Oracle has had a busy 2021 in the federal court system suing customers and third parties for copyright infringement relating to software audits, attacking maintenance & support competitors such as Rimini Street, and defending itself and its subsidiary NetSuite for several failed ERP installations. Tactical Law will discuss here what happened with Oracle licensee related litigation in 2021.
Alleged Hosting and Embedded License Violations and Audit Related Cases
Within the last two years Oracle has filed 3 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 non-copyright 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 you. 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 here and here.
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 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