By Michelle Rafter
Dec. 4, 2012
On Dec. 5, Oracle International Corp. and CedarCrestone Inc. representatives will face off in court for the first time since the software giant accused its former partner of copyright infringement and fraudulent practices in a lawsuit that highlights Oracle’s continued quest to protect its software-maintenance business in the face of changing industry practices.
In the first of dueling lawsuits filed in California federal court, Oracle in September accused CedarCrestone of stealing customers and intellectual property, specifically updates for tax and regulatory software originally developed by PeopleSoft, which Oracle acquired in 2005.
CedarCrestone, which has sold maintenance support for the software as an approved Oracle partner since 2005, filed its own lawsuit in mid-October denying any wrongdoing. The company claims the lawsuit is part of Oracle’s “broader war on competition,” against third-party providers of consulting, implementation and support for its software.
CedarCrestone also alleges that Oracle knew about the business practices in question for several years, yet never complained about them until the day before filing its lawsuit, and earlier this year, even renewed CedarCrestone’s partnership agreement and invited the firm to join an elite tier of Oracle business partners.
The software support in question accounts for approximately $1 million in yearly sales, and represents less than 1 percent of CedarCrestone’s annual revenue, according to CedarCrestone’s countersuit.
Golden Gate Capital, a San Francisco-based private equity firm, paid more than $79 million to buy the privately held Marietta, Georgia-based company in 2011, according to the San Francisco Business Times.
Representatives from Oracle declined to comment. A CedarCrestone lawyer confirmed the companies will meet Dec. 5 for a hearing in U.S. District Court in San Francisco, but declined to provide additional details.
Because CedarCrestone is much smaller than SAP, some industry watchers don’t put it in the same league as other competitors Oracle has sued in recent years, including SAP and Rimini Street. Still, it shows how serious Oracle is about protecting its maintenance business, says Jason Averbook, CEO of human resources consultant Knowledge Infusion. “The minute someone starts screwing with it, they come out with gloves off,” he says.
Averbook predicts that legal squabbles over software maintenance and support fees will go away as more companies stop using the kind of on-premise HR software that’s at the heart of the litigation, software that companies must license on an annual basis and run on their own servers. In its place, they’re adopting cloud-based software services that are accessed over the Internet and paid for through subscription fees that include updates.
But that transition isn’t happening overnight. Small and midsize companies may be moving to cloud-based HR software, but it will be slower going for large enterprises. “It’s going to take longer to wipe out your whole ERP system and move to the cloud,” says Adam Mansfield, director of services for Upper Edge, referring to enterprise resource planning systems. Upper Edge is a Boston consultant that helps companies negotiate maintenance contracts for Oracle and other HR and business software. “This Oracle third-party support issue is still going to be very relevant for those size organizations for many years to come,” Mansfield says.
According to Mansfield, Oracle’s legal actions have an unintended silver lining for companies evaluating service contracts. By exposing details of service contracts from Oracle and its competitors, the lawsuits provide companies with leverage to better negotiate their own deals. “This allows us early on to coach our clients to really force Oracle to provide a stronger value proposition, what they’ll give and why it’s valuable,” he says.
CedarCrestone is the latest of three former business partners Oracle has sued over copyright infringement and other issues related to ongoing support for Oracle software from outside providers. In August, SAP agreed to pay Oracle $306 million after admitting liability for illegal downloads by TomorrowNow, a third-party support provider that SAP acquired in 2005. SAP shut down its TomorrowNow operations in 2008. Oracle is appealing the settlement as part of its efforts to obtain $1.3 billion in damages related to the lawsuit.
Oracle is also suing Rimini Street, a third-party support vendor headed by TomorrowNow’s former founder and chief executive. Oracle based some claims in its lawsuit against CedarCrestone on material the company uncovered while collecting information for lawsuits against Rimini Street and SAP.
Michelle Rafter is a Workforce contributing editor. Comment below or email firstname.lastname@example.org.
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