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Thursday, August 16, 2012

An Early Win for Hewlett-Packard in Its Battle with Oracle

For three decades Oracle and Hewlett-Packard (“HP”)  worked together, with HP selling its hardware and Oracle selling its software, to their shared customers and the two corporations cooperating to make certain that Oracle's software was compatible with HP's servers which run on a system called "Itanium."  Tensions arose when Oracle acquired Sun Microsystems (“Sun”), a direct HP competitor, in 2010.  And things did not get better when Oracle hired HP's former CEO, Marc Hurd, and HP sued to enjoin Hurd from sharing trade secrets with his new employers.  Meanwhile, HP sought assurances from Oracle that it would continue to offer its software on HP’s platforms.  Along with assurances from Oracle’s most senior software execs that it was committed to business as usual, the parties signed a “reaffirmation agreement” (the Agreement), which stated in Paragraph 1:

Oracle and HP reaffirm their commitment to their longstanding relationship and their mutual desire to continue to support their mutual customers.  Oracle will continue to offer its product suite on HP platforms, and HP will continue to support Oracle products…on its hardware in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd.

The parties continued business as usual until Oracle abandoned this “work together” approach.  In a press release issued in March, 2011, it announced, without notice to HP, that new versions of Oracle’s software would no longer be compatible with HP’s server platform.  HP then filed suit, soon followed by Oracle’s very colorful cross-complaint

After a 12-day trial, on August 1st, the Santa Clara Couty Superior Court bestowed this win on HP, fiinding in HP's favor on its claims for both breach of contract and promissory estoppel.  The court found that the parties are bound by the Agreement, and that Oracle has a continuing obligtation to offer its product suite on HP's Itanium-based server platforms until HP discontinues the sale of its Itanium-based servers.   

The Superior Court began its inquiry by breaking down the plain language of Paragraph 1 and determined that (1) the first sentence was fully consistent with a continued obligation to make certain that Oracle software is compatible with HP servers, and (2) the second sentence used the language “Oracle will continue…” which can “only be reasonably interpreted as requiring Oracle to continue offering its product on HP’s Itanium platforms.”

The court rejected Oracle's argument that the Agreement  “merely a ‘public hug’ that imposed no obligations on either party,” and that Oracle “retained absolute discretion with regard to” making its software compatible with HP's systems.  In rejecting the "public hug" theory, the court noted that throughout the parties’ history, 99% of their dealings were accomplished without contracts.  Therefore, based on the parties’ prior course of dealing and the plain language of Paragraph 1, because HP was simply asking Oracle to maintain the business relationship as it had been prior to Oracle’s hiring of Hurd, it was fair and reasonable to require Oracle to continue its obligation to make its software compatible with HP systems.  Since the court interpreted the Agreement as a promise by Oracle to continue to work with HP, it found that Oracle's unilateral announcement that it would no longer make its software compatiable with HP systems constituted a breach of contract.

The court also ruled for HP on its promissory estoppel claim, based upon unambiguous promises made by two Oracle executives.  In reliance upon these assurances, HP provided Oracle with nearly $5 million of Itanium servers for porting and continued to invest in research and development in order to optimizing compatibility with Oracle’s software.  Further, HP also entered into the Itanium Collaboration Agreement (“ICA”) with Intel, a $264 million investment.  As the parties’ had been long-time business partners, it was foreseeable that HP would have no reason to doubt Oracle’s word and would make investments based on its support.   HP relied upon the parties’ long-term, upstanding business relationship to its detriment.  As a result, the court found that all elements of a promissory estoppel claim were satisfied. 

In sum, the plain language of the agreement, Oracle’s continued assurances of commitment, both to HP and to the public, and the parties’ long history of informal dealing sans contracts led the court to find for HP on both the breach of contract and promissory estoppel claims.  The court ordered Oracle to continue its porting obligations without charge “until such time as HP discontinues the sale of its Itanium-based servers.”

As reported here by allthingsd.com, Oracle released the following statement:

“Last March, Oracle made an engineering decision to stop future software development on the Itanium chip.  We made the decision as we became convinced that Itanium was approaching its end of life and we explained our rationale to customers here.  Nothing in the Court’s preliminary opinion changes that fact.  We know that Oracle did not give up its fundamental right to make platform engineering decisions in the 27-words HP cites from the settlement of an unrelated employment agreement.  HP’s argument turns the concept of Silicon Valley ‘partnerships’ upside down.  We plan to appeal the Court’s ruling while fully litigating our cross claims that HP misled both its partners and customers.” 

So, the battle has been lost but the war continues.

[Chrstina Phillips and JT]

 

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