As 2019 drew to a close, many of you may have missed a significant development that came out of the U.S. District Court of Northern California. On December 17th, the lawsuit brought by the Sunrise Firefighter’s Pension Fund against Oracle Corporation for misleading investors on their cloud business – was dismissed. They have until February 2020 to make some changes and refile the case, but what the real take-away from this case is that we can expect ‘business as usual’ from Oracle on the audit front.
To get a real sense of just how egregious and critical the audit practice was (and is) to Oracle’s revenue machine, you need only read some of the actual witness testimony. We encourage anyone to read the transcripts of the nine relevant witnesses that testified where ‘compliance-based deals’ were not only standard operating procedure but were reported to the highest levels on a regular basis.
Truncated quotes from the case read like a scene from Law and Order:
- Confidential Witness 1 ("CW1") was a Regional Sales Director for Middle East and Africa from February 2009 to March 2018. CW1 sold Cloud and other Oracle products to customers and attended meetings at which Cloud sales were discussed. CW1 stated that at least 80% of Middle East and Africa Cloud revenue was generated by "inserting cloud into compliance-based deals" and that it was "crystal clear these [sales] are fake" because "none of these deals are renewed."
- CW1 also reported that he (and other sales teams) discussed their "audit-driven cloud deals" with Loic Le Guisquet, who sat on the Oracle Executive Management Committee during the Class Period and reported directly to Hurd. CW1 explained that, he prepared weekly slides concerning "sales volume and progress" and provided them to Le Guisquet for presentation to Hurd. These slides, according to CW1, "would very clearly say" that Oracle's License Management Services division was engaged in "compliance deals."
- Confidential Witness 4 ("CW4") was Vice President of Global Sales Engineering, who served as General Manager of Sales Engineering in 2015 and reported to Miranda. CW4 sold the first iterations of Oracle's Cloud product. CW4 also reported on the cooperation of audit and sales divisions in creating the audit-based sales. Id. CW4 stated that most Cloud sales were driven by "extortion" through the audit process and that Oracle knew that customers were not planning on renewing their Cloud subscriptions and "sales leadership often expressly communicated to customers that they could "wash [their] hands" of Cloud products after the contract expired but keep the discounts for on-premises products.
Would a judgement against Oracle have slowed this freight train of audits down? Probably not in the short term given the challenge of taking on a company whose net profit in 2019 was over $11B USD. What it does tell us, however, is that with a dismissal there are zero reasons for Oracle to cease using its LMS/SIA divisions to come down hard on clients with audits and all manner of threatening letters.
If this happens to you, contact us and we can help you sort through the nightmare and ensure that not only is the audit issue mitigated, but that your company is right sized and paying fair market pricing for licenses (cloud or on-premise). There is a myriad of mine fields to watch out for – and we’ve seen them all. Oracle has executed literally thousands of software audits over the years, and they are way ahead of you!
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