US Government sues Oracle for overcharging

The U.S. Department of Justice has begun legal action against Oracle alleging that the software giant defrauded the government out of tens of millions of dollars.

According to legal briefs filed under the False Claims Act in the US District Court in the Eastern District of Virginia Oracle didn't offer the government the same discounts for large orders that other customers were given.

“US taxpayers “overpaid for each Oracle software product by the amount of discounts and reductions from other commercial pricing practices that should applied to each such purchase,” the complaint reads according to Bloomberg.

The action against Oracle was initially brought by a former employee, Paul Frascella, who sued the company under the False Claims Act, which allows whistleblowers to take action on behalf of the government, and receive a cut of any payout. The U.S. Government has now joined his action and unsealed the case.

The complaint states that the U.S. General Services Administration (GSA) set up a "multiple award schedule" of contracts with suppliers, listing products and prices in a catalog which makes it easier for government agencies to buy new software. The prices are supposed to match commercial discounts.

However, it is alleged the company got around this to offer deeper discounts for non-government customers. Tactics included selling to resellers at a major discount and letting them pass on the savings.

“Oracle knowingly and recklessly employed these techniques to offer commercial customers deeper discounts without offering those deeper discounts to the US government,” according to the complaint.

The government is taking an increasingly hard line with software companies that are found to have defrauded it. Earlier this year EMC paid over US$87 million in fines to settle a similar case and in 2009 NetApp paid out US$128 million to settle legal action. In the latter case former employee Igor Kapuscinsk netted over US$19 million for his part in bringing the case.