In its response to a lawsuit filed by Oracle in the United States in March, SAP conceded that employees at its TomorrowNow unit, a Texas company that SAP bought in January 2005, downloaded Oracle data last year as Oracle had claimed in a lawsuit in March. But in a conference call from SAP headquarters in Walldorf, Germany, Henning Kagermann , SAP’s chief executive, said the information was not shared with or used by executives at SAP America, SAP’s United States headquarters in Newton Square, Pa. Mr. Kagermann declined to describe the data that TomorrowNow employees had downloaded.
“’SAP did not have access to Oracle materials downloaded by TomorrowNow,” Mr. Kagermann said. “’However, some TomorrowNow activity went beyond what is appropriate and contravened our high standards and business procedures.”
Mr. Kagermann apologized for the impropriety and said he had ordered an investigation into the incident and installed a top manager to oversee compliance issues at TomorrowNow.
Mr. Kagermann said SAP and TomorrowNow had also received subpoenas from the United States Department of Justice for documents in the case. He did not say whether the subpoenas were in connection with a civil or criminal investigation.
TomorrowNow, which had 157 employees and $15.7 million in sales last year, provides maintenance for business software systems sold by Oracle and by companies Oracle has acquired, including PeopleSoft, a maker of personnel management software, and Siebel Systems, a maker of customer relations software for sales forces.
In its legal response, SAP denied it had stolen business secrets and said Oracle was trying to intimidate SAP in the increasingly competitive software maintenance business. “’This case is really about competition and a customer’s right to choose its software services providers,” SAP said in its affidavit.
Stefan Kuppen, a software analyst in London at JPMorgan, said Oracle was clearly trying to maximize public relations gains with its lawsuit against SAP, whose TomorrowNow unit has been successful at luring Oracle customers. Mr. Kuppen said the lawsuit could probably be settled out of court for a sum that could reach millions but would not materially affect the value of SAP.
“’On one hand, SAP is admitting it did something wrong,” Mr. Kuppen said. “’On the other hand, this is the latest installment from a couple of companies that are pretty good at fighting P.R. battles.”
While they did not start out as direct rivals, SAP and Oracle have increasingly gone head to head in the lucrative business of providing all-inclusive corporate software systems to large multinational companies. SAP’s comprehensive enterprise systems became the corporate standard and market leader in the 1990s.
But over the last decade, the competition has increased as Oracle, which began as a database software maker, constructed a similar top-to-bottom package after buying PeopleSoft and Siebel Systems, both leaders in their respective niches.
After detecting the downloads, Oracle, based in Redwood Shores, Calif., filed a suit against SAP in federal court in San Francisco, alleging industrial espionage.
In a legal response filed Monday evening in California, SAP cast the downloads as the actions of a few renegade employees. Mr. Kagermann said SAP had set up a computer ’firewall’ when it acquired TomorrowNow that had prevented the transfer of inappropriate data to SAP’s United States headquarters.
Oracle, however, said Mr. Kagermann’s admission proved its case.
“Henning Kagermann has now admitted to the repeated and illegal downloading of Oracle’s intellectual property,” Geoff Howard, a lawyer for Oracle at the law firm Bingham McCutchen, said in a statement. “’Oracle filed suit to discover the magnitude of the illegal downloads and fully understand how SAP used Oracle’s intellectual property in its business.”
Barring an out-of-court settlement, lawyers for Oracle and SAP plan to meet in United States District Court in San Francisco on Sept. 4 to lay out a legal timetable for the case.
One reason Oracle has made a big deal about the downloads is that through the TomorrowNow subsidiary, SAP has had access to large corporate customers of Oracle. As the software industry has matured, and most major corporate clients have already bought and installed vast internal software systems, software makers like TomorrowNow are trying to get an edge by selling support for products made by their competitors.
Besides providing revenue, the maintenance contracts also give software makers access to potential new long-term customers. Even Oracle last fall began selling discounted, 24-hour maintenance for Suse Linux operating systems sold by Red Hat, a rival based in Raleigh, N.C., that is the leader in open-source software.
Under their maintenance contracts, TomorrowNow’s customers gave the company their passwords to Oracle’s Web site, which TomorrowNow used to obtain software updates and fixes, Mr. Kagermann said. But during late 2006, according to SAP’s legal filing, TomorrowNow employees representing contracts with Honeywell, Merck, OCE, SPX, Metro Machine and Yazaki performed downloads from Oracle Web sites that exceeded those authorized by Oracle.
Some industry analysts downplayed the significance of Oracle’s lawsuit, noting that the downloads were probably for application fixes and updates for discontinued Oracle software — nothing of a nature that would give SAP a competitive advantage.