Judge tosses NEC's claim that Oracle salespeople tricked it into using the wrong software license prior to audit

Big Red, for now, has the upper hand in battle over agreements

A San Francisco federal court judge has dismissed NEC Corporation of America's (NECAM) counterclaim of fraud against Oracle, which sued NECAM in July alleging copyright infringement and breach of contract related to the use of Oracle's database software.

NECAM has the opportunity to refine its challenge of Oracle's allegations, however.

Oracle is seeking more than $7m in damages from NECAM, the US subsidiary of Japanese tech firm NEC Corp, for alleged software licensing violations discovered following a December 2019 license audit.

The database giant's audits have led more than a few Oracle customers to court and are complicated enough that consultancies prosper by selling compliance services to Oracle clients. In this instance, though NECAM had been a member of the Oracle Partner Network (OPN) since 2004, Oracle found fault with the way NECAM configured Oracle software and the way it reported royalties.

According to Oracle's complaint [PDF], NECAM distributed Oracle software with its own Integra-ID 5 app, marketed as a biometrics identification system to law enforcement agencies. In so doing, Oracle claims NECAM exceeded its distribution rights under the terms of Oracle's Embedded Software License (ESL) and paid royalties at the ESL rate rather than the higher Application Specific Full Use (ASFU) license rate.

"NECAM had distributed the Oracle Database with Integra-ID 5 but not 'embedded' with it, as required to be covered by NECAM’s ESL Addenda," Oracle claimed in its complaint. "In particular, Oracle found that NECAM customized its Integra-ID5 application for specific end users, certain end users were permitted to create custom reports within the application and had customer APIs to establish transfer of data, and NECAM performed program administration tasks, on the end user’s behalf, in excess of the rights granted pursuant to the ESL Addenda."

NECAM responded to the lawsuit by filing a countersuit alleging, among other things, that Oracle salespeople fraudulently steered NECAM toward the limited ESL because they'd make more in sales commissions.

Oracle, said NECAM in its answer to the complaint [PDF], incentivized its salespeople to sell the more restrictive ESL license over the more permissive ASFU license by awarding ESL sellers with commissions on license fees from sales anywhere in the world, while ASFU sellers got commissions only from fees generated within the salesperson's assigned territory.

"On information and belief, the Oracle sales team negotiating with NECAM intentionally and fraudulently represented to NECAM that the [ESL] would be sufficient for NECAM’s proposed use in order to receive a higher commission on the license sale."

However, on Friday, US District Court Charles R. Breyer granted Oracle's motion to dismiss NECAM's counterclaims and to disallow proposed defenses. The judge found that NECAM failed to make a sufficiently specific fraud claim.

"NECAM alleges fraud only by insinuation," the judge wrote in his order [PDF]. "In its brief, NECAM explains that it 'has little doubt' based on 'circumstantial evidence' that someone at Oracle contacted NECAM over the phone between December 7 and December 19 to 'direct' it to misinterpret [a question on the license]. Though NECAM may have 'little doubt,' federal courts require more."

Judge Breyer also found shortcomings with NECAM's claims about misrepresentation and copyright abuse. Nonetheless, he acknowledged that NECAM's situation – having signed a contract to use a license that falls short of its needs – might benefit from further explanation.

"At least without alleging far more facts," he wrote, "it is questionable why NECAM would reasonably believe that Integra-ID 5 could be distributed on Oracle’s most restrictive license."

The judge has given NECAM 30 days to file an amended answer that addresses legal deficiencies in its initial response.

NECAM did not immediately respond to a request to say whether it intends to do so.

Oracle declined to comment. ®

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