Oracle v Rimini Street - Oracle shades round one

In what will likely be the defining case for determining the shape of the enterprise applications third party maintenance industry, the district court of Nevada ruled largely in favor of Oracle on the matter of copyright infringement by RiminiStreet. As one might expect, Oracle was quick to jump on the points it won:

Oracle attorney, David Boies, noted, "As the Court's ruling explains, Rimini Street has used illegal and unlicensed copies of PeopleSoft software as the basis of its business. We look forward to holding Rimini Street and Seth Ravin accountable at trial for the damages caused by their misconduct." The Court reserved for trial issues on certain other software and customers, and a second motion by Oracle for summary judgment on other issues remains pending.

However, things are not as cut and dried as Oracle suggests. As Frank Scavo points out:

The Court's rulings are complex, as is fitting in this case.

He is spot on. I spent a good amount of time wading through the 26 page judgment and had some back and forth with Scavo on the detail. He takes the position that Oracle won summary judgment against RiminiStreet in the matter of PeopleSoft licences RiminiStreet copied for use on its premises as part of its support services for PeopleSoft (now owned by Oracle,) customers.

In Scavo's analysis:

For those hoping that this case would set a legal precedent for third-party maintenance services, the Court's ruling is not a positive development. The Court has essentially ruled that in two of the four customers in dispute, Oracle's license agreements did not give Rimini Street the rights to do what it did.

Well, that's not quite the case as it relates to the ability to provide a third party maintenance service. That is not what's at issue. It is merely the rigid interpretation of copying software and the location of those copies. And in the representative cases that Oracle filed, these all pre-date the widescale adoption of hosted solutions, outsourcing and, of course, the rise of Internet based services.

According to RiminiStreet, the judge in the case took a narrow view of 'on-premises' to effectively mean 'only the customer's premises' - whatever that means.

"This has enormous implications for many types of service because as Oracle acknowledged, the language in the contracts that were examined was never changed over time even though we all know that things have changed dramatically."

Asked about the implications of the case, RiminiStreet said:

"The important thing to note is that nothing in the judge's decision stops us from continuing to offer the services we do. We had made the decision some time back that we didn't want to be in the data center business anyway so as long as we can get access to those systems then we don't care where they're located. This was about copying, not access. However, there are many types of contract in the portfolio so while we might stipulate on some, we're not going to do so in every case. The language has changed over time."

Asked to comment on the number of contracts that might be similar to the representative cases used for this judgment, RiminiStreet said that its current estimates suggest 'about half' of the PeopleSoft customers.

Scavo provides further advice to customers:

It is too soon to tell whether Oracle will prevail at trial. But at this point, one thing is clear for customers: do not enter into a license agreement with a software vendor without ensuring that your rights to third party maintenance are explicit...

...Our research at Computer Economics shows widespread dissatisfaction with both the cost and the quality of service for the Tier I ERP vendors' maintenance programs. If there are not a viable and healthy third-party maintenance providers in enterprise software, it will just hasten the demise of the traditional software license model.

In other words, Oracle may win the battle, but long term, lose the war.

Verdict

This remains a highly complex case where nothing is certain except for the fact that nothing in this case prevents customers from seeking the services of third party maintenance providers.

RiminiStreet is right to raise the point about wide scale industry implications. However, we will not know how this plays out until the case comes to trial - probably some time in 2015.

In our discussions both with customers and vendors, it is clear that the on-premises ERP business is not going away. It may be in decline from a new licence perspective but it is not going away. At least not any time soon. That will provide fresh opportunities for vendors like RiminiStreet to offer competitive services in much the same way you are not forced to get service at a branded car dealer once you've bought your vehicle.

It is also clear that a significant number of customers are in what they would describe as 'steady state.' They don't believe that further product enhancements will bring sufficient value to warrant fresh licences or, that they can obtain comparative functionality from cloud vendors. The talent management and CRM spaces are perfect examples.

Where significant functional enhancements are at an end then customers should look at the cost of third party maintenance because that is one area where it is possible to easily release cash back to IT budgets at very low risk.

Finally, RiminiStreet has filed for IPO and will continue that process. This ruling will likely have very little impact on the IPO since the court case has been heavily noted in SEC filed documents.

Disclosure: At time of writing Oracle is a partner and RiminiStreet is ramping partner activities. Computer Economics is an affiliate partner.

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