SAP fails in appeal against verdict

SAP Mexico failed in its appeal against the judgment of a civil lawsuit filed by Dominion Smart Innovation and Mexicana de Electrónica Industrial in the Mexico City Superior Court of Justice on November 25, 2019. The company recently filed another appeal and the final judgment is now expected in the first quarter of 2021. SAP's corporate accounts will remain frozen until then.

The lawsuit still centers on the allegation of deception against SAP Mexico, which the Mexico City court confirmed once again. Now SAP Mexico faces a possible payment of around 20 million U.S. dollars in total: ten million U.S. dollars in compensation as well as five million U.S. dollars in compensatory damages and another five million U.S. dollars in punitive damages due to particularly serious misconduct on the part of SAP.

The ruling is the result of several years of deception on the part of SAP Mexico. Specifically, SAP managers in Mexico had sold large quantities of software licenses to their sales partners for resale to Mexican companies in 2012 and 2013 as part of the SAP partner program MCaaS. This was based on alleged market studies and business plans that promised the partners secure license sales with high profits.

The Mexican subsidiary of the Dominion Group, which is listed in Spain, also concluded a partner agreement with SAP on this basis. It purchased software licenses worth more than ten million U.S. dollars, but has to date realized less than one percent of the license purchase price due to deception regarding actual market conditions. In the course of the investigation, it became clear that SAP had provided incorrect information regarding market potential and profit forecasts.

Market studies by globally recognized consulting firms also showed that the studies and forecasts prepared by SAP itself were flawed in various parts. As a result, the business potential promised as the basis of the partner agreement never existed for the partners.

The court ruling points out that Dominion is not an isolated case, but rather a "a peculiarly determined and even systematic way of deceiving third parties into making certain investments with the promise of entering into a tolerable business that does not in fact exist because there is no potential market to support it".

This means that the legal ruling in a legal dispute between Dominion Group and SAP Mexico, which has been ongoing for years, remains valid. On November 29, 2018, a civil court in Mexico City had already ordered a seizure of SAP's Mexican company accounts as a precautionary measure in response to the allegations. A total of just over US$10 million was secured at the time, which remains frozen as a protective measure with the current ruling. For SAP, the recently filed second appeal is the last chance to avert the judgment. In the event of renewed failure, the judgment on the penalty payment will apply.