Before we get into the latest and greatest Oracle lawsuit, where Oracle sues NEC, let me say three things. First, NEC is not a Palisade Compliance client. Second, if they had been our client, they would not be getting sued by Oracle. Third, if they want to be our client, we would be happy to help them.
Having said all that, this lawsuit is a case study in:
- The risks of being an Oracle partner
- The monetary and compliance risks of using Oracle software
- The lengths to which Oracle will go to enforce their rules; and
- How not to handle Oracle!
I’ll hit on all these topics plus give some guidance on what Oracle partners (and customers) can do to protect themselves from Oracle.
Background on Oracle vs NEC
On July 8, 2021 Oracle filed a lawsuit against NEC looking for both monetary damages as well as additional information, so Oracle can add damages on top of the $7 million in damages they are claiming. We put Oracle’s filing here in case you want to read it for yourself.
I’ll sum up the filing for you. NEC was an Oracle partner and they were allowed to distribute Oracle software to other companies provided they a) distributed in accordance with their rights and obligations under their contracts, and b) pay Oracle enough money. Point “b” is especially important here. Obviously, Oracle claims that NEC did not distribute the Oracle products properly and did not pay Oracle enough money.
Because this is Oracle licensing there is another aspect of this lawsuit. Oracle also claims that NEC is improperly using the Oracle software internally. This is the part that trips up Oracle partners all the time. If you’re an Oracle partner you can generally use Oracle software free of charge to develop the solutions that you sell to your customers. However, everything changes once the solution goes into production and the partner starts selling to their customers.
What being an Oracle partner costs
Oracle’s partner agreements do not allow a partner to run Oracle software internally to support the partner’s clients. Partners who are supporting active customers must purchase additional licenses from Oracle for that purpose. In effect, a partner can use Oracle’s software at no charge to develop a solution, but once that solution goes into production, and the partner goes from developing to supporting customers, then the partner must buy more Oracle licenses and pay for them.
If you think that’s bad, then wait for this next part. In the lawsuit, Oracle claims that NEC has not given it the information needed to truly put a dollar amount on the damages associated with NEC’s usage of Oracle software to support NEC’s customers. (I know, that was a packed sentence!) Here’s my guess: NEC hasn’t given that information because the software is running in a big old VMware cluster and Oracle would try to apply non-contractual “policies” and hit NEC with a huge penalty. Again, that’s just a guess. If I’m wrong, I owe someone a beer.
Oracle sues NEC, and the Nuclear Option
In their lawsuit, Oracle also claims that NEC has been a partner for 15 years and is “intimately” aware of the rules. I would disagree with that completely. This partner licensing tripwire has been there for years. I know, because we have successfully helped several Oracle partners through this Oracle licensing nightmare. Oracle makes a lot of money auditing their partners and they must know it’s difficult to understand and comply with all the rules.
In the complaint, Oracle mentions 14 separate contracts NEC has signed with Oracle. Do you really think anyone at NEC had an intimate knowledge of all 14 agreements to ensure compliance? Do you really think anyone at Oracle, before the lawsuit was filed, had an intimate knowledge of all the agreements NEC and Oracle signed? The reality is that companies (Oracle and their customers) often sign these agreements in vacuums and only look at them when there is a problem.
Another thing we see here is Oracle’s use of the “Nuclear Option.” We’ve come across this before, in connection with another lawsuit. It was Mars (assisted by Palisade Compliance) suing Oracle.
The Nuclear Option is when Oracle terminates a company’s agreements so that company has no more licenses. The NEC situation seems to be a twist on the Nuclear Option in that Oracle appears to have terminated NEC’s right to distribute licenses and use them for development. There is no evidence Oracle terminated all NEC’s internal Oracle licensing.
Even though this a smaller termination, it does have a huge impact on NEC’s operations. Not only can NEC no longer distribute Oracle software, NEC can no longer support their customers. (Of course Oracle is arguing that NEC was never allowed to do that!)
Four takeaways from this lawsuit
There are several lessons learned here:
First, being an Oracle partner (and customer) can open you up to lawsuits, audits, and other pressure from Oracle. However you work with Oracle, you must be careful, and you must be in compliance with your contracts.
Second, virtualization is still a huge problem for Oracle customers when it comes to licensing. It doesn’t have to be a problem, but if not handled correctly, it will be.
Third, every Oracle customer (and partner) needs independent expertise to manage their Oracle usage, compliance, and relationship with Oracle. NEC is a huge organization with very smart people, and they still find themselves in this precarious position with Oracle. Now, we have not seen NEC’s response on this. I’ll look forward to reporting on that when it’s available. I’m sure they will deny everything and fight, until they settle.
Fourth, Palisade Compliance is the leading expert empowering our clients to keep control of Oracle. We are the leaders because our clients don’t get sued by Oracle. Our clients stay in control, stay in compliance, reduce financial risks, and chart their own technology path whether that is moving towards Oracle or away from Oracle.