Pamela K. Fulmer
Software companies who use aggressive software audits to increase revenues often threaten their customers with lawsuits for copyright infringement and breach of contract, as leverage in order to try to drive sales of additional software products. In fact, we have seen software companies like Quest Software file lawsuits against their customers for copyright infringement arising out of an audit, when in reality their only claim is one for breach of contract. How do you know if the licensor of your software can sue you for copyright infringement for your alleged over-deployment of software? It basically comes down to whether the license provides a remedy for over-deployment such as paying additional fees should an audit uncover excess use. If it does, the clause is viewed by courts as a covenant and not a condition, the breach of which gives rise to only a contract claim. In California, as in other states, conditions are not favored and a court will construe a clause as a covenant and not a condition unless the clear and unambiguous language of the contract requires it to do otherwise.
When a copyright owner grants a nonexclusive license to use its copyrighted material, it generally waives its right to sue the licensee for copyright infringement and can sue only for breach of contract. A licensor may sue for copyright infringement only when the licensee acts outside the scope of the license. Courts refer to contractual terms that limit a license's scope as "conditions," the breach of which constitute copyright infringement. MDY Indust. LLC., v. Blizzard Entm’t Inc., 629 F.3d 928, 939 (9thCir. 2010). Courts refer to all other license terms as "covenants," the breach of which are actionable only under contract law. Id. See, e.g., BroadVision, Inc. v. Medical Protective Co., 2010 WL 5158129 (S.D.N.Y. Nov. 23, 2010) (applying California law to find that the license provisions permitting excess use of software in exchange for additional fees are covenants, not conditions.) The distinction between a “condition” and a “covenant” is determined under the law of the state that governs the license agreements. Most Oracle licenses in the United States and older Quest licenses are governed by California law. Under California law a license provision that permits additional use or over-deployment, but requires that a licensee pay for that additional use, is a covenant rather than a condition. See, e.g., Actuate Corp. v. Fid. Nat'l Info. Servs., Inc., No. C 14-02274 RS, 2014 WL 4182093, at *3 (N.D. Cal. Aug. 22, 2014) (dismissing copyright infringement claim because alleged additional use violated covenant rather than condition).
A case involving Quest Software is instructive. In Quest Software, Inc. v. DirecTV Operations, LLC , 2011 WL 4500922 (C.D. Cal. 2011) the district court specifically found that a clause, which provided a “true-up” mechanism in the event of excess use, i.e. over-deployment, constituted a covenant and not a condition. In support of his ruling granting summary judgment to the licensee and dismissing the copyright claim, Judge Guilford reasoned that “the over-deployment and true-up provisions in the License Agreement permit [DirectTV] to use Foglight on additional CPUs for an extra fee. These provisions are properly described as covenants because they do not concern the scope of the license, only the number of CPUs the license covers.” In other words, the contract specifically contemplates that excess use may occur, and in that situation the remedy is payment for the additional licenses.
Given the law, why do licensors often decide to include a copyright claim in their complaint? Several potential reasons come to mind. First, inclusion of the federal question allows the licensor to file its lawsuit in federal court. Otherwise a licensor would be limited to filing for breach of contract in state court unless diversity existed or it had another federal claim. Second, the copyright owner can recover actual damages such as its lost profits, or even the profits of the infringer on a copyright claim, making it more attractive than regular contract damages. Third, for licensors where actual damages are hard to prove, statutory damages are available. Fourth, damages may be enhanced if a court finds willful infringement. Finally, reasonable attorneys’ fees and costs may also be awarded to the successful licensor if they prevail on their copyright claim. This is helpful in situations where the license agreement does not have an attorneys' fees provision.
If your license has not been terminated and contains a clause that provides for a “true up” payment in the event of an over-deployment, the licensor’s sole remedy is likely a claim for breach of contract and not copyright infringement, at least under California law. Push back against licensor assertions to the contrary.
Pamela K. Fulmer
In a hard hitting opposition brief to Oracle’s motion to dismiss, lead Plaintiff Union Asset Management Holding AG shreds many of Oracle’s arguments and again reasserts the myriad of specific facts that were pled to support Plaintiff’s contention that Oracle used coercive audit tactics to improperly drive sales of cloud revenue, which it then misleadingly reported to investors and the public.
Correctly pointing out that at this juncture of the litigation Plaintiff does not have access to Oracle books and records so that it is not required to “plead the precise amount of overall revenue affected by Oracle’s improper sales tactics”, Plaintiff nonetheless asserts that “the Complaint’s detailed allegations give rise to the inference that the artificial sales were material in scope.” As we have pointed out in previous blog posts, if Plaintiff can get past the pleading stage and into discovery, it may well learn from Oracle’s own documents that Oracle revenue generated from these predatory audit tactics was very substantial indeed.
Plaintiff argues that Oracle misled investors about the driver of cloud sales growth and that it was the abusive audit tactics that were driving cloud sales, rather than Oracle having a superior cloud product. Plaintiff also contends that Oracle misled investors about the sales growth being sustainable, when Oracle knew very well from its own people that it was not. Finally, Plaintiff once again presents a strong argument as to how it has adequately alleged scienter on the part of Oracle’s senior management to deceive the public concerning the strength of Oracle’s cloud sales. Writing that “[s]cienter is “a mental state that not only covers intent to deceive, manipulate, or defraud, but also deliberate recklessness,” Plaintiff sets out a litany of allegations that present a strong inference that senior management knew and most likely approved of the use of Oracle compliance audits to drive cloud deals.
If you believe your company has been forced into an unwanted cloud purchase arising out of an Oracle audit, you may have legal remedies. Please contact email@example.com if you would like to discuss your potential legal options.
Tactical Law Group LLP is continuing to monitor the litigation. Check back here for periodic updates.
You may read Plaintiff’s opposition to Oracle's motion to dismiss here by clicking below.
Shareholder's' Derivative Lawsuit Claims Oracle Management Knew of Predatory Audit Tactics and Misled Public
Pamela K. Fulmer
In a shareholder’s derivative lawsuit filed on May 6, 2019 in the Northern District of California, the City of Providence has accused the top echelons of Oracle’s management and its board of directors, of making materially false and misleading statements about the growth of Oracle’s cloud business and the simultaneous repurchase of common stock at inflated values. The verified 110-page complaint filed by the Cotchett, Pitre & McCarthy law firm, relies heavily on a March 8th Consolidated Class Action Complaint filed in the In Re Oracle Corporation Securities Litigation, and sets out in meticulous detail the alleged misconduct relating to Oracle’s abuse of its audit rights and Oracle’s use of predatory audit tactics. Essentially the Complaint alleges that Oracle License Management Services (“LMS”) improperly used software audits against Oracle customers to come up with bogus audit findings, which Oracle Sales could then leverage to force customers into Oracle cloud purchases. Oracle management in turn would tout these sales to shareholders and the public, without disclosing that in many instances the Oracle customers never wanted or needed the products, but only bought them to get out from under the audit findings. The Complaint alleges that the purpose of this elaborate scheme was to provide Oracle management with ammunition so that it could falsely claim that Oracle cloud sales were experiencing phenomenal growth thereby misleading the market.
The Complaint pleads specific facts, which will be familiar to many Oracle customers who have experienced an Oracle audit. According to the complaint, in the typical “Audit, Bargain, Close” or “ABC deal”, Oracle’s LMS “would audit an existing on-premises client for violations of the software license and present the client with a hefty bill – say, $10 million. Oracle sales would then intervene, offering to reduce the penalties significantly – by, for instance, $4 million – if the customer purchased $2 million in cloud subscriptions. These customers, who neither wanted nor needed the cloud products, “purchased” a cloud subscription simply to save money on audit penalties, and, of course, almost never renewed those subscriptions. The Officer Defendants caused Oracle to misleadingly report these sham “sales” as cloud revenue, highlighting them as evidence of explosive business growth, when, in fact, they were nothing of the sort”.
Oracle customers who have undergone audit may also be able to relate to the following allegations:
“To start, Oracle installed its main on-premises products with extra options and management packs enabled by default, but did not inform its customers that these features had been installed and must be disabled in order to avoid license overages. Once a customer fell into this trap, Oracle’s sales and LMS teams worked in a highly coordinated fashion to audit the client for its license violations and push cloud products”.
The complaint devotes a whopping 44 pages to setting out statements made by various high-level officers and directors of Oracle, which the complaint contends shows that Oracle management knew of and encouraged these improper practices and intentionally misled the public by repeatedly claiming that the growth in cloud sales was due to legitimate business factors and not fueled by improper audit and sales tactics.
If you believe your company has been forced into an unwanted cloud purchase arising out of an Oracle audit, you may have legal remedies. If you are currently under audit, and have been pressured to buy cloud, you may have legal options. Please contact firstname.lastname@example.org if you would like to discuss your possible claims.
Tactical Law Group LLP is continuing to monitor the litigation. Check back here for periodic updates. The case is City of Providence v. Lawrence Ellison, et. al., Case Number 5:19-cv-02448-NMC.
You may read City of Providence’s Complaint by clicking below.
Pamela K. Fulmer
Oracle Corporation and six current and former officers or directors of Oracle moved on April 19, 2019 to dismiss the class action securities Complaint filed by Plaintiff Sunrise Fire Fighters in the Northern District of California. Essentially that Complaint alleges that Oracle and its management intentionally and misleadingly reported cloud revenues and growth and expressed optimism for future growth, without disclosing to the public that Oracle’s financial results and growing cloud sales were not the result of its superior product, but instead a result of abusive software audits of Oracle customers and improper sales tactics arising out of those audits. Plaintiff brought suit on behalf of all persons who purchased Oracle securities between March 15, 2017, and June 19, 2018.
Oracle seeks to dismiss the Complaint arguing that Plaintiff has failed to provide concrete evidence of Oracle’s audit abuses during the relevant class period. According to Oracle’s motion, “Plaintiff provides no details regarding the number of audits conducted or whether the audits materially affected Oracle’s revenue in any quarter. Plaintiff also claims that Oracle pushed so- called “attached” deals, essentially providing on-premise customers a “sharp discount” if they agreed to try Cloud products.” According to Oracle, “Plaintiff contends that these alleged practices were “improper,” but cites no law, accounting rule, or policy that precludes a company from encouraging its existing customers to try new products.”
Oracle’s attempt to portray its abusive audit tactics, which have been widely reported in the business press as well as in several public lawsuits, as simply gentle encouragement by Oracle to its customers to try new products is ludicrous. Many Oracle customers who have undergone an Oracle audit might vehemently disagree with Oracle’s benign characterization of the audit process. And if this securities class action case proceeds past the pleading phase and into discovery, Plaintiff may well discover evidence within Oracle’s own files of massive and systematic abuses by Oracle of its audit rights.
Oracle also argues in its motion that “it is not improper to use aggressive tactics to sell products” and that “Oracle’s software license contracts gave it the right to audit its customers’ compliance with the license and impose fees if it found violations.” Similarly, Oracle contends that it was “Oracle’s right to forgo collecting those fees in exchange for customers agreeing to try Oracle’s Cloud products.” But what if evidence exists that demonstrates that certain of those violations claimed by Oracle were bogus and not grounded in the contract? What if Plaintiff can find evidence that Oracle knew that its claimed deficiencies lacked contractual merit, but they claimed them anyway in order to inflate the alleged licensing deficiency and use it as leverage to drive more sales of Oracle cloud and other software products? And if it is true that Oracle does not need to resort to “scare tactics” to sell its cloud products as Oracle claims, then why is the business press replete with instances of Oracle customers complaining about Oracle’s predatory audit practices?
Oracle license agreements usually provide that Oracle audits cannot unreasonably interfere with the normal business operations of Oracle customers. Was it an unreasonable interference for Oracle to demand hundreds of thousands of documents from Mars Corporation, including information about servers where Oracle software was not installed and/or running? Was it an unreasonable interference for Oracle to then threaten to terminate the license thereby forcing Mars to incur the costs of filing a lawsuit for declaratory relief seeking a court determination that it was not in breach of the license? What if it were to be discovered that Oracle has a standard business practice of issuing Final Audit Reports, which routinely contain alleged compliance gaps not grounded in the contract in order to come up with a “shock number” to gain negotiating leverage over Oracle customers?
In the Sunrise suit, Oracle contends that “Plaintiff has not shown anything improper about upselling and cross-selling or offering discounts, incentives, and audit accommodations. Nor has Plaintiff shown that Oracle’s opinion was subjectively disbelieved, objectively false, or lacking any reasonable basis” and that “at most, Plaintiff’s allegations show “isolated instances” of the alleged conduct “rather than widespread deception, which would be necessary to establish fraudulent intent or reckless ignorance.”
It will be interesting to see whether Plaintiff can get past the pleading stage and into discovery. To the extent evidence of widespread and systematic deception exists, it would be contained in documents at Oracle, which Plaintiff has not yet been able to access. One fertile area that Plaintiff might want to focus on to prove Oracle’s “widespread” and “intentional” deception in Oracle audits is Oracle’s assertions around VMware and the “installed and/or running” language of the license agreement. It is our opinion that should Plaintiff focus on this area it may likely find evidence in Oracle’s files that Oracle routinely includes large compliance gaps in its Final Audit Reports based on its VMware assertions. Yet although such findings may be commonplace we are aware of no instances where Oracle has sought to enforce its view in a court of law, although Oracle has relied on its dubious interpretation to threaten license terminations as the Mars v. Oracle case proves. And as we know, Oracle settled the Mars case quickly and well before a court could rule on the issue.
Plaintiff in the Sunrise case should seek discovery of Oracle audits where VMware assertions were included in the Final Audit Report and resolution of the audit involved large discounts, in part, based on the purchase of cloud credits. Such discovery may lead to evidence that Oracle’s audit tactics are part of a “widespread deception” and do not reflect simply “isolated incidents” but rather are intentional and perhaps ratified by the highest echelons of Oracle’s management.
Oracle customers under audit would be wise to document in written communications to Oracle instances where they believe that Oracle’s actions are abusive and not grounded in the contract.
If you believe your company has been forced into an unwanted cloud purchase arising out an Oracle audit, you may have legal remedies. Please contact email@example.com if you would like to discuss your potential legal options.
Tactical Law Group LLP is continuing to monitor the litigation. Check back here for periodic updates.
You may read Oracle's motion to dismiss here by clicking below.
Pamela K. Fulmer
Claiming total success in the litigation, Hewlett Packard Enterprise Company (“HPE”) is seeking an award of almost $18 million in attorneys’ fees against Oracle. Oracle sued HPE in 2016 alleging claims for indirect (vicarious and contributory) and direct copyright infringement, intentional interference with contract, intentional interference with prospective economic relations, and unfair competition. These claims stemmed from Oracle’s allegations that HPE offered illegal updates to customers of Oracle's Solaris operating system as part of a scheme concocted by another company, Terix Computer Co. Inc.
Judge Tigar of the Northern District of California granted HPE’s motion for summary judgment on all claims while denying Oracle’s motion. As the prevailing party in the copyright infringement case, HPE contends that it is entitled to an award of fees. HPE argues that “[g]iven HPE’s complete success in the case, Oracle’s unreasonable and aggressive approach in the litigation, and the need to compensate HPE and to deter Oracle, the Court should grant HPE’s motion and award HPE the reasonable fees it requests.” HPE claims that “Oracle’s litigation tactics also at times crossed the line from zealous to inappropriately hostile and aggressive” pointing to Judge Laporte’s admonishment of “Oracle for its failure to adhere to the Northern District of California’s ‘Guidelines for Professional Conduct’”. According to Judge Laporte:
"The Court is very disappointed by the extreme, unnecessary, overheated rhetoric employed primarily by Oracle, such as its opening salvo—“Time and time again, HPE and its counsel have shown that there is no game they will not play in the pursuit of misperceived litigation advantage ...”—which is followed by phrases such as “blatant gamesmanship,” “knowingly misrepresenting facts in an attempt to slander,” “empty accusations,” “supposed grievances,” “Nonsense” and the like."
HPE’s fee motion also accuses Oracle of being a “serial plaintiff” and an “aggressive litigant that consistently seeks to run its competitors out of the market.” HPE is also seeking attorneys’ fees on the defense of the state law claims arguing that Oracle’s copyright claims and state court claims were intertwined and arose out of a “common core of facts” or “out of the same course of conduct”. According to the motion, “HPE’s counsel spent 25,758.80 hours and incurred nearly $20 million in fees litigating this case to a complete victory, and here seeks $17,879,638.03. This amount reflects a self-imposed haircut, a reasonable number of hours for a case of this complexity, and reasonable hourly rates.”
We will continue to monitor the case, which is Oracle America, Inc. v. Hewlett Packard Enterprise Company, CASE NO. 3:16-cv-01393-JST in the Northern District of California. Check back here for updates. See below if you would like to download the motion.
Pamela K. Fulmer
Oracle has again suffered a legal setback, this time at the Ninth Circuit. In an unpublished opinion issued yesterday, a panel made up of Justices Schroeder, Rawlinson and Lasnik, affirmed a ruling by District Court Judge Laporte, which granted a former Oracle employee, Marcella Johnson’s motion to compel arbitration. Johnson sued Oracle in February 2017 in federal court on behalf of a proposed class of sales employees in a dispute about how Oracle pays its sales team commissions. Johnson claimed that Oracle changed its commission policies resulting in “clawbacks” of previously paid amounts, and that such clawbacks are illegal under California employment law.
Johnson eventually dropped her suit in federal court and filed a class arbitration in San Francisco before JAMS, after Oracle produced an employment agreement with an arbitration provision. However, although employers usually prefer arbitration, Oracle declined to pay its portion of the arbitration fees, instead contending that Johnson had petitioned for arbitration under a provision that had been superseded by a later agreement that explicitly blocked classwide treatment of claims in arbitration. Johnson then moved to compel arbitration, claiming that the arbitrator could decide which arbitration agreement governed. Oracle argued that the decision on which agreement governed was for the district court and not the arbitrator to decide.
The Ninth Circuit rejected Oracle’s argument finding that the agreements provided for either the applicability of the Federal Arbitration Act (“FAA”) or Judicial Arbitration and Mediation Services (“JAMS”) rules. The court reasoned that “[u]nder those rules, issues concerning arbitrability can be delegated to the arbitrator so long as the delegation is clear,” which it found to be so in the Oracle contracts.
Since the case will now be in private arbitration and not a public court of law, Tactical Law will be unable to monitor the case. That is regretful as it would be interesting to learn more about Oracle’s strong-arm tactics with its own sales people. Companies undergoing Oracle audits know how aggressive Oracle sales can be in pushing expensive audit resolution proposals. It is no wonder given the immense pressure that Oracle apparently imposes on its sales team to meet high Oracle sales goals. If you are a company undergoing an Oracle audit, seek experienced legal counsel knowledgeable about California law to assist you in successfully navigating the audit and defeating aggressive Oracle sales tactics.
Pamela K. Fulmer
Third party software services maintenance provider, Rimini Street, scored a victory today before the U.S. Supreme Court against its arch nemesis Oracle. A unanimous Supreme Court, in an opinion written by Justice Kavanaugh, has reversed the Ninth Circuit by ruling that the phrase “full costs” as used in the Copyright Act means only the 6 categories of costs authorized in the general federal costs statute, as codified at Sections 1821 and 1920 of Title 28. Oracle had argued that the word “full” before the word “costs” meant that a court in awarding litigation expenses in a copyright case could award expenses beyond the ones mentioned in Sections 1821 and 1920, such as the costs of electronic discovery, expert witnesses and jury consultants. In rejecting that argument, Justice Kavanaugh reasoned that “[t]he adjective “full” in §505 [of the Copyright Act] therefore does not alter the meaning of the word “costs.” Rather, “full costs” are all the “costs” otherwise available under law. The word “full” operates in the phrase “full costs” just as it operates in other common phrases: A “full moon” means the moon, not Mars. A “full breakfast” means breakfast, not lunch. A “full season ticket plan” means tickets, not hot dogs. So too, the term “full costs” means costs, not other expenses.”
The case is Rimini Street Inc. et al. v. Oracle USA Inc., case number 17-1625, at the Supreme Court of the United States. An interesting read is also Rimini's Third Amended Complaint against Oracle in the Rimini Street II litigation.
Oracle Hit with New Lawsuit for Fraud, Negligent Misrepresentation, Breach of Contract, Breach of Warranty and Other Claims Involving its ERP and Cloud Offerings
Worth & Company, Inc., (“Worth” or “Plaintiff”) a Pennsylvania corporation in the mechanical contractor business has sued Oracle America, Inc. (“Oracle”) in federal court in the Northern District of California. The Complaint alleges various claims relating to Oracle’s enterprise resource planning (“ERP”) and cloud software offerings including claims for intentional & negligent misrepresentation, breach of contract, breach of warranty, and other related causes of action. Unlike other recent lawsuits against Oracle alleging similar California state law claims, the suit was brought in federal court on the basis of diversity jurisdiction. Plaintiff seeks damages for Oracle’s failure to deliver a fully functioning product, or alternatively restitution of the $4.5 million dollars paid to Oracle for the alleged faulty software solution and rescission of the various Oracle contracts including a Master Agreement, a Subscription Agreement and other related Oracle contracts.
According to the Complaint:
“Worth seeks money damages or rescission for Oracle’s breach of contract and breach of warranty of merchantability and fitness for a particular purpose based on Oracle’s failure to provide an enterprise resource planning (ERP) software system compatible for use in Worth’s business as a mechanical contractor. Despite Oracle’s representations that its integrated software system, i-cloud services, and technical support system was a functioning workable product fully capable of fulfilling Worth’s needs, Oracle failed to provide a collectively suitable and operable software system. Worth paid in excess of $4,500,000.00 to purchase and implement the ultimately non-functioning Oracle ERP product. Alternatively, Worth seeks money damages or rescission under California law for Oracle’s negligent and continued misrepresentations that the integrated software system was suitable for Worth’s needs.”
The Complaint sets forth in detail the long and tortured saga with Oracle, which began in 2014 when Worth sent out a Request for Quotations (“RFQ”) for a new ERP system. Oracle responded to the RFQ and provided a proposal after a series of detailed meetings where “Oracle requested and Worth provided certain data requests for its demonstration/validation sessions with Worth” and Worth provided to “Oracle a detailed project management list of all of the items Worth wanted to ensure the new ERP solution would handle”. According to the Complaint “[t]hroughout the bidding and negotiation of the implementation services contracts, Oracle represented that all of Worth’s business requirements would be met by the EBS application.” Worth contends that these representations turned out to be false.
On February 20, 2015 Oracle and Worth executed several agreements pertaining to the ERP system, but it didn’t take long until it became clear that Oracle would not be able to meet the “go live” date that had been promised. According to the Complaint:
“By November 2015, it was evident to both Oracle and Worth that the on premises implementation and cloud integration was seriously delayed and wrought with issues. Oracle continued to provide assurances that it would work through all of the issues and that its EBS system was the most efficient program for Worth, and that Worth’s needs would be fulfilled by the EBS system.”
Although the “go live” date was eventually kicked to February 2016, it soon became apparent that Oracle would not be able to meet that deadline. In fact, the new “go live” date was eventually pushed an entire year to February 2017. Worth continued to have issues with Oracle’s implementation after the “go live” date of February 2017. In fact, problems continued throughout all of 2017, leading Worth to decide in the Spring of 2018 that it would discontinue the use of the Oracle ERP system and find another solution.
According to the Complaint, Oracle warranted in the Master Agreement “that a Program licensed to You will operate in all material respects as described in the applicable Program Documentation”. Worth contends that despite this representation, the ERP system never worked as promised and that “[t]he breach by Oracle of the Master Agreement is so total and fundamental that the essential purpose of the contract fails, and the limited remedies and warranties provided in the Master Agreement fail of their essential purpose”. According to Worth, “Oracle’s breaches of the Master Agreement resulted in the software and services Oracle was to provide to be absolutely useless to Worth and destroyed the essential objects of the Master Agreement.” As an alternative to money damages, Worth seeks rescission of the agreements and restitution of all monies paid to Oracle under the agreements.
Worth contends that it relied on Oracle’s representations to its detriment. According to the Complaint, “Oracle made the Representations with the intent that Worth would rely on the Representations by entering into the Master Agreement, the Subscription Agreement and the Additional Oracle Agreements by paying the monies due under the agreements. Oracle also knew that Worth would rely on the Representations by devoting substantial resources to implementing the product it was purchasing from Oracle.”
This new suit follows on the heels of another California lawsuit that was filed against Oracle relating to its cloud offerings, Barrett Business Services, Inc. vs. Oracle America, Inc., Cognizant Worldwide, Cognizant Technology and Kbace Technologies, Inc., Case No. CGC-19-572574, San Francisco Superior Court. In Barrett, Oracle likewise was accused of over promising and failing to deliver a viable system at the price point and within the time frame promised. The price of Oracle’s proposed solution in that case mushroomed from $5.4 million to over $33 million. In addition, the completion of Phase I was pushed from July 2018 to April 2019 and Phase II from January 2019 to May 2021. Barrett contends that despite the price jump the new Oracle plan failed to provide a solution as to how to customize Oracle’s HCM Cloud to meet its needs. The company was forced to hire an independent consultant to advise the company on the situation. The independent consultant concluded that Oracle’s HCM Cloud was not a suitable solution as it (1) lacked required functionality; (2) had a poor user interface; (3) had minimal API’s; and (4) needed significant customization. Oracle has not yet made an appearance in that action.
Tactical Law will continue to monitor the Barrett case and the newly filed Worth case, which is entitled Worth & Company, Inc. vs. Oracle America, Inc. Case No. 3:19-cv-00918, in the Northern District of California. Check back for updates.
Yesterday Oracle and technical support arch rival Rimini Street Inc. (“Rimini Street”) took their court fight to the U.S. Supreme Court. The battle is over what constitutes awardable costs for a prevailing party in a copyright lawsuit. Oracle argued that the “full costs” provision of the Copyright Act is broader than the preset categories of “costs” defined elsewhere in the federal code. The Ninth Circuit has previously agreed with Oracle’s interpretation holding that an award of “full costs” should cover a larger list of things including expert and jury consulting fees as well as e-discovery expenses.
During oral argument Justice Sotomayor expressed skepticism over Oracle’s interpretation of the meaning of the statute opining that it was too “open-ended” and doesn’t provide Judges with a “reasonable manner” of exercising their discretion. The government also sided with Rimini Street’s more narrow interpretation.
Tactical Law Group will be monitoring this case and the other remaining litigation between Oracle and Rimini Street that is still winding through the federal courts. Check back here for periodic updates.
House of Brick Technologies has recently published a very interesting blog post about how Oracle often approaches concurrent device licenses during audits. If your company has an older license agreement from the 1990s, you may very well have such licenses included in your entitlement. Oracle appears to dislike these licenses because the Concurrent Device metric is more flexible than Named User Plus (NUP). But there is another consideration. When using the Concurrent Device metric, unlike in NUP licensing, processors are not counted. These licenses essentially allow any number of users or devices to share a single license provided that only one user or device at a time uses the license. Thus, they can be very beneficial from a licensing standpoint as the focus is not on counting processors, with all the complexities that may entail.
Although Oracle often assures its customers in connection with initiating audits that it will work to optimize a customer’s Oracle license entitlement, Oracle licensees should take such assurances with a very large grain of salt. We are aware of instances where Oracle recommended certain actions such as canceling licenses, and later the cancellations came back to bite the customer during the audit.
Licensees also need to be alert as Oracle often points to various non-binding policy documents when auditing customers and attempting to assert that customers are bound by these policy documents. One such area involves virtualization and VMware where Oracle asserts a licensee is bound by its non-contractual Hard Partitioning Policy, which we saw in the Mars case. With regard to concurrent licenses, House of Brick reports in its blog post that it is aware of instances where “Oracle License Management Services (LMS) and the Oracle sales team” attempted to “place these per-processor restrictions on clients with valid contracts that contain no per-processor minimums for Concurrent Device licenses”.
Licensees should not be misled by Oracle’s assertions. Oracle license agreements are fully integrated contracts, which can only be modified by a writing signed by both parties. Oracle by unilaterally posting “policy” documents that are not part of or referenced by the license agreement, and that are not signed by both parties, cannot make them magically part of the contract. Under California Civil Code Section 1636, "a contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting;" see also DVD Copy Control Ass'n, Inc. v. Kaleidescape, Inc. (2009) 176 Cal. App. 4th 697, 712 (“interpretation of the License Agreement is guided by the principle that it “must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful.”). California Civil Code Section 1638 provides that "the language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." See also People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal. App. 4th 516, 525. Oracle license agreements containing the Concurrent Device license metric are clear and unambiguous, and they are not tied to per-processor minimums or other restrictions.
So, what if you are an Oracle licensee who relied on Oracle’s representations and canceled your Concurrent Device licenses or accepted Oracle’s assertions about per processor minimums and lost money or were otherwise damaged? You may very well have options. Oracle license agreements typically have a California choice of law provision. California has a very strong law to protect consumers and other businesses known as Business & Professions Code Section 17200, which prohibits unfair, unlawful or fraudulent business practices. California courts have interpreted what constitutes a business practice broadly. A business “practice” is doing something habitually, more than once, or repeatedly. It includes a succession of similar acts, habit, and industry custom. California courts have found that even “sporadic” statements made by a defendant’s lower level employees regarding contractual language can be a “practice”. People v. Dollar Rent-A-Car Sys., Inc. (1989) 211 Cal. App. 3d 119, 129. Clearly if Oracle’s stance on Concurrent Device licenses is part of a larger License Management Services (“LMS”) playbook, which we think it may be, then a court could find that false or misleading statements made by Oracle LMS or Oracle Sales to Oracle customers concerning Concurrent Device licensing requiring processor minimums may be actionable under the statute. Although damages are not recoverable under Section 17200, restitution is available giving licensees a path to recover monies spent in overpayment on licenses or alleged areas of non-compliance.
Another reason why Oracle may so strongly dislike Concurrent Device licenses is Oracle would rather focus on processors and VMware in claiming large dollar amounts of alleged non-compliance. For certain customers with older licenses, if Oracle LMS had properly applied the Concurrent Device licenses, the alleged VMware processor deficiency claim could either evaporate or be significantly reduced causing Oracle to lose the benefit of this potentially multi-million dollar lever in the audit resolution discussions. We have discussed in other blog posts why Oracle's non-contractual Hard Partitioning Policy is not binding, and we routinely push back hard on Oracle's non-contractual VMware assertions.
Licensees with Concurrent Device licenses are advised to read their contracts carefully and do not fall for it if Oracle cites a “policy” document that is not part of the contract, and demands that you comply with it. If you find yourself the subject of an Oracle audit or believe that Oracle may have made false statements to you during an audit, consider hiring experienced outside counsel familiar with California law to help guide you through the process or advise you of your legal rights.
Tactical Law Attorneys