LEGAL PROCEEDINGS

3 Months Ended

Aug. 31, 2011

Notes to Condensed Consolidated Financial Statements

LEGAL PROCEEDINGS

14. LEGAL PROCEEDINGS

SAP Intellectual Property Litigation

On March 22, 2007, Oracle Corporation, Oracle USA, Inc. and Oracle International Corporation (collectively, Oracle) filed a complaint in the United States District Court for the Northern District of California against SAP AG, its wholly owned subsidiary, SAP America, Inc., and its wholly owned subsidiary, TomorrowNow, Inc., (the SAP Subsidiary, and collectively, the SAP Defendants) alleging that SAP unlawfully accessed Oracle’s Customer Connection support website and improperly took and used Oracle’s intellectual property, including software code and knowledge management solutions. The claims alleged in the final operative complaint, Oracle’s Fourth Amended Complaint, filed on August 18, 2009 include infringement of the federal Copyright Act, breach of contract, violations of the Federal Computer Fraud and Abuse Act and the California Computer Data Access and Fraud Act, civil conspiracy, trespass, violation of the California Unfair Business Practices Act, and intentional and negligent interference with prospective economic advantage. The SAP Defendants filed an Answer on August 26, 2009.

Following the close of discovery and motion practice, on September 13, 2010, the court approved a stipulation by the parties whereby the SAP Subsidiary stipulated to all liability on all claims, and SAP AG and SAP America, Inc. stipulated to vicarious liability on the copyright claims against the SAP Subsidiary, and the SAP defendants retained all defenses related to damages.

Trial commenced November 1, 2010. On November 2, 2010, the court approved a stipulation by the parties, pursuant to which SAP AG and SAP America, Inc. stipulated to liability for its own contributory infringement of 120 of Oracle’s copyrights. Following trial on the sole issue of the amount of damages the SAP Defendants should pay to Oracle for the admitted infringement, the jury awarded Oracle the sum of $1.3 billion. The court entered judgment for that amount and for pre-judgment interest on February 3, 2011. The amount has not been received and has not been recorded as a benefit to our results of operations.

On February 23, 2011, the SAP Defendants filed a motion for judgment as a matter of law and for new trial, and on September 1, 2011, the court granted the SAP Defendants’ motion. The court vacated the $1.3 billion award and held that the maximum amount of damages sustainable by the proof presented at trial is $272 million. The court further held that Oracle may accept a remittitur of $272 million or, alternatively, the court will order a new trial as to the amount of actual damages in the form of lost profits and infringer’s profits.

On September 12, 2011, Oracle filed a motion seeking permission to bring an immediate appeal of the trial court’s September 1, 2011 order. Oracle also filed a motion to stay all further proceedings pending the court’s ruling on the motion to file an appeal and pending any subsequent appellate proceedings. In response, on September 16, 2011, the court issued another order clarifying the September 1, 2011 order and inviting Oracle to file a revised motion for certification. The court also denied Oracle’s motion to stay proceedings pending appeal as premature but granted Oracle an extension of time to accept or reject the remittitur presented in the court’s September 1, 2011 order. On September 23, 2011, Oracle filed its revised motion for certification.

On September 8, 2011, the SAP Subsidiary was charged by the U.S. Attorney for the Northern District of California with criminal copyright infringement and unauthorized access to a protected computer with intent to defraud. On September 14, 2011, the SAP Subsidiary pled guilty as charged. Under the plea agreement reached with the U.S. Attorney’s office, the SAP Subsidiary is required to pay a fine of $20 million to the United States, to pay restitution to Oracle in an amount to be determined through the pending civil action, and to remain on probation for a term of three years.

Derivative Litigation and Related Action

On August 2, 2010, a stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California. On August 19, 2010, a similar stockholder derivative lawsuit was filed in the Superior Court of the State of California, County of San Mateo. The derivative suits were brought by alleged stockholders of Oracle, purportedly on our behalf, against some of our current officers and directors, and one officer and director who has since left the company. Citing the claims in a qui tam action (discussed below), plaintiffs allege that Oracle improperly overcharged the United States government by failing to provide discounts required under its contract with the General Services Administration (GSA), and that Oracle made false statements to the United States government. Plaintiffs alleged that the officer and director defendants are responsible for this alleged conduct and have exposed Oracle to reputational damage, potential monetary damages, and costs relating to the investigation, defense, and remediation of the underlying claims. Plaintiffs bring claims for breach of fiduciary duty, abuse of control, and unjust enrichment. Thereafter, the two cases were consolidated, and on February 10, 2011, plaintiffs filed a consolidated complaint. On March 31, 2011, Oracle filed a motion to dismiss the consolidated complaint, and the individual defendants brought a separate motion to dismiss. Plaintiffs filed a consolidated opposition to these motions on April 28, 2011, and defendants filed a consolidated reply on May 19, 2011. The court heard oral arguments on these motions on June 2, 2011, but has not yet ruled on these motions. As discussed below, Oracle believes that the claims in the qui tam action are meritless, and that there are additional defenses to plaintiffs’ bringing this action on Oracle’s behalf.

On September 8, 2011, another stockholder derivative lawsuit was filed in the United States District Court for the Northern District of California. Like the consolidated derivative actions discussed above, the derivative suit filed on September 8, 2011, also was brought by an alleged stockholder of Oracle, purportedly on our behalf, against some of our current officers and directors. Citing the claims in a qui tam action (discussed below), plaintiff alleges that Oracle improperly overcharged the United States government by failing to provide discounts required under its contract with the General Services Administration (GSA), and that Oracle made false statements to the United States government. Plaintiff alleged that the officer and director defendants are responsible for this alleged conduct and have exposed Oracle to reputational damage, potential monetary damages, and costs relating to the investigation, defense, and remediation of the underlying claims. Plaintiff is pursuing claims for breach of fiduciary duty, waste of corporate assets, and unjust enrichment. Plaintiff is seeking compensatory and other damages, injunctive relief, imposition of a constructive trust, restitution, an award of attorneys’ fees and costs, and other relief. As discussed below, Oracle believes that the claims in the qui tam action are meritless and that there are additional defenses to plaintiff’s bringing this action on Oracle’s behalf.

On September 12, 2011, two alleged stockholders of Oracle filed a Verified Petition for Writ of Mandate for Inspection of Corporate Books and Records in the Superior Court of the State of California, County of San Mateo. The petition names as respondents Oracle and two of the company’s officers. Citing the claims in a qui tam action (discussed below), the alleged stockholders claim that they are investigating alleged corporate mismanagement and alleged improper and fraudulent practices relating to the pricing of Oracle’s products supplied to the United States government. The alleged stockholders request that the court issue a writ of mandate compelling the inspection of certain of the company’s accounting books and records and minutes of meetings of the stockholders, the Board of Directors, and the committees of the Board, related to those allegations. The petition further seeks recovery of expenses of the requested audit and investigation to be paid by Oracle and award attorneys’ fees and associated costs. As discussed in the paragraph below, Oracle believes that the claims in the qui tam action are meritless. In addition, Oracle believes that there are additional defenses to the petition.

On June 16, 2009, the United States Department of Justice notified us that a qui tam action had been filed against Oracle in the United States District Court for the Eastern District of Virginia and that the government was conducting an investigation of the allegations in the sealed complaint. On July 29, 2010, the United States government filed a Complaint in Intervention in that action, alleging that Oracle made false and fraudulent statements to the GSA in 1997-98 regarding Oracle’s commercial pricing practices, discounts provided to Oracle’s commercial customers, and discounts provided to government purchasers. The government alleges that Oracle also improperly manipulated commercial sales to avoid the discounting restrictions imposed by the GSA contract, reiterated and confirmed in 2001 false statements allegedly made during the 1997-98 contract negotiations, and breached a duty to inform the government about discounts offered to commercial customers. The Complaint in Intervention alleges False Claims Act violations and claims for breach of contract, fraud in the inducement, constructive fraud, fraud by omission, payment by mistake, and unjust enrichment. The Complaint in Intervention seeks statutory penalties and damages, including treble damages. Oracle filed a motion to dismiss the complaint and on November 3, 2010, the court granted the motion in part and denied it in part. The court dismissed the government’s claims to the extent they arose before May 29, 2001, and ordered the government to file a new complaint. This First Amended Complaint was filed on November 16, 2010, and makes allegations similar to those in the original complaint. Oracle filed a motion to dismiss the First Amended Complaint, which was denied. Oracle answered the First Amended Complaint on February 1, 2011. The parties are engaged in settlement negotiations, and as a result, the discovery and trial schedules have been suspended. We cannot currently estimate a reasonably possible range of loss for this action. We believe that we have meritorious defenses against this action, and if we are unable to reach a settlement, we will continue to vigorously defend against this action.

Other Litigation

We are party to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, including proceedings and claims that relate to acquisitions we have completed or to companies we have acquired or are attempting to acquire. While the outcome of these matters cannot be predicted with certainty, we do not believe that the outcome of any of these claims will have a materially adverse effect on our consolidated financial position, results of operations or cash flows.