Escalating its rancor with rival SAP AG, business software maker Oracle Corp. accused SAP on Monday of knowingly buying and then embracing an illegal operation set up to steal Oracle's products and customers.

The allegations emerged in the latest documents filed in a fraud case that Oracle brought against SAP last year in San Francisco federal court. Oracle fired its volley the day before Germany-based SAP is scheduled to report its second-quarter earnings.

The 16-month-old lawsuit focuses on TomorrowNow, a software maintenance specialist that SAP bought in 2005 to counter Oracle's $11.1 billion acquisition of PeopleSoft.

TomorrowNow offered to support PeopleSoft products at lower prices than Oracle did, an advantage that SAP hoped to use to lure customers away from its biggest rival in business applications software. Those products automate a wide range of administrative tasks.

But Oracle alleges that TomorrowNow relied on a ''corrupt'' strategy that included breaking into Oracle's computers to obtain confidential information.

After reviewing internal SAP documents obtained during the discovery phase of its lawsuit, Oracle became convinced that its rival's top executives were warned about TomorrowNow's outlaw behavior before the acquisition and then embraced the conduct after buying the subsidiary.

Oracle's allegations contradict some of the public statements of SAP's chief executive, Henning Kagermann, who said the company's hierarchy in Germany and the United States never had access to any ''inappropriate'' material obtained by TomorrowNow.

In the documents filed Monday, Oracle alleged that SAP executives could enter TomorrowNow's system through an internal Web site and also routinely exchanged material with the subsidiary through e-mail.

In June 2005, SAP executives even considered conspiring with TomorrowNow's management to cover up the covert activity as part of a plan called ''Project Blue,'' Oracle alleged Monday. The project was eventually scrapped, according to Oracle's legal brief.

''For years, SAP profited from (TomorrowNow's) illegal business model, without breathing a word about it to Oracle, SAP AG's existing and prospective customers, or the investing public,'' Oracle's lawyer wrote in Monday's filing.

SAP spokesman Saswato Das declined to address Oracle's latest allegations.

''Ultimately, it is the court that will determine the facts and remedies in this case and we prefer that this discussion take place in the legal system,'' Das said.

Signaling its disappointment with TomorrowNow's performance, SAP last week disclosed plans to close the subsidiary in October.

But TomorrowNow could saddle SAP with legal headaches beyond the Oracle lawsuit, which is scheduled for a February 2010 trial.

Prompted by Oracle's allegations, the U.S Justice Department also has been collecting documents from both companies to determine whether any laws were broken. A Justice Department spokesman declined to comment on the inquiry Monday.

SAP's acquisition of TomorrowNow and Oracle's subsequent lawsuit reflects the ill will that has been building between the two rivals during the last three years as Oracle has spent more than $35 billion to gain more market share in the business applications software market.

Besides PeopleSoft, Oracle also has bought Siebel Systems, Hyperion Solutions, Retek Inc. and a hodgepodge of smaller vendors.

In Monday's documents, Oracle alleges that SAP also used TomorrowNow to get information inappropriately about Siebel's software products, not just PeopleSoft's.

Source:AP news