In a legal tussle industry observers had billed as a battle between two Bay Area titans, Hewlett-Packard(HPQ) won a major victory Wednesday when a judge ruled that Oracle(ORCL) violated a contract by not continuing to provide new software for an HP computer server.
The decision following several weeks of trial testimony before Santa Clara County Superior Court Judge James Kleinberg paves the way for a second trial to determine if Oracle should pay damages, as HP has alleged. It is the second major recent legal defeat for Oracle against another Silicon Valley corporation. On May 31, a federal judge rejected its claim that Google(GOOG) had improperly used key elements of Oracle's software.
"Today's proposed ruling is a tremendous win for HP and its customers," the Palo Alto technology giant said in a prepared statement. "We expect Oracle to comply with its contractual obligation as ordered by the Court."
Oracle spokeswoman Deborah Hellinger said the Redwood City company plans to appeal the ruling.
The trial before judge Kleinberg revolved around a settlement Oracle and HP negotiated after Oracle hired Mark Hurdas co-president in 2010, a month after he resigned as HP's CEO after unproved harassment allegations stemming from his relationship with a
Oracle characterized the settlement as merely a general pledge of mutual cooperation, but HP claimed it was a contract requiring Oracle to keep making new versions of software for a type of HP servers that use Itanium microprocessors from Santa Clara chipmaker Intel(INTC). When Oracle announced in March that it would stop updating its software for the Itanium system, HP sued, claiming it could lose $4 billion in server sales through 2020 because of Oracle's decision.
During the trial, HP attorney Jeffrey Thomas displayed numerous emails and other documents to demonstrate the close business relationship the two firms had enjoyed through the years, adding that "HP was shocked" when Oracle made its announcement regarding the servers. Despite accounting for a small portion of HP's annual revenue, Itanium servers provide a high profit margin, which is why the company wants to maintain the business, according to some analysts.
Oracle lawyer Dan Wall argued during the trial that his company had never agreed to keep making new software for the Itanium product and that its decision to stop doing so shouldn't have been a surprise, since business partnerships "are volatile."
Oracle, which countersued HP, also argued that the server had a limited future because it believed Intel planned to discontinue the Itanium processor. Moreover, Oracle maintained that it wouldn't have agreed to the settlement had it known HP would name L&#233;o Apothekeras Hurd's replacement and former Oracle President Ray Lane as chairman.
Oracle CEO Larry Ellisonwas bitter about HP's treatment of his friend Hurd, and Apotheker -- whom Meg Whitman replaced at HP last year -- formerly headed Oracle's software rival SAP, which Ellison had accused of scheming to misappropriate Oracle's software. A jury ordered SAP to pay $1.3 billion in damages in 2010, but a judge reduced that amount, and a new trial in the dispute is scheduled for later this month.
In addition, Oracle has claimed in a court filing that Lane "had a well-documented animosity" toward Ellison, "traced to his firing from Oracle in 2000," although Lane said he resigned after a falling-out with Ellison.
Tensions between Oracle and HP have grown as they have become direct competitors in some areas.
In the past, HP mostly made computer hardware, while Oracle primarily produced software. But HP is now heavily pushing its software and Oracle got into the hardware business with its 2010 purchase of Sun Microsystems. HP has claimed one reason Oracle announced it would stop making new Itanium-related software is to focus on the server technology it obtained from Sun.