The EU Antitrust Investigation Into SAP May Bring Greater Flexibility And Significant Cost Reductions For ERP Software Users

The European Commission's investigation into SAP's practices in the aftermarket for maintenance and support services related to its on-premises Enterprise Resource Planning ("ERP") software is in its final stages. The investigation is expected to lead to a negotiated settlement and binding remedies under Article 9(1) of Regulation 1/2003. This outcome could provide SAP ERP software users worldwide with increased flexibility and reduced maintenance costs.

This alert discusses several key elements of the commitments offered by SAP. Your company can still help influence the scope and effectiveness of the EU remedies by providing feedback on the draft remedies that are currently being market tested. Baker Botts Brussels Antitrust team represents one of the disadvantaged parties involved. If your company is interested in providing input on appropriate remedies to address the issues identified by the European Commission, Paul Lugard and Mounir Younes at Baker Botts' Brussels Antitrust team or your usual Baker Botts contact can assist you.

Context

Following numerous complaints from industry in the past years, the European Commission is finalizing its assessment whether SAP has abused its dominant position by imposing anti-competitive restraints on the provision of ERP maintenance and support services, as well as of the sufficiency of the commitments SAP has offered to address those concerns.¹

One main allegation is that SAP's Product Support for Large Enterprises ("PSLE") schedule and similar and related agreements are designed to lock customers in by making it impossible for customers to scale down, tailor or otherwise modify their SAP service needs; SAP's contracts serve to maintain the maintenance base value at any given time, even if SAP software is no longer used or needed. Many companies claim that, as a result, they face grossly inflated financial commitments. The Commission's preliminary assessment confirms that SAP's practices limit customer choice and result in unfair trading conditions.²

For companies using SAP's ERP software and support and maintenance services, especially those located outside Europe, it is important to ensure that any remedies that SAP will eventually consent to will effectively apply to their (non-European) operations, will be immediately effective and address the appropriate issues.

The draft SAP commitments

To address the Commission's concerns, SAP has inter alia offered the following commitments:

• Allowing SAP customers to split their SAP system ("Landscape") of on-premises ERP products and licenses into separate parts ("Commercial Installations") and for each Commercial Installation to choose between different support services suppliers as well as opt for different levels of SAP support or for no SAP support at all;
• Providing wider access to its single-metric contracts, which provide an alternative way for calculating the license fees based on which maintenance and support fees are in turn calculated. Customers will also have the option to place their unused licenses ("shelfware") in a separate part of their SAP system and to end SAP's maintenance and support services for that part;
• See Commission seeks feedback on commitments offered by SAP
  See Commission opens investigation into possible anticompetitive practices
  Clarifying its contractual provisions regarding the initial term of licenses, during which customers cannot terminate their support contracts, and refrain from restarting such term at every additional license purchase; and
• Abolishing reinstatement fees and reduce the back maintenance fees charged to customers once they resume the support services after a period during which they have gone off support, or when they contract such services at a later stage after the initial purchase of the primary license(s) from SAP.

Each SAP ERP user may want to evaluate how the proposed remedies may affect its SAP maintenance and support services costs going forward. Nonetheless, the following five observations may be relevant.

First, defining Commercial Installations or splitting existing SAP ERP Landscapes appears complex and may take an extended period to complete, potentially up to a year or more before changes take effect. There is also uncertainty as to whether the commitments provide sufficiently robust assurances that maintenance prices will not increase (or existing discounts will not decrease) when ERP users restructure its ERP Landscape into separate Commercial Installations.

Second, it is unclear whether the draft commitments provide for genuine partial-termination rights for unused licenses. The current text suggests that single unused licenses embedded in a Commercial Installation may remain payable, thereby undermining any meaningful cost reduction.

Third, the commitments do not, as such, seem to permit ERP users to define Commercial Installations on a geographic basis as an effective way to reduce costs. This may be problematic in cases where such an approach would be more aligned with ERP users' internal organizations and would simply future divestments and restructuring operations.

Fourth, there is some skepticism as to whether the commitments related to single metric contracts would truly prevent SAP from increasing prices through the introduction of new metrics or revised structures, while the proposed 10% annual reduction cap seems (too) low.

Fifth, there is a concern that users SAP ERP support and maintenance services would not have effective recourse to the Monitoring Trustee, a third party appointed by the European Commission to oversee compliance with any eventual SAP commitments. While the Monitoring Trustee is to act as a contact point for users suspecting non-compliance, those users do not have any formal position or rights to effectively force SAP to comply. It would therefore be preferable to put an obligation on the Monitoring Trustee in place to review users' complaint and provide users with its substantive views within a reasonable time, e.g., not later than three months after a complaint is made.

In conclusion

The commitments offered by SAP to address concerns raised by many market participants go some way toward providing greater flexibility and cost reductions for ERP software users. However, the draft remedies also give rise to several fundamental questions that warrant careful consideration if they are to effectively address the identified competitive problems.

Mounir Younes is a Legal Intern at Baker Botts.

Footnotes

1. See Commission seeks feedback on commitments offered by SAP
2. See Commission opens investigation into possible anticompetitive practices

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.