Hewlett-Packard Company v. Oracle Corporation
65 Cal.App.5th 506
| Cal. Ct. App. | 2021Background
- HP and Oracle had a long commercial relationship in which Oracle routinely "ported" (adapted) its database/middleware software to run on HP’s Itanium-based servers; most porting occurred voluntarily without written contracts.
- After Oracle hired HP’s former CEO Mark Hurd in 2010, HP sued; the parties executed a confidential settlement (Sept. 20, 2010) containing a two-sentence "reaffirmation clause": Oracle "will continue to offer its product suite on HP platforms" and HP "will continue to support Oracle products" "in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd."
- In March 2011 Oracle announced it would stop developing software for Itanium, later reversing course in Sept. 2012 (while announcing it would nonetheless appeal the phase‑1 ruling). HP sued for declaratory relief, breach of contract, breach of the implied covenant of good faith and fair dealing, and damages.
- Phase 1 bench trial (interpretation): court held the clause unambiguous and required Oracle to continue offering its product suite (including new releases) on Itanium so long as HP sold the platform; that interpretation incorporated the parties’ prior course of dealing.
- Phase 2 jury trial (liability & damages): jury found Oracle breached the agreement and the implied covenant, awarding HP $3.014 billion in lost profits; trial court denied HP prejudgment interest; appeals and cross‑appeal followed.
Issues
| Issue | HP's Argument | Oracle's Argument | Held |
|---|---|---|---|
| Interpretation of reaffirmation clause: did it create a binding duty to continue offering Oracle’s product suite on HP Itanium platforms? | Clause binds Oracle to continue offering (and porting) products as done pre‑Hurd; course of dealing shows continuous porting of new releases. | Clause merely restates voluntary historic relationship; no new obligation was intended; parties declined to add specific porting terms. | Court affirmed: clause is mandatory and, read with extrinsic evidence, requires Oracle to continue offering product suite (including new releases) consistent with pre‑Hurd course of dealing until HP discontinues sale. |
| Nature of HP’s claim: breach vs. anticipatory repudiation and waiver of damages by accepting performance | HP treated March 2011 announcement and ensuing conduct as an actual breach that caused immediate market harm and lost sales; acceptance of later partial performance did not bar damages for the earlier breach. | Oracle argued the March 2011 announcement was anticipatory repudiation; because HP later demanded and accepted performance, HP waived anticipatory‑repudiation damages. | Court held performance obligation was ongoing at contract formation (continuing conduct); March 2011 announcement supported actual‑breach theory; HP did not waive damages by seeking performance. |
| Breach of implied covenant of good faith and fair dealing | Oracle’s cessation of porting frustrated the contract’s purpose and customers’ expectations; implied covenant applies. | No separate porting contract existed so covenant cannot impose substantive duties beyond the written agreement. | Court affirmed: implied covenant applies to prevent conduct frustrating the contract’s purpose; Oracle’s stoppage could breach that covenant given the express commitment to continue offering products. |
| Damages/admissibility of expert testimony and constitutional/privilege claims | HP’s expert used market data to quantify lost profits attributable to Oracle’s March 2011 announcement and subsequent market uncertainty; damages were not speculative. | Oracle argued damages improperly penalized Oracle’s protected right to appeal and that expert testimony was speculative (Sargon). | Court affirmed: expert testimony was admissible under Sargon; damages were based on market uncertainty and loss, not a forbidden penalty for filing an appeal; Oracle failed to show constitutional or privilege‑based immunity from damages. |
Key Cases Cited
- AIU Ins. Co. v. Superior Court, 51 Cal.3d 807 (1990) (plain‑language contract interpretation; apply ordinary meaning absent ambiguity)
- Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co., 69 Cal.2d 33 (1968) (extrinsic evidence admissible to determine circumstances and purpose surrounding contract formation)
- Parsons v. Bristol Development Co., 62 Cal.2d 861 (1965) (judicial role in contract interpretation and use of extrinsic evidence)
- Taylor v. Johnston, 15 Cal.3d 130 (1975) (anticipatory repudiation principles and election of remedies)
- Romano v. Rockwell Internat., Inc., 14 Cal.4th 479 (1996) (anticipatory breach doctrine explained)
- Sargon Enterprises, Inc. v. University of Southern California, 55 Cal.4th 747 (2012) (gatekeeping standard for expert lost‑profits testimony—exclude speculative or logically unsupported opinion)
- Guz v. Bechtel Nat. Inc., 24 Cal.4th 317 (2000) (implied covenant prevents frustrating agreed contract benefits but cannot create duties beyond express terms)
- Carma Developers (Cal.), Inc. v. Marathon Dev. California, Inc., 2 Cal.4th 342 (1992) (limits on implying terms that would contradict express contractual discretion)
- Barham v. Barham, 33 Cal.2d 416 (1949) (reaffirmation/ratification of prior agreements preserves but does not enlarge their scope)
- Asmus v. Pacific Bell, 23 Cal.4th 1 (2000) (unilateral termination of indefinite‑duration contracts subject to implied limitations such as reasonable notice)