The US Justice Department has accused Oracle of fraud, and has filed a suit claiming hundreds of millions of dollars in damages.
The government says Oracle overcharged it on a General Services Administration (GSA) software contract that ran from 1998 to 2006.
The contract required Oracle to keep the government updated on what discounts it was offering its commercial customers, and to offer the same terms.
But Oracle failed to do this, the DoJ says, meaning that government customers received deals far inferior to those of Oracle's commercial customers.
"We take seriously allegations that a government contractor has dealt dishonestly with the United States," said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. "When contractors misrepresent their business practices to the government, taxpayers suffer."
The suit was originally filed by Paul Frascella, Senior Director of Contract Services at Oracle, in 2007. It was filed under the False Claims Act, which allows private citizens with knowledge of fraud to file whistleblower suits on behalf of the United States and share in any recovery.
If the United States intervenes in the action and proves that a defendant has knowingly submitted false claims, it is entitled to recover three times the damage that resulted and a penalty of $5,500 to $11,000 per claim.
The DoJ claims that Oracle went to great lengths to avoid the requirement to offer the government the same terms as its other customers, such as funneling deals through resellers and creating short-term licenses.