Oracle Sued By HPE In Fresh Trial Over Itanium Software

Silicon Valley giants Oracle Corp. (NYSE:ORCL) and Hewlett Packard Enterprise (NYSE:HPE) are embroiled in a legal tangle involving software for itanium chip-based servers over the last five years. The fresh trial, expected to run over the next four to five weeks, began yesterday at a state court in San Jose, CA. HP Enterprise has asked for $3 billion in compensation from Oracle for allegedly causing a decline in the demand for its itanium based products.

HP Enterprise was formed after its parent company Hewlett Packard split into two separate entities — HP Inc. (NYSE:HPQ) and HP Enterprise — in Nov 2015.

The dispute started in 2011 when Oracle decided to stop the development of software needed to run Itanium chip-based servers assuming that Intel Corp (NASDAQ:INTC) would eventually stop manufacture of Itanium chips fearing obsolescence. Intel and Hewlett Packard were joint manufacturers of these chips. Oracle’s decision came as a rude shock to HPE, then Hewlett Packard, as it uses the same Itanium chips in servers needed to run large corporate databases and other demanding computing tasks.

Hewlett Packard and Oracle shared a long-standing association for over three decades. However, things drastically soured when Oracle bought Sun Microsystems for $7.3 billion in Jan 2010. The buyout resulted in Oracle becoming a direct competitor of Hewlett Packard in the hardware segment.

In 2011, Hewlett Packard dragged Oracle to court accusing it of contract breach and also alleged that Oracle influenced customers to substitute their Itanium-based servers with its Sun servers.

The rivalry turned bitter when Oracle hired Hewlett Packard’s former Chief Executive Officer (CEO) Mark Hurd and appointed him as the Co-President. This did not go down well with Hewlett Packard and the company filed a lawsuit claiming “irreparable damage" as it believed that Hurd would provide “valuable trade secrets” to Oracle. This lawsuit was mutually settled later on.

In its defense, Oracle said that the deal with Hewlett Packard did not include an agreement to provide continued support for Itanium-based servers. However, in 2012, the judiciary sided with Hewlett Packard and ordered Oracle to keep supporting HPE’s itanium-based servers.

The present trial will now see whether Oracle is liable to pay HP Enterprise any damages. Oracle is expected to mount a strong defense.

Last week, Oracle found itself in trouble after a jury favored Alphabet (NASDAQ:GOOGL) over copyright violations of Java APIs. The dispute has been going on for the past six years now. Oracle had first sued Alphabet and then Google. It claimed that Google, in order to take a leading position in the mobile market, was scrambling to launch its operating system and therefore used Java unauthorized as it was a well-known script with a lot of programmers then. However, Google denied such allegations and maintained that the usage of Java APIs was protected under the “fair use” clause “which permits copying under limited circumstances.”

In May 2012, Alphabet initially gained an edge as the Northern District of California Judge William Asylup ruled that APIs are not copyrightable. However, next year, a U.S. Court of Appeals for the Federal Circuit reversed the district court’s ruling, thereby bringing some relief for Oracle. In a landmark ruling recently, a 10-member jury has found no copyright violations of Oracle Java APIs by Alphabet while developing its Android system.

Oracle general counsel Dorian Daley was quoted saying “Oracle brought this lawsuit to put a stop to Google’s illegal behavior. We believe there are numerous grounds for appeal."

At present, Oracle carries a Zacks Rank #4 (Sell) while HP Enterprise is a Zacks Rank #3 (Hold) stock.