Oracle Corp.'s lawsuit against third-party support company CedarCrestone Inc. comes down to vendor and intellectual...
property rights versus the rights of customers, according to one prominent expert.
The bottom line is this: What are customers' expectations when they buy the product? Most people would believe that they can use the products however they like and sell the licenses when they're done with it.
R. "Ray" Wang,
analyst, Constellation Research Inc.
Oracle is suing Alpharetta, Ga.-based CedarCrestone -- a former partner -- for intellectual property infringement, stating that CedarCrestone provided unauthorized updates to Oracle applications and downloaded Oracle support materials illegally using its partner login credentials. The charges brought against CedarCrestone include copyright infringement, breach of contract and unfair competition. The compensation Oracle is seeking is currently unspecified.
"The bottom line is this: What are customers' expectations when they buy the product?" said R. "Ray" Wang, analyst at Cupertino, Calif.-based firm Constellation Research Inc. "Most people would believe that they can use the products however they like and sell the licenses when they're done with it. You can do this with anything other than software -- a car, a telephone system, a computer. It's only with software that we have patent rights and [intellectual property] rights. This is where [this] gray area came from. Even in used CDs, it's really customers' expectations of owning the perpetual rights to software," he said. Oracle and CedarCrestone did not reply to requests for comment.
Why is Oracle suing CedarCrestone?
What brings a company to turn on another firm with which it was once so closely allied? Wang said that Oracle is trying to be consistent with its legal cases. In recent years, Oracle has sued multiple third-party support providers -- most notably, SAP AG subsidiary TomorrowNow and Las Vegas-based Rimini Street Inc. -- for allegedly illegally downloading Oracle software and other materials, then using them to provide support to customers at a discounted rate.
"The thing about CedarCrestone that is interesting is that they were one of Oracle's top partners. For the longest time, they were a TITAN partner -- that's the highest level of partnership there is with Oracle," Wang said. "They're trying to be consistent in the legal case. It's not like they didn't know CedarCrestone was providing support. … From Oracle's point of view, they need to do this to maintain their intellectual property rights. They're trying to scare people into not providing third-party maintenance."
David Rowe, senior vice president at Rimini Street, agreed with Wang, and said he wasn't surprised by the lawsuit. "Oracle stated in a filing in the Rimini Street case months back that it really had no choice but to pursue litigation with CedarCrestone, or else Rimini Street would use its lack of filing against them in the Oracle vs. Rimini Street litigation," he said. "Oracle has now terminated their partner agreement with CedarCrestone and filed litigation against them, as expected."
Interest in third-party support grows
Earlier this year, a survey found that fear of losing support is what drives Oracle upgrades. In these days of budget cuts and cash-strapped IT departments, many companies find the idea of skipping the upgrade but maintaining support appealing. In the meantime, some feel that Oracle earns too much profit via support. Wang estimated that Oracle's profit margin could be 70% to 90%. Rowe said it was as high as 92%.
For more on third-party support
Oracle support vs. third-party support: One expert's opinion
The plusses and minuses of third-party support for Oracle products
The high cost of Oracle support drives some to the alternatives. Joel Gibbons, compliance officer and senior team leader of enterprise systems for the National FFA Organization in Indianapolis, says his organization made the switch to Rimini Street for support after realizing the difference in pricing between Rimini Street support and Oracle support.
"My IT director and I were given a mandate to make significant cuts in our budget for the next fiscal year," Gibbons said. "Aside from salary and benefits, the maintenance and support for our PeopleSoft ERP was the single largest line item in our budget -- around $120,000. For a relatively small nonprofit organization, that was painful. … We were able to cut that to less than $50,000 annually."
Gibbons added that Rimini Street provides support for software customizations. With Oracle, if it doesn't come out of the box, "they won't help with it. Previously FFA had to hire independent PeopleSoft consultants to help with customizations. When asked if his organization is concerned about the possibility of losing Rimini Street support should they lose their ongoing legal battle with Oracle, he says, "We believe that the lawsuit will have little effect on Rimini Street's business model when all is said and done. I'm confident that Rimini Street will come out of the suit in good shape, and hopefully open the door for third-party support vendors in more software segments."
Constellation Research's Wang, however, believes the dependency on vendors will only get worse with the growing popularity of cloud computing. "Many vendors are in a rush to move to the cloud because the clients don't own the software, just use it," he said.