Oracle Sued For Allegedly Using Audit Rights To Boost Cloud Sales

On August 10, 2018, Plaintiff the City of Sunrise Firefighters’ Pension Fund filed a class action securities lawsuit against Oracle Corporation and several Oracle Board members and senior executives.  The suit filed in the Northern District of California is Case No. 5:18-cv-04844 BLF.  The Complaint alleges several predatory audit practices allegedly committed by Oracle including allegations that Oracle inflated its cloud revenue in various regulatory filings.  Especially interesting to Oracle audit customers are the allegations that Oracle used the audit clause contained in its license agreements to threaten its customers with audits and then coerce those customers into buying cloud, or risks audits of their non-cloud software licenses.  
 
According to the Complaint, “[T]hroughout the Class Period, Defendants falsely attributed the Company’s revenue growth in its cloud segment to a variety of factors and initiatives, including, among other things, Oracle’s “unprecedented level of automation and cost savings,” as well as the Company being “customer-focused” and “intimate partners with our customer.” In truth, Oracle drove sales of cloud products using threats and extortive tactics. The use of such tactics concealed the lack of real demand for Oracle’s cloud services, making the growth unsustainable (and ultimately driving away customers). Among other things, the Company threatened current customers with “audits” of their use of the Company’s non-cloud software licenses unless the customers agreed to shift their business to Oracle cloud programs.” Complaint at ¶ 5.

“As a late comer to the cloud space, Oracle had ceded significant market share to its competitors. Instead of focusing on creating a better product, however, Oracle relied on improper sales practices to railroad its customers into purchasing the Company’s cloud offerings. One such practice was to “audit” customers’ use of the Company’s non-cloud software licenses and charge those customers hefty penalties unless they agreed to shift their business to Oracle cloud programs. Oracle’s use of audits was well known within the industry, but the extent to which the Company was using threats of audits to coerce customers to purchase cloud products was not known to investors, and expressly denied by the Company.” Complaint at ¶ 20.
 
“In addition to threatening customers with audits, Oracle also decreased its customer support for certain of its on-premises and hardware systems, in an effort to drive customers away from such systems and into cloud-based systems. Oracle also strong-armed customers by threatening to dramatically raise the cost of legacy database licenses if the customer chose another cloud provider.”  Complaint at ¶ 21.

If you believe your company has been forced into an unwanted cloud purchase arising out an Oracle audit, you may have legal remedies.  Please contact [email protected] if you would like to discuss your potential legal options.

Fulmer Ware LLP is continuing to monitor the litigation. Check back here for periodic updates.