How Common is it for SAP to Take Intellectual Property from Partners?

What This Article Covers

  • What was the xApps program, and how did it qualify as competitive intelligence or corporate espionage?
  • The Wellogix case where SAP conspired with Accenture to steal IP from a best of breed vendor.
  • The role of consulting companies as enablers for SAP’s behavior.
  • The need for regulations on SAP to prevent predation.

Pre-Reading

Some time ago I commented that the xApp program, which was where SAP “partnered” with some best of breed vendors should be terminated.

Introduction

The program did finally become mostly irrelevant (a few partnerships persist), with partners who were ill-served by the program refusing to continue their relationship with SAP. However, what is not frequently discussed is that SAP garnered a great deal of information about best of breed vendors from this program. Many best of breed vendors entered into the partnership with great expectations, but SAP never seriously meant to help them much in the way of sales.

Historical View

However, SAP starting partnerships and then ending them, often with IP that later leads to a lawsuit is quite common. It happened with i2 Technologies and with Commerce One.

History Repeats Itself

This article describes how they mostly did the same thing to another vendor, called Wellogix. The entire article on this case is available in this article. The quotations from this article are eerily similar what has come to be an obvious pattern with SAP. Some quotes include the following:

“While SAP already had an SRM (supplier relationship management module) that could handle some procurement tasks, it was inadequate for “complex services,” according to the complaint. “Wellogix had a working version of this software, and SAP was aware that it worked in a large client environment such as BP.”

After the deal was signed, a number of SAP employees visited Wellogix’s offices for a few days in order to “kick-off the NetWeaver Partner Agreement and perform [SAP’s] due diligence on Wellogix for the purpose of either investment in or the acquisition of Wellogix,” it adds. “During the workshop, employees of SAP went through Wellogix’s P2P software code in person with Wellogix personnel disclosing parts of the code structure.”

But instead of following through with the partnership, SAP used Wellogix’s trade secrets to “replicate the capabilities” of its software and incorporated them into its own SRM products, according to the lawsuit.”

This is all very standard. In fact, after seeing SAP work this way for years, I feel I could have written this script without having actually to read the article. However, the next part of the allegation becomes even more interesting. This is because SAP did not act alone to steal Wellogix’s IP:

“In 1999, BP America hired Accenture to help it “create a paperless (i.e. electronic) process in oil field services,” it adds. “After a thorough review of over twenty vendors, including SAP, Accenture recommended Wellogix.”

In January 2002, Wellogix and BP signed a software and services agreement, it adds. But Accenture then obtained confidential trade secrets from Wellogix and passed them along to SAP, according to the complaint.

Wellogix also sued Accenture in 2008, and won a $94 million jury award against the company earlier this year. Last month, a judge lowered the award $50 million and told Wellogix it could either accept the new amount or hold a new trial.”

And this is also not surprising. I have been writing for some time that SAP is far too powerful with the major consulting firms. In most cases, the major firms simply recommend SAP no matter how poor the fit. In fact, for most clients I work with, the most appropriate software from requirements and functionality perspective is not selected. There are several reasons for this, but one primary reason is that major firms like Oracle and SAP distort the market, making is far less efficient — as an economist would consider it, than the consumer software market. There is a great misunderstanding regarding the nature of market efficiency. Markets do not automatically become efficient through competition. Markets must be kept fair for an efficient market to exist as companies desire to build monopolies. This is poorly understood generally, as even some economists (many who take money from monopolies themselves), do not emphasize it. This is the entire reason for anti-trust regulations, regulations which are generally unknown to the pubic.

Regulation performs the same function performed by referees at any game. A fair game can only be ensured by an impartial intermediary which enforces the civil rules of the game. Those who use the term “free markets” or competition without understanding this feature of markets essentially do not understand the entirety of the history of economics. The efficiency of the enterprise software market is extremely important for the efficiency of the overall economy as is discussed in this article.

Major consulting companies maximize their revenues by recommending SAP, and this is why software selections performed by the major consulting companies are essentially rigged as I described in this article.

Advisement?

There is a concept that a consulting company provides an “advisement” function to their clients. However, with the money that drives the compensation schemes in the major consulting companies, the concept of putting the client ahead of the consulting firm’s revenues has essentially disappeared.

However, in this case, Accenture (which is not only accused but has been found guilty) conspired with SAP to help SAP steal intellectual property from a smaller vendor. This must have caught Wellogix entirely by surprise. However, it shouldn’t have because first of all, Accenture has a terrible reputation for unethical behavior, but also because the major consulting firms like Accenture receive so much of their consulting revenue from SAP that they are almost an arm of SAP. The best terminology I can use to describe the relationship is that they are remotely controlled.

Conclusion

This is a perfect example of how SAP has simply accumulated far too cozy a relationship and far too much influence over other actors in the enterprise market. I am not sure what more evidence the Federal Trade Commission (the body that polices anti-competitive behavior) has to see before they step in to limit SAP’s clear and obvious monopoly power in enterprise software. It has gone from major consulting firms overwhelmingly recommending SAP, even when the solution barely exists, to now a consulting company (and I would tend to doubt Accenture is the only one) assisting SAP in stealing IP from a vendor which the vendor freely shared with Accenture. If the FTC or other body does not eventually stop the behavior, it will get worse because SAP grows bigger every year, and very simply, power corrupts.

Continuing to try to address SAP’s abuses of power with smaller parties litigating against it is insufficient for the task. The litigation undertaken by Wellogix must have been extremely expensive, and a distraction for them, and is not something they should have had to bear. I wish I could have spoken with them before they partnered with SAP to explain how SAP operates. I have been fortunate enough to warn several vendors, and I think to keep them out of SAP’s lair.

All vendors, regardless of their size, deserve protections from predacious companies like SAP. Theoretically, companies are supposed to have similar intellectual property rights. However, that is now how it is in practice. SAP claims and has superior intellectual property rights over other vendors, and routinely violates the intellectual property rights of other vendors. This has been demonstrated in multiple lawsuits, as well as my observation of new SAP modules that have copied much of the functionality of best of breed vendors that they were once “partners” with. This is why it is time to regulate SAP, and not simply leave individual lawsuits as the only defense that best of breed vendors have against a company with $12.5 billion in annual revenues, and that doesn’t seem to think that rules of fair play apply to them.

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References

https://www.computerworld.com/s/article/9197887/Update_Oracle_awarded_1.3_billion_in_SAP_lawsuit