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Oracle The Year in Review from The Licensing Journal March 2022 – Arbitration & Dispute Resolution


Oracle Licensing Litigation 2021: The Year in
Review

Pam Fulmer is a partner with Tactical Law in San Francisco,
California and has substantial experience litigating all types of
intellectual property and commercial disputes with a special
emphasis on licensing disputes. In addition to her litigation
practice, Pam devotes a significant portion of her time to
defending companies of all sizes in software audits brought by
software publishers known for their aggressive audit tactics such
as Oracle, Quest, Micro Focus, and others.

2021 was a busy year for Oracle. In addition to their ongoing
litigation with Google, Oracle has taken to the federal court
system to sue customers and third parties for copyright
infringement relating to software audits, attacking maintenance,
and support competitors such as Rimini Street, and defending itself
and its subsidiary NetSuite for several failed ERP installations.
This article will discuss Oracle’s non-Google licensee-related
litigation in 2021.

Alleged Hosting and Embedded License Violations and
Audit-Related Cases

Within the last two years Oracle has filed three cases for
copyright infringement in the Northern District of California that
also raised claims of license violations involving hosting or
embedded Oracle software licenses.

Oracle America, Inc. vs. Envisage Technologies, LLC

Oracle sued Envisage on May 11, 2021, for copyright
infringement. Oracle contended that Envisage had not bought enough
licenses from Oracle to cover its use of Oracle database software
for cloud hosting of its Acadis Readiness Suite on Amazon’s RDS
platform. Oracle used public facing documents found on
Envisage’s own website along with documents that may have been
posted by governmental entities or acquired under the Freedom of
Information Act, to claim that Envisage’s use of Oracle
database software was well in excess of the number of licenses it
had purchased from Oracle. The Complaint brought by The Norton
Firm, alleged that Envisage’s infringement was willful and
sought at lease $3 million in damages. Oracle claimed in the
Complaint that Envisage declined to engage in discussions, most
likely in our opinion, because Envisage’s contract was with AWS
under the RDS license included model and not Oracle. We noted at
the time of filing that we believed that Oracle is investing
significant resources to investigate AWS customers using both the
RDS license included and bring your own license models. Envisage
hit back with its own counterclaim seeking declaratory relief for
noncopyright infringement and unjust enrichment. The case settled
and a dismissal was filed on August 23, 2021, only a little over
three months after the filing of the initial lawsuit. The lesson
learned is that companies contracting with AWS but still using
Oracle software, cannot escape the possibility of audit demands or
lawsuits by Oracle involving Oracle Database and other software.
Importantly, Envisage claimed that AWS represented that Envisage
could use Oracle software to host and would still be compliant
using the RDS license included model. We don’t know what
representations were actually made, but we do not recommend relying
on AWS representations alone as to whether you are compliant.
Another lesson learned—look out if you are a company that
embeds Oracle solutions in your product. Oracle may be embarking on
a strategy of going after companies that use Oracle solutions in
their software. Time will tell.

Oracle America, Inc. v. Perry Johnson & Associates,
Inc.

Although filed in 2020, we included this case as it also
involves hosting and we may be seeing a possible pattern involving
hosting or embedded licenses. On behalf of Oracle, The Norton Law
Firm filed suit for copyright infringement on April 30, 2020. The
lawsuit involved an Oracle embedded license. Oracle contended that
Perry Johnson & Associates, Inc. (PJA) infringed Oracle’s
copyrights on, among other things, its Enterprise Edition Database
(EED) and Real Application Cluster (RAC) software. Specifically,
Oracle alleged that PJA provided hosting services to third parties
without a license from Oracle for Oracle Database. Oracle also
contended that “PJA’s software architecture—
including the number of sockets—exceeds the scope of any
license that PJA may have”. PJA licensed its software from an
Oracle customer, Arrendale Associates, Inc. (Arrendale), which
actually contracted directly with Oracle for the embedded license.
But rather than sue its direct licensee, Oracle opted to sue
Arrendale’s customer, PJA. Oracle may have contacted PJA
directly to attempt to ascertain how PJA was using the Arrendale
software. Oracle may have asked Arrendale to audit its customer PJA
or requested that Arrendale assign its audit rights to Oracle.
Oracle embedded license agreements publicly available online do
provide for audits of Oracle customers, and also contain provisions
whereby Oracle may request assignment of its customers’ rights
to audit the ultimate end-user. The parties jointly dismissed the
case on June 30, 2020. The joint dismissal does not mention any
settlement, but it is likely in our opinion that a settlement was
reached to resolve the matter. Even companies that have not
contracted directly with Oracle are not immune to lawsuits brought
by Oracle to enforce their copyrights.

Another Oracle Case Involving Embedded Software Licenses and
Oracle Audits

In 2021, Oracle also filed suit in the Northern District of
California in another case involving an embedded Oracle software
license. Because Tactical Law is representing the Oracle licensee
in that matter, we cannot comment on the litigation.

Sunrise Firefighters Securities Class Action

This case was filed in 2018 and is currently undergoing class
certification briefing and the class certification motion is set to
be heard in March 2022. Oracle attacked the Complaint with two
motions to dismiss, but the court found that Plaintiffs had
succeeded in asserting a securities fraud claim by omission. The
court reasoned that “[o]nce Oracle started making statements
to the public as to why sales of Oracle cloud were increasing, they
owed investors a duty to disclose that Oracle’s use of hard
ball audit tactics may also have been a material driver of
increased cloud sales. By omitting to do so, Plaintiff has stated a
plausible securities fraud claim that Oracle may have violated the
securities laws by omission.” For other blog posts about this
interesting case, please see https://
www.tacticallawgroup.com/oracle-software-audit-blog/
archives/08-2018 and
https://www.tacticallawgroup.com/oracle-software-audit-blog/court-rules-sunrisefirefighters-securities-fraud-lawsuit-allowed-to-proceedagainst-oracle-and-its-senior-management

.

Failed Oracle/NetSuite ERP Installation Related Lawsuits

Oracle also had a busy year defending several lawsuits involving
failed ERP installations. Many of these lawsuits also involved
claims stemming out of financing arrangements through Oracle Credit
Corporation (OCC). Oracle and its subsidiary OCC have been accused
by multiple litigants of concocting a scheme whereby Oracle
misrepresented the capabilities of its software and failed to meet
its contractual obligations but assigned the financing agreements
to third-party banks before Oracle’s breaches and
misrepresentations became apparent to its customers. The result of
the assignment was that several of these financing companies
brought suit against Oracle customers seeking to collect on these
assignments despite the fact that the Oracle software did not work
for its intended use. These third-party banks filing suit
essentially alleged that under California law “come hell or
high water” the Oracle licensee needed to pay the third-party
bank all of the monies owed under the financing agreement, even
though the software never worked. One court in Washington State,
without deciding the issue, opined that such an arrangement could
cause the Oracle license to be invalid. According to the court:
“[t]his clever arrangement seems designed to subdivide the
payment and performance aspects of Oracle’s agreement […]
into different contracts, thus ensuring payment even if Oracle
fails to deliver the promised services. The result is a
disturbingly imbalanced transaction that preserves OCC’s
ability to terminate [the Oracle licensee’s] rights to the
cloud services if it fails to pay but denies [the Oracle licensee]
the same opportunity to avoid payment if Oracle breaches.
Unfortunately for Oracle, such an arrangement would likely be
illusory or lacking in consideration. See 1 WILLISTON ON CONTRACTS
§ 4:27 (4th ed.) (contracts are illusory where one party can
decide for themselves the nature and extent of performance).”
Key Equipment Finance v. Barrett Business Services, Inc., NO.
3:19-cv-05122-RBL, 2019 WL 2491893, (W.D of Washington June 14
2019).” Several cases involving these issues are detailed
below
.

Morse Communications, Inc. v. Oracle & NetSuite

On July 13, 2021, Morse Communications, Inc. (MCI) brought suit
against Oracle and its subsidiary NetSuite, in the Northern
District of California alleging claims for breach of contract,
fraud, and unfair business practices. MCI entered into a Software
as a Service (SaaS) subscription agreement with Oracle/ NetSuite
for among other things, payroll-related services. MCI alleged that
Oracle had agreed that it need not pay any platform fees until
after the “go live” date. MCI also claimed that Oracle
represented that its software had all of the capabilities that
Plaintiff was seeking, including the critical payroll services. As
part of the transaction, MCI entered into a financing agreement
with Oracle’s credit arm known as OCC. MCI alleged in its
pleading that Oracle’s software never functioned as promised
and that Oracle was never able to fix the many problems inherent in
the software. According to the Complaint, “Plaintiff regularly
requested updates, attended trainings, and made best efforts to
work with Defendants in order to satisfy their needs and the
Agreement. Plaintiff’s requests and efforts were consistently
met with vague responses, unnecessary repeated trainings, missed
deadlines, ignored concerns, missing products, and custom
development charges due to missing functionality and modules.”
The Complaint also alleged that “[t]hroughout Plaintiff’s
discussions with Defendants, Defendants’ team frequently
indicated that they were unfamiliar with Plaintiff’s project
and their own products.” Defendants’ team rarely answered
Plaintiff’s direct questions about Defendants’ products or
next steps, rather they repeatedly stated they “would circle
back” or “take note of that issue”. After entering
into the contract with Oracle, OCC assigned the financing agreement
to Banc of America Credit, which likely threatened to sue MCI for
not making payments, even though MCI claimed that the software
never worked. Plaintiff dismissed the lawsuit without prejudice on
September 13, 2021, prior to Oracle entering an appearance in the
lawsuit, probably due to a settlement.

Barrett Business Services v. Oracle

Oracle and its partners Kbace Technologies, Cognizant Worldwide,
and Cognizant Technology were sued by Barrett Business Services,
Inc. (BBSI) in San Francisco Superior Court, for among other
things, negligent misrepresentation and breach of contract arising
out of one of Oracle’s Cloud service offerings. (See
“Oracle and Its Partners Sued for Negligent Misrepresentation
and Breach of Contract Over Oracle Cloud Software Product”,
https://www.tacticallawgroup.com/oracle-software-audit-blog/oracle-and-its-partners-sued-for-negligent-misrepresentation-and-breach-of-contract-over-oracle-cloudsoftware-product ). The complaint in this case sought damages, restitution, and
rescission of the Cloud Services contract and a related
agreement.

This lawsuit, which was filed in January of 2019, was finally
dismissed with prejudice on October 20, 2021, pursuant to a
settlement. The case was aggressively litigated by all sides,
including the finance company that had received an assignment of
the OCC financing agreement. Oracle eventually moved to bifurcate
and to try the equitable claims for recission to the court first.
The Judge denied Oracle’s motion without prejudice ruling that
the San Francisco Superior Court usually leaves decisions about
bifurcation to the trial court.

Oracle also moved for summary judgment on BBSI’s breach of
contract and negligence claims. Companies considering entering into
an ERP agreement with Oracle will find Oracle’s arguments
instructive. In seeking dismissal of BBSI’s breach of contract
claim, Oracle argued that all warranties were disclaimed except (1)
that Oracle will make available all of the cloud services ordered
by BBSI; and (2) Oracle will provide the cloud services in the
manner described in the Service Specifications. Oracle argued that
it expressly did not warrant that the cloud services would work in
the manner that BBSI required or expected. (See “Oracle Claims
Customer is ‘Solely’ Responsible for Determining if Oracle
Cloud Services Meet Customer’s Technical, Business, and
Regulatory Requirements”
https://www.tacticallawgroup.com/oracle-software-auditblog/oracle-claims-customer-is-solely-responsible-fordetermining-if-oracle-cloud-services-meet-customerstechnical-business-and-regulatory-requirements ). In short, Oracle is arguing that it couldn’t have breached
the contract by failing to deliver a workable system because no
clause in the contract required that it do so. “Here, and as
is plain, BBSI cannot establish that Oracle breached any CSA
provision by purportedly failing to deliver to BBSI a ‘workable
integrated ERP solution that could be configured to BBSI’s
requirements,’ as there simply is no such provision in the
CSA.” And to make a finer point on the issue, Oracle argued
that Section 17.5 of the cloud agreement states: “[p]rior to
entering into an order governed by this Agreement, You are
solely responsible for determining whether the Services meet Your
technical, business or regulatory requirements
” and that
the contract’s “express terms thus also affirmatively, and
exclusively, place upon BBSI the sole responsibility for
determining whether the services it was deciding to purchase would
meet its ‘requirements'”. Seems preposterous does it
not that Oracle would make such an argument, let alone win the
argument? But that is exactly what Oracle did, and the San
Francisco Superior court ruled in Oracle’s favor on the
contract claim finding that although BBSI alleged that Oracle
breached the contract by failing to provide a workable ERP solution
configured to BBSI’s requirements, the contract contained no
such provision. However, despite this loss, BBSI still retained its
fraud in the inducement claim.

Two lessons can be learned from this ruling. First, companies
considering entering into a contract with Oracle should think long
and hard before agreeing to such a provision and failing to include
more granular requirements for Oracle’s performance. Two, when
pleading a breach of contract claim think very carefully about what
express and implied claims to include in the complaint, because on
summary adjudication a litigant cannot bring up new theories that
are not alleged in the Complaint.

Advance Lifts v. Oracle/Netsuite and Banc of America
Leasing

This is another lawsuit alleging a failed ERP implementation by
Oracle/NetSuite and includes an OCC assignment of the financing
agreement to Banc of America Leasing. The lawsuit was filed in the
Northern District of California on June 8, 2021. Here is the now
familiar story told by the Complaint:

In or about late October 2019, Advance Lifts purchased software
from Oracle to update its computer system and entered into
agreements relating thereto with Oracle. On Oracle’s
recommendation of Folio3 as its preferred implementation consultant
for Oracle’s NetSuite software, Advance Lifts hired Folio3 to
customize the software for Advance Lifts’ system. Oracle
assigned its right to payment from Advance Lifts to Banc of
America. Unbeknownst to Advance Lifts, Oracle’s system was
missing a key component to fulfill Advance Lifts’ requirements.
Despite this, Oracle’s representative concealed this material
fact from Advance Lifts. As set forth herein, Oracle and Folio3
breached their agreements with Advance Lifts due to the wholesale
failure of the software and customizations to function.
Accordingly, Advance Lifts terminated the agreement with Oracle.
Advance Lifts notified Banc of America that the agreement with
Oracle terminated, and thus, no further payments were due from
Advance Lifts. Despite the clear breaches of contract, fraud and
termination, Oracle and Banc of America have refused to acknowledge
the termination of the agreements.

Advance Lifts announced a global settlement on August 24, 2021.
However, prior to the announcement of the settlement, Banc of
America Leasing filed an Answer and Counterclaim against Advance
Lifts. The counterclaim alleged that Banc of America Leasing was a
holder in due course of the assignment of the financing agreement
signed between Advance Lifts and OCC, and that Advance Lifts owed
it at least $342,000 in principal plus unpaid interest. Banc of
America Leasing has filed similar lawsuits against other Oracle
customers including Zama & Zama and Janco Foods, Inc.

Daramola v. Oracle

This lawsuit filed in December 2019 by an Oracle former employee
alleges that that Oracle’s subsidiary NetSuite concocted a
fraudulent scheme to sell SaaS software that didn’t actually
exist. When Oracle and NetSuite failed to deliver what had been
promised to their customers, Oracle and NetSuite claimed that the
problems were not the fault of the software but were instead caused
by customizations demanded by the customer. Oracle used these
purported demands to justify pricey change orders to extract
additional licensing fees. Plaintiff alleges that his role was to
make the customer believe, falsely, that the customer’s
promised “go live” date would not happen yet again
because the customer’s requested “customizations”
would require more services from Oracle, and/or more modules,
and/or both to be made functional as the customer desired. This
case is especially interesting in light of the lawsuits discussed
above, where Oracle licensees repeatedly make claims that Oracle
promised that its NetSuite or Cloud software had functionality that
actually did not exist.

Other Miscellaneous Lawsuits

Hewlett Packard Company v. Oracle Corporation

HP’s $3 billion judgment was affirmed in June of 2021 by a
California appellate court. The court found that Oracle had
breached a settlement agreement with HP to the tune of $3 billion
when it found that Oracle breached its promise to support software
on HP’s Itanium server. According to the paragraph at issue in
the settlement agreement:

Oracle and HP reaffirm their commitment to their longstanding
strategic relationship and their mutual desire to continue to
support their mutual customers. Oracle will continue to offer its
product suite on HP platforms, and HP will continue to support
Oracle products (including Oracle Enterprise Linux and Oracle VM)
on its hardware in a manner consistent with that partnership as it
existed prior to Oracle’s hiring of [Mark] Hurd.

Shortly after the agreement was signed, Oracle announced it was
discontinuing all software development on the Intel Itanium
microprocessor. HP reacted by filing suit against Oracle and
ultimately won a jury verdict for breach of contract and breach of
the implied covenant of good faith and fair dealing. Rejecting an
argument by Oracle that the paragraph was only aspirational and not
binding, the court found that the language was mandatory and
created an obligation for Oracle to continue to support the HP
software product.

Oracle has recently appealed this ruling to the US Supreme Court
claiming that its Petition Rights under the First Amendment to the
US Constitution were violated when the appellate court allowed a
portion of the $3 billion verdict to stand based on Oracle’s
announcement that it would be appealing the court’s decision.
Essentially part of HP’s damage award included the damages that
it alleged it had suffered to its business due to the market
uncertainty caused by Oracle’s announcement that it planned to
appeal the trial court’s verdict. According to Oracle in its
appeal to the Supreme Court:

This case presents an important First Amendment issue concerning
the protection of activity that is partand-parcel of the litigation
process. The California courts below upheld the imposition of a $3
billion damages award against Oracle that indisputably was based in
part on Oracle’s announcement that it would exercise its right
to appeal an adverse trial court ruling—an action protected
by the Petition Clause of the First Amendment.

The decision below deepens an intractable conflict in the lower
courts concerning the scope of the Petition Clause’s protection
in this context and, in particular, on whether and to what extent
damages may be imposed as a result of litigation-related activity,
including communications not directed to a court itself. The
decision below fundamentally misconceived the protections afforded
by the Petition Clause in two alternate holdings: (1) that
Oracle’s appeal announcement did not implicate the Petition
Clause at all, and (2) that, even if it did, there was no need to
disaggregate that “factor” in calculating damages. Both
rulings deepen the already protracted confusion on the scope of the
Petition Clause’s protections.

This seems like a bit of a “hail mary” but it will be
interesting to see whether the Supreme Court grants Oracle’s
petition.

Rimini Street v. Oracle

This past year saw the continuation of the epic war between
maintenance & support competitor Rimini Street and Oracle.
Oracle has trained its significant firepower on Rimini since 2011
but the parties are still locked in litigation and Rimini has not
abandoned the field. Earlier this year, the Nevada federal district
court issued an Order to Show Cause (OSC) why Rimini Street should
not be held in contempt for violating the injunction entered
against it in Rimini I. The parties recently participated in a
multi-day evidentiary hearing and are currently awaiting the
Court’s ruling. The court in the Rimini II case has signaled
that it might set a trial date for summer of 2021. Rimini is
seeking a declaration by the Court that Rimini’s process 2.0
does not violate the injunction. Oracle has argued essentially that
it is impermissible cross use for Rimini developers to use know how
and knowledge obtained when working for one client to speed up the
work process it does for another client. The court has indicated
that this seems a bit of a stretch. One interesting issue that has
not been decided by the court is whether the facilities restriction
in some Oracle license agreements (PeopleSoft) may apply to
environments in the cloud, and whether a customer exercises
sufficient control over the cloud environment so as not to be in
violation of the facilities restriction. The court expressly found
that it has not been adjudicated whether a client’s own
computer systems would include its cloud-based servers. This
particular issue may also have repercussions outside the Oracle
licensing space and may impact customers of other software
vendors.

Recently, the Nevada District Court issued an order finding that
Rimini Street is in contempt of court for violating the injunction
in Rimini I. Of the 10 issues where Oracle claimed Rimini was in
violation of the injunction, the court agreed with Oracle on five.
The court awarded Oracle $630,000 in statutory penalties for the
violation. The court also awarded Oracle its attorneys’ fees
and set a date for Oracle to submit briefing concerning the amount
of such fees. On February 7, 2022, Rimini filed an appeal to the
Ninth Circuit of this ruling.

Originally puplished in The Licensing Journal, MARCH
2022

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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