in support of its motion for summary adjudication s f · case no. 1-11-cv-203163 latham &...

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ATTORNEYS AT LAW

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ORACLE CORPORATION’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION

CASE NO. 1-11-CV-203163

LATHAM & WATKINS LLP Daniel M. Wall (Bar No. 102580) Alfred C. Pfeiffer, Jr. (Bar No. 120965) Sadik Huseny (Bar No. 224659)

505 Montgomery Street, Suite 2000 San Francisco, California 94111-6538 Telephone: (415) 391-0600 Facsimile: (415) 395-8095 ORACLE CORPORATION Dorian Daley (SBN 129049) Deborah K. Miller (SBN 095527) 500 Oracle Parkway M/S 5op7 Redwood Shores, California 94065 Telephone: (650) 506-5200 Facsimile: (650) 506-7114 Attorneys for Defendant and Cross-Complainant ORACLE CORPORATION

SUPERIOR COURT OF THE STATE OF CALIFORNIA

FOR THE COUNTY OF SANTA CLARA

HEWLETT-PACKARD COMPANY, Plaintiff, v. ORACLE CORPORATION, Defendant.

ORACLE CORPORATION, Cross-Complainant, v. HEWLETT-PACKARD COMPANY, Cross-Defendant.

CASE NO. 1-11-CV-203163 Action Filed: June 15, 2011 Trial Date: May 31, 2012 ORACLE CORPORATION’S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF ITS MOTION FOR SUMMARY ADJUDICATION Date: April 30, 2012 Time: 9:00 AM Place: Department 1C Assigned for all Purposes to The Honorable James P. Kleinberg

PUBLIC REDACTED VERSION

E-FILEDMar 26, 2012 5:00 PM

David H. YamasakiChief Executive Officer/Clerk

Superior Court of CA, County of Santa ClaraCase #1-11-CV-203163 Filing #G-41322

By G. Duarte, Deputy

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TABLE OF CONTENTS

PAGE

I. INTRODUCTION ............................................................................................................. 1

II. BACKGROUND/STATEMENT OF FACTS................................................................... 3

A. The Oracle-HP Relationship .................................................................................. 3

B. The Hurd Settlement Agreement ........................................................................... 6

III. ARGUMENT................................................................................................................... 11

A. The Reaffirmation Provision Did Not Transform Historically Discretionary “Partnership” Activities Into New Contract Obligations........................................................................................................... 11

1. It is For the Court to Determine Whether the Reaffirmation Provision is Reasonably Susceptible to HP’s Interpretation.................... 12

2. The Contract’s Text is Not Reasonably Susceptible to an Interpretation Whereby a “Reaffirmation” Fundamentally Transforms the Nature of the Oracle-HP Partnership.............................. 14

3. The Drafting History Indisputably Shows that HP Sought But Oracle Rejected New Business Commitments With Respect to Porting and Pricing................................................................. 18

4. HP’s Proposed Interpretation Would Render the Reaffirmation Provision Unenforceable .................................................. 21

5. The Parties’ Course of Dealing Confirms that Porting Agreements Have Specific Terms Not Found in the Reaffirmation Provision........................................................................... 23

B. HP Has Not Honored the Reaffirmation Provision as a Product Support Agreement .............................................................................................. 25

C. HP’s Implied and Quasi-Contract Claims Fail as a Matter of Law ..................... 26

IV. CONCLUSION................................................................................................................ 30

E-FILED: Mar 26, 2012 5:00 PM, Superior Court of CA, County of Santa Clara, Case #1-11-CV-203163 Filing #G-41322

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TABLE OF AUTHORITIES

CASES

Advanced Choices, Inc. v. Dep’t of Health Servs., 182 Cal. App. 4th 1661 (2d Dist. 2010)................................................................................ 28

Bustamante v. Intuit, Inc., 141 Cal. App. 4th 199 (6th Dist. 2006)............................................................................. 2, 22

C & K Engineering Contractors v. Amber Steel Co., 23 Cal. 3d 1 (1978) ............................................................................................................... 28

Caminetti v. Pac. Mut. L. Ins. Co., 22 Cal. 2d 344 (1943) ........................................................................................................... 16

Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2 Cal. 4th 342 (1992) ............................................................................................................ 27

Columbia Pictures Television v. Krypton Broad. of Birmingham, Inc., 106 F.3d 284 (9th Cir. 1997) ................................................................................................ 29

Conderback, Inc. v. Standard Oil Co. of Cal., W. Operations, 239 Cal. App. 2d 664 (1st Dist. 1966) .................................................................................. 23

Dore v. Arnold Worldwide, Inc., 39 Cal. 4th 384 (2006) ................................................................................................ 2, 12, 14

Eisenberg v. Alameda Newspapers, Inc., 74 Cal. App. 4th 1359 (1st Dist. 1999) ............................................................................. 2, 27

Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998).............................................................................................................. 29

Garcia v. Truck Ins. Exch., 36 Cal. 3d 426 (1984) ....................................................................................................... 2, 21

Habitat Trust for Wildlife, Inc. v. City of Rancho Cucamonga, 175 Cal. App. 4th 1306 (4th Dist. 2009)............................................................... 3, 13, 14, 21

Hamilton v. Greenwich Investors XXVI, LLC, 195 Cal. App. 4th 1602 (2d Dist. 2011)................................................................................ 25

Joffe v. City of Huntington Park, 201 Cal. App. 4th 492 (2d Dist. 2011).................................................................................. 29

Ladas v. Cal. State Auto. Ass’n, 19 Cal. App. 4th 761 (1st Dist. 1993) ................................................................................... 22

Lance Camper Mfg. Corp. v. Republic Indem. Co., 44 Cal. App. 4th 194 (2d Dist. 1996).................................................................................... 28


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Lange v. TIG Ins. Co., 68 Cal. App. 4th 1179 (2d Dist. 1998)............................................................................ 28, 29

Pac. Gas & Elec. v. G.W. Thomas Drayage & Rigging Co., 69 Cal. 2d 33 (1968) ............................................................................................................. 13

Parsons v. Bristol Dev. Co., 62 Cal. 2d 861 (1965) ................................................................................................... 2, 3, 13

PMC, Inc. v. Porthole Yachts, 65 Cal. App. 4th 882 (4th Dist. 1998)................................................................................... 27

Robinson & Wilson, Inc. v. Stone, 35 Cal. App. 3d 396 (4th Dist. 1973).................................................................................... 22

Spellman v. Dixon, 256 Cal. App. 2d 1 (2d Dist. 1967)....................................................................................... 22

Stellar v. Sears, Roebuck and Co., 189 Cal. App. 4th 175 (2d Dist. 2010).................................................................................. 12

Suarez v. Life Ins. Co. of N. Am., 206 Cal. App. 3d 1396 (2d Dist. 1988)................................................................................. 14

Third Story Music, Inc. v. Waits, 41 Cal. App. 4th 798 (2d Dist. 1995).................................................................................... 27

Travelers Cas. & Sur. Co. v. Superior Court of Santa Clara Cnty., 63 Cal. App. 4th 1440 (6th Dist. 1998)................................................................................. 14

United Cmty. Church v. Garcin, 231 Cal. App. 3d 327 (2d Dist.1991)...................................................................................... 3

Walker v. KFC Corp., 728 F.2d 1215 (9th Cir. 1984) .............................................................................................. 28

Weddington Prods v. Flick, 60 Cal. App. 4th 793 (2d Dist. 1998).................................................................................... 22

Winet v. Price, 4 Cal. App. 4th 1159 (4th Dist. 1992)....................................................................... 12, 13, 14

Wolf v. Walt Disney Pictures and Television, 162 Cal. App. 4th 1107 (2d Dist. 2008).......................................................................... 13, 21

Woods v. Ins. Co. of N. Am., 38 Cal. App. 3d 144 (1st Dist. 1974) .................................................................................... 19


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STATUTES

California Civil Code § 1636...................................................................................................... 12



OTHER AUTHORITIES

Eric Posner, The Parol Evidence Rule, the Plain Meaning Rule, and the Principles of Contractual Interpretation, 146 U. Pa. L. Rev. 533, 534 (1998).................... 13


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I. INTRODUCTION

This motion addresses Hewlett-Packard Company’s (“HP’s”) primary claims in this case:

its so-called contract claims. As the Court knows, HP contends that the settlement agreement of

an employment suit—HP’s lawsuit against Mark Hurd when Hurd went to work for Oracle

Corporation (“Oracle”)—(the “Hurd Settlement Agreement”) fundamentally transformed a

longstanding but mostly voluntary strategic “partnership” between HP and Oracle into a legally

obligatory relationship, whereby Oracle must create future software products for HP platforms

and price its software products on terms that ensure HP’s competitiveness. The purported engine

of this transformation is a two-sentence term in the Hurd Settlement Agreement that

“reaffirm[s]” the Oracle-HP partnership.

From the time in September 2010 when the parties settled the Hurd lawsuit until June

2011, just before this case was filed, no one associated with HP ever put in writing, even once,

publicly or privately, anything saying that this “Reaffirmation Provision” obligated Oracle to

provide HP with new products, favorable pricing or other alleged perquisites of “partnership.”

This is despite HP’s claim that Oracle breached the Reaffirmation Provision “[s]oon after signing

the Hurd Agreement,” Compl. ¶ 44, and that the pricing and product development decisions at

issue in this litigation occurred in December 2010 and March 2011. There is literally no

documentary evidence that HP ever treated this “reaffirmation” as a contract that constrained—

or even mattered to—the parties’ business dealings. Only in June 2011—with the demand letter

that preceded the filing of this lawsuit—did HP begin to claim that the September 2010

Reaffirmation Provision obligated Oracle to continue making and pricing software products for

HP “on terms consistent with the way those products were offered and supported prior to

Oracle’s hiring of Hurd.” Compl. ¶ 61.

The key issue in this case is whether the Reaffirmation Provision means what HP now

says it does. That is an issue of contract interpretation, the traditional province of judges rather

than juries. California law, in particular, has gone out of its way to ensure that contract

interpretation remains a judicial responsibility in most cases. At the heart of this division of

labor is the rule from Chief Justice Traynor’s opinion in Parsons v. Bristol Dev. Co., 62 Cal. 2d


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861, 865 (1965), that “[i]t is … solely a judicial function to interpret a written instrument unless

the interpretation turns upon the credibility of extrinsic evidence.” This is so “even when

conflicting inferences may be drawn from uncontroverted evidence.” Garcia v. Truck Ins. Exch.,

36 Cal. 3d 426, 439 (1984).

Oracle is entitled to summary adjudication on HP’s breach of contract claim (and

corollary claims for declaratory relief and breach of the covenant of good faith and fair dealing)

because, as a matter of law, HP’s position about what the Hurd Settlement Agreement means

cannot be right. That is because the Reaffirmation Provision on its face, and viewed in the

context of the Hurd Settlement Agreement, is not “reasonably susceptible” to HP’s

interpretation. See Dore v. Arnold Worldwide, Inc., 39 Cal. 4th 384, 393 (2006). The primary

stumbling block is the plain language of the provision, which is a “reaffirmation” and refers to

consistency with past practices, concepts that are plainly at odds with an intent to transform the

parties’ partnership from a mostly voluntary enterprise into one where product development and

pricing decisions are contractually constrained. The language is also hopelessly vague for the

purposes HP claims it serves—a point this Court itself raised months ago—which would render

the agreement void for vagueness. See Bustamante v. Intuit, Inc., 141 Cal. App. 4th 199, 209

(6th Dist. 2006). Moreover, the drafting history shows that HP sought true business

commitments in the course of the settlement negotiations—including porting and pricing

obligations exactly like the ones it claims now—and Oracle indisputably rejected the requests.

Literally all of the extrinsic documentary evidence supports Oracle’s position that the

reaffirmation created no new product development or pricing obligations.

Oracle is also entitled to summary adjudication on HP’s implied and quasi-contract

claims. HP cannot show a breach of any implied contract because California law does not allow

any such claims when the parties have considered and either adopted or rejected a functionally

equivalent express contractual commitment. See, e.g., Eisenberg v. Alameda Newspapers, Inc.,

74 Cal. App. 4th 1359, 1387 (1st Dist. 1999) (“There cannot be a valid express contract and an

implied contract, each embracing the same subject, but compelling different results.”). The

parties have executed numerous formal porting agreements between them, and Oracle rejected


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porting and pricing commitments in the Hurd Settlement Agreement, leaving no room for any

argument that an implied contract somehow addresses this subject matter. Similarly, HP’s

promissory estoppel claim fails because HP cannot show, as it must, detrimental reliance on a

clear and unambiguous promise for porting or pricing guarantees. There is no record evidence of

any promise that meets the strict requirements of California promissory estoppel law.

Furthermore, Oracle’s rejection of HP’s proposed contractual language prescribing precisely the

duties HP now seeks to enforce on a promissory estoppel theory means that HP’s alleged

“reliance” was unreasonable as a matter of law.

This is an important motion, because HP’s game plan in this lawsuit is to put on a case

that Oracle’s decision to stop porting its new software products to the Itanium platform was

“unfair,” “arbitrary,” “outrageous,” and “anti-consumer.” It clearly wants the jury to address this

saga emotionally so that it will second-guess and condemn Oracle’s business decisions about

which platforms to support and what prices to charge. But these emotional arguments are

irrelevant if Oracle had no legal duty to port its future software to the Itanium platform, or price

its software in any particular way. The Court has a special obligation under California law to

determine whether the Hurd Settlement Agreement contains such a duty before letting the breach

case go to trial. See Parsons, 62 Cal. 2d at 866 n.2; Habitat Trust for Wildlife, Inc. v. City of

Rancho Cucamonga, 175 Cal. App. 4th 1306, 1341-42 (4th Dist. 2009). Here, the Reaffirmation

Provision contains no such duty, entitling Oracle to summary adjudication.

II. BACKGROUND/STATEMENT OF FACTS1

A. The Oracle-HP Relationship

For several decades, Oracle and HP have made complementary products. The two

companies’ business relationship—which they have sometimes called a “partnership,”

1 We are mindful of the so-called “Golden Rule of Summary Adjudication: if [a fact] is not set

forth in the separate statement [of undisputed material facts], it does not exist.” United Cmty Church v. Garcin, 231 Cal. App. 3d 327, 337 (2d Dist. 1991). At the same time, here as in most cases there are some noncontroversial background facts that, while not strictly “material,” help the Court understand the arguments presented. The inclusion of such background material (via citation to the Wall declaration and other sources) does not change the basis of the motion, which is exclusively those facts listed in the separate statement.


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sometimes called an “alliance,” and sometimes called “co-opetition”—has revolved principally

around Oracle’s computer software and HP’s computer hardware. Wall Decl., Ex. 1 (Vella Dep.

Ex. 346); Wall Decl., Ex. 2 (Miller Dep. at 177:25-178:11). In short, there was money to be

made working together because a common set of customers wants to run Oracle software on HP

servers. The Oracle-HP relationship is not unique in that respect. Silicon Valley is replete with

such “partnerships,” and Oracle similarly “partners” with IBM, its overall largest competitor,

applications software competitors like SAP, and many others. See Wall Decl., Ex. 3 (Ellison

Dep. at 72:6-13); Wall Decl., Ex. 4 (Mendelsohn Dep. at 134:6-9).

For the most part, Oracle has adapted its software to run on others’ platforms or with

others’ software at its own cost, with no contract in place, and purely in the pursuit of Oracle’s

own self-interest. There is no dispute that that is how Oracle came to “port” its software to HP’s

platforms originally. See, e.g., Wall Decl., Ex. 5 (Stallard Dep. at 353:15-354:5). Certain HP

servers have been and continue to be popular, and Oracle has profited from selling software

licenses to customers who use them. That said, self-interest is not always enough to convince an

independent software vendor, or “ISV,” like Oracle to port its software to a given platform.

Porting agreements—meaning formal written contracts whereby in exchange for some

negotiated compensation an ISV adapts specified software to run on another party’s platform—

are a common feature of this industry. HP enters porting agreements with a variety of ISVs,

when it decides it needs to pay the ISVs to undertake or accelerate porting efforts that ISV self-

interest alone would not ensure. Wall Decl., Ex. 6 (Fink Dep. at 111:15-112:20); Wall Decl., Ex.

7 (Palk Dep. Ex. 937 at 17).

“Partners” or not, Oracle and HP have executed numerous formal porting agreements.

Some arose when Oracle acquired other software companies whose products had not been ported

to an HP platform, and HP wanted to ensure that Oracle ported them. See, e.g., Separate

Statement of Undisputed Facts (“Undisputed Facts”) ¶¶ 3, 4, 9.2 Others arose in the ordinary

2 The Undisputed Facts address each of HP’s claims separately, and repeat certain entries for

multiple claims. In this Memorandum, reference to an Undisputed Facts entry listed under one claim should be taken also to apply to all other claims to which the cited entry is relevant.


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course of business—including, significantly, the “Agreement for Porting Oracle E-Business

Suite to the HP-UX on Itanium Platform,” executed in 2006, by which HP paid Oracle to port its

primary catalogue of business applications software to the HP-UX on Itanium Platform.

Undisputed Facts ¶ 1. HP sought and obtained this formal contractual commitment as part of its

“Integrity Acceleration Program,” in essence a pool of millions of dollars HP paid to Oracle,

IBM and numerous other ISVs to port their software to the HP-UX platform. Wall Decl., Ex. 8

(Bartlett Dep. Ex. 876 at HPC_00036996).

The Court need not delve into the details of these express porting agreements, because no

part of HP’s case is based on any of them. The salient point is simply this: though the parties

disagree over a number of important issues in this litigation, there is no dispute that

(a) historically, their relationship encompassed some actions that Oracle carried out voluntarily,

without binding commitments to HP, and other actions that Oracle carried out under contractual

obligation; and (b) Oracle developed versions of its software for HP platforms under both

regimes—on its own when it suited Oracle’s business interests and by contract when more was

required.

Against that established backdrop, two events in 2010 caused tension in the companies’

“partnership.” First, in January, Oracle completed its acquisition of Sun Microsystems.

Undisputed Facts ¶ 14. Sun had been one of HP’s primary competitors in certain hardware

markets, including what HP likes to call the “mission critical UNIX market.”3 Undisputed Facts

¶ 15. That is the business at issue in this case and the target market for the HP server products

that run HP’s proprietary version of the UNIX operating system, called HP-UX. As HP

executives have acknowledged, Oracle’s acquisition of Sun changed the dynamic of Oracle’s

relationship with HP. Interactions between the companies that had been principally cooperative

in the past would now need to account for Oracle’s newfound interest in competing against HP in

the hardware business. Undisputed Facts ¶ 16.

3 HP has filed antitrust complaints against Oracle in various jurisdictions around the world (not

including the United States), and in those investigations the parties are contesting whether there is such a thing as a “mission critical UNIX market.” We adopt HP’s term here solely to avoid needless conflict and without endorsing it.


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Second, in late summer 2010, the two companies had a nasty public quarrel over HP’s

decision to fire its President and CEO, Mark Hurd, and Oracle’s decision a few weeks later to

hire Mr. Hurd as its own co-President. When HP fired Mr. Hurd, Oracle CEO Larry Ellison

blasted the HP board, calling the decision “the worst personnel decision since the idiots on the

Apple board fired Steve Jobs many years ago.” Undisputed Facts ¶ 17. When Oracle announced

its hiring of Mr. Hurd, HP instantly filed a lawsuit against him—by 9:29 a.m. the next day,

before any diligence could possibly have been done—alleging that Mr. Hurd had breached the

“Separation and Release” he signed when he left HP (the “Separation Agreement”), and that his

new job would inevitably lead him to disclose HP trade secrets. See Undisputed Facts ¶ 19.

Though Oracle was not a party to that litigation, it did take umbrage, and responded immediately

with a press release castigating HP for its “vindictive lawsuit.” The statement took the form of a

quote from CEO Larry Ellison, which read:

Oracle has long viewed HP as an important partner. . . . [T]he HP board is acting with utter disregard for that partnership, our joint customers, and their own shareholders and employees. The HP Board is making it virtually impossible for Oracle and HP to continue to cooperate and work together in the IT marketplace.

Undisputed Facts ¶ 21. The quote appeared in an article on the front page of the following day’s

New York Times business section. Undisputed Facts ¶ 22. The Wall Street Journal also reported

that the “H-P-Oracle feud” was “turning onetime partners into rivals.” Undisputed Facts ¶ 23.

B. The Hurd Settlement Agreement

HP’s lawsuit was against Mr. Hurd alone. It thus sought relief against Hurd alone,

principally in the form of various injunctions to prevent Hurd from breaching his confidentiality

obligations. See Undisputed Facts ¶¶ 19, 20; Wall. Decl., Ex. 11 (Hurd Compl. ¶¶ A-H). It had

nothing whatsoever to do with whether Oracle ported software to HP, the prices Oracle charged

for its software when it ran on HP platforms, or any other commercial matter. It was an

employment dispute. And true to that character, when HP, Hurd and Oracle began discussing a

settlement of the case, the talks were about how to protect HP’s confidential information and

amend the Separation Agreement that HP and Hurd had executed a month earlier. See Wall

Decl., Ex. 12 (Livermore Dep. at 72:24-80:10). There was nothing about reaffirming any


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“partnership” in HP’s first oral settlement proposal, its first written settlement proposal, or its

second written settlement proposal. See Undisputed Facts ¶¶ 24, 26, 29.

Behind the scenes, however, Ellison’s aggressive public response to HP’s suit against

Hurd, which raised the specter of an end to collaborations between Oracle and HP, touched a

nerve at HP. As former HP senior executive and current board member Ann Livermore testified,

it was in part “because Larry had been so vocal” that HP ultimately decided it was “important” to

reach out to Oracle about reaffirming the companies’ partnership. Undisputed Facts ¶ 31. In

addition, HP was concerned that a man it had just fired, Mark Hurd, was becoming one of

Oracle’s leaders. As HP senior executive David Donatelli put it: “[I]f you look at it from a

personal level, obviously Mark was fired from Hewlett-Packard, at the end of the day. And you

always have concern that people let their personal issues get in the way of longstanding

partnerships.” Wall Decl., Ex. 13 (Donatelli Dep. at 183:17-21); see also Undisputed Facts ¶ 31.

On Saturday, September 11, 2010, shortly after a telephonic meeting of the HP board at

which these concerns were discussed and four days after filing the lawsuit, HP first asked Oracle

to “reaffirm the partnership.” Undisputed Facts ¶ 29. That request was made in a telephone call

between Ms. Livermore and Oracle Co-President Safra Catz. Undisputed Facts ¶¶ 28, 29. In

parallel, HP executives set out on a research mission of sorts “to determine what contracts did in

fact exist between HP and Oracle,” and what additional commitments HP should seek from

Oracle. Wall Decl., Ex. 6 (Fink Dep. at 30:18-24; 120:18-25 ). The request made its way to

Martin Fink, the executive who runs HP’s Business Critical Systems unit—the unit that makes

and sells the servers running HP-UX on Itanium. Mr. Fink located several agreements

containing limited porting commitments for certain existing Oracle products, but found no

broader contractual obligations, and nothing that required Oracle to port future versions of its

software to HP operating systems. Wall Decl., Ex. 6 (Fink Dep. at 31:8-33:21; 133:4-20). He

then created and forwarded to HP’s in-house counsel a “list of asks” to, as he put it, “maintain[]

business continuity” for the BCS business. Wall Decl., Ex. 6 (Fink Dep. at 18:21-25). Clearly,

someone had decided to try to use the Hurd settlement talks to extract substantial forward-

looking business commitments from Oracle. Included in the “list of asks” was an explicit


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commitment by Oracle to keep porting its software to HP-UX on Itanium. Wall Decl., Ex. 6

(Fink Dep. at 138:6-16).

Ann Livermore did not raise porting or pricing explicitly when she first asked Safra Catz

to reaffirm the partnership. Wall Decl., Ex. 12 (Livermore Dep. at 96:15) (“We didn’t go very

deep.”); id. at 80:5-20 (indicating that she first discussed porting with Ms. Catz in connection

with later drafts). Ms. Catz relayed the original reaffirmation request to Oracle’s General

Counsel, Dorian Daley, who drafted the first version of the reaffirmation provision as follows:

“The parties re-affirm their commitment to their longstanding strategic partnership as established

under their existing contractual commitments and their mutual desire to continue to support their

joint customers.” Undisputed Facts ¶ 32. Ms. Daley simultaneously proposed that the press

release disclosing the settlement would announce “continuation of the longstanding and mutually

productive relationship between HP and Oracle.” Id. It was a public relations solution to a

public relations problem.

The next day, September 12, 2010, HP sent Oracle a counter-offer, in the form of a term

sheet, envisioning a different kind of commitment. See Undisputed Facts ¶ 33. The paragraph

HP drafted began with Oracle’s language about “re-affirm[ing] their commitment to their

longstanding strategic partnership and their mutual desire to continue to support their joint

customers.” Id. But HP struck Ms. Daley’s reference to “existing contractual commitments”

and in its place proposed what clearly would have been a set of new business commitments:

This reaffirmation to include a commitment from Oracle to continue to offer its product suite on HP platforms on terms that are as good as or better than any other platform, and to co-market and co-sell with HP such that the products available on HP Platforms are promoted or sold on par with or better than any other platform Oracle supports (other than Exadata). The detailed operative terms (including duration of the contractual commitment) to be resolved in the drafting of the actual written agreement.

Id.

When Dorian Daley received HP’s September 12 proposal, she understood that HP was

trying to change the reaffirmation from an essentially symbolic public relations commitment—a

way to calm the waters that were roiling due to the Hurd controversy—into a detailed set of


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commercial and product development commitments. Ms. Daley rejected this effort. Later on

September 12, she drafted and forwarded to HP a new version of the reaffirmation language that

with minor modifications became the final language the parties would later ratify. Undisputed

Facts ¶¶ 34-35; compare Undisputed Facts ¶ 43. Ms. Daley’s September 12 draft reads as

follows:

1. Reaffirmation of the Oracle-HP Partnership. Oracle and HP 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 HP platforms and HP will continue to support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a manner consistent with that partnership.

Undisputed Facts ¶ 34. To clarify the purpose and effect of these two sentences, Daley appended

a cover email in which she explained—unequivocally and unmistakably—that Oracle would not

agree to a “reaffirmation” that resulted in new obligations:

Reaffirmation of the Oracle-HP Partnership: This was intended to reaffirm and continue the existing relationship and not to put HP in a better position that it currently enjoys or result in the negotiation of a new contractual commitment. Ms. Catz and Ms. Livermore did not discuss anything more tha[n] an agreement to continue to work together as the companies have—with Oracle porting products to HP’s platform and HP supporting the ported products and the parties engaging in joint marketing opportunities—for the mutual benefit of customers. They did not discuss, and Oracle will not agree, to a ‘most favored nations’ clause. Given their market positions, such an agreement might even be considered suspect by regulatory authorities. Negotiation of ‘detailed operative terms’ is therefore not necessary.

Id. (emphasis added).

HP pushed back. On September 13, HP made a new written counter-offer which we now

know was based on Martin Fink’s “list of asks” for HP’s BCS business. See Wall Decl., Ex. 6

(Fink Dep. at 135:21-138:16). It outlined obligations for Oracle that are identical to the porting

and pricing obligations that HP now says Oracle actually took on. See Compl. ¶ 61. HP

proposed to add the following sentence (among others) to the reaffirmation, words that could

pass as a summary of HP’s position in this case:

Oracle will continue to support all ongoing versions of HP-UX with Oracle’s relevant database, middleware and application products with the availability, marketing and pricing in


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competitive terms that Oracle has provided HP for the past five years.

Undisputed Facts ¶ 37.

Ms. Daley rejected this 33 minutes after the draft arrived, writing in an email: “[Y]ou are

losing the only executive management advocate for a settlement with this. Safra [Catz] was with

me – now she’s going off the reservation.” Undisputed Facts ¶ 39. Catz called Livermore to

complain about this as well. See Undisputed Facts ¶ 38. Most importantly, Oracle removed all

of HP’s proposed commitments language in its September 14 counter-offer (Undisputed Facts ¶

40) and HP thereafter gave up trying to add porting and pricing language to the reaffirmation.4

See, e.g., Undisputed Facts ¶ 41; Wall Decl., Ex. 14 (Daley Dep. Ex. 59); Wall Decl., Ex. 15

(Daley Dep. Ex. 61).

Only one more change was made to the Reaffirmation Provision, and it does not alter any

of the words that “do work” in HP’s theory of the case. The change clarified that what the

parties were reaffirming was the partnership “as it existed prior to Oracle’s hiring of Hurd” (see

Undisputed Facts ¶ 35), and not as of any later date. Wall Decl., Ex. 16 (Holston Dep. at 209:13-

210:22). Of course, the language on its face limits the scope of the Reaffirmation Provision to

the subject of HP’s lawsuit: Hurd’s move to Oracle.5

The day the parties signed the Hurd Settlement Agreement, they jointly issued a press

release entitled “HP and Oracle Reaffirm Commitment to Long-term Strategic Partnership.” It

said, in relevant part:

HP and Oracle Corp. today reaffirmed their long-term strategic partnership and the resolution of litigation regarding Mark V. Hurd’s employment at Oracle. While the terms of the settlement are confidential, Mr. Hurd will adhere to his obligations to protect HP’s confidential information while fulfilling his responsibilities at Oracle. The agreement also reaffirms HP and Oracle’s

4 Ms. Livermore now claims that HP should never have sent Oracle the September 13 markup

to the Reaffirmation Provision, since she had already agreed with Ms. Catz not to try to specify Oracle’s obligations. See Wall Decl., Ex. 12 (Livermore Dep. at 121:14-123:7). It does not matter whether that is true, since it is undisputed that HP sent the markup and Oracle promptly rejected it. See Undisputed Facts ¶¶ 37, 40.

5 There was no discussion of this change either between Ms. Catz and Ms. Livermore or between counsel. Wall Decl., Ex. 12 (Livermore Dep. at 120:24-123:7); Wall Decl., Ex. 16 (Holston Dep. at 223:24-224:15).


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commitment to delivering the best products and solutions to their more than 140,000 shared customers.

Undisputed Facts ¶ 44. The release included a quote attributed to Larry Ellison stating, “Oracle

and HP will continue to build and expand a partnership that has already lasted for over 25 years.”

Id.

Just as Ellison’s September 7 comments had drawn widespread public interest, the

parties’ rapprochement did the same. The September 20 release, like Ellison’s earlier missive,

made the front page of the following day’s New York Times business section; the article began,

“A fierce and public feud between Oracle and Hewlett-Packard, two of the world’s largest

technology companies, has ended after all of two weeks.” Undisputed Facts ¶ 45. And once

again, the Wall Street Journal also took notice, reporting the end of “weeks of mudslinging” by

HP and Oracle. Undisputed Facts ¶ 46.

III. ARGUMENT

A. The Reaffirmation Provision Did Not Transform Historically Discretionary “Partnership” Activities Into New Contract Obligations

The Complaint alleges that Oracle breached the Reaffirmation Provision in the

Hurd Settlement Agreement because it: “(i) announced that it plans to discontinue all software

development on the Itanium microprocessor, and that new versions of Oracle software will not

run on the Itanium platform; (ii) stopped supporting Itanium customers that are using existing

versions of Oracle software; and (iii) changed its longstanding software license pricing formula

to specifically disadvantage Itanium platforms.” Compl. ¶ 60; see also id. ¶ 67. The question

presented is thus whether the Reaffirmation Provision constrains Oracle’s discretion to price its

software or decide which hardware and software platforms to support, by requiring Oracle to

forever act “consistent with the way [Oracle] products were offered and supported prior to

Oracle’s hiring of Hurd.” Compl. ¶ 61.6

6 HP has not seriously pursued the allegation that Oracle failed to support Itanium customers

with existing versions of Oracle software. We therefore focus on the porting and pricing claims. In terms of whether there is a duty to provide such support, the issues are the same.


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1. It is For the Court to Determine Whether the Reaffirmation Provision is Reasonably Susceptible to HP’s Interpretation

California follows the fundamental common law rule that a contract must be interpreted

so as to give effect to the intentions of the parties. See Cal. Civil Code § 1636. The standard is

objective: “[t]he question is what the parties’ objective manifestations of agreement or objective

expressions of intent would lead a reasonable person to believe.” Stellar v. Sears, Roebuck and

Co., 189 Cal. App. 4th 175, 184-85 (2d Dist. 2010). There is a limited range of possible

interpretations for every contract, typically described as those meanings to which the language is

“reasonably susceptible.” Dore, 39 Cal. 4th at 393. Neither a judge nor a jury may ever adopt

an interpretation outside this range.

In the first instance it falls on the trial judge to determine whether the competing

positions fall within the range of reasonable interpretations. “When a dispute arises over the

meaning of contract language, the first question to be decided is whether the language is

‘reasonably susceptible’ to the interpretation urged by the party. If it is not, the case is over.” Id.

at 393 (citation omitted). This first step is often described as determining whether the contract is

“ambiguous.” “Ambiguity” in this sense has a particular meaning, which in substance is whether

the contract language is “reasonably susceptible” to both interpretations proffered by the parties

to the dispute. Winet v. Price, 4 Cal. App. 4th 1159, 1165 (4th Dist. 1992).7 Virtually all

contracts have some degree of ambiguity in the simple sense that the words are not perfectly

clear. But courts do not concern themselves with “an ambiguity per se, i.e., an ambiguity

unrelated to an application.” Dore, 39 Cal. 4th at 391. The court’s threshold decision is whether

the language of the contract is reasonably susceptible to the interpretation on which the case

turns—in this case, HP’s claim that the Reaffirmation Provision constrains Oracle product

development and pricing decisions that historically have been discretionary.

At common law the question of “ambiguity” effectively determined whether “parol

evidence” was admissible to aid the process of interpretation. See, e.g., Eric Posner, The Parol

Evidence Rule, the Plain Meaning Rule, and the Principles of Contractual Interpretation, 146 U. 7 This is a question of law, not of fact. Winet, 4 Cal. App. 4th at 1165.


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Pa. L. Rev. 533, 534 (1998). Parsons and subsequent California cases have put a distinct spin on

that doctrine. Under California law, in order to decide whether a contract is “ambiguous” in the

first place, the judge considers (though without officially admitting into the record) the very

same extrinsic evidence that would be relevant to guide the interpretation of the contract if it

were deemed “ambiguous.” See Pacific Gas & Elec. v. G.W. Thomas Drayage & Rigging Co.,

69 Cal. 2d 33, 40 (1968).

Moreover, in most cases the judge will interpret the contract whether or not it is deemed

“ambiguous.” That is, a trial judge bears the sole responsibility to determine what the parties

intended an agreement to mean either (a) if its text is “unambiguous,” Wolf v. Walt Disney

Pictures and Television, 162 Cal. App. 4th 1107, 1125-26 (2d Dist. 2008), or (b) even if the

language is “ambiguous,” so long as the evidence required to resolve the ambiguity is

uncontroverted. Winet, 4 Cal. App. 4th at 1166 n.3. This is the essence of the Parsons rule:

courts, not juries, resolve competing inferences from uncontroverted extrinsic evidence. The

upshot of this regime is that contract interpretation under California law is a three-step process,

the first two of which are entirely the trial judge’s responsibility.8

This is not to say that juries have no role in interpreting contracts. They do, but only

where the judge cannot choose between two reasonable interpretations without resolving a

factual conflict in the extrinsic evidence—in other words, only if the proper interpretation turns

on the outcome of a material credibility dispute. See Habitat Trust, 175 Cal. App. 4th at 1342.

8 See Wolf, 162 Cal. App. 4th at 1126-27 (citations omitted):

First, [the judge] provisionally receives any proffered extrinsic evidence that is relevant to prove a meaning to which the language of the instrument is reasonably susceptible. If, in light of the extrinsic evidence, the language is reasonably susceptible to the interpretation urged, the extrinsic evidence is then admitted to aid the court in its role in interpreting the contract. . . . This is true even when conflicting inferences may be drawn from the undisputed extrinsic evidence or that extrinsic evidence renders the contract terms susceptible to more than one reasonable interpretation. If, however, there is a conflict in the extrinsic evidence, the factual conflict is to be resolved by the jury.

HP’s counsel has previously endorsed this understanding of California law. See Wall Decl., Ex. 17 (Case Mgmt. Conf. Tr. at 10:23-26 (Aug. 12, 2011) (“MR. COOPER: … Purely interpreting a contract is a judicial function not necessarily for the jury, and then you have to look beyond that to see whether there are genuine factual disputes that underlies [sic] that interpretation.”)).


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Frequently it does not—and as a result California case law is replete with contract interpretation

disputes cut off at summary judgment or summary adjudication. See, e.g., Suarez v. Life Ins. Co.

of N. Am., 206 Cal. App. 3d 1396, 1408 (2d Dist. 1988) (affirming summary judgment); Winet, 4

Cal. App. 4th at 1162 (same); Travelers Cas. & Sur. Co. v. Superior Court of Santa Clara Cnty.,

63 Cal. App. 4th 1440, 1445 (6th Dist. 1998); Dore, 39 Cal. 4th at 387 (affirming summary

judgment); Habitat Trust, 175 Cal. App. 4th at 1345 (same).

HP cannot get past those first two steps in the contract interpretation process because the

contract language, its context, and the undisputed extrinsic evidence foreclose its position.9

2. The Contract’s Text is Not Reasonably Susceptible to an Interpretation Whereby a “Reaffirmation” Fundamentally Transforms the Nature of the Oracle-HP Partnership

We begin, as the Court must, with the words. The Reaffirmation Provision states:

Reaffirmation of the Oracle-HP Partnership. Oracle and HP 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 HP platforms, and HP 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.


On its face, without any of the negotiating context, this provision means nothing more

than that the parties are “reaffirming” whatever relationship and obligations they already had

“prior to Oracle’s hiring of Hurd.” That’s the only conceivable way to understand the word

“reaffirm.” It means to state something again. See, e.g., “Reaffirm,” American Heritage

Dictionary of the English Language (4th ed. 2006) (“To affirm or assert again”);

“Reaffirmation,” Black’s Law Dictionary (9th ed. 2009) (“Approval of something previously

decided or agreed to; renewal”). Req. for Judicial Notice Ex. 6-7. To reaffirm a commitment is

to communicate that you still intend to meet that pre-existing commitment. One might reaffirm a

9 To avoid repetition, Oracle will not address the first two steps in the interpretive process

separately. However, all arguments should be taken to apply first to the threshold inquiry (ambiguity), and then if necessary to the subsequent one (uncontroverted facts).


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binding commitment (like a contract) or a non-binding commitment (like a strategic

“partnership”); every day of the week one can read about world leaders reaffirming alliances,

policies and platforms. But in all cases one can only “reaffirm” what already exists. No one

creates a new obligation by “reaffirming” something.

HP skips over the title of the Reaffirmation Provision and the first sentence, and rests its

entire case on a fragment of the second sentence: “Oracle will continue to offer its product suite

on HP platforms … in a manner consistent with that partnership as it existed prior to Oracle’s

hiring of Hurd.” That language, however, is part of and completely consistent with the explicit

reaffirmation that precedes it. The California rule is that “[t]he whole of a contract is to be taken

together, so as to give effect to every part, … each clause helping to interpret the other.” Cal.

Civil Code § 1641. In the Reaffirmation Provision as a whole, the title communicates that the

paragraph constitutes a reaffirmation; the first sentence is a reaffirmation; and the second

sentence explains the scope of the reaffirmation. But all it means is that the parties will get back

to supporting each other “consistent with” the partnership—as if the Hurd spat had never

happened.

The context in which the clause arose compels this interpretation. See id. § 1647 (“A

contract may be explained by reference to the circumstances under which it was made, and the

matter to which it relates.”). The problem addressed by the settlement generally and the

Reaffirmation Provision in particular is disruption in the Oracle-HP relationship caused by

Oracle’s hiring of Mark Hurd. That was also the point of Oracle’s September 7, 2010 press

release saying that the lawsuit was “making it virtually impossible for Oracle and HP to continue

to cooperate and work together in the IT marketplace.” See Undisputed Facts ¶ 21. HP’s

witnesses admit that the Reaffirmation Provision addressed Hurd’s move to Oracle, including

HP’s business lead on the negotiations, Ms. Livermore, who agreed that the Reaffirmation

Provision was meant to permit the partnership to go forward with “Mark Hurd out of the

equation.” Undisputed Facts ¶ 30.

In that context and for that purpose the language chosen for the Reaffirmation

Provision—its brevity, generality and the explicit references to reaffirming what existed “prior to


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Oracle’s hiring of Hurd”—makes perfect sense. Nothing more was needed to address the public

relations issues that were causing customers to wonder about the future of the Oracle-HP

partnership. A brief two sentences allowed the parties to announce, truthfully, that they had

“reaffirmed their long-term strategic partnership.” See Undisputed Facts ¶ 44. The strategy

worked, at least briefly. The same leading newspapers that had spread word of the falling-out

reported the patching-up. See Undisputed Facts ¶¶ 45, 46.

HP argues that if the Reaffirmation Provision means so little, then it is illusory, which as

a matter of law a contract cannot be. But it is not illusory—because reaffirming the partnership

had value. It in essence retracted a public statement that Larry Ellison had made that bothered

HP deeply. Furthermore, “reaffirmations” were apparently very valuable to HP, since there are

two of them in the Hurd Settlement Agreement, both at HP’s request. Paragraph 2 of the

agreement—immediately following the Reaffirmation Provision—has “HP and Hurd reaffirm

their commitment to comply with the terms of the Separation Agreement” (the contract executed

just a month earlier when Hurd left HP). It is axiomatic that terms in a contract should be given

consistent meaning, and clearly this second reaffirmation provision does nothing but take

entirely pre-existing obligations and reiterate the relevant parties’ intention to carry on as they

otherwise would have, with no material changes going forward. See Caminetti v. Pac. Mut. L.

Ins. Co., 22 Cal. 2d 344, 358 (1943). In light of that, HP cannot sensibly contend that bare

“reaffirmations,” without more, have no contractual significance; there is no debate that it sought

and received two of them in this very contract.

The language chosen for the Reaffirmation Provision makes no sense for the purpose of

transforming a mostly voluntary strategic partnership into a fully obligatory one. Make no

mistake: HP is claiming that the 27 words it is pulling from the Reaffirmation Provision were

worth billions of dollars to HP, and that the fate of HP’s entire HP-UX business depends on

them. Were HP’s interpretation accepted, those 27 words would obligate Oracle to spend

millions of dollars on development indefinitely—until HP decides to give up on the Itanium

platform. See Wall Decl., Ex. 13 (Donatelli Dep. at 109:10-110:11) (testifying that the Hurd

Settlement Agreement obligates Oracle to offer its software on the HP-UX Itanium platform for


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as long as HP chooses to stay in the business of promoting the platform, and without any

compensation from HP). It is patently unreasonable to contend that Oracle—or anyone—would

agree to take on obligations of that dimension with this kind of breezy, feel-good language.10

Indisputably, the list of missing terms—the terms one would expect to see in an

agreement reasonably susceptible to HP’s interpretation—is long and substantial. Neither of the

Reaffirmation Provision’s two sentences contains a price term. Neither contains a duration term.

Neither contains a term that identifies with any specificity which of Oracle’s hundreds of

products Oracle is obligated to port. Neither contains a term that identifies with any specificity

which of HP’s “platforms” Oracle allegedly agreed to port its software products to. Neither

contains a term that identifies the timing of required ports. Neither contains a term that identifies

what resources HP is to make available to facilitate the ports. Neither contains any performance

criteria to constrain Oracle from providing a minimal or poor quality port. Neither contains a

term that explains how the parties’ pre-existing, written porting agreements are affected by this

new omnibus obligation. And with respect to HP’s pricing theory, neither contains a term that

says what list price, range of list prices, or method for calculating list prices Oracle may

permissibly use for its ported software. It is no exaggeration to say that every expected detail for

a contract of such import is missing from the Reaffirmation Provision.11

This is not something that HP can explain away or excuse. HP effectively recognized

that much more would be required to create bona fide porting and pricing obligations when, on

September 12, 2010, it first proposed that the “reaffirmation” should “include a commitment

from Oracle to continue to offer its product suite on HP platforms on terms that are as good as or

better than any other platform….” See Undisputed Facts ¶ 33. To this, HP added: “The detailed

10 Months ago, this Court made the same point about the Reaffirmation Provision: it makes the

reader “feel warm,” but then “as lawyers, we would look at that and say, isn’t that nice? But what does it really say? Where are the specifics? Are there agreements and contracts that back that up that are specific?’” Wall Decl., Ex. 18 (Conf. Tr. at 18:23-28, 19:8-12 (Oct. 17, 2011). The Court’s observation captures the essence of why HP’s position is objectively unreasonable: because the words chosen, and the context in which they were crafted, make no sense as the singular expression of a desire to contractually constrain the complicated and evolving relationship that two of the world’s largest corporations had for decades.

11 The missing terms problem is even greater once the parties’ course of dealing is considered, as it is in Section III.A.4. below.


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operative terms (including duration of the contractual commitment) to be resolved in the drafting

of the actual written agreement.” Id. (emphasis added) Oracle did not disagree that “detailed

operative terms” would be needed if the parties intended to make product development and

pricing commitments to one another. Obviously they would be. Ms. Daley’s response, in

writing on September 12, was that Oracle was not going to make any new commitments and

“[n]egotiation of ‘detailed operative terms’ [was] therefore not necessary.” Undisputed Facts ¶

34.

Furthermore, HP’s newfound preference for generality destroys the enforceability of the

Reaffirmation Provision, a point covered in Section III.A.4. below. The law abhors that

outcome, however, so in these circumstances—where language is hopelessly vague for one

purpose but perfectly adequate for a more limited agenda—California Civil Code section 1643

imposes a binding interpretive directive. That section commands: “A contract must receive such

an interpretation as will make it lawful, operative, definite, reasonable, and capable of being

carried into effect, if it can be done without violating the intention of the parties.” The

Reaffirmation Provision can be interpreted in a way that makes it “lawful, operative, definite,

reasonable, and capable of being carried into effect”: by construing it narrowly to address how

the Hurd controversy affected the “partnership,” and nothing more.

Oracle submits that HP’s contract argument does not make it out of the gate. It fails at

the first step in the interpretive process, where the Court must decide whether the language used

is reasonably susceptible to HP’s proposed interpretation. We now turn to the drafting history,

which removes all doubt.

3. The Drafting History Indisputably Shows that HP Sought But Oracle Rejected New Business Commitments With Respect to Porting and Pricing

The most startling part of this case is how HP thinks it can possibly get away with its

contract claims given the drafting history. The Background section above contains the complete

chronology, but in short:

HP orally asked Oracle to “reaffirm the partnership” on September 11.



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Oracle prepared a first draft later on September 11 that said nothing about new

product development or pricing commitments. Undisputed Facts ¶ 32.

HP countered on September 12, asking that the reaffirmation “include” a

commitment from Oracle “to continue to offer its product suite on HP platforms

on terms that are as good as or better than any other platform.” Undisputed Facts

¶ 33.

Oracle rejected this later on September 12. Dorian Daley proposed a new version

that used some of HP’s language (i.e., “continue to offer its product suite on HP

platforms”), but stated unambiguously that this language would not “put HP in a

better position tha[n] it currently enjoys or result in the negotiation of a new

contractual commitment.” Undisputed Facts ¶ 34.

HP countered on September 13 with even more explicit obligatory language:

“Oracle will continue to support all ongoing versions of HP-UX with Oracle’s

relevant database, middleware and application products with the availability,

marketing and pricing in competitive terms that Oracle has provided HP for the

past five years.” Undisputed Facts ¶ 37.

Oracle rejected this immediately; both Dorian Daley and Safra Catz told their

counterparts at HP that Oracle would not agree to this. Oracle removed all of

HP’s proposed new language on September 14. Undisputed Facts ¶¶ 38-40; Wall

Decl., Ex. 6 (Livermore Dep. at 96:13-19); Wall Decl., Ex. 19 (Daley Dep. Ex.

56).

HP gave up its efforts to add obligatory language, and accepted Oracle’s language

with the minor exception of clarifying that the reaffirmation was of the

partnership “as it existed prior to Oracle’s hiring of Mark Hurd.” See Undisputed

Facts ¶ 41.

California law recognizes that “[w]ords deleted from a contract may be the strongest

evidence of the intention of the parties.” Woods v. Ins. Co. of N. Am., 38 Cal. App. 3d 144, 149

(1st Dist. 1974). Here, HP tried twice to persuade Oracle to agree to genuine business

commitments with respect to porting and pricing, and Oracle unequivocally rejected those

proposals on each occasion.

The key exchange occurred on September 12, when Dorian Daley transmitted the

language that, with minor modification, would become the Reaffirmation Provision. At this


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moment in the negotiations the divide between Oracle and HP could not have been any clearer:

Oracle was willing to reaffirm the strategic partnership publicly,

for the sake of addressing a public relations issue, but would not

make any new business commitments.

HP wanted both a public reaffirmation of the partnership and

tangible business commitments.

Ms. Daley’s September 12 draft obviously reflects the former concept—she said that her

language was “intended . . . not to put HP in a better position tha[n] it currently enjoys or result

in the negotiation of a new contractual commitment.” Undisputed Facts ¶ 34. HP’s response

was not to say, “hold on a second; that language does indeed contain a porting commitment.”

Instead, HP tried to change the term, proposing additional language articulating precisely the

duty from Oracle that HP claims in this litigation. See Undisputed Facts ¶ 37. Oracle rejected

every word of that proposal. See Undisputed Facts ¶ 40. To any reasonable person, the

conclusion is inescapable that HP did not get the commitment it now claims to have received.

We would be remiss not to address HP’s main argument, which in its own way is based

on Ms. Daley’s September 12 email. The argument has two parts: first, that the second sentence

of the Reaffirmation Provision does not simply reset the parties’ relationship to the status quo

ante, before the Hurd controversy, but rather freezes the status quo ante—requiring “a

continuation of the business relationship as it existed before the hiring of Mark [Hurd]” (Wall

Decl., Ex. 12 (Livermore Dep. at 104:23-25));12 and second, that Ms. Daley essentially said so in

the cover email she sent with her September 12 draft. HP cites Ms. Daley’s statement that “Ms.

Catz and Ms. Livermore did not discuss anything more tha[n] an agreement to continue to work

together as the companies have—with Oracle porting products to HP’s platform….” That, HP

argues, plainly shows a forward-looking porting commitment.

The problem is that HP is taking Ms. Daley’s statement wildly out of context. The full

paragraph of Ms. Daley’s email reads: 12 See also Compl. ¶ 61 (“as to any Oracle software product that was offered on HP’s Itanium

platform at the time Oracle signed the Hurd Agreement, Oracle [must] continue to offer and support that product, including any new versions, revisions, patches or updates of the product, on HP’s Itanium platform in a manner and on terms consistent with the way those products were offered and supported prior to Oracle’s hiring of Hurd”).


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Reaffirmation of the Oracle-HP Partnership: This was intended to reaffirm and continue the existing relationship and not to put HP in a better position that it currently enjoys or result in the negotiation of a new contractual commitment. Ms. Catz and Ms. Livermore did not discuss anything more tha[n] an agreement to continue to work together as the companies have—with Oracle porting products to HP’s platform and HP supporting the ported products and the parties engaging in joint marketing opportunities—for the mutual benefit of customers. They did not discuss, and Oracle will not agree, to a ‘most favored nations’ clause. Given their market positions, such an agreement might even be considered suspect by regulatory authorities. Negotiation of ‘detailed operative terms’ is therefore not necessary.

Undisputed Facts ¶ 34 (emphasis added).

This is the very definition of uncontroverted extrinsic evidence, so the Court alone

decides what it means for the purpose of interpreting this agreement. See Garcia, 36 Cal. 3d at

439; Wolf, 162 Cal. App. 4th at 1126-27; Habitat Trust, 175 Cal. App. 4th at 1341-42.

Obviously Ms. Daley is addressing the Reaffirmation Provision as a whole, and she is saying that

Oracle will not agree to a “reaffirmation” that results in new contractual obligations. As noted

above, she is also saying that Oracle will not go down the path of negotiating the “detailed

operative terms” that would need to be addressed if the porting and pricing terms that HP

requested in its September 12 draft were a part of this settlement. She acknowledges, and Oracle

agrees, that Oracle and HP will “continue to work together as the companies have” on all sorts of

levels, porting included. But “as the companies have” clearly means according to what each

company decides is “for the mutual benefit of customers”—not as a matter of newfound

contractual obligation to each other. HP can quibble with Ms. Daley’s words all it wants, but it

makes no sense to argue that she rejected new commitments categorically and accepted a broad

new porting obligation at the same instant. That HP tried again the very next day to get porting

and price commitments—only to have Ms. Daley reject them again—removes all doubt. See

Undisputed Facts ¶¶ 37, 40.

4. HP’s Proposed Interpretation Would Render the Reaffirmation Provision Unenforceable

California follows the common law rule that if “a supposed ‘contract’ does not provide a

basis for determining what obligations the parties have agreed to, and hence does not make


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possible a determination of whether those agreed obligations have been breached, there is no

contract.” Bustamante, 141 Cal. App. 4th at 209 (quoting Weddington Prods v. Flick, 60 Cal.

App. 4th 793, 811 (2d Dist. 1998); Robinson & Wilson, Inc. v. Stone, 35 Cal. App. 3d 396, 407

(4th Dist. 1973) (a contract “must evidence a meeting of the minds upon the essential features of

the agreement”) (internal quotation marks omitted).13 In short, the “essential features” of the

bargain must be addressed or there is no contract.14

As discussed above in Section III.A.2, none of the “essential features” of a porting or

pricing obligation appears anywhere in the Reaffirmation Provision, let alone in the fragment HP

relies on. The abject indecipherability of the parties’ commitments to each other under HP’s

current reading of the Reaffirmation Provision was evident during the testimony of former HP

General Counsel Mike Holston, one of the drafters of the agreement. When asked “[w]hat about

the relationship became obligatory as a result of paragraph 1?” he responded,

I would say that the parties were then required to act consistent with the course of conduct that they had engaged in up to that point in time, subject to a limitation of having to make decisions. They can make changes if those changes would be reasonable, they can — and both parties are required to act in good faith.

Faced with the follow-up question, “Can you be any more specific?” Holston answered “No, I

cannot.” Wall Decl., Ex. 16 (Holston Dep. at 216:10-20).

That is simply not good enough. To the contrary, it makes this case highly analogous to

Bustamante, where the plaintiff contended that an agreement with his erstwhile entrepreneurial

collaborator was enforceable because they had committed to “‘take all steps necessary to obtain

adequate funding and to formally launch the company.’” 141 Cal. App. 4th at 210. The court

disagreed on the ground that the deal left too many critical questions open: “what steps are

13 To make matters worse for HP, it is black-letter law that “[a] contract sought to be

specifically enforced in equity requires a greater amount of certainty in its terms than is necessary in a contract that is the basis of an action at law for damages.” 14 Cal. Jur. 3d Contracts § 100 (collecting cases); see also Weddington Prods., 60 Cal. App. 4th at 816 (for specific performance, contract “‘must not only contain all the material terms but also express each in a reasonably definite manner’”) (quoting Spellman v. Dixon, 256 Cal. App. 2d 1, 3 (2d Dist. 1967)).

14 “Whether a contract term is sufficiently definite to be enforceable is a question of law for the court.” Ladas v. Cal. State Auto. Ass’n, 19 Cal. App. 4th 761, 770 n.2 (1st Dist. 1993).


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‘necessary’? How can it be ascertained whether a party has complied with this term? How long

were they required to seek ‘adequate funding’?” Id. On HP’s reading of the Reaffirmation

Provision, there is literally no way to know which parts of the parties’ decades-long relationship

define their duties (e.g., the part before Oracle acquired Sun and started competing against HP,

or the seven months after that but before the Hurd suit); no way to know whether the

Reaffirmation Provision requires fidelity to particular outcomes (e.g., “we have always done X,

so we must continue to do so”) or particular approaches (e.g., “we always had discretion to

decide whether or not to do X, so we still have that discretion”); and as a result, no viable way to

identify whether a given action or omission would or would not violate the contract.

One of HP’s witnesses suggested the absence of detail was intentional, because Oracle

and HP “had such a broad, deep, expansive relationship, we could never document all the details

associated with [reaffirming] it.” Wall Decl., Ex. 12 (Livermore Dep. at 88:13-22). That is not

an available argument. The substantive law of contract requires a minimal level of detail, and to

the extent the contract purports to cover “a broad, deep, expansive relationship,” then more, not

less, detail is required. The 27 words that HP lifts from the Reaffirmation Provision cannot be

interpreted to do what HP says they do. See Cal. Civ. Code § 1643.

5. The Parties’ Course of Dealing Confirms that Porting Agreements Have Specific Terms Not Found in the Reaffirmation Provision

It is well-established that the past course of dealing between two parties is relevant to the

question whether a subsequent agreement is “reasonably susceptible” of a contested

interpretation. See Conderback, Inc. v. Standard Oil Co. of Cal., W. Operations, 239 Cal. App.

2d 664, 685 (1st Dist. 1966). In this case, two undisputed features of the parties’ past course of

dealing bear on the interpretation of the Reaffirmation Proceeding: (i) they do, occasionally,

enter contracts whereby Oracle commits to port certain software products to certain HP

platforms; and (ii) those contracts look absolutely nothing like the Reaffirmation Provision in the

Hurd Settlement Agreement.

Whatever partnership “glue” has held Oracle and HP together in the past, it has not been

strong enough to obviate the need to enter into genuine contracts from time to time.


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Indisputably, Oracle and HP have found it necessary to enter into formal porting agreements on

multiple occasions. In 2006, for example, Oracle and HP signed a contract pursuant to which

Oracle (knowingly) took on an obligation to port its “E-Business Suite,” a set of software

applications, to the HP-UX on Itanium platform. The agreement is titled, appropriately,

“Agreement for Porting the Oracle E-Business Suite to the HP-UX on Itanium Platform.”

Undisputed Facts ¶ 1. It is eight pages long, plus another six pages of exhibits and attachments.

On the first page, it says, “[t]he purpose of this Agreement is to define the relationship and

responsibilities between the parties, including but not limited to, engineering and resource

requirements, processes for collaboration, and tasks for the porting of EBS to the HP-UX on

Itanium platform.” There is no mistaking what the document is. It calls for HP to pay Oracle

$2.987 million for the initial development work to port the applications, and over a million

dollars a year for a period of up to five years for ongoing support. See Undisputed Facts ¶ 2 .

In 2007, Oracle and HP signed an “Agreement for Porting the Oracle Retail Suite to HP

Integrity and PA-RISC 11.23 Platform.” Undisputed Facts ¶ 3. It is the kind of detailed

commercial agreement that sophisticated companies invariably enter when they intend to bind

themselves to significant forward-looking obligations. The contract runs to ten pages, and

articulates precisely the “HP Responsibilities” and the “Oracle Responsibilities” it imposes.

Later that year, the parties entered an “Agreement for Porting Demantra to HP-UX on Itanium

Platform.” Undisputed Facts ¶ 4. Lest it be unclear what “Demantra” is, or what the contract

required Oracle to do with it, the ten-page agreement explicitly defines what software Oracle has

to port, see Undisputed Facts ¶ 5, for how long, see Undisputed Facts ¶ 8, in exchange for what

payments, see Undisputed Facts ¶ 6, and with what maintenance and support commitments, see

Undisputed Facts ¶ 7. The parties’ fourteen-page 2008 “Agreement for Porting the Oracle

Tuxedo 10gR3 Software to the HP OpenVMS Integrity 8.3-1H1 Platform” lays out the same

types of information for a different Oracle software product, in similar detail. See Undisputed

Facts ¶¶ 9-13.

The moment the Court inspects these agreements it will be clear that Oracle and HP

know how to create a forward-looking porting obligation when they want to. Their course of


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dealing confirms that the Reaffirmation Provision in the Hurd Settlement Agreement manifestly

is nothing like a porting agreement. It must mean something else, because it is so completely

lacking in every detail the parties themselves have historically deemed essential to such

agreements.

* * *

In conclusion, the Reaffirmation Provision cannot reasonably be interpreted to create

fundamental, forward-looking business obligations with respect to product development, pricing

or other matters unrelated to the Hurd employment litigation. It cannot be interpreted to require

Oracle to forever maintain “consistency” with business practices that span decades and that have

been obligatory only when the parties negotiated formal agreements making them so. The Court

can reach these conclusions either in the first step of the interpretive process, by finding that the

language unambiguously forecloses HP’s position, or in the second step based on the

uncontroverted extrinsic evidence. Either path leads to the same result: because HP’s proposed

interpretation cannot be right, its contract claim must fail.

B. HP Has Not Honored the Reaffirmation Provision as a Product Support Agreement

Recent testimony by Martin Fink, HP Senior Vice President and General Manager for the

Business Critical Systems (“BCS”) division, demonstrates that if the Reaffirmation Provision is

indeed a product support agreement, HP has breached or repudiated it. That, of course, would

preclude HP’s contract claims. See Hamilton v. Greenwich Investors XXVI, LLC, 195 Cal. App.

4th 1602, 1614 (2d Dist. 2011) (plaintiff’s own performance is required to make out breach of

contract claim).

The second sentence of the Reaffirmation Provision says that “HP will continue to

support Oracle products (including Oracle Enterprise Linux and Oracle VM) on its hardware in a

manner consistent with the partnership as it existed prior to Oracle’s hiring of Hurd.”

Undisputed Facts ¶ 43 (emphasis added). HP’s lawyers have placed great weight on the fact that

the Reaffirmation Provision includes this reciprocal obligation to Oracle, suggesting it provides

consideration for the porting commitment HP allegedly received. Compl. ¶ 57. On March 8,


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2012, Oracle asked Martin Fink whether HP would support Oracle Enterprise Linux in a recently

launched HP hardware initiative called “Project Odyssey.” Mr. Fink testified that

. See Undisputed Facts ¶¶ 47-49. The following testimony

ensued:

Q. Do you consider that HP has any contractual obligations to Oracle with respect to supporting Oracle Enterprise Linux?

A. I’m not aware of any contracts regarding that.

Q. Have you -- this probably answers that question, but I’ll ask it anyway. In managing BCS, have you made any decisions based on a perceived need to -- a perceived contractual need to support Oracle Enterprise Linux?

A. No.


If, as HP now says, the Reaffirmation Provision obligates the parties to “support” one

another’s products tangibly, in more than a symbolic sense, then HP has failed to deliver the one

thing that Oracle got explicitly: support for Oracle Enterprise Linux. However the Court chooses

to read this—as course-of-performance evidence that undermines HP’s contract interpretation

arguments, or as a repudiation of a tangible support obligation—it plainly undermines HP’s case.

C. HP’s Implied and Quasi-Contract Claims Fail as a Matter of Law

The Reaffirmation Provision is the heart of HP’s contract case. However, as backup, HP

has alleged three additional contract-like causes of action: breach of the covenant of good faith

and fair dealing, breach of an implied contract, and promissory estoppel. Because HP

indisputably sought from Oracle an express contractual commitment identical to the commitment

that HP claims on these alternate theories, and Oracle indisputably rejected that commitment,

none of HP’s implied and quasi-contract claims can succeed. Furthermore, because the parties

have executed actual porting agreements with specified scopes and obligations, implied and

quasi-contract theories cannot enlarge Oracle’s obligations.


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Covenant of Good Faith and Fair Dealing: An action for breach of the covenant of good

faith and fair dealing is not an alternative to proving a contract. The covenant is implied in

existing contracts and ensures good faith in the performance of prescribed duties. As such, “the

scope of conduct prohibited by the covenant of good faith is circumscribed by the purposes and

express terms of the contract.” See Carma Developers (Cal.), Inc. v. Marathon Dev. Cal., Inc., 2

Cal. 4th 342, 373 (1992). Furthermore, “the duty to act in good faith does not alter the specific

obligations of the parties under the contract.” PMC, Inc. v. Porthole Yachts, 65 Cal. App. 4th

882, 890 (4th Dist. 1998) (citation omitted). Numerous cases hold that the covenant cannot be

used to create obligations from matters that a contract leaves to the parties’ discretion. See, e.g.,

Carma Developers, 2 Cal. 4th at 373; Third Story Music, Inc. v. Waits, 41 Cal. App. 4th 798, 808

(2d Dist. 1995). HP’s claim pursuant to the covenant is grounded solely in the Hurd Settlement

Agreement. See Compl. ¶¶ 71-73. It thus fails because the Reaffirmation Provision imposes no

obligation remotely along the lines that HP claims.

Implied Contract: HP’s Fourth Cause of Action for breach of implied contract alleges:

“By virtue of the collaborative ‘partnership’ between HP and Oracle … to make their respective

products compatible, a contract implied in fact arose between HP and Oracle that obligated them

to continue with the same collaboration for future product versions.” Compl. ¶ 76. Acceptance

of that theory would send shudders through a technology industry replete with such partnerships.

There is no existing legal authority for the proposition that developing software or other goods

“compatible” with another’s platform creates an implied legal duty to do so in the future.

Countless technology companies would be put at risk were HP’s position adopted.

There are numerous factual reasons why HP’s implied contract claim would fail,15 but as

a matter of law it is foreclosed by the principle that “[t]here cannot be a valid express contract

and an implied contract, each embracing the same subject, but compelling different results.” See,

15 As discussed at length above, the documentary record of the negotiating history of the Hurd

Settlement Agreement shows that during that time, HP explicitly proposed porting and pricing obligations functionally identical to those it claims in this litigation that Oracle took on. If an implied-in-fact agreement for pricing or for Oracle to port its software to the HP-UX platform had already existed at the time of the Hurd litigation, then it would have made no sense for HP to have proposed such obligations.


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e.g., Eisenberg, 74 Cal. App. 4th at 1387. HP alleges that the Hurd Settlement Agreement is an

express contract covering the same subject matter, and there are numerous formal porting

agreements that expressly provide for porting. See Undisputed Facts ¶¶ 148, 150, 151, 156.

Where parties have chosen to specify their obligations on a subject by contract, their choices

cannot be expanded or overridden by an allegedly implied-in-fact agreement. See Lance Camper

Mfg. Corp. v. Republic Indem. Co., 44 Cal. App. 4th 194, 203 (2d Dist. 1996) (rejecting implied-

in-fact contract claim because it is “internally inconsistent” in light of the plaintiff’s

simultaneous allegation of a valid express contract on the same issue).

Promissory Estoppel: “Promissory estoppel is not a doctrine designed to give a party to a

negotiated commercial bargain a second bite at the apple in the event it fails to prove a breach of

contract.” Walker v. KFC Corp., 728 F.2d 1215, 1220 (9th Cir. 1984) (applying California law).

Under California law, a promissory estoppel claim requires a showing of reasonably foreseeable

detrimental reliance on a promise. See Lange v. TIG Ins. Co., 68 Cal. App. 4th 1179, 1185 (2d

Dist. 1998). The promise must be “clear and unambiguous in its terms” and the reliance “must

be both reasonable and foreseeable.” Advanced Choices, Inc. v. Dep’t of Health Servs., 182 Cal.

App. 4th 1661, 1672 (2d Dist. 2010).16

The alleged “promises” on which HP rests its claim cannot be considered “clear and

unambiguous” commitments to port future releases of Oracle’s software. Frankly, this has

always been plain on the face of the Complaint, which alleges the following “promises”: (1) a

May 2010 Oracle letter to customers which states, in part, that “HP’s family of servers based on

Itanium is a significant technology platform for Oracle Corporation” and that “Oracle looks

forward to continuing to ship quality products for the Integrity platform” (Undisputed Facts ¶

193); and (2) statements by four Oracle executives in press releases and interviews regarding

Oracle’s then-current plans regarding HP Integrity servers and the partnership generally.

Complaint ¶¶ 40, 41, 42.

16 There is no right to a jury trial on a promissory estoppel cause of action. C & K Eng’g

Contractors v. Amber Steel Co., 23 Cal. 3d 1, 5 (1978).


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The May 2010 letter does not promise support for future products. Undisputed Facts

¶ 193. To the contrary, it explicitly warns the reader that: “[A]ll of the above future platform and

feature support is in planning and is subject to change. This document is for informational

purposes only and may not be incorporated into a contract or agreement.” Id. In other words, to

the extent the letter (which is not to HP anyway) can be read to make any promise by Oracle to

support HP’s platforms, it was an overtly equivocal promise conditioned on Oracle’s right to

change its support decisions at any time.

With regard to comments by Oracle executives, as a matter of law general pledges to

“work together” and statements of historical fact are not “clear and unambiguous” promises that

may support a claim for estoppel. See Lange, 68 Cal. App. 4th at 1185-86 (statement of fact did

not constitute a promise); Columbia Pictures Television v. Krypton Broad. of Birmingham, Inc.,

106 F.3d 284, 292 (9th Cir. 1997) (affirming summary judgment under California law where the

only “promise” was a promise by plaintiff to “work with” defendant), rev’d on other grounds in

Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998). Each of the alleged

statements by Oracle executives spoke either to Oracle’s then-current “commitment” to support

existing applications on HP servers or to the Oracle-HP partnership generally. See Undisputed

Facts ¶ 194. None of the statements speaks to Oracle’s porting of future Oracle products, let

alone any particular Oracle product. Such general statements fall well short of the “clear and

unambiguous” promise on which a promissory estoppel claim must be based. Lange, 68 Cal.

App. 4th at 1185-86.

Nor can HP establish that its reliance on such statements as “promises” to port Oracle

products in the future was reasonable. It defies common sense for HP to have relied on a letter

that expressly disclaims any obligation to provide future support. Further, California law is clear

that informal representations regarding unsolidified future plans cannot be “reasonably relied

upon” for purposes of promissory estoppel. See Joffe v. City of Huntington Park, 201 Cal. App.

4th 492, 513 (2d Dist. 2011). HP cannot therefore have reasonably relied upon general

“partnership” statements by Oracle executives as promises to fulfill the very specific obligations

HP now seeks to enforce. Finally, the negotiation of the Hurd Settlement Agreement rendered


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any reliance after September 2010 indisputably unreasonable, as HP proposed contractual

language describing precisely the duties HP now seeks to enforce and Oracle explicitly rejected

that language. See Undisputed Facts ¶¶ 201, 204.

IV. CONCLUSION

For the foregoing reasons, Oracle respectfully seeks summary adjudication on the above-

referenced causes of action.

Dated: March 26, 2012 LATHAM & WATKINS LLP Daniel M. Wall Alfred C. Pfeiffer, Jr. Sadik Huseny

By: /s/ Daniel M. Wall Daniel M. Wall Attorneys for ORACLE CORPORATION


in support of its motion for summary adjudication s f · case no. 1-11-cv-203163 latham &...

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