By Pam Fulmer
We at Tactical Law see signs that Oracle may be getting even more aggressive with its soft audits of Java, and we believe that 2024 may usher in more formal audits of Java as Oracle seeks to push customers into the total employee licensing metric that it announced in early 2023. As many commentators have noted, this metric can exponentially increase the licensing fees for those companies using Java. For example, Mr. Nitish Tyagi, co-author of the new Gartner research note in an article published in The Register, said, "For large organizations, we expect the increase to be two to five times, depending on the number of employees an organization has. Please remember, Oracle defines employees as part-time, full-time, temporary, agents, contractors as in whosoever supports internal business operations has to be licensed as per the new Java Universal SE Subscription model.” The same article went on to say that “Gartner has also estimated that by 2026, one in five organizations using Java applications will be audited by Oracle, leading to ‘unbudgeted noncompliance fees.’ By the same year, more than 30 percent of organizations using Java applications won't be compliant with their Oracle contracts.” Our phones are certainly ringing off the hook from Java users who have been contacted by Oracle with large licensing demands and claims of monumental non-compliance gaps. Oracle uses its VMware argument, which we have blogged on previously, to try to inflate the alleged non-compliance gap. Therefore, you need to be very careful to only give them relevant details concerning your use of VMware, and not your entire environment if it is not relevant to the licensing obligation.
There may be a potential legal argument, however, that could cause a court to find this definition and any contract in which it is incorporated as invalid for being indefinite. This is because buried in the licensing definition itself may be a defect that could potentially be exploited against Oracle. Oracle’s definition of “employee” is breathtakingly broad: Employee “is defined as (i) all of Your full-time, part-time, temporary employees, and (ii) all of the full-time employees, part-time employees and temporary employees of Your agents, contractors, outsourcers, and consultants that support Your internal business operations. The quantity of the licenses required is determined by the number of Employees and not just the actual number of employees that use the Programs.” In trying to sweep in every possible contractor or consultant into its definition, Oracle may have created a problem for itself; an argument could be made that the contract is indefinite. For example, there could be litigation over what constitutes a contractor, outsourcer, or consultant in this context and what does it mean that they support a company’s “internal business operations”? Would a company need to count contract meal preparation services that provide the meals for the company cafeteria? Are these folks supporting a company’s internal business operations by feeding the employees so they can stay on campus and be even more productive? And, do you need to count every employee or contractor of the catering company, or only the ones that are on the corporate campus serving up the food? What about the grounds keepers that are mowing the lawn on the company grounds or pruning the trees on the corporate campus? Would these contract employees be included and are they supporting the company’s internal business operations? It is not very clear. I don’t anticipate that Oracle will get too into the weeds of these details when they license the Java initially. But what about three years into the Java subscription when the company is under audit, and Oracle might be able to use a large non-compliance gap to extract a new Java subscription? Would Oracle then take the position that the company had failed to disclose all of the contractors, outsourcers, etc., and needs to pay to cover a huge non-compliance gap? Would Oracle actually do this? I’ll let those of you out there who have experienced an Oracle software audit opine on the answer to that question.
Most Oracle license agreements are governed by California law unless the parties agreed otherwise. California law requires that a contract must be reasonably definite in its terms to be enforceable. If a contract is so uncertain and indefinite that the intention of the parties in material particulars cannot be ascertained, the contract is void and unenforceable. A court will enforce a contract with an indefinite provision if the provision is not a material or essential term. The definition of “Employee” would seem to be very material to the contract. If the essential terms are so uncertain that there is no basis for deciding whether the agreement has been kept or broken, there is no contract. A contract may be rendered void where the indefiniteness is “so extreme as not to present anything upon which the contract may operate in a definite manner.” Whether a contract term is sufficiently definite to be enforceable is a question of law for the court.
We are looking into these and other legal issues involving Java licensing. If you have a dispute with Oracle involving Java, we may be able to help.
By Tactical Law Attorneys and From Time to Time Their Guests