Oracle audits: Amazon RDS and questionable sales tactics?

Oracle

Oracle audits: Amazon RDS and questionable sales tactics?

Oracle v Envisage

Earlier this year (May 2021), Oracle started legal proceedings against Envisage Technologies LLC and the case centered around alleged under-licensing in their Amazon RDS environment.

What is Amazon RDS?

Amazon Relational Database Service (RDS) is a cloud-based Platform as a Service (PaaS) database in the cloud, where Amazon look after tasks including provisioning, database setup, patching, and backups. Amazon make it available with six different database “engines”:

• Amazon Aurora
• PostgreSQL
• MySQL
• MariaDB
• Oracle Database
• Microsoft SQL Server

What happened?

While court cases following a software licensing audit are not uncommon, the fascinating/worrying thing here is that no audit took place – although there were aborted conversations in March 2021.

Instead, Oracle used public documents from the Envisage website plus documents posted by government agencies and/or obtained via Freedom of Information (FOI) requests to paint a picture of non-compliance worth, they say, $3 million. Oracle have stated that the customer purchased a license of Database SE1 but, based on what Oracle can see of the hosting services Envisage supply, it would require at least SE2 and “more likely” Enterprise Edition. It is worth noting that this scenario involves Envisage making their product, that is powered by Oracle, available to their customers via a hosted offering.

Third-party claims and license compliance

In a counterclaim from Envisage from July 2021, they state that in choosing the Amazon RDS “license included” option they:

“relied in good faith on representations made by AWS regarding the scope of the license to Oracle Database provided under AWS’s “License Included” service model for Amazon RDS for Oracle”

And were told, even after a technical explanation of how their solution worked and that it was a hosted offering to their clients, that the RDS license included option would be right for them.

However, section 10.3 of Amazon’s Terms of Service deals with Amazon-provided Oracle software and 10.3.1 states:

“You may only use the Oracle Software for your internal business operations”

And that you may not:

“use the Oracle Software for rental, timesharing, subscription services, hosting, or outsourcing”

And Envisage were clearly providing a hosted service.

Conclusion

This goes to show the importance of organisations doing their due diligence when it comes to software use rights. Relying on 3^rd-party statements is rarely enough and can often lead to problems – in this case, problems that fundamentally threaten the business model of the impacted organisation.

If your organisation is moving to the cloud, be sure that ITAM and legal are working together to understand the licensing, and thus contractual, implications of any cloud based solutions.

What’s next?

It was noted in August 2021 by law firm Beeman & Muchmore that the case between Envisage and Oracle seemed to be coming to a close.

August 11^th saw the filing of a “Notice of Conditional Settlement; Joint Stipulation and [Proposed] Order to Vacate Case Deadlines” which states the two parties had agreed to settle the matter, subject to certain conditions.

The terms of whatever settlement was made are confidential so we can’t know for sure what happened. Was the involvement of Amazon part of the reason the decision was made not to continue this discussion in public?

Further Reading

Tactical Law Group

Beeman & Muchmore

Oracle v NEC

Another Oracle audit that reached the courts in 2021 was Oracle v NEC. This has a value of $7,000,000 although it is a little different than usual as it focuses on NEC Corporation of North America (NECAM) allegedly violating the terms of their OPN (Oracle Partner Network) agreement.

NEC distribute Oracle Database and Options & Packs embedded within/alongside their own products – namely Integra-ID 5 – and Oracle claim they have been doing so in a way that breaches the rules of the various partner offerings available. There are three primary methods:

• ESL – Embedded Software License
• ASFU – Application Specific Full Use
• Full Use

Each of which have slightly different requirements around the relevant rights for the Oracle software and, consequently, command different license fees from the distributor to Oracle.

What happened?

Upon auditing NECAM, Oracle found that while they were paying the lower ESL fees, NECAM were allowing and enabling activities that were only permitted under the more expensive ASFU agreement. Furthermore, Oracle claim that where NECAM were paying ASFU fees, in some cases they were allowing their customers to use the Oracle software with non-NECAM software – a right only granted by the most expensive Full Use rights. Finally, Oracle claim that NECAM’s on-premises environment was incorrectly licensed for Oracle Database and the Options and Packs.

NEC counterclaim

In September 2021, NEC filed a counterclaim against Oracle and made various interesting statements.

First up, NEC state that Oracle had approved the way they were licensing their solutions and that they had full knowledge of the intended usage before anything was signed:

“Oracle is alleging non-compliance based on the types of activities that NECAM told Oracle it intended to engage in before the parties entered into the Embedded license”

NEC then go on to claim that Oracle salespeople purposefully create these non-compliant scenarios – even if they earn less revenue initially – so that they can come back and reap the rewards in audit penalties at a later date.

“Oracle intentionally created these incentives to push clients toward the most restrictive Embedded license…in order to collect penalties for violations of the license restrictions and coerce additional purchases of services, subscriptions, or licenses arising out of Oracle’s predatory audits”

And

“pushed NECAM towards the most restrictive Embedded license with the expectation that NECAM would violate the restrictions of the license, which would provide Oracle with a basis to demand payments of list prices to resolve the audit, or face license termination”

Furthermore, NEC made this claim not just on their own behalf but also that of other Oracle licensees. They say they don’t believe they are the only organisation to fall foul of this and believe that Oracle:

“routinely induces companies to adopt the Embedded license with the expectation that it can subsequently allege non-compliance with the restrictions during a future software audit to maximize its profits”

Oracle’s sales tactics have been highlighted by customers before but, as Beeman and Muchmore state, this is quite a risky strategy from NEC and we shall have to wait and see if other organisations are willing to stand alongside them in this dispute.

Further Reading

Beeman and Muchmore

 

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