What Can You Learn From Oracle Being Sued by the Department of Justice?

Quick background: Oracle was sued on July 29, 2010 by the Department of Justice, alleging that Oracle overcharged the government when it licensed its software.

• How does this work? Well, when a company wants to sell a significant volume of software to the federal government, they file what is called a CSP-1 (Commercial Sales Practices Format chart). On this form the vendor describes their pricing, products, services, etc., by tier of buyers (direct, channel, etc.) and, most importantly, their discount practices. The government wants to know that no one is receiving better pricing for a similar transaction.
• The Case. What happened in the Oracle case (at least as alleged in the complaint) is that the Oracle overcharged the government by selling software to various agencies at higher prices than it was to commercial customers. A whistleblower (i.e. insider) brought the initial case under seal and the government investigated (which took a few years). By the way, the whistleblower can receive up to 30 or so percent of the award, so there is a very strong incentive to bring these type of cases.
• What could the award be? Let’s look at some similar cases. Oracle paid $98.5 million in 2006 on behalf of PeopleSoft, EMC reached a settlement to pay $87.5 million, and Net App reached a $128 million settlement in 2009. 

So what can you learn from this?
1) Commercial Practices Sales Charts are really important, and someone needs to take ownership of them (cradle to grave). I suggest 1 person should be responsible for (a) helping draft the CSP-1, (b) updating it, and (c) ensuring compliance with it. If you read the Oracle complaint, it really looks like people were confused as to what the Oracle CSP-1 covered and what was excluded.

2) You can be audited, and they will look retroactively at your transactions and discounts. Not fun.

3) Get expert help. You should work with an experienced government contracting consultant or lawyer, as this type of contracting can get very complex, very fast. Remember, we are talking about government purchasing regulations here. 

4) The federal government is getting quite acquainted with software transactions and discounting practices, so they will get better at finding violations and bringing these type of cases. 

Any company looking for growth capital or a venture capital investment should take a read, especially if you have a GSA Schedule or will have one soon. This type of compliance issue will also come up when you want to sell your company or as part of your company exit strategy, as buyers are now well aware of this risk and compliance issue (this applies whether or not you are looking for growth equity).

Resources
Here is a copy of the actual complaint filed with the court (if you have a few mins, it is worth reading)

Blog Post on the Risk and Rewards of Government Contracts 
Here is an example of a Commercial Practices Chart

Disclaimer: This post is for educational and informational purposes only, and does not constitute legal advice. Contact your attorney for specific legal advice.