knowledge & insights

The Oracle Securities Litigation: The Hero We May Want (but Perhaps Not the Hero We Will Get)

The nakedly optimistic legal axiom “Where there is a wrong there is a remedy” (“Ubi Jus Ibi Remedium”) gives a blanket assurance that all legitimate grievances are inherently susceptible to redress. But, even taken at face value, there is no assurance that every wrong will be matched with a remedy. Entirely consistent with this axiom is the notion of wrongs — even repeated and systemic ones — that remain one step ahead of even the most perfectly matched remedy.

And, for those of us who live in the software licensing space and believe Oracle’s infamously aggressive auditing and licensing tactics are such a wrong, we often ask ourselves whether Oracle will ever find itself targeted by the right remedy at the right time.

We have written for years about the peculiar relationship between Oracle and its licensees through the audit process. In particular, we’ve noted the disparity between a licensee’s desire to have the audit over and done versus Oracle’s motivations for prolonging the audit. As an auditor, Oracle has the luxury of controlling the pace of the audit, turning the screws when it wants a response but carefully backing off if the licensees appear to be losing patience. With licensees disincentivized to pursue litigation combined with copious NDAs and confidentiality provisions, public resolution of the legality of Oracle’s audit script remains remote. Absent such action, the status quo is maintained.

What About the Oracle Securities Litigation?

As we stated previously, we had high hopes that the Oracle Securities Litigation would do what individual licensees have for years been unable and/or unwilling to accomplish – bring public awareness to Oracle’s deeply unpopular licensing and auditing tactics. Predicated on the very licensing tactics we have witnessed for years, the complaint contained copious, detailed whistleblower allegations that detailed Oracle’s practice of selling unwanted cloud credits to licensees who were shell-shocked by allegedly bogus auditing claims. We believe that discovery in that matter would reveal explosive documents and testimony that could very well bring the discussion of Oracle’s dubious practices out of the smaller world of tech enthusiasts and into the mainstream.

However, after attending the September 24, 2020, hearing on Oracle’s motion to dismiss, it is hard to be optimistic that this matter will survive long enough to reach discovery.

Though a bit difficult to discern via Zoom, the hearing optics were not auspicious. It was our observation that Judge Freeman came out swinging against Plaintiffs’ counsel and made it clear that she was not particularly impressed with the revisions to the operative complaint. Interestingly, at the last hearing we attended, the Judge indicated that she has presided over securities class actions that took four or five rounds of revisions before clearing the demurrer stage. However, her patience for multiple rounds of revisions appears to have changed. This time, she was explicit that if she deemed the current complaint as insufficient, she would grant Oracle’s motion to dismiss without leave to amend and the ‘next stop’ would be the Ninth Circuit.

That said, Judge Freeman did make some concessions towards the work that Plaintiff’s counsel undertook in revising the complaint. For example, she appeared to acknowledge the efficacy of Plaintiffs’ allegation that 90% of Oracle’s cloud sales were “engineered sales,” meaning that the sales were audit-driven and not the product of a licensee’s independent interest or demand. However, Judge Freeman stated it was less clear whether these engineered sales were the result of the whistleblower-alleged ABC tactics (“Audit, Bargain, Close”) or instead represented unactionable discounting. There was also a discussion regarding the absence of actual Oracle licensees in the complaint, though there were several software license consulting firms that were identified and provided information. It doesn’t take a genius to speculate the reason why it was difficult to find an actual Oracle licensee willing to go public. After contact with hundreds of Oracle licensees, we are not remotely surprised that—as angry as many Oracle licensees are—none were willing to publicly put themselves on Oracle’s radar.

All of this aside, the real problem for Plaintiffs’ counsel is going to be with scienter, the proof that the speaker of the false statements was aware that they were false at the time they were made. In this case, the allegedly false statements at issue are representations that cloud sales during the class period represented legitimate sales of a popular product and not “engineered sales” that did not represent an actual interest in Oracle cloud services and would, instead, be cancelled as quickly as possible.

At first, Judge Freeman was entirely skeptical regarding Plaintiffs’ showing and seemed all but predisposed to dismiss the complaint on the failure to demonstrate scienter. However, counsel for Plaintiffs stood his ground and expertly guided the overtly skeptical Judge through the presentation of scienter found in the operative complaint. And, to give credit where it is due, Judge Freeman acknowledged that she had not properly understood the presentation of the allegations and stated that she would return to the papers and scrutinize them carefully. Counsel’s impressive act of possibly snatching the matter from the jaws of defeat notwithstanding, we are not optimistic and anticipate an Oracle win on its motion to dismiss. If our speculation is right (and we hope that it is not), that leaves the question: “What is the remedy for Oracle’s myriad of wrongs?”

The Role of Market Education?

We have long been troubled by the fact that because Oracle is not consumer-facing, it has the uncanny ability to hide its misdeeds in plain sight while other companies with products and services that are more broadly used by the public (for example, Google, Facebook or Amazon) are routinely vilified by the press and a public eager to find villains in the wake of so-called “Techlash”. And, as we discussed a mere few weeks ago, Oracle has for several years now attempted to obscure its unpopular auditing and licensing tactics and evade the impact of “Techlash” by locking arms with the current administration and hurling insults in all directions from the comfort of right-wing advocacy groups.

Coupling this with the fact that all audit negotiations are confidential, Oracle is rarely on the defensive in public discourse. It is hard not to think that this lack of public perception as an industry bad actor influenced the fact that—in the first hearing, at least—Judge Freeman simply was not moved by whistleblower statements and was clearly working from a place of reflexive dismissal of their truth. Is it too far-fetched to think her apparent instinctual desire to minimize the whistleblower allegations was based on the fact that it was new to her, and she carried a latent assumption that if it were really as bad as alleged, she would have heard of it all before? Again, it bears repeating that it is hard to imagine that she would have had a similar dismissiveness if the whistleblowers were attached to a more well-understood company that has routinely been the subject of intense public scrutiny.

We note that there is substantial precedence for the importance of market education in setting the stage for successful litigation campaigns that ultimately curb tortious or criminal activity. As only one example, the plaintiffs’ bar spent years unsuccessfully seeking a foothold in breast implant litigation. After years of only modest success in litigating against bad actors, many industry observers identify the tipping point as a December 1990 “Face to Face with Connie Chung” episode. There, the harm of implants was exposed along with the bad faith actions of Dow Corning (among others) that subsequently led to government investigation, the release of previously confidential studies conducted by Dow and a floodgate of successful litigation. Could the same hold true for Oracle?

Beeman & Muchmore’s Ongoing Data Gathering and Market Education Efforts.

To borrow the powerful phrase from The Washington Post, if “Democracy Dies in Darkness”, so do software licensing rights. From the unique vantage of serving as counsel for scores of Oracle licensees, we have been able to hear the multitude of stories from disgruntled licensees that have been wronged by Oracle. We have worked for years to share the valuable intelligence garnered from these representations (while strictly adhering to our professional obligations) in our own small effort to bring market awareness to Oracle’s predatory actions and, hopefully, make a meaningful change to market perception that could pave the way for future redress of Oracle’s wrong.

And, in this spirit, we continue to encourage Oracle licensees to reach out to us in order to share their experiences in a confidential and protected manner. By shining light on these predatory tactics, we can all be part of the broader effort to slow or even halt Oracle’s aggressive auditing and licensing tactics.

If you have a story to tell, please do not hesitate to contact either of us at art@beemanmuchmore.com or joel@beemanmuchmore.com. Otherwise, we will continue to keep you updated with regard to The Oracle Securities Litigation and other related news.

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