SAP CEO Henning Kagermann late yesterday admitted that employees of his company's TomorrowNow subsidiary made what he called "inappropriate downloads" of material from the customer support Web site of arch-rival Oracle Corp.
"We regret very much that this occurred," Kagermann said in a conference call with journalists and analysts.
But in SAP's first public response to Oracle's March 22 lawsuit over the matter, Kagermann said none of the downloaded material — software updates, bug fixes, patches, custom solutions, and instructional documents used by customers of Oracle's JD Edwards and PeopleSoft applications — was accessed or used by SAP to gain a competitive advantage over Oracle. Kagermann said a business structure "firewall" between TomorrowNow and SAP prevented SAP from accessing Oracle intellectual property via TomorrowNow.
In response to an ongoing internal examination of the matter, Kagermann said, SAP has taken steps to "strengthen operational oversight" of TomorrowNow. SAP, he said, has placed SAP Americas Chief Operating Officer and former CFO Mark White in the new role of executive chairman at the subsidiary. TomorrowNow CEO Andrew Nelson will report to White, Kagermann said.
"I have asked Mark White to take necessary actions, including personal consequences," Kagermann said.
However, Kagermann suggested that Nelson might escape direct consequences. "We have no evidence that Andrew was aware of these inappropriate downloads," Kagermann said. "Today there is not reason to speculate about Andrew."
Despite these admissions, Kagermann said SAP would continue to defend itself in court against Oracle's allegations. Although he said on the conference call that he would not speculate on SAP's legal options, including a possible out-of-court settlement, he seemed to leave the door open to that possibility, noting that Oracle and SAP are due to engage on Sept. 4 in a pretrial conference at which "we expect to discuss conflict resolution."
SAP also revealed that the U.S. Department of Justice is looking into the facts of the case. Kagermann told reporters that the DoJ last week requested that SAP provide internal documents related to Oracle's charges. Kagermann said SAP is complying with the request, although he did not elaborate on what documents the DoJ is seeking.
Oracle officials, meanwhile, reacted triumphantly to SAP's admission. "SAP CEO Henning Kagermann has now admitted to the repeated and illegal downloading of Oracle's intellectual property," said Oracle Counsel Geoffrey Howard in a statement. "Oracle filed suit to discover the magnitude of the illegal downloads and fully understand how SAP used Oracle's intellectual property in its business. To the extent requested, Oracle will cooperate with the Department of Justice investigation of SAP announced by the company in its press release."
Oracle's original lawsuit, filed March 22 in U.S. District Court, charged that SAP and its TomorrowNow subsidiary, beginning in late 2006, engaged in "corporate theft on a grand scale" by illegally downloading the support material from Oracle's Customer Connect Web site on behalf of SAP's customers. The suit contends that the allegedly illegal downloads have unfairly enabled SAP "to offer cut-rate support services to customers who use Oracle software, and to attempt to lure them to SAP's applications software platform and away from Oracle's." Oracle has asked the court for unspecified damages and legal costs.
The Oracle suit contends that the allegedly illegal downloads were part of a broad SAP initiative to undercut Oracle's competitive position in the enterprise applications market following Oracle's acquisition of PeopleSoft and JD Edwards in December 2004. Soon after that deal, Oracle says, SAP acquired TomorrowNow, a provider of third-party software support services, and attempted to use TomorrowNow to get PeopleSoft and JDE customers to switch to SAP, under the company's Safe Passage program.
Oracle claims that TomorrowNow, from its offices in Bryan, TX, illegally made 10,000 downloads of Oracle support material, in some cases using the passwords of customers who had already canceled their support agreements with Oracle.
While insisting that the bulk of downloads that TomorrowNow made on behalf of its customers were legitimate, Kagermann said SAP's examination "found cases where they downloaded more materials for customers named in the complaint than [those] customers had a right to get."
So far, Oracle has not named customers or former customers as defendants in the suit. The company has, however, identified customers that it says were involved in the download activity. They include Abbott Laboratories; Abitibi-Consolidated, Inc.; Bear, Stearns & Co.; Berri Limited; Border Foods; Caterpillar Elphinstone; Distribution & Auto Service; Fuelserv Limited; Grupo Costamex; Helzberg Diamonds; Herbert Waldman; Honeywell International; Interbrew UK; Laird Plastics; Merck & Co.; Metro Machine Corp.; Mortice Kern Systems, Inc.; National Manufacturing; NGC Management Limited; OCE Technologies, B.V.; Ronis, S.A.; Smithfield Foods; SPX Corporation; Stora Enso; Texas Association of School Boards; VSM Group AB; and Yazaki North America.
In its official response to the Oracle suit, SAP said of one customer in particular, Merck: "Defendants further admit that [TomorrowNow], on Merck's behalf, downloaded thousands of materials, and further admit that some of the materials downloaded relate to applications as to which [TomorrowNow's] records do not show Merck stated to TN that it was licensed."
Oracle, in a June 1 amendment to its original suit, also claimed that SAP/TomorrowNow copied and posted on its own Web site Oracle's solution for helping customers deal with application changes required by annual daylight savings time changes. In its response to the Oracle suit, SAP admitted that "certain portions of TN's PeopleSoft Daylight Savings Time solution are substantially similar and in some instances identical to Oracle's DST Solution ..."
Kagermann, in the conference call with reporters, declined to say whether the allegedly illegal downloads were performed knowingly or mistakenly by TomorrowNow employees. He said SAP's examination of the case is ongoing.
Kagermann stressed that SAP will continue to provide TomorrowNow customers with support. He denied suggestions that restricting downloads by TomorrowNow from vendors such as Oracle will affect its ability to support customers.
"I have no evidence that this has had an impact on their competitiveness," Kagermann said.