Oracle has sued former partner CedarCrestone on grounds it has been providing third-party support for Oracle’s software in an illegal fashion, a move that echoes previous actions Oracle took against former SAP subsidiary TomorrowNow and Rimini Street.
“For roughly seven years, Oracle valued its relationship with CedarCrestone and attempted to work with CedarCrestone for the benefit of mutual customers,” states the suit, which was filed last week in U.S. District Court for the Northern District of California.
But Oracle has now learned that all the while, the systems integrator was stealing Oracle’s software and using its status as a partner to get customers, it adds.
In 2005, CedarCrestone first signed an Oracle PartnerNetwork agreement in 2005, and maintained it until Oracle terminated the contract of Sept. 4, according to the suit.
CedarCrestone, of Alpharetta, Ga., didn’t immediately respond to a request for comment on Monday. The company hadn’t responded to Oracle’s allegations in court filings as of Monday.
CedarCrestone has performed implementation services for Oracle’s E-Business Suite and PeopleSoft applications, as well as Oracle Fusion Middleware. It also provided customers with tax and regulatory updates for their Oracle software systems, according to the suit.
But the company made false claims to prospective customers, saying that it developed the updates independently, “without using Oracle’s competing updates ‘as a starting point,'” according to the suit.
For example, in an Aug. 19, 2011 letter to Oracle, the company admitted that it had “delivered Oracle tax updates ‘obtained by CedarCrestone”” to a customer, George Weston Bakeries, between November 2008 and August 2011, a period during which the bakery “had no right to receive such updates,” according to the suit.
“In other words, CedarCrestone did not develop updates for George Weston Bakeries ‘independently,’ but instead ‘obtained’ Oracle’s competing updates and sold copies of them to this customer,” the suit adds.
CedarCrestone hasn’t explained how it got the “Oracle-authored updates,” according to a footnote in the suit.
CedarCrestone has downloaded “vast quantities of Oracle support materials,” including the tax and regulatory updates, from Oracle’s site with its partner login credentials, according to the suit.
In addition, CedarCrestone “has used unauthorised copies of entire Oracle software applications,” it adds.
CedarCrestone has told prospective clients that they will receive a fresh update “shortly after their database is ready,” according to Oracle’s suit. But CedarCrestone “creates these updates using some existing customer’s licensed Oracle software, which CedarCrestone apparently has copied and sells that service as an incentive to sign up.”
This gives CedarCrestone “the ability to promise prospects a quick — though infringing — first deliverable,” the suit adds.
In addition, CedarCrestone intentionally misled customers about the nature of its relationship with Oracle, according to the suit. For example, company representatives told officials in Oklahoma City that CedarCrestone’s services are done “in a manner that is free of intellectual property infringement,” it states.
CedarCrestone should know the restrictions in Oracle’s software licenses all too well, since it is a heavy user of Oracle’s PeopleSoft application, according to the suit.
Oracle is suing for copyright infringement, breach of contract and unfair competition. It is seeking an injunction against CedarCrestone along with unspecified damages and costs.
The allegations Oracle has made against CedarCrestone only hint at the broader issues in play.
Third-party maintenance providers charge less for their services than vendors, appealing to customers who have stable, generally older systems and don’t wish to immediately upgrade, which is only possible to do legally by remaining on vendor-provided support.
But for software companies, annual maintenance revenue is lifeblood, as it keeps rolling in from the installed base every year even when new license sales are slow and carries huge profit margins.
Oracle’s allegations against CedarCrestone are generally similar to those lodged against SAP, TomorrowNow and Rimini Street, the latter of which Oracle is also suing. Rimini Street has maintained no wrongdoing and says it acts within the boundaries of its customers licensing rights.
SAP admitted liability for wrongdoing on the part of TomorrowNow, which offered Oracle software support, and a jury awarded Oracle $1.3 billion in 2010, but a judge set that award aside and the case has yet to be fully resolved. Last week, Oracle lodged an appeal of a US$306 settlement that it had reached with SAP.
While CedarCrestone competed with Oracle for tax and regulatory support services, the companies had a close relationship on other fronts, even signing a co-development pact at one point “to enhance Oracle’s PeopleSoft Enterprise Pension Administration and related products,” according to a 2009 press release. Those ties may have helped stave off litigation on Oracle’s part.
Meanwhile, CedarCrestone is now also an implementation partner for Workday, a cloud-based ERP vendor that is giving Oracle increasingly stiff competition for some deals.
Oracle’s decision to sue CedarCrestone now could also partly be a tactical move meant to benefit its case against Rimini Street, which has yet to go to trial, one observer speculated.
“It could be that they feel they need to be consistent,” said analyst Ray Wang, CEO of Constellation Research and a frequent commentator on the third-party maintenance market. “A [jury] or judge might believe that because you didn’t go after these other folks, it’s just inconsistent.” Rimini could exploit this potential reaction as part of its defence, Wang said.
Other companies who offer third-party support for Oracle software include netCustomer and Spinnaker Management. So far, neither appears to have been sued by Oracle, but Oracle did issue subpoenas to them in connection with the Rimini Street case.
For Rimini Street, at least, the specter of litigation has apparently not stifled business. The privately held company reported record revenue in July, although it remains fairly small.
Wang, who recently advised a number of customers weighing whether to move to third-party support, said they had mixed reactions to the litigation.
“At first they are [concerned], but I think what they realise is that they understand the game that’s being played,” Wang said. Others believe that their worst-case scenario, should the provider shut down, is to go back to vendor support or support the systems themselves, he added.
