HP v. Oracle Case Study

Several gigantic tech companies reside in the Silicon Valley. While Apple and Samsung are fighting the biggest court battle around here, there are other legal disputes worth mentioning. I thought I might get the opportunity to watch a different court case, but the decision in the HP Oracle dispute seemed to be reached while I was watching a different jury trial. Since the judge in the case was recently in the news for ordering companies to pay for legal paint cleanup, let’s talk briefly about the Hewlett-Packard v. Oracle case and why HP won the bench trial.

The HP Oracle case is a contractual dispute that arose from a settlement dealing with trade secrets. You may recall that due to a sexual harassment dispute Mark Hurd resigned from his CEO position at HP. Shortly after Hurd left, Oracle CEO Larry Ellison hired Hurd as co-president. Hewlett-Packard sued Oracle claiming that Hurd would pass trade secrets and confidential material to his company and give an unfair advantage to Oracle over HP and the competition. The two tech companies settled their dispute because they wanted to preserve their business relationship. The settlement states as much, as it reads, “Oracle and HP reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers.” As part of this mutual support, “Oracle will continue to offer its product suite on HP platforms…on its hardware in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd.” When Oracle in 2011 discontinued support for HP’s Itanium-based servers without warning HP about the coming change, HP sued Oracle again.

The issue in the more recent lawsuit was whether the partnership language applied to contractual support of a specified HP product even if HP discontinued the line. Oracle argued that the settlement agreement was too vague to rule that partnership included the partnership to port software before Hurd joined Oracle. Under California law, and common law in general, a contract is interpreted based on the objective intent of the parties. If a party believes subjectively the terms are different than what the parties mutually agree on, the reasonable interpretation of the mutual contract based on the objective evidence and public statements controls. The judge cites the use of “will” in the settlement agreement as evidence of “mandatory future action” and is consistent with the press release that HP and Oracle issued to settle the lawsuit over Hurd.

Oracle opposed this interpretation, but the judge ruled that Oracle’s interpretation of the agreement did not make sense. Oracle tried to get out of the contractual agreement by arguing that the language was just meaningless public relations talk and, alternatively, that Oracle still had the final say about porting the software because it did not involve Hurd dealing directly with his former employers. The judge rejected the first counterinterpretation because a party to a contract cannot argue that the language, especially that suggesting mandatory requirements, has no meaning in the overall agreement. The second Oracle interpretation was rejected because the language does not impose a subject matter boundary with regard to Hurd’s role but instead a temporal boundary with respect to the partnership before Hurd joined Oracle. The language of the settlement did not suggest Oracle was allowed the discretion Oracle desired either.

While the judge examined other contractual issues related to the case, the judge sided with Hewlett-Packard on all counts. Since the plain language of the settlement supported the existence of a contract, examining extrinsic evidence was not necessary, but the judge reviewed it as part of the bench trial. By bench trial I mean that the trial was conducted in front of the judge, and the judge made the factual determinations in the case (that’s the jury’s burden in a jury trial). Extrinsic evidence refers to the activity of the parties beyond what is written in the contract to determine specific parts of an agreement, and what can be presented changes based on how the contract is framed and should not contradict the written terms. In the HP-Oracle case the performance of the parties before and after the settlement justified the judge’s finding that even extrinsic evidence would not let Oracle stop porting to the HP product. HP also won the promissory estoppel claim, which allows a party to recover damages when a party reasonably and forseeably relies on a clear promise from another party and is injured as a result. This claim was directed toward the press release about the settlement agreement that reaffirmed the partnership. The judge found that Hewlett-Packard reasonably relied on the press release in relation to the support of the HP servers and was injured when Oracle unilaterally decided to end support.

In August of 2012, a Santa Clara County Superior Court judge ruled that Oracle had violated its contractual agreement with Hewlett-Packard when it discontinued support for porting its software to HP Itanium-based servers. HP and Oracle were business partners prior to Hurd’s resignation from HP, and HP had every reason, from a written settlement agreement to the course of business between the two tech companies, to believe Oracle would not end support for an HP product without discussing it with HP. The judge ordered that a jury trial was necessary to determine the damages Oracle owed in the case. However, as far as I know, that trial never occurred. Someday I hope to find out more about how the big tech firms resolved this contract issue.


Link to News Article and Court Order:

HP wins over Oracle in Itanium legal battle


About Simon Linder

I am a registered patent agent in the Silicon Valley area. I specialize in local intellectual property issues and talk about them on my blog.
This entry was posted in Case Study, Contracts and tagged , , , . Bookmark the permalink.

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