Setting the Record Straight: Oracle, SAP, TomorrowNow, and the NYT

I like Joe Nocera, and usually think he hits the nail on the head. But his Saturday column about HP’s new CEO, Léo Apotheker, and his role in the lawsuit between Oracle and Léo’s former company, SAP, over SAP’s TomorrowNow acquisition, swings and misses by a country mile.

The problems in Joe’s main thesis, that Apotheker is tainted by his association with allegations that TN committed “the most serious business crime that you can commit” – a moment of impressive hyperbole that tries to compare the alleged theft by TomorrowNow of Oracle’s IP with crimes like destroying the US-banking and mortgage system, annihilating trillions in investor equity, and the likes of Bernie Madoff – are curious considering the usual quality we expect from Joe.

Let’s start with the main allegation, one that looks really begs the question of what Joe is really up to. Nocera, according to his column, recently became aware of something that I had to read twice before I was sure that what I saw was really in print in front of my eyes. “As a member of SAP’s executive board, Mr. Apotheker clearly knew about the theft.”

I’m going to give Nocera the benefit of the doubt and assume that he really meant the following: at some point after the IP theft allegations were investigated by SAP, Apotheker knew that the theft of Oracle’s IP had occurred. Bear in mind that the theft has already acknowledged by Apotheker’s former boss and co-CEO, Henning Kagermann, so it would make sense that the entire executive board knew about it as well.

But there’s another interpretation that is more troubling – does Nocera think Apotheker knew all along that IP was being stolen by TN? He seems to think it’s possible, and then quotes that most objective of all sources, Oracle’s amended complaint against SAP, to prove his point. Quotes out of context, I should say. Or, rather, quotes without context. Which I will now provide.

Nocera cites the two main smoking guns of the Oracle lawsuit as evidence of his claims of what Apotheker knew and when he knew it. Both have clearly been lifted from the complaint without being vetted by any objective party.

Number one is that Nocera claims that a January 2005 presentation to the SAP board proves that SAP’s board knew that TN’s business model “depended on stealing Oracle’s code,” mostly because the presentation requests that a legal review of TN’s practices be undertaken. According to Nocera – and he says this with a throwaway statement that makes it clear he never actually tried to report the fact – this legal review never took place, because the deal closed shortly after the January 2005 presentation.

Smoking gun number two was the comment in the amended complaint that TN used a “nonproduction” (sic) copy of PeopleSoft code in order to do its work. Nocera equates this term non-production to “unauthorized”, once again revealing… well, let’s just say he doesn’t understand enterprise software.

Smoking gun number one has a major problem with it – while outright IP theft is illegal, TN’s business model as represented to SAP’s board, and the public, at the time of the acquisition was arguably very legal. Arguably is the right term, because while third party maintenance has always been done in the industry, particularly by large SI firms, the application of the legal basis for this work had never been extended to a business that only does third party maintenance, like TN.

It’s important to note, and Nocera misses this completely, that the business model TN was supposed to have is not what the Oracle lawsuit now alleges was the model used to commit a crime. The amended lawsuit clearly states that TN stole inappropriately, but the larger issue of whether a third party maintenance company can use IP licensed by a customer from a software vendor to service that customer (and only that customer) is still up for grabs. It may someday be ruled illegal, but that day has not yet arrived.

Indeed, Rimini Street, founded by TN’s founder Seth Ravin, runs exactly this kind of business. And while Rimini is being sued by Oracle, no judge has given Oracle injunctive relief to stop the practice. Which means it’s a trial-worthy issue of the law. Which means, at a minimum, if TN had just stuck to what it was supposed to be doing, SAP wouldn’t be in the mess it is now with Oracle.

So, yes, Apotheker knew what TN’s business was supposed to be about, and most likely looked at the January 2005 presentation as a warning about what legal battles SAP would have to fight – the one that Rimini is now fighting, about a very complex and opaque corner of contract law. But to imply that anyone on the SAP board knew that TN was illegally pillaging Oracle’s IP based on a few slim sentences in Oracle’s amended complaint is egregiously sloppy reporting.

The non-production issue is more silly by comparison, because it reveals that Nocera doesn’t understand that non-production instances are totally and completely authorized: these are the test, development, and training instances that every licensed user runs in addition to the production system that actually runs the business. Why this shocking, shocking issue of non-production systems is in the amended complaint at all is not explained by the complaint or Nocera. Third party service providers have access to non-production systems as a matter of course: you wouldn’t want to be testing an upgrade on your production system, would you?

Finally, Nocera’s skewering of Apotheker over TN and how Business ByDesign “flopped” shows how little he knows about the history of the acquisition and how SAP’s board operates. First, any discussion of the responsibility for the acquisition of TN would have to center around Shai Agassi, not Léo Apotheker. TN was Shai’s baby, he promoted it eagerly inside the company as an aggressive move against an aggressive competitor. Because the SAP board – unlike US-based boards – has clear functional delineations of responsibility, if any smoking gun was being held, or concealed, it would have been held by Agassi, not Apotheker. And, by the way, for the record Joe, Shai doesn’t have any smoking guns either.

Same with ByDesign – the person who held responsibility for this product was former board member Peter Zencke, not Apotheker. Again, at the board level, Léo would have likely deferred to Zencke on virtually every aspect to ByDesign, so to blame Léo is to not understand how responsibility is distributed at SAP.

So, we’re left with the gist of a column that not only doesn’t hold water, but is leaking like a sieve. The rest of what Nocera is trying prove, that the HP board has laid another egg, doesn’t have a lot left to support it. Nocera claims ethical lapses by Apotheker, but he supports them with the thin gruel of Oracle’s complaint and reportorial lapses that are astonishing in their magnitude.  Too bad for all concerned.

4 thoughts on “Setting the Record Straight: Oracle, SAP, TomorrowNow, and the NYT

  1. Pingback: SAP-Oracle TomorrowNow hubbub center of HP-NYT duel over Apotheker | ZDNet

  2. Pingback: How the NYT’s Dealbook missed a golden opportunity « Talking Biz News

  3. Came to this late. Belated compliments. Just one thing to add. Oracle’s complaint clearly suggests that SAP (meaning TomorrowNow) copied the software for the purposes of stealing its intellectual property and embedding what it learned in SAP code. If true, as you say, it would be Agassi, not Apotheker, who would have known about it, been responsible, etc. From what I know of the personalities involved and the software, I think it’s highly unlikely that this accusation is true.

    It is also possible (and would be reprehensible) that TN copied software for the purposes of using the intellectual property in its business. It could, for instance, have copied bug fixes created by Oracle and then applied them to the code of companies that were off maintenance and then not entitled to those bug fixes. I do not know whether this happened; from what I know of the business and personalities, I certainly think it’s possible.

    It is also possible that TN copied software on behalf of clients, acting as their authorized agent, copying only the software that it believed that the clients were authorized to download. This is certainly what TN told me they were doing, both before and after the acquisition. (There are variations, of course; they could have downloaded unauthorized stuff by mistake; they could have downloaded unauthorized stuff because it was efficient, then discarded, etc., etc. TN did deny to me that any of these things were happening.) In the complaint, Oracle argues that they should not be doing this; as Joel rightly says, it is not clear what the law has to say about this.

    So what did SAP stipulate when it admitted that illegal copying occurred? Putting Oracle stuff in SAP software? Stealing bug fixes? Copying software on behalf of clients? We don’t really know. Clearly, it’s in their interest–repeat, it’s in their interest–to stipulate this, because they themselves have a strong interest in controlling the 3rd party support business, so they don’t want to be in the position of saying that copying as an authorized agent is OK.

    But unless they stipulated that they were putting Oracle ideas into SAP software (they didn’t), Nocera’s column is just way off base. It’s only if they were doing that that Apotheker would have any culpability–and even then, it would be peripheral, since Agassi would have been in charge of doing this.

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