Arik Hesseldahl

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HP Wins Key Ruling in Itanium Lawsuit With Oracle

The judge hearing the lawsuit between Hewlett-Packard and Oracle has ruled that the software giant is bound by its commitment to continue making software that is compatible with Intel’s Itanium server chip.

The ruling in a Santa Clara County Superior Court found that Oracle breached a contract it agreed to in 2010 when it said it would continue making software for certain HP servers that use the Itanium chip.

The trial will now move into a second phase, where a jury will decide on damages. HP is said to want to seek about $4 billion from Oracle.

HP shares fell by 58 cents, more than 3 percent, in regular trading to close at $17.66, setting a new 52-week low during the regular session. After the decision was announced, the shares rose by 24 cents or more than 1 percent in after-hours trading.

Oracle shares rose 12 cents, or less than 1 percent, to $30.32 during regular trading and were unchanged after-hours.

Essentially, the fight came down to the meaning and enforceability of a single paragraph in a legal settlement between Oracle and HP.

HP just sent the following statement:

Today’s proposed ruling is a tremendous win for HP and its customers. The Superior Court of the State of California, Santa Clara County, has confirmed the existence of a contract between HP and Oracle that requires Oracle to port its software products to HP’s Itanium-based servers. We expect Oracle to comply with its contractual obligation as ordered by the Court.

In its own statement from spokeswoman Deborah Hellinger, Oracle said it plans to appeal and plans to pursue related counter-claims it has brought in the suit.

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: www.oracle.com/itanium. 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.

In his opinion, Judge James Kleinberg wrote that Oracle’s has an obligation to continue to offer its products on HP’s Itanium-based servers until HP stops selling them.

It all started up in late 2010, when they settled a lawsuit stemming from Mark Hurd’s taking a job as co-president of Oracle following his resignation as the CEO of HP.

HP asked Oracle to include some language that it argues committed Oracle to continue to build software that would support Intel’s exotic Itanium server chip. That chip, you may remember, was, for all intents and purposes, a market failure, and HP was the only vendor worth mentioning that ever made a go of selling Itanium-based servers. Historically, Oracle had long been in the Itanium-friendly camp, even as companies like Microsoft and RedHat bolted.

In March of last year, Oracle suddenly changed its tune, saying it would cease developing versions of its software that would work on Itanium-based systems. Oracle argued that Intel had plans to end manufacturing of the Itanium chip and transition customers over to servers running Intel’s more mainstream Xeon chip.

HP was outraged, and Intel said it had no such plans. Oracle was in earnest. HP got its Itanium customers to publicly lobby Oracle to reverse the decision. It didn’t work. So HP sued Oracle 13 months ago.

The pretrial arguments were nothing if not colorful. Oracle accused HP of being sneaky when it negotiated the Hurd settlement. It later compared HP’s ongoing reliance on Itanium to the movie “Weekend At Bernie’s,” the corpse in the analogy being the Itanium chip, kept alive by HP funding. For HP, the argument was a simple one: Is there an enforceable agreement between it and Oracle, or not?

Oracle argued, among other things, that there is no such agreement in place, and even if there were, HP was, at the time of the agreement, about to hire Léo Apotheker and Ray Lane as its CEO and chairman, two people who, for various reasons, Oracle thoroughly distrusts. Also, Oracle says, for HP, the Itanium business is all about the billions in support and service fees it charges its customers, fees without which HP is “strategically screwed.” And by the way, the uncertainty around Itanium servers is starting to hurt HP for real.

Document dumps by both companies proved juicy. Oracle showed that HP relied heavily upon highly profitable service and support contracts from its Itanium customers as a key source of revenue, and basically paid Intel to keep making Itanium chips long after the point at which it otherwise would have stopped. An HP drop appeared to portray Oracle as unwilling to update Itanium customers with the latest software patches, and caught Oracle’s head of North American sales in an embarrassing series of instant messages slamming products made by Sun Microsystems, the company Oracle acquired in 2010, as “a pig with lipstick at best.” The message cost that executive his job.

There had briefly been a glimmer of hope for a settlement, particularly after Oracle CEO Larry Ellison said some nice things about his HP counterpart Meg Whitman while onstage at D: All Things Digital on May 30.

Whitman returned the compliment in a June 5 interview with AllThingsD, saying she saw the relationship between HP and Oracle as “one of the great partnerships” in tech industry history. Sources familiar with the case said that the companies briefly explored the possibility of a settlement during a break in the trial action, but when the talks failed, the trial was back on.

Update: I just got a copy of Judge Kleinberg’s opinion and have embedded it below. I’ll add a few comments as I go through it.

Here’s what I think is the nut of the opinion:

“It was certainly forseeable that HP would take Oracle at its word and make investments based upon a long-time partner’s pledge of support. … The parties had a long history of trust and collaboration, the promises made by Oracle executives were clear and unambiguous, and the parties’ relationship was very profitable for both companies. Further, even a large and sophisticated company like HP may reasonably rely on unambiguous statements made by executives of a long-time partner.”

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