Friday, October 07, 2011

Oracle Settlement of False Claim Lawsuit Could Top $200 Million

“In what will shape up to be the largest False Claims Act settlement ever collected by the General Services Administration, software maker Oracle Corp. and Oracle America will pay $199.5 million plus interest to the agency, according to a Justice Department Oct. 6 news release”. This is from an October 7 news story.

You can bundle the software with hardware. You can bundle the software with consulting fees. You can bundle it with support fees. But in the end, when it comes to GSA pricing, the federal government gets favored nation’s status. Well, the myth of the $600 government hammer notwithstanding. That came down to cost allocation and is another story.

In software pricing and licensing agreements, there’s list price. There’s street price. There’s a negotiated price. And then there’s the GSA Price List. It appears as if the courts decided that Oracle had licensed software to someone else for lower than GSA pricing.

From a competitive standpoint, if you want to know the lowest a competitor can go, check out the GSA price list. The government alleged that some customers had received higher discounts than they had received. That wasn’t a good thing.

The payday for a former Oracle employee because of the Federal False Claims act will be $40 as his portion of the settlement. That’s even larger than what Hewlett Packard paid Hurd to go away.

In an interesting comment, a company spokeswoman told the Federal Times in an email that "strong controls" would have insured government customers received fair prices. Colloquially, this could almost be translated to “someone in government should have paid more attention.”

To be fair to businesses, sometimes the press can be unclear on the concept of software licensing and pricing. It’s common for software companies to have a tiered licensing structure. With tiered licensing, prices decrease at greater tier levels. Assume that a company wants to purchase some internet security software. Let’s say that between 150 and 199 units, the price is $25 each. At 200 units, the unit price decreases to $20. Doing the math, it turns out that for anything greater than 160 units, they should purchase 200 licenses. Why? Because they’ll essentially get 40 licenses for free.

Years ago, the press vilified a company in CA for selling the state government more licenses for than they needed. But, it could have actually made economic sense for them to do that.

The above is probably “too much information”. But, it’s a useful example.

If you want to learn more about GSA pricing, go to

So, Oracle pays the fine for not providing the Federal Government favored nation’s status. The whistle blower receives $40 million. Now he can buy an island and have his own nation.

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