HP And Oracle Courtroom Clash Sure to Get Personal

[Anonymous]

HP And Oracle Courtroom Clash Sure to Get Personal

Let’s just say that feelings are hurt.
But instead of getting a divorce, like Santa Clara County Superior Judge James Kleinberg has suggested, Hewlett-Packard Co. and Oracle Corp. are going to trial this week. Billions could be at stake. The suit centers on the breakup of the two tech giants’ long-standing partnership in which Oracle developed database software for HP’s Itanium-powered Integrity servers. But the court filings read more like indictments of each company’s hiring practices.

HP’s suit, filed in June of last year alleging breach of contract and other claims, centers around an agreement signed by HP and Oracle executives in 2010 during a particularly tumultuous period of their relationship — the weeks after Oracle announced it hired disgraced HP CEO Mark Hurd to be its co-president.

HP argues that the so-called "Hurd agreement" reaffirmed the companies’ partnership and Oracle’s commitment to continue to enable its software to run on HP’s flagship Integrity line of servers, but that Oracle violated that deal when it stopped developing the software.

Last March, Oracle released a statement announcing its plans not to share its software with future generations of HP’s Integrity servers, citing Itanium’s future irrelevance. According to HP, Oracle attempted to bully the two companies’ mutual customer base into switching away from HP hardware and toward Sun Microsystems-manufactured servers. Oracle acquired Sun in 2010.

But Oracle characterizes the Hurd agreement as little more than a "corporate hug." It decided to stop developing Itanium-based products, it said in court filings, because the Intel-manufactured chips are a "dying platform." Oracle also contends that HP concealed "its own knowledge about Itanium’s precarious status."

Moreover, Oracle argued in its cross-complaint filed in June that HP had fraudulently induced it to enter into the Hurd agreement by covering up its plans to get in bed with key Oracle rivals.

Many efforts to settle the bitter feud have failed. The trial in Hewlett-Packard v. Oracle, 111CV 203163, set to begin Thursday in Santa Clara County Superior Court, pits Gibson, Dunn & Crutcher’s Robert Cooper, who represents HP, against Latham & Watkins’ Daniel Wall. Both Wall and Cooper lost summary judgment bids earlier this month.

HP’s Integrity line of servers, first released in 2003, is a "mission critical" server line used by government agencies and telecommunications companies. It’s powered by Itanium chips, microprocessing technology developed jointly by HP and Intel. For nearly 10 years, HP partnered with Oracle in developing Itanium to run with Oracle’s database software. In court filings, HP described this relationship as "symbiotic."

That relationship began to change when, among other moves, Oracle snatched up the unemployed Hurd in September of 2010. Hurd had been fired from HP just one month earlier for allegedly covering up a romantic dalliance with marketing contractor Jodie Fisher.

In court filings, Oracle was "sharply critical" of Hurd’s firing. "It was not only harmful to HP and its shareholders, but to business partners like Oracle as well." HP, chafed by the hire, filed suit against Hurd for breaching his exit agreement and to keep the company’s trade secrets from making their way into the Oracle boardroom.

At the time, Oracle CEO Larry Ellison called the lawsuit "vindictive" and suggested HP was poisoning its relationship with Oracle. The companies met at the settlement table not a week later, eventually finalizing the Hurd agreement, which HP contends Oracle agreed to to induce it to drop the suit against Hurd.

The first part of that agreement includes a paragraph that reads:

"Oracle and HP reaffirm their commitment to their long-standing strategic 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 (including Oracle Enterprise Linux and Oracle CM) on its hardware in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd."

According to court filings, Oracle was unwilling to specifically commit to porting its database software to Itanium servers, in part because Oracle had received word that the Itanium technology was "end of life" and future generations wouldn’t be developed past 2012. That knowledge, Oracle says in court filings, was central to its decision to break the hug and move away from HP and Itanium. According to HP, the end-of-life claim is a false claim from a "bitter antagonist."

And Oracle says the company never would have signed off on the agreement to begin with, had it known what controversial hiring moves HP was planning at the time. In November 2010, less than two months after settling, HP announced two key new executive hires — Leo Apotheker as CEO and Ray Lane as chairman of the board.

Apotheker, the former CEO at Oracle competitor SAP, was accused by Oracle of overseeing SAP’s theft of Oracle software. At the time of the hire, the companies were locked in contentious litigation over damages stemming from an SAP subsidiary’s admitted copyright infringement. Lane had been president and COO of Oracle until Ellison fired him in 2000, and was characterized by Oracle as having a "well-documented animosity" towards his former boss.

Oracle emphasized in its cross-complaint that "the last thing it would have ever agreed to do was ‘reaffirm’ a partnership that on the HP side would be led by Messrs. Apotheker and Lane."

Oracle alleges that HP knew the hirings would "ensure the complete destruction of what was left of the Oracle-HP relationship," calling Apotheker and Lane "toxic" to the partnership.

Apotheker left HP a year after his hire, in a blaze of failure. HP’s stock dropped 20 percent in August 2011 when Apotheker announced his plan to spin off or sell HP’s lucrative PC business. He was gone in a month. Although HP has since hired ex-eBay Inc. chief and former gubernatorial candidate Meg Whitman as CEO, the company continues to struggle — this month it announced it would lay off nearly 30,000 employees. Those layoffs, ordered from HP’s headquarters in Palo Alto, could leave an impression on a Santa Clara jury pool, too.

The layoff announcement is "obviously not great timing," said Kenneth Nissly, an IP and technology partner at O’Melveny & Myers who is not involved with the case. "It will be a challenge for HP lawyers to deal with in jury selection."

HP is seeking nearly $4 billion in lost profits. But the agreement is so short and vague, Oracle says, that no judge could possibly be comfortable filling in all the blanks to require Oracle to continue indefinitely porting its software to Integrity servers.

In the first phase of the trial, Kleinberg will rule on whether the Hurd agreement amounts to a contract, and, if it does, whether or not Oracle violated that contract when it announced its plan to move away from Itanium.

Nissly said that such a short provision in a contract dispute means that the trial will "turn on witness testimony" and require the stakeholders in the agreement’s negotiations to be able to show the context for the agreement.Depending on Kleinberg’s decision, the remaining claims and cross-claims could proceed to a jury.

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May 31, 2012 at 9:12 AM