Oracle/CedarCrestone Dispute May Limit Application Maintenance Choices

G00239723

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Summary

Some potential outcomes of Oracle's legal complaint against its former partner CedarCrestone could limit the number of service providers that deliver third-party application maintenance and support services.

News Analysis

Event

On 10 September 2012, news sources reported that Oracle had terminated CedarCrestone's Oracle PartnerNetwork agreement and had filed suit in the U.S. District Court for the Northern District of California against CedarCrestone.

Analysis

Former Oracle partner CedarCrestone is the third provider of application maintenance and support services that Oracle has filed a complaint against. Gartner has reviewed the complaint, which alleges copyright infringement, breach of contract and unfair competition. In previous complaints, the litigants were the independent third-party providers Rimini Street and TomorrowNow, a former subsidiary of SAP (see Recommended Reading ). They and CedarCrestone differ in two ways from other providers of services for proprietary software:

  • Their services compete against exclusive services delivered by a software vendor (in this case, Oracle) and are priced significantly lower than the vendor’s service offering.

  • They handle the intellectual property (IP) of the software vendor on their customers' behalf.

The issue behind these legal actions is how service providers manage and use IP on behalf of the customer that is entitled to the IP. Since the inception of packaged software products, third parties have provided implementation, development and support services for these products and the hardware they run on. CedarCrestone states this applies to less than 1% of its business.

While some providers claim their procedures are compliant with IP protection requirements, Gartner believes others:

  • Reuse downloaded code across their customer base.

  • Maintain copies of the customer’s application on-premises for more efficient application support.

  • Leverage the application code provided by the vendor as a foundation for enhancing the application to meet customers’ unique requirements.

In our experience, some software vendors do not take issue with these practices if the partner or independent third party fills a service gap that the vendor does not choose to fill.

The legal action between Oracle and CedarCrestone could take a long time to work through the courts, and lead to any of several scenarios. In the meantime, customers have many options regarding application maintenance and support services, and can choose from a number of partner or independent third-party service providers. In addition, software companies like Oracle remain a source of software product maintenance and support.

Recommendations

Current CedarCrestone customers:

  • Monitor CedarCrestone communications regarding legal actions that may interfere with its ability to deliver services or require it to change the way it delivers services.

  • Develop contingency plans to cover the impact of litigation, financial instability or the choice to deliver specific services.

Prospective CedarCrestone and other third-party customers:

  • Review support contracts with legal counsel to ensure compliance (in areas such as product downloads and the use of third parties for support services).

  • Review all vendor documentation for vendor IP protection requirements. Ensure that all downloads of vendor software or IP are conducted within the terms of the software license agreement when working with third-party consulting or support vendors.

  • If you are engaged in the request for proposal/request for information (RFP/RFI) process, assess your ability to manage the increased level of risk associated with a supplier that has a legal action pending. Such an action could impact its provision of services.

  • Negotiate sufficient indemnification clauses in RFP/RFIs and contracts to mitigate IP and other liability risks against service recipients.

Recommended Reading

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© 2012 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction and distribution of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartners research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

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