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Rejection of Oracle's claims for copyright infringement against one of its users and condemnation of the practice of aggressive audits

White & Case Technology Newsflash

Dealing with a matter involving the Enterprise Resource Planning (ERP) Oracle E-Business Suite, the Paris First Instance Court took the opportunity to clarify the differences between copyright infringement and contractual performance and to condemn the practice of aggressive audits.

In April 2002 and November 2007, the AFPA – a French association specialized in adult education – ordered software licenses of the application Financials for a large number of users to the American editor Oracle, via its integrator Sopra. In 2009, the AFPA launched a tender to develop a solution for managing purchases. Subsequently in May 2009, Oracle conducted an audit on the software used by the AFPA, from which it followed that the AFPA allegedly used 885 licenses of the software Purchasing, without having acquired the related rights. After two years of commercial discussions remained unsuccessful, Oracle summoned the AFPA in March 2012 for infringement for non-authorized use of its software Purchasing.

In its decision dated 6 November 2014, the Paris First Instance Court rejected Oracle's claims considering that such case is not a matter of copyright infringement but rather of performance of the contract and sentenced as a matter of principle the practice of aggressive audits.

A matter relating to the performance of the contract

Oracle's action is primarily based on the ground of copyright infringement related to the software used by the AFPA with no right, for which Oracle requests the payment of around €13,5 million as damages (i.e. unauthorized reproduction of the software Purchasing by 885 users and unauthorized use of the related support services and updates). On the contrary, the AFPA considers that such question is a matter of contractual performance, since (i) the software Purchasing was included in the Financials Suite subject to the contract, and since (ii) in any case, the contract was executed in good faith as such software was directly installed by Sopra acting on behalf of Oracle at that time.

With respect to the question of the qualification, the Court follows the AFPA's point of view considering that this is not a case of copyright infringement but rather a case on the scope of the contract and the question of its performance. As the AFPA and Oracle were contractually bound for the exploitation of the software Financials, the only issue here is to determine whether such software included or not the software Purchasing. Yet, it is not argued that the AFPA would have used a cracked version of the software or installed a software not provided by Sopra or that the licenses number would not correspond to the number of users. Such position may be surprising with respect to the application provisions of the French Intellectual Property Code, which define broadly the infringement as notably the violation of any rights of the author of a software.

With respect to the assessment of the performance of the contract, the Court also rejects Oracle's position considering that it does not clearly specify the scope of the litigious software Purchasing. Either such software is part of the Financials Suite and is thus automatically included in the scope of the contract; either such software is included by Oracle itself in the installed software to meet the AFPA needs meaning that Oracle admitted that the specifications of the tender included the software Purchasing in the Financials Suite. In both case, the software Purchasing falls within the scope of the contract.

The practice of aggressive audits

In response to Oracle's action, the AFPA counterclaims that Oracle uses multiple contractual audits to exert pressure on their customers and dissuade them to change supplier during the contractual renewal periods. The Court denounces as a matter of principle such practices by stating that: "the repeated use by Oracle of the audit practice before tenders demonstrates that it puts pressure on its contractor to obtain new contracts and, in case of failure, use legal action to obtain payment of large sums, in this case around €12 million in "compensation" for the exclusion of the tender (…)". However, the Court awards no damages here absent any harm suffered by the AFPA.

No doubt that the question of the qualification of copyright infringement versus performance of the contract, as well as the practice of the audits used for contractual pressure, will be further examined. Not surprisingly, Oracle appealed the judgment.


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