Oracle, SAP Duel Over Damages in Opening Arguments

Lawyers for Oracle and SAP made their opening arguments Tuesday in the companies' TomorrowNow lawsuit, with each side giving a very different story to the jury about how damages in the case should be calculated.

Oracle's attorney said SAP should pay it whatever license fee the companies would have negotiated for the Oracle software that SAP's TomorrowNow subsidiary downloaded illegally. That would have been a large sum -- Oracle is seeking US$2 billion -- because SAP desperately wanted the software to compete with Oracle, Geoffrey Howard, an attorney for Oracle, told the jury.

"It could have chosen to compete fairly," Howard said. "Instead it chose to buy TomorrowNow, a company that the board of directors at SAP knew was competing unfairly."

SAP's lawyer said Oracle's way of calculating damages is "a fantasy." SAP should have to pay only for the software sales Oracle lost as a result of the illegal behavior, and for the money SAP gained from any customers who switched from Oracle to SAP because of TomorrowNow, Bob Mittelstaedt, an attorney for SAP, told the jury.

Both those amounts would be relatively small, he said, because any customers that switched from Oracle to SAP at that time did so because of the uncertainty they faced amid Oracle's acquisitions of PeopleSoft and JD Edwards.

Oracle wants "a windfall," Mittelstaedt told the jury. "They want a bonanza that is out of all proportion to the harm they suffered."

The question of damages will be at the heart of the four-week trial. SAP has accepted liability for the software and support materials that TomorrowNow downloaded illegally from an Oracle website, so the evidence and witnesses should relate to how much it must pay Oracle in compensation.

"We've admitted that TomorrowNow made some inappropriate downloads," SAP co-CEO Bill McDermott told reporters outside the courtroom. "We simply want the remedy to be fair and reasonable, and that's something that's up to the jury to decide."

Oracle will call several of its top executives as witnesses including CEO Larry Ellison, who is expected to take the stand on Friday; Charles Phillips, a former co-president who recently left the company; and Safra Catz, another Oracle co-president, who was in court Monday and Tuesday watching the proceedings.

Oracle also will present testimony -- by video or on the stand -- from former SAP executive Shai Agassi, whom Howard described as "one of the leading individuals" in SAP's TomorrowNow acquisition, and Leo Apotheker, another former SAP executive who's now HP's CEO, and who the Oracle attorney said was "very involved" in the transaction.

SAP is expected to call McDermott and former SAP CEO Henning Kagermann, among other witnesses, as well as several Oracle executives. Both sides will also call damages experts, who will be key to their cases.

There were few surprises in the opening statements -- the parties had already laid out their cases in court filings. Howard and Mittelstaedt both addressed the eight-person jury from a lectern in front of them. Both used an overhead projector to illustrate points, and Mittelstaedt also used a flip chart and pen. He lost his footing slightly at one point when he forgot what CIO stood for and said "chief intellectual officer." It stands for chief information officer.

Oracle also called its first two witnesses Tuesday morning. They were Buffy Ransom, an Oracle executive who explained to the jury how software licensing works and how expensive it is to develop enterprise software, and Ed Screven, Oracle's chief corporate architect who is also responsible for the company's internal security. He explained to the jury what a "software stack" is and was expected to also discuss how Oracle found out about TomorrowNow's illegal downloads.

Oracle wants to show the jury that SAP's executives were aware of TomorrowNow's illegal behavior because it is relevant to the question of damages, Howard said in his opening statement. The fact that SAP was prepared to take a risk and buy a company it knew could be sued at any moment by Oracle shows how valuable the software was to SAP, and thus how much it would have been prepared to pay to license it, he said.

He played a brief clip of video testimony from Kagermann in which the former CEO acknowledged that buying TomorrowNow was a risk. Howard also cited an e-mail from Agassi in which he said Oracle's share price would probably drop "10 percent" -- or by about $7 billion -- after investors learned that SAP planned to use TomorrowNow to win over Oracle customers.

"That's the impact SAP was hoping to get from its acquisition of TomorrowNow in January 2005," he said.

More relevant, according to SAP's Mittelstaedt, is how much Oracle actually lost as a result of TomorrowNow. He cited e-mails from Oracle executives -- including one from Catz -- in which they said they did not see TomorrowNow as a big threat and that they had not lost any large customers because of it.

Nor did SAP make much money from TomorrowNow, Mittelstaedt argued. Only 86 of Oracle's 9,900 PeopleSoft customers switched to SAP applications, and of those "84 were going to leave Oracle anyway," he said.

Oracle wants SAP to pay damages for a "hypothetical license," he said -- the money it would have paid SAP if a license for the software TomorrowNow stole had been negotiated in good faith. "The evidence to show there would have been any sort of agreement between these two companies is not just hypothetical but also very speculative," Mittelstaedt insisted.

The trial is scheduled to run from 8:30 a.m. to 1:30 p.m. each weekday except Wednesday, which is a rest day for the jury.

Oracle sued SAP in 2007, alleging that its TomorrowNow subsidiary illegally downloaded terabytes of customer support materials and other Oracle software from a customer support website and then used those materials to lure away Oracle customers.

Last Thursday, just before trial was due to start, SAP said it wouldn't contest the issue of "contributory infringement" -- or whether its executives knew about the software theft. That's why the trial is focused mainly on damages. The case is expected to be sent for jury deliberation by Nov. 29.

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