Should software businesses use IPRs to force their customers to stay with them?

  • Increasingly, software businesses are suing 3rd party providers on the basis of copyright.
  • Whether those 3rd party providers are in breach depends a lot on context – there’s no easy answer.
  • But is it a good idea to use IPRs to force vendor lock-in on your customers?

Rimini Street is a fairly young business, it was founded in 2005. But it is growing very rapidly. Rimini Street offers offers support services on enterprise software products, such as legacy Oracle products. Rimini Street offers these services at prices that are much, much lower than Oracle’s own support services.

Rimini Street is not the only one doing this, and Oracle products are not the only ones targeted by such 3rd party support providers.  They also target SAP, JD Edwards, Siebel (both now owned by Oracle), Computer Associates, etc.

The essence of 3rd party support providers is that they are offering support on someone else’s products, without the authorization of the original product company.

Large corporate customers, who have spent large amounts to automate parts of their business processes, find themselves with technology that, while not the youngest, is mostly working fine. And, more importantly, it has been configured and customized at great cost for their specific needs, and can deal with their internal data.

So, one thing those customers often do not want to do, is follow that technology in all its upgrades. And certainly not when such upgrades mean they have to go through configuration and similar efforts all over again, at considerable internal cost, and, in addition, have to pay extra license fees.

Around 50% of all Oracle’s revenue comes from such “old” customers, and the support, maintenance, upgrade and customization fees charged. Those fees effectively only enable customers to use something they already have.

And a lot of customers don’t like that. They prefer 3rd party support providers, like Rimini Street, who come in and commit to maintain such legacy systems at 50% of the cost.

And Rimini Street is doing very well indeed. 32% revenue growth year over year, and $400m in backlog are serious numbers.

Oracle, in return, doesn’t like those pesky 3rd party providers.

Oracle dislikes it so badly, that they are suing Rimini Street. While that may be preferable over suing its own customers, in a way, you could argue that Oracle, indirectly, is trying to use the courts to force its customers to stay.  A legal vendor lock-in.

Oracle uses alleged copyright infringement as the basis of its claim. It works like this: because Oracle has copyright on the code in its products, the customers only have those usage rights as set out in the original license.

And Rimini Street, obviously, has not paid any license fee to Oracle.

But, in order to provide support services, a 3rd party provider will typically do things to the original software for which it needs a license. These can include setting up a test environment, modifying certain parts of the code, interfacing (or change existing interfaces), developping small bits of code on top of it, to make it work better, reverse engineering certain parts, etc.

There are three possible arguments Rimini Street could use to say it doesn’t actually need a license from Oracle.

The first is that Rimini Street only uses the license granted to the customer. In other words, Rimini Street should, from Oracle’s perspective, be considered as the customer.

That doesn’t necessarily solve the problem.

A lot of software suppliers prohibit their customers to maintain or support themselves the software they acquired. Such prohibitions are typically contained in the software license.

But there two important comments to make at this point. First, a lot of customers will negotiate specific terms. When a large customer is waving with a large check on order signature, and asks in return an enterprise license, including the right to support (including using 3rd party support), providers like Oracle may find themselves in a position where they find it hard to refuse. Certainly for older contracts, I would not be surprised to find such clauses – in the older days, a lot less attention was paid to the scope of the license.

Second, there’s legal theory around the fact that a license that is too restrictive, is no longer enforceable. It comes down to the position that a license-holder (in our case Oracle), can not grant a license and expect to be able to restrict pretty much any useful way of using the product – it would make the license useless, and the contract an empty shell.

For consumer products, such as the Apple’s iPhone, the solution to this problem is called “jailbreaking”. It means that the restrictions, imposed by the licensor, are not always enforceable, because otherwise the original license has no longer a real purpose.

Consider this example. When you buy a smartphone, you buy a combination of hardware and software. The hardware is yours, you can do with it what you want. You can reverse engineer it, you can combine it with other hardware, etc. There’s nothing in the world that can stop you from doing so (certainly not patents).

But that’s not true for the software. The software is not sold to you, only licensed. You get a right to use it, which is typically formulated in a very restrictive way. It’s what those famous “click-wrap” licenses state, the ones that nobody reads, but has to accept before they can install a piece of software.

And, for B2C software, it has been stated that when those licenses become absurdly restrictive, the users can actually ignore them without being in copyright infringement. That’s “jailbreaking”.

Coming back to our Oracle – Rimini Street example, Oracle’s customers could  formulate a similar argument. They have paid good money for the software, and should be able to use it, without being forced to stay in a vendor lock-in arrangement where Oracle can sue any other provider out of the market.

For certain markets, you can even smell anti-trust law around the corner – except that that is, of course, a very heavy process.

So, it’s not clear who will win this. First glance, I think, Oracle stands a very good chance. In a recent other case (in Australia), Computer Associates won a similar argument, based on copyright, from ISI, a part of IBM.

But my feeling is that an Oracle victory in court would probably be useless, if not of negative value.

Who would want to buy software from a provider who will sue anyone who can support it better and cheaper?

Third party software support is here to stay, whether called Rimini Street or otherwise.

What that means is that, trying to use IPRs to lock in your customers, may be possible from a legal perspective, but doesn’t seem to make a lot of business sense to me.

But there’s another issue of course.

It’s that elephant in the room called Open Source Software (OSS).

More and more enterprise software is becoming OSS. And providers like Rimini Street look like the perfect OSS support outfit: they will compete on price and quality of support of an existing application – that’s exactly how the OSS products have been outcompeting proprietary products in every market where they have attained critical mass.

My feeling is that Oracle, through its actions against third party support providers, is pushing the market towards OSS. And from what I’ve seen, that is a one-way street.

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