Oracle slapped with lawsuit over alleged IP theft by subsidiary

Less than two months after a federal jury awarded Oracle Corp. $1.4 billion in damages in a copyright theft case involving SAP, the database giant finds itself accused of stealing corporate secrets.

2FA Technology LLC, a Texas based maker of identity management technologies, has filed a federal lawsuit charging Oracle and former partner and current subsidiary Passlogix with conspiracy and corporate theft. The lawsuit contends that Passlogix and its top management stole millions of dollars worth of corporate trade secrets and intellectual property from 2FA, and that since buying Passlogix, Oracle has continued to sell the technology despite knowing about 2FA’s concerns.

The 2FA complaint accuses Passlogix of attempting to deprive it of millions in royalties, and to force the company into bankruptcy. The suit alleges that Passlogix used an illegally obtained “storehouse” of material from 2FA to develop new software components for Passlogix products as well as for Oracle products.

2FA is seeking punitive damages and $110 million in compensatory damages from Oracle for conspiracy, aiding and abetting copyright theft and unjust enrichment, and a litany of other charges.

Oracle did not respond to a Computerworld request for comment.

The dispute stems from an agreement that 2FA entered into with Passlogix in April 2006. Under the agreement 2FA licensed its authentication and credential management software to Passlogix. The agreement gave Passlogix access to 2FA’s source code under “very restrictive terms,” according to court documents.

The agreement required that 2FA modify its credential management software to allow Passlogix to rebrand the technology and sell it alongside its other password management products. The agreement also obligated Passlogix not to develop any competing credential management software of its own during the course of the license agreement and for two years after it expired.

Oracle resold the Passlogix products under a reseller agreement, and then bought the firm last November.

According to 2FA, Passlogix developed its own credential management technology while also holding on to 2FA’s IP. The company claims that Passlogix executives stole a large volume of 2FA IP during a four day code walk-through with Passlogix engineers and a demonstration of the technology.

In its complaint, 2FA claimed that its technology was used in Passlogix products that were rebranded and sold to Oracle, which it turn sold it as part of its own identity management products suite.

The dispute between the two companies resulted in 2FA and Passlogix agreeing to scrap their license agreement in 2008. 2FA claims that even after this agreement Passlogix continued to misappropriate 2FA technologies and failed to live up to its obligations while the contract winded down.

2FA alleges that after Oracle purchased Passlogix last year for $42 million, Oracle has been continuing to knowingly sell products containing misappropriated technology from 2FA.

The lawsuit comes just weeks after Oracle won a major victory in its dispute against SAP over a very similar issue. In that case, Oracle had argued that TomorrowNow, a defunct subsidiary of SAP, had stolen millions of dollars worth of IP when delivering third-party maintenance services to Oracle customers.

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Jim Love, Chief Content Officer, IT World Canada

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