Bloomberg News

Ex-SAP Unit Pleads Guilty to Illegal Oracle Downloads

September 14, 2011

(Updates with prosecutor in eighth paragraph.)

Sept. 14 (Bloomberg) -- SAP AG’s defunct TomorrowNow software-maintenance unit pleaded guilty to charges related to unauthorized downloading of Oracle Corp. software and agreed to pay a $20 million penalty.

U.S. District Judge Phyllis Hamilton accepted the plea by the closed SAP unit today in Oakland, California. TomorrowNow was charged on Sept. 8 with 11 counts of unauthorized computer access and one count of criminal copyright infringement.

“No other SAP entity, including SAP AG or SAP America, will face charges arising out of the office’s investigation,” James Dever, an SAP spokesman, said of the Justice Department probe in an e-mailed statement. The parent company is paying the fine, he said.

SAP, the world’s largest maker of business software, was sued by Oracle, its biggest competitor, in 2007 over the downloads. Waldorff, Germany-based SAP shut the Bryan, Texas- based unit in 2008 and didn’t contest at trial that it was liable for infringement by TomorrowNow, which offered software upgrades and fixes to customers who used products made by companies acquired by Oracle.

Oracle claimed at trial that SAP was trying to steal its customers and avoid paying a license fee for the software. Oracle’s expert testified that SAP was liable for as much as $1.7 billion in damages.

Maximum Penalty

The maximum penalty for each count of unauthorized computer access that TomorrowNow faced is $500,000 or as much as twice the loss or gain caused by the conduct, Hamilton said.

The $20 million fine reflects “the seriousness of the conduct” and is appropriate “especially in the light of the size of TomorrowNow and the revenue it earned during its existence,” Assistant U.S. Attorney Kyle Waldinger said at the hearing.

The plea agreement included no restitution because those damages would be accounted for in the civil case, he said.

SAP said at trial that TomorrowNow never turned a profit and had just tens of millions of dollars in revenue. Oracle lost at most $19.3 million in profit from TomorrowNow’s actions, Greg Lanier, an attorney for SAP, said after the hearing.

“Oracle has spent the last four years uncovering SAP’s massive copyright theft and SAP finally pleaded guilty in federal court to criminal charges for its illegal scheme,” said Deborah Hellinger, an Oracle spokeswoman, in an e-mail. She declined to comment on the fine.

Individual Crimes

The plea agreement specifies that TomorrowNow will cooperate with government probes of crimes individuals may have committed in connection with the charges brought against the company, Hamilton said during the hearing.

Lanier said he doesn’t know where the government investigation stands or whether it is pursuing anyone. Waldinger declined to comment after the hearing.

TomorrowNow still exists as a legal entity. It has fewer than 10 employees in Texas who maintain computer files needed for the civil court proceedings in the Oracle case, Lanier said. At its peak, the company employed 160 people. There were about 30 left when it was shut, he said.

In the civil case, Hamilton last week threw out a jury’s $1.3 billion verdict for Oracle against SAP. The judge called the amount “grossly excessive,” and said Oracle could agree to accept no more than $272 million in damages or retry its case.

Oracle asked Hamilton to put the case on hold until after any appellate court reviews of her decision on damages, according to a court filing yesterday.

The criminal case is U.S. v. TomorrowNow Inc., 11-00642, U.S. District Court, Northern District of California (Oakland).

--Editors: Fred Strasser, Peter Blumberg

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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