UPDATE 2-SAP co-CEO says 'I am sorry' to Oracle

* SAP’s McDermott apologizes for software downloads

* Calls SAP’s TomorrowNow acquisition a “rounding error”

* SAP and Oracle still far apart how much SAP should pay (Adds more McDermott testimony, byline)

OAKLAND, Calif., Nov 15 (Reuters) - A co-chief executive of Germany's SAP AG SAPG.DE apologized to rival Oracle Corp ORCL.O for improperly downloading software files, the first time SAP has apologized in the 3-1/2-year-old case.

“I am sorry,” SAP Co-CEO Bill McDermott said in testimony on Monday as SAP kicked off its defense in a software theft lawsuit brought by Oracle in U.S. federal court.

McDermott also said he never agreed with his own company’s once rosy pronouncements its acquisition of software provider TomorrowNow, the subsidiary that downloaded millions of files from Oracle’s customer service website, would draw big customers away from Oracle.

The two companies, which dominate the global market for software that helps businesses run more efficiently, are battling in an Oakland, California court to determine the amount of damages for copyright infringement by SAP. Oracle brought the case in early 2007.

SAP previously accepted liability for TomorrowNow having wrongfully downloaded Oracle files.

The two sides are far apart, however, on how much SAP should pay Oracle in damages. SAP argues it owes tens of millions of dollars in compensation -- not the billions of dollars that Oracle seeks.

McDermott apologized after an exchange with Oracle attorney David Boies, who asked him if SAP had ever apologized for the copyright infringement. McDermott said no. Boies asked him if he would like to do it in the courtroom.

McDermott appeared calm on the stand and often gazed at the eight-member jury during his testimony.

McDermott was appointed SAP’s co-CEO earlier this year and was first named to the company’s executive board in 2008. He said he was not involved in the decision to buy TomorrowNow in 2005 for $10 million.

McDermott was previously CEO of SAP Americas and head of the company’s global sales operations.

Under questioning from SAP lawyer Greg Lanier, McDermott said he never had high hopes in 2005 that TomorrowNow would bring many customers to SAP -- despite company announcements touting the acquisition.

Much more important were discounts SAP offered customers to switch away from Oracle, he said.

“That’s good competitive behavior. It’s done every day,” McDermott said.

On cross examination, Boies asked McDermott whether he ever created any written documents reflecting his negative prognosis about TomorrowNow.

“I didn’t because I always thought TomorrowNow was a rounding error and somewhat of a distraction,” McDermott said.

Boies also repeatedly asked McDermott whether he has ever disciplined anybody at SAP for what happened at TomorrowNow. McDermott said that his attention has been focused on resolving the case with Oracle.

“It’s a matter of priorities,” McDermott said.

At one point, McDermott acknowledged SAP acquired TomorrowNow without conducting the proper due diligence.

“The fact we’re all here in the first place makes it very clear to me it was a mistake,” McDermott said.

The case in U.S. District Court, Northern District of California is Oracle USA Inc, et al. v. SAP AG, et al, 07-1658. (Reporting by Dan Levine; writing by Jim Finkle; editing by Richard Chang, Steve Orlofsky and Andre Grenon)