July 3, 2007 / 5:39 AM / in 12 years

SAP discloses wrongdoing in Oracle theft suit

FRANKFURT/BOSTON (Reuters) - Software maker SAP AG disclosed that a U.S. subsidiary made “inappropriate downloads” of data from rival Oracle Corp.’s Web site and said U.S. authorities asked it to hand over internal documents.

Henning Kagermmann, CEO and co-founder of software group SAP gestures prior to the company's annual news conference in Frankfurt, January 25, 2006. SAP admitted a subsidiary had carried out "inappropriate downloads" of documents belonging to archrival Oracle but said on Tuesday SAP itself had not had access to that material. REUTERS/Alex Grimm

The German software giant apologized for the misconduct, saying it would continue to investigate the matter and beef up oversight at the unit. But SAP added that access to the downloads was restricted to TomorrowNow staff.

It made the unexpected disclosure as it filed a formal response to charges of intellectual property theft that Oracle made in a March lawsuit. The suit concerns activities by SAP’s U.S.-based TomorrowNow services business, which competes with Oracle to provide maintenance and support for Oracle software.

SAP, the world’s biggest maker of software for business planning, also said it had been asked to supply certain documents to the U.S. Department of Justice and that it would cooperate with the agency.

Justice Department officials declined to comment on the request, which could lead to criminal proceedings.

Responding to Oracle’s charges, SAP Chief Executive Henning Kagermann said the improper downloads occurred as TomorrowNow employees engaged in a routine part of their work — downloading software and documentation from a password-protected Oracle Web site on behalf of their clients.

In a few cases at the end of last year, TomorrowNow employees used their clients’ logins to that site to download Oracle data that the customers were not entitled to access, he said on a conference call.

“Even a single inappropriate download is unacceptable,” Kagermann said, acknowledging the unit should not have made some of the downloads. “We regret very much that this occurred.”

Only TomorrowNow staff had access to the information, and did not share the data with the rest of SAP, the company said. The employees still work for TomorrowNow, but the company would consider taking disciplinary action, it added.

Oracle described those downloads in its lawsuit and also accused TomorrowNow of engaging in other types of wrongdoing.

But Kagermann said a number of Oracle’s key allegations appear to be unfounded.

Shares in SAP fell more than 2 percent to 37.19 euros compared with a 1.2 percent rise for the German blue-chip DAX index. Oracle shares rose 15 cents to $20.07 on the Nasdaq, surpassing a six-year high of $20.06 hit on June 28.

ORACLE CLAIMS SUCCESS

Analysts said SAP’s admission did not suggest deeper misconduct, but that it was too early to handicap a case.

“It looks like things went wrong at the subsidiary but it doesn’t look like a concerted effort at industrial espionage,” said JP Morgan software analyst Stefan Kuppen.

“At the moment, it’s primarily a PR battle between Oracle and SAP, and from that point of view I think SAP’s response makes sense,” Kuppen added. “But it’s always tough to make a call before you get to the actual court hearing.”

Kagermann said SAP was open to all options, including a settlement, but expected no big developments before a September hearing at the U.S. District Court in San Francisco.

Oracle officials declined to say if they would consider settling the case.

Oracle, which has spent $20 billion in recent years buying up companies to challenge SAP’s lead in business applications, said it had succeeded in forcing SAP to admit wrongdoing.

“Oracle filed suit to discover the magnitude of the illegal downloads and fully understand how SAP used Oracle’s intellectual property in its business,” said Geoff Howard, one of Oracle’s outside attorneys working on the case.

TomorrowNow was founded in 1998 to support software made by other companies. SAP bought the company in 2005 to help it win over Oracle customers.

SAP maintains it has taken steps to ensure proper practices at TomorrowNow, which has annual sales of 15.7 million euros ($21 million) and 157 staff.

(Additional reporting by Peter Kaplan in Washington)

$1=.7352 Euro

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