no binding authority categorically limits the doctrine to product-liability cases." And this part of the Court's ruling is key and important for Oracle/NetSuite customers who believe that they have been defrauded by an aggressive Oracle's sales team who promised them that Oracle could deliver all the functionality they required, and only after contract execution learned that the functionality did not exist and the expensive system they had invested in to run their business was a bust and not a boon. "The economic-loss rule exists because the parties to a contract have agreed to allocate risk. A party that is the victim of fraud has not assumed contract risk voluntarily. Here, River Supply relied on Oracle’s misrepresentations, exposing it to a loss that exceeded its contract damages (given the limitation of liability), at least somewhat analogously to a customer who does not assume the risk of personal injury from a defective product. And it is bad policy if a party can induce a contract that limits its liability by lying about its product’s capabilities." If you are an Oracle or NetSuite customer who believes that Oracle misrepresented the capabilities of its product in pre-contract discussions, we would be happy to talk to you about your case. By Pam Fulmer
We have previously blogged on the Daramola v. Oracle case brought by a former Oracle employee who blew the whistle on Oracle and NetSuite's fraudulent sales practices involving their ERP line of software solutions. Mr. Daramola's Complaint was dismissed not because a court found that his allegations about Oracle's alleged unlawful conduct was without merit, but instead on the grounds that the whistleblower anti-retaliation laws he was proceeding under could not be invoked by an Oracle employee who was a Canadian citizen, employed by an Oracle Canadian subsidiary, and who worked from Canada and not the U.S. The Ninth Circuit affirmed the lower court's ruling reasoning that "the employment relationship in this case is between a Canadian employer and Canadian employee, to be governed by Canadian law, with the employee residing in Canada. Any domestic duties he performed were incidental to his foreign employment" and that merely accessing Oracle servers in California was not enough to establish the needed domestic conduct such as to make the protections of U.S. whistleblower laws applicable to Mr. Daramola. The Ninth Circuit described the facts of the case as follows: By logging into Oracle’s computer systems, Daramola could conduct business and collaborate with colleagues in the United States, including employees of Oracle America. Both Oracle America and Oracle Canada are wholly owned subsidiaries of Oracle Corporation, a California-based company that develops and hosts software applications for institutional customers. One such Oracle product was the “Campus Store Solution,” a subscription software service for college bookstores. In July 2017, Daramola was assigned as lead project manager for the implementation of Campus Store Solution at institutions of higher education in Texas, Utah, and Washington. Daramola came to believe that Campus Store Solution was defrauding customers. The product was billed as an ecommerce platform with specific functionalities, but Daramola thought Oracle had no way of delivering the promised features, at least at the agreed-upon price. Daramola reported the suspected fraud to Oracle America and the SEC. After doing so, Daramola was removed as a project manager. Daramola’s supervisor at Oracle America, Douglas Riseberg, offered Daramola an opportunity to work on another Campus Store Solution project, but Riseberg revoked the offer when Daramola again expressed his unwillingness to take part in fraud. Riseberg also downgraded Daramola’s job performance rating. Believing he had no other option, Daramola resigned from the company. " For those who are interested, the entire Daramola Complaint can be found as Exhibit 1 to the Second Amended Complaint that we filed on behalf of our client River Supply Inc. If you are a company that has contracted with Oracle or NetSuite and had a similar experience to the experience of RSI set forth in the Second Amended Complaint, we would be interested in talking to you. By Pam Fulmer
Introduction In an era where digital transformation dictates the pace of business evolution, software has become the backbone of enterprise operations. This surge in software dependency, coupled with a complex web of licensing agreements, has set the stage for an inevitable increase in software audits by enterprise software publishers. This blog post delves into the reasons behind this trend, its implications for businesses, and strategies to navigate the future landscape of software compliance. The Rising Tide of Software Audits Why Software Audits Are on the Rise 1. Complex Licensing Agreements: As software solutions become more sophisticated, so do their licensing agreements. Enterprises often find themselves entangled in the complexities of these contracts, inadvertently breaching terms due to misunderstanding or oversight. This is especially true due to the extensive use of hyperlinks in enterprise software related agreements. Publishers such as Oracle, Microsoft and Quest extensively use hyperlinks to serve up key agreements. Before signing a license agreement, a prudent company should review and bring down PDF copies of these hyperlinked agreements and save them in one file. In addition, it is important to consider pushing back on language that would allow the publisher to unilaterally amend such agreements. 2. Cloud Migration: The shift towards cloud computing adds another layer of complexity to software licensing. The dynamic nature of cloud environments, with scalable resources, makes it challenging for businesses to maintain compliance. And if a publisher conducts an audit and claims non-compliance, even if the audit findings lack merit the customer must deal with the threat of the publisher cutting off access to the cloud for non-payment. 3. Revenue Recovery: For software publishers, audits are a significant revenue source. In the post-pandemic economy, as publishers seek ways to recover lost revenue, audits present a lucrative opportunity to enforce licensing agreements and identify non-compliance. We see this each day in our legal practice. In addition to formal audits, software publishers such as Oracle are notorious for their “soft audits”. In fact, companies in the United States are getting hit each day with Oracle’s soft audits of Java. We have previously blogged on these predatory audit tactics engaged in by Oracle. Our phone is ringing off the hook with companies who have innocently provided information to Oracle due to a soft audit, only to be hit by a demand for payment of hundreds of thousands if not millions of dollars. And these demands have only been exacerbated by Oracle’s move to a “Total Employee” model, and Oracle’s expansive definition of who is included in the definition of “Employee”. We have also blogged on this issue previously. 4. Technological Advancements: The development of sophisticated tools and technologies has made it easier for publishers to monitor and enforce compliance remotely, increasing the frequency of audits. In fact, Oracle has included in its Java software the ability of the software to call home to Oracle. Oracle has been known to use this trail to contact companies and conduct a soft audit of Java. Implications for Businesses 1. Financial Risk: Non-compliance can result in hefty fines and the need to purchase additional licenses, significantly impacting a company's financial health. 2. Operational Disruption: The audit process can be time-consuming and disruptive, diverting resources from core business activities. 3. Reputational Damage: Being found non-compliant can tarnish a company's reputation, affecting customer trust and future partnerships. Navigating the Future Landscape Preparing for the Inevitable 1. Understanding Licensing Agreements: It's crucial for businesses to thoroughly understand their software licensing agreements. This may involve seeking legal advice to navigate the complexities of these contracts, including thoroughly reviewing all hyperlinks. 2. Implementing Software Asset Management (SAM) Tools: SAM tools can help businesses monitor software usage and compliance in real-time, providing insights to manage licenses effectively and avoid non-compliance. 3. Regular Audits and Compliance Checks: Conducting regular internal audits and compliance checks can help businesses identify and address potential issues before they escalate into major non-compliance findings during an external audit. 4. Hiring Experienced Software Audit Defense Counsel: Software licensing agreements are complex and attorneys who have dealt with the various intricacies of the agreements and have successfully pushed back on audit findings need to be retained early to assist the company in best positioning itself to successfully weather the inevitable audit. Conclusion The landscape of software licensing and audits is becoming increasingly complex, with audits by enterprise software publishers set to rise. This trend poses significant challenges for businesses in terms of financial risk, operational disruption, and reputational damage. However, by understanding the intricacies of licensing agreements, leveraging technology, and implementing robust software asset management practices, businesses can navigate this challenging landscape. The key to thriving in this new era lies in preparation, proactive management, and a strategic approach to software compliance. Final Thoughts As we move forward, the importance of software compliance cannot be overstated. The rise in software audits is a reflection of the changing digital landscape and the increasing value placed on intellectual property. For businesses, the path to compliance is not just a legal necessity but a strategic advantage that can safeguard financial health, operational integrity, and brand reputation in the long run. By embracing the challenges and opportunities presented by this trend, enterprises can position themselves for success in the digital age. |
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