Oracle and SAP are in copyright battle. SAP has admitted that a former subsidiary violated Oracle’s copyright through an illegal download. The only question in the fight is how much SAP owes Oracle in damages. Thus, the case is an interesting pure insight into the way that the value of an intangible is calculated. Yesterday, the case took an interesting turn. A jury had awarded Oracle $1.3 billion; the judge is now saying $272 million. A story in the Wall Street Journal (Judge Overturns $1.3B Penalty SAP Was to Pay to Oracle) explains:
SAP appealed the jury’s damage award, and U.S. District Judge Phyllis Hamilton on Thursday concluded the amount “was contrary to the weight of the evidence” and “grossly excessive.” The jury largely based its award on the amount SAP would have had to pay for rights to the software in licensing negotiations with Oracle.
During a hearing in July, SAP argued that that methodology was flawed because Oracle never would have sold SAP rights to the software. The judge sided with SAP, granting its motion for a new trial to set damages in the event Oracle rejects the proposed $272 million award. She said such a trial would base any damage award on the profits that Oracle lost and SAP gained through the infringement.
Yes, you heard that right — lost royalties is not the correct way to calculate the value because the company would not have licensed the product in the first place.
So, the value of an intangible is not what the owner is charging for it, but what the market profit is from using that intangible.