Bloomberg News

HP Tells Judge Oracle Abruptly Broke Contract for Support

June 04, 2012

Hewlett-Packard Co. (HPQ:US) was “shocked” when Oracle Corp. abruptly announced last year that it would no longer provide software support and broke its contractual commitment, a Hewlett-Packard lawyer told a judge.

Attorney Jeff Thomas said today that the two companies had worked for years without written contracts on joint engineering to allow Oracle software to support Hewlett-Packard platforms. Six months after a settlement was reached over Mark Hurd’s transition from chief executive officer of Hewlett-Packard to co-president at Oracle, that cooperation ended, Thomas said.

“Oracle abruptly announced its database software would not be available to HP customers and all that came to a screeching halt,” Thomas said in his opening statement at a trial in state court in San Jose, California. “HP was shocked. It never saw the announcement coming.”

Hewlett-Packard, the world’s largest personal-computer maker, seeks a court order requiring Oracle to continue developing software for its servers that run on Intel Corp. (INTC:US)’s Itanium chips and about $500 million in damages, according to a person familiar with the matter.

$4 Billion

Without such an order, Hewlett-Packard estimates it should be awarded more than $4 billion in damages, based on an extrapolation to 2020 that accounts for projected losses, said the person, who didn’t want to be identified because the court document containing the damages request is confidential.

In the first phase of the trial, which is scheduled to last about three weeks, Superior Court Judge James Kleinberg must determine whether Oracle is contractually obligated to continue developing software for Hewlett-Packard’s Itanium-based servers. If so, a jury would determine in a second phase whether Oracle broke the contract and what if any damages should be awarded.

Thomas told Kleinberg today that Oracle made repeated assurances to Palo Alto, California-based Hewlett-Packard over the years that it would provide platform support. Oracle, based in Redwood City, California, specifically told Hewlett-Packard that nothing would change after the database maker acquired Sun Microsystems Inc. in 2010, he argued.

‘All Bets’

“You have heard that all bets were off after Oracle bought Sun,” Thomas said. “That is not true.”

Oracle attorney Dan Wall told the judge that the partnership between the companies was “a relationship born of self-interest” based on the idea there was “money to be made in combining what we do and what they do.”

“The core issue in this case comes down to this: Did Oracle promise to give up its historical discretion to decide what to develop and what price to charge?” he said. “HP is arguing that Oracle gave that up in the brief and breezy language in the opening paragraph of an employment settlement,” referring to the Hurd separation agreement.

Contrary to HP’s assertion, the Hurd settlement “had to do with one thing only: Mark Hurd going to Oracle,” Wall said.

The first witness called today by Hewlett-Packard was Ann Livermore, a former executive vice president at the company who is now on the board of directors.

She testified she was “concerned” when she learned that Hurd was leaving Hewlett-Packard.

‘Ill-Will’

“I was concerned that he would be leaving with ill-will toward HP and our board,” she said. “I was concerned he had confidential information. He knew our financials and our dependence on Itanium. That could be used to hurt HP.”

Livermore said she “wondered if our relationship would change with Mark being at Oracle.”

In its 2011 complaint, Hewlett-Packard accused Oracle of violating a portion of Hurd’s agreement describing a “reaffirmation of the Oracle-HP partnership.”

Hurd’s settlement and release agreement includes this paragraph: “Oracle and Hewlett-Packard reaffirm their commitment to their longstanding strategic relationship and their mutual desire to continue to support their mutual customers. Oracle will continue to offer its product suite on Hewlett-Packard platforms, and Hewlett-Packard will continue to support Oracle products, including Oracle Enterprise Linux and Oracle VM, on its hardware in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd.”

Niche Technology

The Itanium chip at issue in the lawsuit is a niche technology different from the Intel Xeon chips used in most computer servers. Sales of Hewlett-Packard’s Itanium-based Integrity and Superdome machines, which the company describes as “business critical systems,” have been declining since Oracle made its March 2011 announcement that it would stop developing software for Itanium.

The trial comes after the two companies started competing on the same turf. While Oracle was once almost exclusively a software maker, and Hewlett-Packard mainly a manufacturer of hardware, Oracle’s acquisition of Sun made it a competitor of Hewlett-Packard’s in the market for computer servers. Oracle, the largest database-software maker, said in court filings that the intensifying competition in that area was a cause of the dispute.

Relations between the companies further soured after Hewlett-Packard’s August 2010 ouster of Hurd following an investigation that found his expense reports concealed a personal relationship with a marketing contractor. One month after his forced resignation, Hurd was hired by Oracle CEO Larry Ellison.

The case is Hewlett-Packard Co. v. Oracle Corp. (ORCL:US), 11- cv-203163, California Superior Court, Santa Clara County (San Jose).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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