Neither Beeman & Muchmore, LLP nor LicenseFortress, LLC is, or has been, involved in the Oracle v. NEC matter in any capacity. All information contained herein has been taken from the public record.
It is our new reality that Oracle is suing its licensees. What we don’t yet know is whether these recent suits are part of a concerted strategy adopted by Oracle or a pair of one-offs. However, as we wrote in August of this year, there is reason to believe that Oracle is honing a new litigation strategy, which, if true, should command the attention of all Oracle licensees.
In September of this year, we commented on how the first filed matter — Oracle v. Envisage — is on the brink of settling, but that the second filed matter – Oracle v. NEC Corporation – was ramping up, with the parties volleying aggressive allegations that signal a turn towards heightened contentiousness. Specifically, we expressed some skepticism as to whether NEC’s approach – alleging systemic fraud in which Oracle intentionally sold insufficient distribution licenses with the intent of leveraging fees and penalties against licensees down the road – was in the best interest of NEC or any other licensee.
As we discussed, litigation against Oracle is expensive and risky (look no further than the State of Oregon, Rimini Street, Google and SAP for companies that upended their businesses litigating against Oracle), often with mismatched incentives between the parties (i.e., the licensee has core business functions to return to, whereas Oracle’s core business is software licensing and auditing). Further, matters of proof can be exceedingly difficult — in our ample experience, the record is never quite as good as the licensee may remember — and licensees are invariably up against Oracle agreements that represent decades of diligent efforts to minimize its risks in the event of litigation.
We also expressed skepticism as to whether NEC truly wanted to spend the next several years and potentially millions of dollars attempting to prove a pattern and practice of Oracle fraudulently selling OPN members the wrong licenses. We also further considered that this tactic represented a high-stakes gamble in which NEC hoped to intimidate the software giant into a quick settlement. Bearing in mind our own clients, we asked: Considering all we know about Oracle’s scorched earth litigation tactics, is this a risk that you would be willing to take on behalf of your company?
On October 28, 2021, Judge Charles R. Bryer heard oral arguments on Oracle’s Motion to Dismiss. Then, on October 29, 2021, he issued an order granting in full Oracle’s motion with leave to amend (Order, Dkt. No. 34.). We have litigated in front of Judge Bryer before and note that it is not unusual for him to issue an order so closely on the heels of oral arguments. The court allowed leave to amend and otherwise ordered that NEC must answer in 30 days from the date of the order.
Judge Bryer’s order regarding NEC’s fraud allegations can be broken into two deficiencies in NEC’s counter-complaint: “NECAM fails to state a claim because it pleads neither the misrepresentation nor justifiable reliance with particularity.” (Order, 5:21-22.)
Failure to plead misrepresentation. Regarding misrepresentation, Judge Bryer singled out the fact that NEC includes no details about “the who, what, when, where, and how of the misconduct charged” and that “of Oracle’s alleged statements and actions, none were false or fraudulent.” In fact, taking issue with NEC’s allegations, Judge Bryer noted that “NECAM alleges fraud only by insinuation,” singling out NEC’s statements that it “has little doubt” based on “circumstantial evidence” that someone at Oracle perpetuated fraud. Somewhat wryly, Judge Bryer stated, ”Though NECAM may have 'little doubt', federal courts require more." (Order, 6:12-16.)
Failure to plead justifiable reliance. With regard to justifiable reliance, the court noted that NEC was a “relatively sophisticated party” that had not only used Oracle’s agreements in the past, but had also distributed Oracle products pursuant to a broader distribution agreement. (Order, 6:17-7:4.) Based on this, the Court concluded that “At least without alleging far more facts, it is questionable why NECAM would reasonably believe that Integra-ID 5 could be distributed on Oracle’s most restrictive license.” (Order, 6:21-23.)
Stay tuned, as we will be watching this matter with great interest, including whether NEC opts to amend its claims or not.
* * *
Litigating is expensive, risky and, we believe, increasingly wasteful. Beeman & Muchmore broke away from BigLaw so that we could tailor our counseling to serve the client and the client only. In this way, Beeman & Muchmore has successfully made litigation avoidance one of its core founding principles.
In order to assist companies concerned about the possibility of litigation, we prepared a few tips on mitigating the risk (including utilizing a SAM tool, such as the one offered by LicenseFortress). However, if your company is mired in an escalating dispute with Oracle (or any other software vendor), there is no substitute for the guiding hand of specialist counsel committed to de-escalation above all else.
Published on 11/18/2021
Software licensors are known for vague contracts—they’ve made a business of it.
Read the latest industry news.
