On June 21st 2018, ERP software vendor, SAP, claims to have been blindsided with a lawsuit by big data vendor, Teradata. The lawsuit claims SAP inappropriately used trade secrets and is using unlawful means to monopolize the data warehouse market. Teradata is seeking to halt SAP from using these trade secrets in its products and is seeking damages for lost profits.
In this blog we will examine the charges in this lawsuit, how we believe SAP will need to respond to the market and the lawsuit, and our view of how this suit will likely benefit SAP’s customers.
The Lawsuit Charges
Teradata makes claim in a lawsuit filed in Northern California District Court that SAP has significantly harmed Teradata by:
- Misappropriation of Trade Secrets – Teradata claims that SAP violated the terms of a joint venture agreement between SAP and Teradata. They also claim that SAP used Teradata’s secret methods and practices to develop SAP’s HANA BW database. To support this claim, Teradata cites a published article from a German business news periodical reporting that an SAP internal auditor concluded that SAP misappropriated proprietary confidential trade secrets from Teradata obtained from the joint venture.
- Copyright Infringement – Teradata claims that SAP took copies of one of its products, loaded it into RAM, and then reverse-engineered the code. Teradata further states that SAP used this copied code and distributed it as a part of the SAP HANA BW database.
- Unlawful Tying and Attempted Market Monopolization – Teradata makes an anti-trust argument that SAP is unfairly bundling its ERP product with its data warehouse products. The premise is that when customers made the initial purchase of SAP’s ERP software, they did so with the understanding that the data warehouse product was separate and that they had the option to choose a product other than SAP’s if they wished.
Teradata claims that current SAP clients have no choice now but to bundle these products together if they wish to upgrade to a newer version of SAP, which they will be forced to do by 2025. Teradata also claims that SAP is restricting Teradata’s ability to access SAP’s ERP derived log data which is an enabler of Teradata’s SAP integration methods.
Teradata is seeking significant damages related to these claims including:
- A temporary and permanent injunction that would prohibit SAP from using Teradata’s trade secrets and copyrighted code as well as prohibit SAP from blocking Teradata’s access to SAP’s ERP log file.
- An order that all copies made or used of Teradata’s copyrights or trade secrets be impounded, destroyed or otherwise disposed of.
- An award for damages to compensate for lost profits, and given this is an anti-trust case, treble damage is requested.
Impact on SAP
These types of lawsuits typically take a long time to make its way through the courts. In 2007, Oracle sued SAP for copyright infringement. The case was settled in 2014 with SAP paying Oracle a sum of $359M. In that case, filed in the same court, Oracle took the unusual tact of taking SAP all the way to a jury trial. Accounts of the testimony suggest that SAP executives were put on the stand and embarrassed. The jury awarded Oracle $1.3B which the judge later ruled to be excessive. Oracle later accepted the $359M in a settlement deal.
While it does not seem likely that the judge will grant a temporary injunction to prevent the use of SAP HANA due to the impact of clients currently using the code, SAP will need to deal with the immediate fallout of the lawsuit. Specifically, SAP will need to:
1. Put in place a PR and communications strategy to address three important constituencies:
- Current users of the SAP HANA BW database that are now currently at risk of having to dispose of their existing software.
- Potential future SAP customers who will have a legitimate reason to delay upgrades until the issues associated with product tying are resolved.
- Investors who now have reason to doubt SAP’s growth strategies and profit projections and concerns regarding potential damages associated with the lawsuit.
2. Ready a legal team and allocate internal capacity in preparation for discovery. Given the gut punch delivered by Oracle in 2014, SAP will likely not hold anything back in putting in place a top-tier legal team. UpperEdge expects SAP to technically challenge the statute of limitations on trade secret claims, which is three years in California. They will also need to reserve internal capacity in preparation to comply for what will likely be some broad discovery requests made by Teradata.
3. Consider an alternate S/4HANA product roadmap. SAP will need to internally put on the table a roadmap for S/4HANA that allows customers more flexibility going forward with the data warehousing and database products. It is much more likely that customers will feel emboldened by the Teradata lawsuit to press for this flexibility.
UpperEdge considers this lawsuit to be a positive for SAP’s current and future customer base. The suit supports our views that customer choice promotes industry innovation. We recommend to all SAP current and potential customers to reinforce with SAP that client choice is important, and that SAP needs to compete on the merits of their product and not on tactics designed to freeze other competitors out.
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