The settlement amount would be less than a third of the $1.3 billion SAP was ordered to pay the Silicon Valley giant by a jury in November 2010.
The ruling Friday by a panel of three judges in the Ninth Circuit Court of Appeals in San Francisco came in response to a legal move made by Oracle in late 2012.
The appeals panel backed the trial judge on several points, including herdecision to override the big-money damages award based on the reasoning that the jury used "undue speculation."
"We conclude, however, that the district court erroneously set the remittitur at $272 million," the appeals judges ruled. "We therefore vacate and remand with instructions for the district court to offer Oracle the choice between a $356.7 million remittitur and a new trial."
After a jury ordered SAP to pay the Silicon Valley giant $1.3 billion, US District Court Judge Phyllis Hamilton called the figure "grossly excessive" and slashed it to $272 million.
Oracle rejected the amount and filed an appeal.
The case dates back to 2007, when Oracle accused SAP subsidiary TomorrowNow of a massive scheme to download and copy its software.
Prior to Hamilton's decision, the two firms agreed to a $306 million settlement figure -- but with the understanding that it was simply a maneuver to end the case in the lower courts and allow an appeal to proceed.