DoJ joins whistleblower in Oracle fraud suit

The US Department of Justice has joined a whistleblower suit that accuses Oracle of defrauding the US government by not keeping government discounts pegged to commercial discounts
Written by Jack Clark, Contributor

The US Department of Justice has joined a lawsuit against database software company Oracle, which claims that the company intentionally defrauded the US government by mispricing software licences.

The suit centres on a General Services Administration (GSA) software contract worth $1.1bn (£700m) between 1998 and 2006.

The Department of Justice (DoJ) announced on Thursday that it is taking part in an existing complaint against Oracle and will represent the US government. The complaint claims that Oracle deliberately misrepresented its pricing policy, and failed to keep the GSA's discount rates on a par with those being offered to other buyers.

The original complaint was filed by ex-Oracle employee Paul Frascella in 2007. The US government, represented by the DoJ, has joined the case as part of the False Claims Act, which allows it to fight the case on behalf of Frascella, and recoup damages for both parties.

The original suit was filed in the US District Court for the Eastern District of Virginia in March 2007. The new filing, in the same court, was dated on Thursday.

Oracle is now facing a case that could grant the US government three times the damages allegedly caused by Oracle's pricing strategies, if successful.

"Under the False Claims Act, the government can seek to recoup up to three times the damages — that is, three times the amount of the fraud," DoJ spokesman Charles Miller told ZDNet UK on Friday. "If the allegations are that a company or individual defrauded the government $100, the government can seek up to $300."

According to the suit, the GSA software contract went out to tender in mid-1997. Oracle allegedly offered the GSA a discount of between 26.7 percent and 40 percent on the price of the contract for software licences and maintenance, saying that the highest discount it would give to a typical commercial customer was between 15 percent and 20 percent. Oracle showed the government a pricing chart that backed up these claims, according to the suit.

However, two months prior to the start of the contract, Oracle authorised discounts to some of its customers of between 40 percent and 70 percent, the court filing claims.

During meetings, Oracle told the US government that "non-standard discounts are used in less than 5 percent of total commercial transactions", said the court document. Despite this assertion, during the first seven months that the contract was in play, Oracle gave non-standard discounts to the majority of its non-GSA customers, according to the government.

"We take seriously allegations that a government contractor has dealt dishonestly with the United States," said Tony West, assistant attorney general for the civil division of the Department of Justice. "When contractors misrepresent their business practices to the government, taxpayers suffer."

Oracle declined to comment on the case.

The DoJ has taken legal action against Oracle before; in February 2004, the DoJ filed suit against Oracle, alleging that Oracle's proposed acquisition of PeopleSoft could lead to monopolisation of Oracle's sub-sector of the business software market. Oracle won the case, with the judge ruling that the acquisition would not lead to an anti-competitive marketplace.

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