Oracle V. SAP: A Silicon Valley soap opera

November 15, 2010, 8:00 AM UTC

Oracle v. SAP has all the makings of an industrial espionage flick — a trash-talking CEO, a star litigator and high-profile witnesses. In sleepy Silicon Valley, those twists and turns have captivated everyone.

Contrary to its portrayal in the recent movie The Social Network, Silicon Valley is a pretty boring place. Restaurants close at 9pm. Billionaires wear jeans and dark-colored turtlenecks. And most people who hang out in downtown Palo Alto cafes would rather socialize with their iPads than each other.

That might be why many of us in the local media (myself included) have become so enthralled by the glitz and drama of the Oracle-SAP case, currently unfolding in a standing-room only U.S. District Court in Oakland, Calif. On the surface, Oracle v. SAP has all the makings of an industrial espionage flick—a trash-talking CEO, a star litigator and high-profile witnesses. It has a tantalizing side story: The bitter feud between Oracle and Hewlett-Packard, which SAP’s former CEO, Leo Apotheker, now runs. (And it features an even more tantalizing side-side-story: The sexual harassment allegations which led to the resignation of HP’s former chief executive, Mark Hurd, who now works for Oracle).

This complex corporate triangle has gotten even more confusing in recent days. Oracle insists current HP chief executive Apotheker knew its software had been stolen while he worked for SAP, and has called on him to testify in the trial. The only problem is, Oracle claims it can’t locate the executive.

HP getting dragged into this mess is a bonus for Oracle. The lawsuit itself—a relatively simple case of copyright infringement—has nothing to do with the Palo Alto-based HP, which competes with Oracle. In a statement to the press, HP says Oracle had “ample opportunity to question Leo [Apotheker] during his sworn deposition in October 2008.” It also blamed Oracle for trying to “harass” Apotheker and attempting to “interfere with his duties and responsibilities as HP’s CEO.”

It boils down to this: Four years ago, an SAP subsidiary called TomorrowNow admitted to using information from documents it had illegally downloaded to try and woo customers away from Oracle. SAP caught the unit’s wrongdoing and shut it down. Naturally, Oracle sued, hired a superstar attorney and claimed it was owed billions of dollars in damages. SAP admitted liability and offered to pay $40 million. The two are now battling over exactly how much SAP owes Oracle.

SAP says it just wants to resolve the case in “reasonable terms” and move on.

“We’ve accepted liability and acknowledged the behaviors that happened at the subsidiary,” Jim Dever, an SAP spokesperson, told FORTUNE. “This has very little relevance to our customers. We’re looking to put this behind us.”

Meanwhile, Oracle insists this is no ordinary case of stolen intellectual property.

“SAP’s admitted infringement is unprecedented,” Geoff Howard, counsel for Oracle told FORTUNE in an emailed statement. “SAP’s web scraper alone resulted in millions of copies of Oracle’s downloaded software and support materials on SAP’s servers. That’s before you even get to the thousands of copies of Oracle applications software made from Oracle’s CDs. Don’t underestimate how unusual this suit is.”

There is a huge gap between the amount of money Oracle is asking for and the number SAP says it is willing to pay. But it’s unlikely Oracle will get anything but compensatory damages (the judge presiding over the case has already reduced Oracle’s claim to $1.66 billion, down $500 million from the original amount it was asking for). So why didn’t the two settle out of court?

“Litigation is the sport of kings,” says Boris Feldman, a partner at Wilson Sonsini Goodrich & Rosati, a Palo Alto-based law firm (Feldman is not involved with either side of the Oracle-SAP case).

The trial is far from over (it is scheduled to last through the end of November), so expect even more twists and turns. Will Apotheker take the witness stand? What strategy will SAP’s defense take? Will HP be distracted by a case in which it technically has no involvement?

Stay tuned. I know I will.