$1.3 billion of enterprise risk management lessons from Oracle vs. SAP

There’s been no lack of coverage in the business and legal press regarding Oracle’s $1.3 billion jury award against SAP. I will leave it to others to comment on issues such as whether the correct damages model was applied, and whether the verdict will be upheld on appeal (although I’ll bet the case settles before an appellate decision is rendered).

I’m more interested in what lessons legal departments and others responsible for mitigating their enterprise’s legal risks, particularly those arising in connection with acquisitions, can draw from Oracle vs. SAP.

It’s interesting to go back and look at some of the news reports from 2005 on the SAP acquisition of TomorrowNow. We can also review the news reports on SAP’s decision to shut down TomorrowNow in the face of Oracle’s lawsuit (including allegations that SAP executives were aware of the legal risks associated with TomorrowNow’s business model).

It seems to me that one lesson is that General Counsels need to be absolutely certain that their deal teams have a full understanding of the legal implications of the business models of M&A targets, and the attendant legal risks – issues that can’t be left to the judgment of a squadron of junior associates reviewing boxes of due diligence documents in a windowless conference room, or its cyberspace equivalent. A second lesson may be that acquired companies can’t be left to their own devices, no matter how well they do at hitting their numbers – ongoing and active, yet collegial, legal risk management is needed to ensure that the new division operates in a manner consistent with its new owner’s core values. (I’ll add the caveat that I don’t claim to have any knowledge of how the TomorrowNow acquisition was diligenced or monitored.)

One of the challenges any law department faces in this regard is how to find the time (and if necessary, budget) to perform these activities, since the next M&A deal – or other major project – is likely already requiring significant resources and energy, even before the last deal closes. Resources have to be peeled away from low-value-adding activities in order to ensure that these key risks are mitigated – and that acquirers are not at risk of repeating SAP’s $1.3 billion of pain (plus tens of millions of attorneys fees!).

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