OAKLAND -- A subsidiary of German software company SAP was ordered Wednesday to pay $20 million after pleading guilty to criminal copyright infringement against rival Oracle (ORCL), which is still seeking more than $1 billion in a related civil case.
Under a plea agreement negotiated with federal prosecutors, SAP executive Mark White stood before a judge here in U.S. District Court and admitted that employees of SAP's TomorrowNow subsidiary accessed Oracle's computers without permission and made thousands of unauthorized copies of Oracle's software to serve TomorrowNow's customers.
An SAP spokesman called the outcome fair and "appropriate" but the plea and the criminal fine of $20 million only end one chapter in a long-running legal dispute. Federal authorities said they did not seek additional restitution because Oracle is still pursuing damages in its civil lawsuit against SAP.
Oracle, based in Redwood City, said in court papers this week that it plans to appeal Judge Phyllis Hamilton's recent decision to throw out a $1.3 billion civil jury award in the case, which the judge found excessive. She offered Oracle a choice between accepting $272 million in civil damages or going through a new trial in the closely watched, bitterly fought copyright dispute.
The first trial in the civil case
Oracle was offered the opportunity to appear in court Wednesday but it did not send a representative, according to Assistant U.S. Attorney Kyle Waldinger. Reached after the hearing, an Oracle spokeswoman issued a brief statement.
"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 spokeswoman Deborah Hellinger.
Hamilton ordered the $20 million fine after noting that the amount had been negotiated by attorneys for SAP and the U.S. attorney's office, which had launched a criminal investigation into the case after Oracle first complained about SAP's actions in 2007. Under the agreement, TomorrowNow pleaded guilty to 11 counts of accessing computers without permission and one count of copyright infringement.
The actions at the heart of the case took place between 2005 and 2007. Federal authorities monitored the civil trial last fall and then filed their own criminal charges last week.
While the $20 million fine pales in comparison to the total damages sought by Oracle, one expert in federal copyright law said it seemed to be a substantial penalty for an unusual case.
Most criminal copyright prosecutions involve large-scale counterfeiting operations, such as when a black market organization sells unauthorized DVDs of Hollywood movies on the street, said Ray Dowd, a copyright attorney with the New York law firm of Dunnington Bartholow & Miller. "Certainly a fine like that is going to be a deterrent for any company," said Dowd, who writes a blog on copyright law.
Waldinger, the prosecutor in the case, said in court that the size of the fine "reflects the seriousness of the conduct, especially in light of the size of TomorrowNow, the revenues it earned and the fact that restitution is going to be paid in the civil case."
Outside court, SAP attorney Greg Lanier noted that the law allows a fine of up to twice the amount gained or lost as a result of illegal acts. But he added, "you can argue for a long time about Oracle's loss."
SAP has maintained that Oracle directly lost about $19.3 million in profits from TomorrowNow's actions, Lanier said, adding that TomorrowNow itself was never profitable.
Oracle, however, has maintained that it's owed a much larger sum, in line with the value of its intellectual property and the amount it might have charged for a license to use the software.
While SAP has portrayed the illegal acts as those of a rogue subsidiary, Oracle has argued that top SAP executives approved the scheme as part of a broader strategy to lure customers away from Oracle. SAP has admitted that TomorrowNow used Oracle's own software to provide low-cost maintenance services to businesses that had previously purchased Oracle programs.
As part of the plea bargain, SAP was not named as a defendant in the criminal charges, although Lanier acknowledged that SAP is providing the $20 million for TomorrowNow to pay the fine. Under terms of the plea agreement, SAP is also obligated to cooperate with any further investigation of individuals involved in the software thefts, although Lanier said he wasn't aware of any specific investigations.
TomorrowNow still exists as a legal entity, although it has only a few employees and no longer serves any customers, Lanier said. TomorrowNow Executive Chairman Mark White, who appeared in court Thursday, is currently chief financial officer of another SAP division.
Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.