Noncontractual Practices in a Written Contract May Turn Voluntary Actions into Binding Obligations

Hewlett-Packard Co. v. Oracle Corp. (2021) 65 Cal.App.5th 506

Hewlett-Packard Co. (HP) sued Oracle after Oracle stated it would stop porting software servers based on the "Itanium" chip that is utilized in select HP servers. HP's claim was that Oracle breached a settlement agreement, which included a "reaffirmation" of their existing strategic partnership. The reaffirmation clause stated that “Oracle will continue to offer its product suite on HP platforms and HP will continue to support Oracle products . . . on its hardware in a manner consistent with that partnership.” Oracle's argument was that this provision did not create any specific binding agreement to offer software for HP platforms. Oracle argued that the preexisting partnership was only voluntary, and that there was no contractual obligation for Oracle to port software to HP platforms. However, HP contended that contract created has turned this voluntary action between the two parties into a mandatory duty. The trial court and Court of Appeal both agreed with HP, based on the mandatory language of the clause (i.e., “will continue to offer its product suite on HP platforms” rather than “may”), and extrinsic evidence.

While Oracle also argued that this rendered the contract ambiguous for failure to specify terms such as scope, duration, compensation, etc., the Court of Appeal held that such terms could be determined by examining the parties’ course of dealing before the settlement agreement. Based on that, once Oracle began porting software to one of HP’s platforms, it had never before stopped doing so until HP discontinued the platform. Therefore, Oracle’s desire to cease supporting an existing platform before it was discontinued constituted a breach of the reaffirmation clause. The Court in Hewlett-Packard Co. also considered the admissibility of expert testimony regarding HP’s lost profits under Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, and concluded that the testimony was admissible because it was based on an established business and reliable market share data.

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