Hewlett-Packard Company v. Oracle Corporation

Filed 6/14/21

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SIXTH APPELLATE DISTRICT

HEWLETT-PACKARD COMPANY, H044371

(Santa Clara County

Plaintiff and Appellant, Super. Ct. No. 2011-1-CV-203163)

v.

ORACLE CORPORATION,

Defendant and Appellant.

Hewlett-Packard Company (HP) and Oracle Corporation (Oracle) are large

technology companies with a long history of partnership. In 2010, after decades of

cooperation in selling their hardware and software, HP and Oracle plunged into a

disagreement over Oracle’s decision to hire HP’s former CEO. In an attempt to repair

this public quarrel and reaffirm their strategic alliance, the companies negotiated a

confidential settlement agreement. Far from resolving the controversy, it has led to years

of litigation, including this appeal.

The settlement agreement contains a short paragraph, described by the parties as

“the reaffirmation clause,” stating each company’s commitment to their strategic

relationship and support of their shared customer base. Six months after signing the

settlement agreement, Oracle announced it would discontinue software development on

one of HP’s server platforms. The present dispute centers on whether Oracle’s actions

violated the reaffirmation clause and, if so, the appropriate basis for any resulting

damages award.

In the first phase of a bifurcated trial, the trial court construed the reaffirmation

clause in the settlement agreement and found that it requires Oracle to continue to offer

its product suite on certain HP server platforms until HP discontinues their sale.

Following that decision, Oracle announced it would appeal the trial court’s ruling and

resume development of its software on HP’s server platforms. In the second phase of

trial, a jury found that Oracle had breached both the express terms of the settlement

agreement with HP and the implied covenant of good faith and fair dealing; it awarded

HP $3.014 billion in damages. Following the jury verdict, the trial court denied HP’s

request for prejudgment interest under Civil Code section 3287.

Oracle has appealed the judgment, and HP has filed a cross-appeal. In its appeal,

Oracle raises the following issues: (1) whether the reaffirmation clause creates a binding

obligation for Oracle to continue to offer its software product suite on certain HP server

platforms; (2) whether the evidence of Oracle’s conduct supports HP’s claims for breach

of contract and breach of the implied covenant of good faith and fair dealing, or whether

HP’s contract claim is properly characterized as a claim for anticipatory breach, in which

case HP waived its right to damages by accepting performance; and (3) whether HP’s

$3.014 billion damages award penalized Oracle’s exercise of its constitutionally

protected right to appeal prior trial court rulings and was based upon an impermissibly

speculative damages model. In its cross-appeal, HP contends the trial court erroneously

denied its request for limited prejudgment interest under Civil Code section 3287.

For the reasons set out below, we affirm the judgment. Specifically, we conclude

that the reaffirmation clause requires Oracle to continue to offer its product suite on

certain HP server platforms, and the trial court did not err in submitting to the jury the

breach of contract and implied covenant claims. On the subject of damages, we reject

Oracle’s argument that the judgment must be reversed based on violations of its

2

constitutional right to petition and because HP’s expert’s testimony on damages was

impermissibly speculative under California law and should have been excluded. Finally,

we decide HP has not shown an abuse of discretion in the trial court’s denial of

prejudgment interest.

I. FACTS AND PROCEDURAL BACKGROUND

A. Factual Background

To help explain our conclusions in these appeals, we set out in some detail the

factual background of the relationship between HP and Oracle, their products, and the

events leading up to the relevant dispute.1

1. HP’s Itanium Servers and Strategic Relationship with Oracle

A server is a computer system that performs tasks too big or complex for a

personal computer or notebook. HP is a computer technology company that in 2010

manufactured, among other products, computer servers. HP’s high-end “Itanium” servers

(hereafter Itanium or Itanium servers) are the technology at the center of these appeals.

Oracle is a technology company that develops software for business clients and, in the

relevant time period, was a significant supplier of software for the high-end server

market, including for HP’s Itanium servers.

Itanium servers run on HP’s proprietary Unix (“HP-UX”) operating system and

use the Itanium microprocessor, which HP jointly developed with Intel Corporation. The

hardware and operating system together form the server “platform.” The platform is

fitted with software; together they comprise the “technology stack”—essentially “layers”

of hardware and software that work together to deliver an integrated product to HP’s

customers.

Database software constitutes an essential layer in the technology stack. Oracle is

a major provider of database software for the high-end server market. Over 80 percent of

1

These facts are taken from evidence presented in the first and second phases of

the trial. Except where noted, the facts presented are not in dispute.

3

HP’s Itanium systems use Oracle’s database software. Oracle also provides

“middleware” software, which sits between the database software and the software

applications.

“Porting” is the process of taking software that has been written on one operating

system and processor architecture—like Oracle’s database, middleware, and software

applications—and making it available on another system, like HP’s Itanium platform.

The porting process is most involved when software must be configured and tested to

work with a new server platform, requiring a significant investment of time and

resources, especially by the software provider. The process continues even after software

is established on a platform, as software vendors constantly prepare new software

releases, which need to be tested and tuned to work on the platform.

HP started to sell Itanium in 2002. In 2005, the CEOs of HP, Oracle, and Intel

jointly launched Itanium on a larger scale. HP and Oracle worked together to port

Oracle’s database and middleware products to Itanium and did so without any contract or

payment to Oracle. HP and Oracle each bore the costs associated with the work it had

done. Similarly, HP and Oracle did not sign a contract or make payments when Oracle

ported subsequent releases of database or middleware software to Itanium. HP later

contracted to pay Oracle up to $10.3 million to port one of its application software

products, the E-Business Suite, to Itanium. HP provided similar funding, under contract,

to Oracle to port a few other application products to Itanium. However, most of Oracle’s

porting work to Itanium—about 99 percent—happened without any contract or payments

between HP and Oracle.

Once Oracle ports to a platform, it typically guarantees ongoing support under its

lifetime support policy to Oracle’s customers on that platform. A variety of

technological, market, and cost factors thus influence the decision to port to a platform.

The decision is a discretionary one based on business objectives and made directly by

Oracle’s CEO. Only a “small percentage” of Oracle’s porting decisions are governed by

4

contract. Oracle may stop porting to a platform either because the hardware vendor is

moving customers to a new platform, or because Oracle has decided not to develop new

releases for the platform even though the hardware vendor continues to market and sell it.

The only example offered at trial of Oracle choosing to stop developing software for a

platform still being sold was for IBM’s Power processor running on Linux. It offered no

such examples involving HP.

The Itanium product line was highly profitable for HP, generating over $2 billion

in annual profits in 2010. According to Ann Livermore,2 who at the time was the senior

vice-president of HP’s enterprise business, Itanium was not HP’s biggest business “but in

many ways it was [HP’s] most important business from a customer perspective,

because . . . customers were running such important applications, and [HP] had a lot of

really big customers who used those products.”

Oracle’s decision to port its software to Itanium benefitted both Oracle and HP.

Oracle was able to deploy its software on HP’s platform, selling database, middleware,

and some application products, while HP had “the leading software products” available

on its servers and could provide customers with an integrated and functional solution.

Marketing material from 2009 designed for use with customers touted the “HP and

Oracle Global Alliance” based on “[o]ver 25 years of collaborative partnership,” “[m]ore

than 140,000 joint customers,” and “[m]ore than $6 billion” in annual revenue generated

by the joint business. It described HP’s and Oracle’s joint support of solutions and

summarized each company’s substantial market share in the other’s products: 41 percent

of Oracle’s database customers used HP systems, and 84 percent of Itanium servers ran

Oracle’s database software.

2

Livermore testified in both trial phases. At the time of her testimony, she served

on HP’s board of directors and had worked for the company for 29 years. From 2004 to

2011, during the period covering the dispute with Oracle, Livermore was the senior vice-

president of HP’s enterprise business.

5

Oracle ported its software to HP server platforms other than Itanium, including to

HP’s platforms that preceded Itanium. For example, when HP stopped selling its PA-

RISC servers in December 2008, Oracle continued to port to PA-RISC after that date.

These actions enabled Oracle to continue selling software upgrades into the installed base

for customers who continued to use the platform.

There were a few products that Oracle elected not to port to Itanium unless HP

agreed to share costs, including two software applications developed in 2010 (Fusion

Applications and Cluster File Software). HP decided that it did not want to pay Oracle

for this service, so Oracle never ported those applications.

2. Oracle’s Acquisition of Sun Microsystems and Employment of Mark Hurd

Certain events in 2009 and 2010 strained HP’s relationship with Oracle.

In April 2009, Oracle announced that it would acquire Sun Microsystems (Sun).

Sun was a leading computer hardware company and competitor of HP, including in the

server market. The acquisition was completed in January 2010. The acquisition of Sun

marked a “potential sea change” in the relationship between HP and Oracle. The central

question was whether Oracle would continue to make its software available on HP’s

hardware platforms now that it owned one of HP’s direct competitors.

At meetings between senior executives for HP and Oracle in the months after the

Sun acquisition, Oracle emphasized that it was first and foremost a software company

and would continue to offer its software in a platform-neutral way on the HP, IBM, and

Sun platforms. At a February 2010 meeting attended by David Donatelli, the executive

in charge of HP’s enterprise business, and Thomas Kurian, Oracle’s most senior software

executive, the jointly prepared meeting minutes reflect that “HP and Oracle remain

strategic partners” and that “Oracle’s intent” was for Itanium to “have release parity”

with other major platforms and to “maintain the same functional parity” as other UNIX

6

operating systems.3 HP sought further assurance at an April 2010 meeting attended by

senior management, including HP’s senior vice-president Livermore and Oracle’s then

co-president Safra Catz. Catz reiterated Oracle’s commitment to the alliance with HP

and to “running Oracle Software on HP Infrastructure.”

HP understood from these discussions that the companies would compete for

hardware business, but Oracle would continue to support its customers’ choice of server

platforms, including HP’s platforms. There was no indication that Oracle would refuse to

port the next release of its products to Itanium. HP understood that Oracle intended to

maintain the same course of action as it had previously, which was to offer its software

on Itanium through the life of the platform. This understanding shaped HP’s investment

decisions, leading for example to a multi-year commitment to pay Intel for continuing

development work on the Itanium chip.

In August 2010, HP’s CEO Mark Hurd resigned at the request of HP’s board of

directors. Oracle’s CEO Larry Ellison publicly faulted the HP board of directors for

asking Hurd to resign, calling it “ ‘the worst personnel decision since the idiots on the

Apple board fired Steve Jobs many years ago.’ ” Ellison offered Hurd a position at

Oracle as co-president.4

About one month later, Oracle announced on September 6, 2010, that it had hired

Hurd as Oracle’s co-president responsible for all marketing and sales activity. This

announcement prompted immediate concerns for HP because of Hurd’s separation

agreement and his unique knowledge of HP’s confidential financial, technological, and

3

“Release parity” refers to how the software vendor releases its next generation of

products. It means that Oracle would release new versions of its software on Itanium in

the same time frame as its release on competing server platforms. “Functional parity”

refers to HP’s Itanium server maintaining its place among the top tier or “Tier 1” UNIX

operating systems.

4

Oracle at the time had two presidents. Safra Catz was the co-president focusing

on day-to-day operations. Catz and Hurd later became Oracle’s co-CEOs. Ellison

became Oracle’s chief technology officer and chairman of the board of directors.

7

customer information. The following day, HP filed a civil action against Hurd for breach

of contract and for threatened misappropriation of trade secrets. HP’s complaint alleged

that Hurd would be unable to perform his duties for Oracle in his new position as co-

president and member of the board of directors “without necessarily using and disclosing

HP’s trade secrets and confidential information.”

Oracle responded to HP’s lawsuit against Hurd by issuing a press release. In the

press release, Ellison called HP “ ‘an important partner’ ” and said that “ ‘[b]y filing this

vindictive lawsuit against Oracle and Mark Hurd, the 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.”

3. Settlement Agreement and Reaffirmation of the HP-Oracle Partnership

a. Negotiation of Settlement Agreement

The lawsuit against Hurd, and Ellison’s widely reported response, prompted rapid

action by HP and Oracle. HP’s senior vice-president Livermore contacted Oracle co-

president Catz on September 7, the day HP filed its lawsuit against Hurd.5 That evening,

HP’s general counsel, Michael Holston, spoke with Oracle’s general counsel, Dorian

Daley. Both lawyers expressed a desire to resolve the lawsuit quickly and, if possible, to

preserve the companies’ relationship. Holston and Daley spoke broadly about HP’s

desired terms for any settlement, which they contemplated would be confidential but

would allow the parties to jointly announce a resolution to the dispute over Hurd.

On September 9 and 10, HP and Oracle exchanged term sheets in an attempt to

reach an agreement to resolve the Hurd controversy. These first exchanges dealt strictly

with terms specific to Hurd and Hurd’s activities at Oracle. The next day, September 11,

5

The events referenced in connection with HP’s lawsuit against Hurd all took

place in 2010, unless otherwise specified.

8

Livermore and Catz spoke by phone. Livermore told Catz that HP’s board was

concerned about damage to the companies’ relationship—especially from Ellison’s

public comments—and wanted any settlement to contractually reaffirm the existing

partnership. HP wanted an assurance that the companies would continue to operate as

they had before Oracle hired Hurd. Catz did not object. At trial, she characterized

reaffirmation of the HP-Oracle partnership as “a very modest ask.” Livermore was not

surprised by Catz’s stance, as the HP-Oracle relationship was mutually beneficial and

profitable.

Over the next two days, Oracle and HP negotiated the language of the proposed

agreement. After some back-and-forth, Livermore and Catz concurred that the agreement

should not put HP in a better position than it had enjoyed with respect to Oracle prior to

Oracle’s decision to hire Hurd.

On September 12, Oracle sent a proposed agreement to HP. Oracle had removed

language suggesting it would favor HP over other competitors. Oracle’s September 12

version of the reaffirmation clause contained two sentences. It reaffirmed the companies’

“commitment to their longstanding strategic relationship and their mutual desire to

continue to support their mutual customers,” and it provided that “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.” In her cover e-mail to the September 12 draft, Daley

clarified Oracle’s position that the reaffirmation clause was not intended “to put HP in a

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

commitment.” Daley wrote that the discussions between Catz and Livermore did not

address “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.”

9

Catz and Livermore spoke again the next morning. Catz was not receptive to the

idea of adding more specifics to the reaffirmation clause. Livermore eventually agreed

with Catz that “it was simpler and cleaner” to exclude specifics.

Livermore testified at trial that she was satisfied the provision addressed her

concern about Oracle continuing to offer its products on HP’s Itanium platform.

Livermore acknowledged that Catz told her “that she didn’t think that Oracle was taking

on any new obligations or work.” Catz told Livermore that Oracle would commit to

maintaining the course of action it had done in the past, not any better. Catz e-mailed

Oracle’s general counsel Daley after her call with Livermore, saying “she tried to add

specifics on the relationship and I wasn’t open.”

Later that day, HP’s lawyers sent a revised draft to Daley that added specific terms

back into the proposed agreement, including an express reference to porting to Itanium.

Oracle forcefully rejected the added language. Daley wrote to Holston that this was

“setting us back in a very big way.” Livermore admitted that the draft “got by” her

before she had updated HP’s lawyers about her conversation with Catz. Livermore spoke

with Catz and told her it was a mistake. They agreed to take out the detail added by HP.

Oracle returned a draft the next day that deleted the additions that HP had

proposed. It retained the reaffirmation language from the September 12 draft, stating that

the companies “reaffirm their commitment” to their partnership and that “Oracle will

continue to offer its product suite on HP platforms . . . in a manner consistent with that

partnership.” HP made only one more change to the reaffirmation clause, adding that the

parties were reaffirming their relationship “as it existed prior to Oracle’s hiring of Mark

Hurd.” Daley, Catz, and Holston each confirmed that the added language made it clear

that the parties were referring to the partnership and course of dealing before the

controversy erupted over Oracle’s hiring of Hurd.

10

b. Text and Announcement of Final Settlement Agreement

The parties executed the settlement agreement between HP, Oracle, and Hurd on

September 20, 2010 (the agreement). Paragraph 1 of the agreement comprises the

reaffirmation clause. It 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.”

Recital B of the agreement, which precedes the provisions forming the parties’

specific commitments, reinforces that “HP, Hurd and Oracle recognize the mutual

advantages of the continuation of the HP-Oracle partnership and its benefits to their joint

customers and prospects and now desire to further their business relationship and resolve

the [lawsuit against Hurd] without the further time and expense of litigation.”

The agreement also provides for a joint press release, included as an attachment to

the agreement. The press release, issued on September 20, announced that HP and

Oracle had resolved the litigation regarding Hurd’s employment at Oracle in a

confidential settlement agreement that “also reaffirms HP and Oracle’s commitment to

delivering the best products and solutions to our more than 140,000 shared customers.” It

quoted Ellison as saying that “ ‘Oracle and HP will continue to build and expand a

partnership that has already lasted over 25 years.’ ” Apart from the press release, a

confidentiality provision in the agreement prevents further public disclosure about the

lawsuit or the terms of the settlement.

4. Course of Dealing Between HP and Oracle

In their briefing, the parties present divergent narratives of how each side

interpreted and implemented its obligations under the reaffirmation clause. Oracle

maintains that HP’s conduct in the months following the agreement was inconsistent with

11

a belief that the reaffirmation clause imposed broad new obligations on either party. HP

responds that, just as with the parties’ course of dealing before the agreement, the course

of dealing after the agreement focused on continued product development and porting

work.

The trial court heard extensive evidence in phase 1 of the trial on course of

conduct and post-agreement conduct, which we discuss in more detail in the analysis,

post (part II.A.2.b.).

a. Prior to the Agreement

As stated in the negotiated joint press release announcing the agreement, HP and

Oracle had “more than 140,000 shared customers” and had enjoyed a strategic

partnership of “ ‘over 25 years.’ ” The core of Oracle’s and HP’s partnership consisted

of joint sales, marketing, and mutual support of their products, including the porting of

Oracle’s products to HP’s platforms. Although Oracle had ported its software in the past

to different HP platforms, as of September 2010, when the agreement was signed,

Itanium was the only HP server platform to which Oracle was porting new versions of its

software products.6

Nine Oracle software products comprised the “product suite” offered on Itanium at

the time of the agreement. Once Oracle completed the initial port of one of these major

software products to Itanium, Oracle ported all future releases of the same product to the

platform.

The vast majority of porting (over 99 percent) occurred without any written

contracts between HP and Oracle. The few instances documented at trial in which the

companies entered a porting contract involved an initial port to Itanium of a product that

6

Oracle also offered its products on HP’s industry standard servers, which use

Intel’s x86 chips and Windows or Linux operating systems (not HP-UX). However,

Oracle did not need to port its products to those servers because it developed its software

from the outset to work on all industry-standard servers that use Windows or Linux

operating systems (of which there are many besides those of HP).

12

had not been previously ported. Oracle made subsequent versions of the product

available without a contract. With respect to Itanium’s predecessor platforms, Oracle

continued to support the platform by releasing new versions of software on it even after

HP stopped sales of that server line.

b. After the Agreement

The HP executives responsible for the relationship with Oracle were informed that

a settlement had been reached and they should carry on with “business as usual.” They

were not told of specific terms of the agreement, beyond the contents of the press release,

and understood that HP’s obligation was to behave as it had been doing before the

signing of the agreement.

HP and Oracle continued to engage in product development and porting work in

the post-agreement period. For example, Oracle had begun work in early 2010 to port the

next version of its database software (database 12g, later 12c) to Itanium. HP provided

hardware, servers, storage, and engineering support as needed to assist with the ports. In

September 2010, HP provided additional servers to Oracle to facilitate the ongoing

database porting work. HP’s engineers continued to collaborate with Oracle’s engineers

on the next release of the database software until as late as June 2011. HP also worked

with Oracle to ensure that Oracle’s product suite would continue to run on Itanium, even

increasing the level of support to certify the Oracle products on specific HP servers.

Livermore and Catz spoke “off and on” in the months after the agreement was

signed, including on March 18, 2011, four days before Oracle announced that it would

discontinue developing new releases of its products for Itanium. Catz gave no indication

to HP that Oracle was going to stop porting to Itanium. Livermore reported in her notes

to several HP executives that the phone call had a “[p]ositive tone overall.” Catz testified

that she said nothing to Livermore during the call about Oracle’s impending Itanium

announcement because Oracle “hadn’t made the final decision yet.”

13

5. Oracle’s March 2011 Announcement

According to Oracle, by March 2011 there were clear signals from within the

industry that the Itanium platform was losing viability. Ellison testified that

technological innovations in other server platforms led to Itanium “falling further and

further behind,” and that “Intel had lost interest in Itanium.”7

On March 22, 2011, Oracle issued a press release in which it stated it would stop

developing software for Itanium (March 2011 announcement). The March 2011

announcement was titled “Oracle Stops All Software Development For Intel Itanium

Microprocessor” and stated that after conversations with Intel about its strategic focus

and Itanium’s future, “Oracle has decided to discontinue all software development on the

Intel Itanium microprocessor. . . . [¶] . . . [¶] Oracle will continue to provide customers

with support for existing versions of Oracle software products that already run on

Itanium.” Oracle issued a second announcement the next day reiterating its support of

the “current versions” of its software on Itanium and specifying the next versions of

Oracle’s software that would not be available on Itanium but would be available on other

platforms (i.e., IBM and Oracle/Sun).

Oracle issued the March 2011 announcement at 11:00 p.m. (Eastern Standard

Time) the night before HP’s annual shareholders’ meeting and caught both HP and Intel

unaware. In response, Intel released a press release the next day, March 23, to “directly

reiterate” that its work on the Itanium processer was continuing unabated, “ ‘with

multiple generations of chips currently in development and on schedule.’ ”

Oracle claimed that its decision to discontinue porting future Oracle software

versions to Itanium had no effect on most joint customers, since Itanium users made up

only “a few thousand” of the 150,000 joint customers, and the remaining joint customers

7

Ellison described in detail the developments he believed signaled Itanium’s

demise. He explained by way of one example that “an innovative new product, [Intel’s

E7 microprocessor], killed an old, obsolete product, Itanium. That’s the way it works in

Silicon Valley. That’s the way it’s always worked.”

14

used x86-based servers, for which Oracle had no plans to stop developing new software.

Oracle also emphasized that the decision would have no immediate effect because it

would continue to support and develop patches for the products already offered on

Itanium in accordance with its standard lifetime support policy. Oracle’s executives

nonetheless recognized that the decision “would be big news” to HP. Thomas Kurian,

Oracle’s executive vice-president of software development, acknowledged that the March

2011 announcement was unprecedented and was the first time Oracle had decided to stop

porting to any server based on a microprocessor architecture that was still being sold and

marketed. Customers who were running Oracle’s software on Itanium would have to

choose another hardware platform to receive future releases of Oracle’s software.

Livermore called Catz immediately after the March 2011 announcement to tell her

it contradicted the press release from just six months ago and was a “breach of our

contract.” HP initially hoped that pressure from customers would cause Oracle to reverse

its decision. However, customer pressure did not change Oracle’s decision, and about

two months later HP sent a demand letter to Oracle and subsequently filed this action.

B. Procedural Background

1. HP’s Lawsuit

HP sued Oracle in June 2011. The complaint alleges that Oracle breached the

settlement agreement by refusing to continue to offer its product suite on Itanium just

months after it promised to do so and by reneging on its assurances of continued support

for customers using Oracle software on the platform. HP asserted claims for declaratory

relief, breach of contract, breach of the implied covenant of good faith and fair dealing,

promissory estoppel, and various tort and statutory violations.8 HP sought a judicial

8

This appeal involves only HP’s claims for declaratory relief, breach of contract,

and breach of the implied covenant of good faith and fair dealing. Although Oracle filed

a cross-complaint (and later, an amended cross-complaint) alleging that HP violated

federal and state law by misleading Oracle, its customers and investors, and the public,

15

determination of the parties’ rights and obligations under the agreement, which HP

asserted “requires Oracle to continue to offer and support” any Oracle product that was

offered on the Itanium platform at the time Oracle signed the agreement with HP. HP

demanded specific performance and requested direct and consequential damages as a

remedy for the alleged breach of contract.

The trial court bifurcated trial proceedings into two phases: (1) a phase 1 bench

trial to interpret the agreement and decide the issues of declaratory relief and promissory

estoppel; and (2) a phase 2 jury trial to decide the breach and damages claims. The trial

court agreed to set a short timeline for the phase 1 bench trial, which in HP’s words

would allow the court to “resolve the contractual dispute in sufficient time to ensure that,

if HP prevails, Oracle can complete necessary development work on its 12g database in a

timely fashion so as not to delay the porting of its 12g database to Itanium when it

launches 12g on competing server platforms.”

2. Phase 1 Bench Trial

The phase 1 bench trial took place over 12 days in June 2012. The trial court

heard testimony from 30 witnesses and admitted over 500 exhibits into evidence.

The trial court issued its ruling on August 28, 2012. In a detailed, 45-page final

statement of decision (statement of decision), the trial court ruled in favor of HP and

against Oracle on HP’s claim for declaratory relief. The trial court made factual findings

related to the period before the litigation over Oracle’s hiring of Hurd, the negotiation of

the settlement agreement, the companies’ historical partnership and course of dealing

about the future prospects of Itanium, and by fraudulently inducing Oracle to enter into

the settlement agreement over the Hurd dispute, the jury in the second phase of trial in

2016 rejected Oracle’s claim under the Lanham Act (15 U.S.C. § 1125(a)), and Oracle

has not appealed that ruling here. As noted below, after HP succeeded on its breach of

contract and implied covenant claims, HP voluntarily dismissed the remaining causes of

action.

16

(particularly as to the Oracle product suite on HP’s platforms, porting, and platform

support), and the post-agreement period and March 2011 announcement.

As to the legal issues, the trial court held that the reaffirmation clause (paragraph 1

of the agreement) was unambiguous as a matter of law and that Oracle had “failed to

offer a plausible interpretation” of it. The trial court found the extrinsic evidence,

although not admissible to interpret the agreement’s unambiguous meaning, was

confirmatory of HP’s interpretation. It reasoned that the contractual language that

“ ‘Oracle will continue to offer its product suite on HP platforms’ . . . ‘in a manner

consistent with [the HP-Oracle] partnership’ ” was consistent with the parties’ historical

relationship and prior course of dealing, and with the language of the joint press release

pledging continued support for customers that had for decades relied on the HP-Oracle

partnership.

The trial court concluded that the agreement “requires Oracle to continue to offer

its product suite on HP’s Itanium-based server platforms and does not confer on Oracle

the discretion to decide whether to do so or not.” The trial court construed the term

“ ‘product suite’ ” to mean “Oracle software products that were offered on HP’s Itanium-

based servers at the time Oracle signed the [agreement], including any new releases,

versions or updates of those products.” The court also construed Oracle’s obligation

under the agreement to apply without charge to HP and “until such time as HP

discontinues the sale of its Itanium-based servers.” Over Oracle’s objection, the court

declined to construe “a host of collateral issues” that Oracle claimed had to be resolved

concurrently, such as the effect of the reaffirmation clause on intellectual property rights

in any resulting software and on the parties’ prior porting agreements.

3. Oracle’s August 2012 Press Release and September 2012 Announcement

On the day the trial court released its tentative statement of decision for phase I,

Oracle issued a press release stating it would appeal (August 2012 press release). The

17

August 2012 press release asserted that “ ‘Oracle did not give up its fundamental right to

make platform engineering decisions in the 27 words HP cites from the settlement of an

unrelated employment agreement. . . . We plan to appeal the Court’s ruling while fully

litigating our cross claims that HP misled both its partners and customers.’ ” HP

responded that Oracle “no longer has any basis for refusing to port, and that it should . . .

resume porting immediately.”

One month later, Oracle publicly announced that it would comply with the trial

court’s phase 1 decision and resume porting to Itanium (September 2012 announcement).

The September 2012 announcement indicated that “a judge recently ruled that Oracle has

a contract to continue porting its software to Itanium computers for as long as HP sells

Itanium computers. Therefore, Oracle will continue building the latest versions of its

database and other software covered by the judge’s ruling. . . . Oracle software on HP’s

Itanium computers will be released on approximately the same schedule as Oracle

software on IBM’s Power systems.”

Oracle wrote separately in a letter to the trial court that its September 2012

announcement was “without prejudice to [its] rights to appeal” the phase 1 ruling. Oracle

told the trial court that it would be able to “meet in a timely manner substantially all of

the porting obligations” found by the court to exist under the settlement agreement, since

few products had had releases in the interim. Oracle told the trial court that given its

decision to resume porting in time to meet its obligations, “HP will need to substantially

revise its damages case” which would necessitate a delay of phase 2 of the trial.

The trial court allowed the parties to serve supplemental expert reports addressing

the impact of Oracle’s September 2012 announcement on HP’s damages claim and

granted limited reopening of discovery related to expert reports.9

9

Oracle filed a petition for writ of mandate in this court on January 17, 2013,

challenging the trial court’s order allowing HP to submit supplemental expert reports as

18

4. HP’s Expert Testimony on Damages

In March 2012, HP’s damages expert, economist Jonathan Orszag, calculated

HP’s estimated damages due to Oracle’s breach of contract to be between $3.8 billion

and $4 billion. Orszag produced a supplemental written report in December 2012. In his

supplemental report, Orszag wrote that the “continued decline in Itanium revenue”

reflected in updated projections “shows that any favorable impact from the Phase 1

decision and the Oracle September 2012 announcement has been more than outweighed

by the continuing negative impact . . . from the March 2011 Oracle Announcements and

the continuing uncertainty created by Oracle’s recent statements regarding its intention to

appeal the Phase 1 decision.”

At the evidentiary hearing held in March 2013 to determine the admissibility

under Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th

747 (Sargon) of each party’s designated expert’s testimony, Orszag explained that

Itanium’s business “continued to deteriorate” following the September 2012

announcement. Orszag did not assume, in making his damages calculations, that Itanium

customers would be unable to get the Oracle products they wanted. He explained that

during the period between March 2011 and September 2012, many Itanium customers

decided to transition to other server platforms. He noted that Oracle’s statements

regarding its intention to appeal the phase 1 decision factored into the “significant

uncertainty” about the future availability of Oracle products on Itanium. According to

Orszag’s analysis, the “damage had been done.”

well as limitations on the supplemental discovery it allowed Oracle to conduct. This

court denied the petition without opinion. (Oracle Corp. v. Superior Court (Mar. 27,

2013, H039210), petn. den.) This court also denied, without opinion, Oracle’s earlier

petition for writ of mandate, filed on October 12, 2012, seeking to overturn the trial

court’s decision in phase 1. (Oracle Corp. v. Superior Court (Jan. 31, 2013, H038880),

petn. den.)

19

The trial court issued a written order after the evidentiary hearing finding that the

expert testimony of Orszag, and of Oracle’s proposed expert, Ramsey Shehadeh, met the

admissibility standard under Sargon, supra, 55 Cal.4th 747.10

5. Anti-SLAPP Motion and Appeal

Shortly before the trial court issued its order finding Orszag’s expert testimony

admissible, Oracle filed a motion under the anti-SLAPP statute (Code Civ. Proc.,

§ 425.16) to strike “in whole or in relevant part” HP’s causes of action for breach of

contract, breach of the implied covenant of good faith and fair dealing, and promissory

estoppel (anti-SLAPP motion). Oracle’s motion asserted that HP had “changed its

damages theory from one about harm caused by the unavailability of Oracle’s software to

one about harm caused by customer uncertainty . . . allegedly resulting from Oracle’s

March 2011 announcement and its subsequent refusal to accept the [statement of

decision] as the final, definitive ruling on the meaning of the Hurd Settlement

Agreement.” Oracle contended that its announced intention to appeal the trial court’s

determination on liability was protected conduct under the anti-SLAPP statute, because it

constituted an exercise or attempt to exercise Oracle’s constitutional rights both to

freedom of speech and to petition the government for redress of grievances. (See Code

Civ. Proc., § 425.16, subd. (b)(1).)

A hearing on Oracle’s anti-SLAPP motion was held on April 5, 2013, the last

court day before the phase 2 trial was set to begin. That same day, Oracle filed a motion

in limine seeking to exclude argument and evidence of lost profits that failed to

disaggregate lost profits arising from Oracle’s stated intent to appeal. Oracle claimed that

HP was precluded from asserting damages based on Oracle’s constitutional right to

petition under the United States and California Constitutions and under California’s

10

We discuss additional facts relevant to the jury’s damages verdict and Oracle’s

related contentions on appeal in part II.C., post.

20

litigation privilege. HP opposed the motion in limine, which remained pending while the

parties litigated the anti-SLAPP motion.

In a written order on April 8, 2013, the trial court denied Oracle’s anti-SLAPP

motion as untimely. The court recognized that “as a result of this ruling, Oracle is

statutorily entitled to perfect an appeal, and by taking that step, all matters ‘embraced’ or

‘affected’ by the order appealed from are stayed.” Oracle filed a notice of appeal that

same day from the order denying its anti-SLAPP motion. The trial court vacated the

phase 2 trial date pending the appeal.

In a published opinion on August 27, 2015, a panel of this court affirmed the

denial of Oracle’s anti-SLAPP motion. (Hewlett-Packard Co. v. Oracle Corp. (2015)

239 Cal.App.4th 1174, 1196 (Hewlett-Packard) (anti-SLAPP appeal).) The opinion

deemed Oracle’s appeal to be “utterly without merit.” (Id. at p. 1178.)

Addressing only the question of timeliness, this court held that “[t]he motion was

late under any reasonable construction of the facts, and it was quite properly denied

because it could not possibly achieve the purposes for which the anti–SLAPP statute was

enacted.” (Hewlett-Packard supra, 239 Cal.App.4th at p. 1178.) This court rejected

Oracle’s proffered excuse for untimeliness (id. at pp. 1193–1194) and raised other

concerns with the anti-SLAPP motion, including that it did not target a “cause of action”

or “claim” under the statute (id. at pp. 1195–1196) “but part of HP’s intended proof of

causation and damages” (id. at p. 1196), rendering it “in effect a motion in limine.”

(Ibid.) It observed that the anti-SLAPP motion in fact “raised the same substantive

issues” (ibid.) as the above-mentioned motion in limine filed in anticipation of the phase

2 trial, “and had the matter not been derailed, would have produced a ruling that could be

reviewed in due course along with any other issues remaining after trial.” (Ibid.) In its

affirmance, this court stated that it was declining to assess sanctions against Oracle only

to avoid any further delay of the long-deferred phase 2 jury trial. (Id. at p. 1178.)

21

6. Phase 2 Jury Trial

Upon remand of the case following the anti-SLAPP appeal, the parties proceeded

with the phase 2 trial to decide the breach and damages claims in May and June of

2016.11 Oracle sought, through multiple procedural vehicles, to challenge HP’s theory of

breach and to limit HP’s claim to damages. We describe these efforts in our discussion

of the jury’s breach of contract verdict, post (part II.B.1.a.). The trial court rejected

Oracle’s motions in limine and proposed motion for summary adjudication of these

issues.

The jury heard testimony over 19 days from 19 witnesses, including from each

side’s damages expert. At the close of HP’s case in chief, Oracle moved unsuccessfully

for a judgment of nonsuit on HP’s breach of contract claims. Oracle later moved, at the

close of all the evidence, for a directed verdict as to HP’s breach of contract claims,

contending that the evidence was legally insufficient to permit a jury finding in HP’s

favor and HP had not established damages “by any actionable conduct.” The trial court

denied these motions and allowed the contested issues to go to the jury.

Over Oracle’s objection, the trial court instructed the jury using the interpretation

of the agreement found by the court in the phase 1 statement of decision. The

introductory breach of contract instruction (CACI No. 300) stated that it was the court’s

duty to interpret the meaning of the agreement at issue in the case, and that at the

conclusion of the first trial phase, the court “determined that the Hurd Settlement

Agreement is a binding contract between HP and Oracle.” The instruction set forth

paragraph 1 of the agreement and instructed the jury that it “must accept as true” the

court’s findings regarding the meaning of the agreement. These findings in relevant part

stated the following: “1. The [agreement] requires Oracle to continue to offer its product

suite on HP’s Itanium-based server platforms and does not confer on Oracle the

discretion to decide whether to do so or not. [¶] 2. The term ‘product suite’ means

11

The phase 1 and phase 2 trials were conducted before different bench officers.

22

Oracle software products that were offered on HP’s Itanium-based servers at the time

Oracle signed the [agreement], including any releases, versions, or updates of those

products. [¶] 3. Oracle’s obligation to continue to offer its product suite on HP’s

Itanium-based server platforms lasts until such time as HP discontinues the sale of its

Itanium-based platforms. [¶] 4. Oracle is required to port its product suite to HP’s

Itanium-based servers without charge to HP.”

The instruction further stated in part that “HP claims that Oracle breached this

contract when it decided and announced in March of 2011 that it would no longer offer

new versions of its product suite on Itanium-based servers, thereafter discontinuing

software development and porting work for HP’s Itanium-based server platforms and

repeatedly telling customers that it would no longer offer its product suite on Itanium-

based servers. [¶] . . . . [¶] Oracle denies that it breached the [agreement] and denies that

a breach, if any, caused HP any harm.”

After deliberations, the jury delivered its verdict finding that Oracle breached the

contract and breached the implied covenant of good faith and fair dealing. The jury

awarded HP $1.699 billion in damages for “[p]ast lost profits” and $1.315 billion in

“[f]uture lost profits” for a total damages award of $3.014 billion.

HP moved for an award of prejudgment interest for the period during which the

phase 2 trial was delayed due to Oracle’s anti-SLAPP appeal. The trial court denied the

motion after a hearing, finding that while the improper delay weighed in favor of an

award, other factors related to HP’s “highly contested and uncertain” damages weighed

more significantly against it. We address the motion for prejudgment interest in our

analysis of HP’s cross-appeal, post (part II.D.).

After the parties stipulated to dismiss and voluntarily dismissed the remaining

causes of action, HP requested entry of judgment and “elected not to pursue specific

performance as a remedy for its breach-of-contract cause of action.” On October 20,

23

2016, the trial court entered judgment in favor of HP and against Oracle in the amount of

$3.014 billion and ordered that HP was entitled to recover allowable costs from Oracle.

After briefing and argument, the trial court denied a motion for new trial on

damages, filed by Oracle on the ground the jury award was excessive and contrary to law.

Oracle timely appealed from the final judgment, and HP timely filed its cross-appeal.

II. DISCUSSION

We must first decide whether the trial court erred in interpreting the agreement’s

reaffirmation clause to require Oracle to continue to offer its product suite on Itanium

until HP discontinues its sale of the platform. We next consider Oracle’s two-pronged

contention that (1) the jury verdict finding breach of contract and breach of the implied

covenant of good faith and fair dealing must be reversed because the evidence that Oracle

resumed porting its software to Itanium precluded liability for breach, and (2) HP waived

any alternative claim for anticipatory breach of the contract by seeking and obtaining

Oracle’s specific performance of the agreement. We also consider Oracle’s claim that the

trial court erroneously allowed HP to introduce evidence in violation of Oracle’s

constitutionally protected and privileged statement that it intended to appeal the phase 1

decision, as well as speculative expert testimony in support of HP’s claim for lost profit

damages. Lastly, we address HP’s cross-appeal on the issue of prejudgment interest.

A. Interpretation of the Reaffirmation Clause

Oracle contends that, contrary to the trial court’s interpretation of the settlement

agreement, the reaffirmation clause merely restates the historically voluntary, non-

contractual relationship between Oracle and HP. It argues that the unambiguous, plain

language of the agreement is not reasonably susceptible to the interpretation HP ascribes

to it, and furthermore that the undisputed extrinsic evidence confirms Oracle’s own

interpretation. HP responds that the reaffirmation clause plainly commits Oracle to

continue porting its software to HP’s Itanium server platform, consistent with Oracle’s

prior course of conduct as shown by the extrinsic evidence admitted at trial.

24

1. Principles of Contract Interpretation

The fundamental goal of contract interpretation is “to give effect to the mutual

intention of the parties as it existed at the time of contracting.” (Civ. Code, § 1636.)12 To

interpret a contract, we look to its language (§ 1638) and ascertain the intent of the

parties, if possible, based solely on the contract’s written provisions (§ 1639). In doing

so, we apply the “ ‘clear and explicit’ meaning of these provisions, interpreted in their

‘ordinary and popular sense,’ unless ‘used by the parties in a technical sense or a special

meaning is given to them by usage’ [citation] . . . . Thus, if the meaning a layperson

would ascribe to contract language is not ambiguous, we apply that meaning.” (AIU Ins.

Co. v. Superior Court (1990) 51 Cal.3d 807, 822 (AIU Ins.).) At the same time, we

“recognize[] the ‘interpretational principle that a contract must be understood with

reference to the circumstances under which it was made and the matter to which it relates.

(Civ. Code, § 1647.)’ ” (Mountain Air Enterprises, LLC v. Sundowner Towers, LLC

(2017) 3 Cal.5th 744, 752.)

It is essentially a judicial function to apply the rules of interpretation to a written

contract “so that the purposes of the instrument may be given effect.” (Parsons v. Bristol

Development Co. (1965) 62 Cal.2d 861, 865, citing §§ 1635-1661 (Parsons).) In so

doing, the trial court may “properly admit[] evidence extrinsic to the written instrument

to determine the circumstances under which the parties contracted and the purpose of the

contract.” (Parsons, at pp. 864–865.) “ ‘Extrinsic evidence is admissible to prove a

meaning to which the contract is reasonably susceptible.’ ” (Iqbal v. Ziadeh (2017) 10

Cal.App.5th 1, 8 (Iqbal).) The court, at least initially, considers “all credible evidence

offered to prove the intention of the parties. [Citations.] Such evidence includes

testimony as to the ‘circumstances surrounding the making of the agreement . . .

including the object, nature and subject matter of the writing . . .’ so that the court can

‘place itself in the same situation in which the parties found themselves at the time of

12

Unspecified statutory references are to the Civil Code.

25

contracting.’ ” (Pacific Gas & E. Co. v. G.W. Thomas Drayage etc. Co. (1968) 69 Cal.2d

33, 39–40, fn. omitted (Pacific Gas).)

On appeal, we apply a de novo standard of review when construing the contract,

including where conflicting inferences may be drawn from undisputed extrinsic evidence,

“unless the interpretation turns upon the credibility of extrinsic evidence.” (Parsons,

supra, 62 Cal.2d at pp. 865, 866, fn. 2; accord Garcia v. Truck Ins. Exchange (1984) 36

Cal.3d 426, 439.) Put simply, “when the competent extrinsic evidence is not in conflict,

the appellate court independently construes the contract.” (Iqbal, supra, 10 Cal.App.5th

at p. 8.) To the extent there is conflicting extrinsic evidence requiring credibility

determinations by the finder of fact regarding a meaning of which the contract is

reasonably susceptible, we will uphold the trial court’s determination if supported by

substantial evidence. (Ibid.; see also Tin Tin Corp. v. Pacific Rim Park, LLC (2009) 170

Cal.App.4th 1220, 1225 (Tin Tin).)

2. Analysis

Oracle and HP characterize the plain language of the reaffirmation clause as

unambiguous, yet ascribe different meanings to it. As we explain, the parties’

disagreement stems not from an ambiguity in the language or from conflicting extrinsic

evidence but from distinct views of what defines the HP-Oracle partnership as set forth in

the agreement. Under California’s objective theory of contracts, we must determine

“ ‘ “what the outward manifestations of consent would lead a reasonable person to

believe.” ’ ” (Allen v. Smith (2002) 94 Cal.App.4th 1270, 1277; see also Iqbal, supra, 10

Cal.App.5th at p. 8.)

We begin by analyzing the agreed-upon language, focusing on its plain meaning

as much as possible and referencing the extrinsic evidence to ascertain whether it

supports an interpretation to which the agreement is reasonably susceptible. (Hess v.

26

Ford Motor Co. (2002) 27 Cal.4th 516, 524.) As the key extrinsic evidence here is not in

conflict, we engage in independent review. (Iqbal, supra, 10 Cal.App.5th at p. 8.)

a. Plain Language

The reaffirmation clause, set forth in the agreement’s first paragraph, consists of

only two sentences. First, “Oracle and HP reaffirm their commitment to their

longstanding strategic relationship and their mutual desire to continue to support their

mutual customers.” Second, “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.”

The first sentence addresses two points, namely the companies’ “longstanding

strategic relationship” and “mutual desire to continue to support their mutual customers.”

The only conduct referenced in the first sentence is that HP and Oracle each “reaffirm

their commitment.” The plain and unambiguous meaning from a layperson’s perspective

(AIU Ins., supra, 51 Cal.3d at p. 822) is that the companies are abiding by the

commitment they have historically shown to (1) each other through their strategic

relationship and (2) their shared customers.

The second sentence elaborates on this commitment by specifying what each side

must do to maintain the partnership. Oracle, for its part, “will continue to offer its

product suite on HP platforms” while HP “will continue to support Oracle products

(including Oracle Enterprise Linux and Oracle VM) on its hardware.” What is more,

each agrees to continue performing its part “in a manner consistent with th[e] partnership

as it existed” before Oracle hired Hurd. The second sentence transforms the value

statement articulated in the first sentence (i.e., we are committed to our partnership and to

our mutual customers) into an actionable and enforceable commitment (i.e., Oracle will

continue to offer, and HP will continue to support). Oracle’s general counsel Daley, who

27

drafted the main part of the sentence, conceded at trial that use of the term “will” is

mandatory in nature.

The latter part of the second sentence also provides a temporal point of reference

for the action that each side has agreed it “will continue” to perform. The phrase “in a

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

eliminates any doubt that the required action—Oracle continuing to offer its product suite

on HP servers and HP continuing to support Oracle products on its hardware—must be

consistent with the partnership as it existed before tensions flared between the companies

in September 2010 over the hiring of Hurd. We conclude that the second sentence,

moreover, does more than declare an aspiration or intent to continue working together, as

Oracle claims. It commits the parties to continue the actions specified (Oracle offering

its product suite and HP supporting the products) as they had done before Oracle hired

Hurd.

Other provisions of the agreement reinforce the mutual intent expressed in the

reaffirmation clause. Recital B states that “HP, Hurd and Oracle recognize the mutual

advantages of the continuation of the HP-Oracle partnership and its benefits to their joint

customers and prospects and now desire to further their business relationship and resolve

the [l]awsuit [against Hurd].” The joint press release, provided for in the agreement,

states that the settlement “reaffirms HP and Oracle’s commitment to delivering the best

products and solutions to our more than 140,000 shared customers.”

Each instance in the agreement that refers to the HP-Oracle partnership (recital B,

paragraph 1, and the attached press release) is paired with a reference to supporting the

joint customer base. Viewed together, “each clause helping to interpret the other”

(§ 1641), the agreement addresses three subjects: purpose, conduct, and public

assurance. The recital highlights the purpose for the reaffirmation clause, to continue the

partnership and its benefits to the joint customers, the reaffirmation clause articulates the

conduct agreed upon, to continue the partnership by offering and supporting Oracle’s

28

products on HP’s hardware as before the Hurd dispute, and the press release provides a

public assurance of the joint “commitment to delivering the best products and solutions

to our more than 140,000 shared customers.”

Oracle’s arguments to the contrary are unconvincing. Oracle maintains that the

agreement’s plain language, considering the text of the reaffirmation clause and the

agreement as a whole (§ 1641), confirms that HP and Oracle agreed only to continue, not

fundamentally alter, their prior, voluntary and mutually beneficial relationship after the

Hurd dispute unfolded. Oracle contends that the trial court erred in finding the language

to be consistent with “a continued porting obligation” because no “obligation” ever

existed outside of a few contracts applicable to specific products, let alone for an

indefinite period of time and without payment. Oracle submits it is undisputed that the

parties’ relationship before the hiring of Hurd was based on “porting at will” without any

payment or condition when mutually beneficial. It points to the negotiated porting

agreements, executed a few times for specific software, as the only instances in which

Oracle obligated itself to port a product. Thus, Oracle asserts that the relationship the

parties agreed to continue was one in which each company had discretion to engage, and

“[i]f their views did not align, Oracle would simply decline to port.” Oracle contends

that reaffirming the arrangement as it already existed does not create new commitments

or enlarge their scope.

We disagree. The plain language of the agreement not only ties the notions of

partnership and support for joint customers together but also describes, in the second

sentence of the reaffirmation clause, the behavior to which each side commits for that

purpose. Oracle relies on Barham v. Barham (1949) 33 Cal.2d 416 (Barham), for the

proposition that a contract “[r]eaffirm[ing]” prior agreements “will preserve their legal

effect” (id. at p. 425) but “will not operate to enlarge their scope” (id. at p. 426). But

Barham involved the interpretation of a divorce settlement provision that “expressly

29

ratified and reaffirmed” several preceding agreements concerning property distribution

between the estranged spouses. (Id. at p. 425.)

The contractual provision here bears no resemblance to the one examined in

Barham because the agreement here does not reaffirm a legal agreement with delineated

duties, but instead references a noncontractual relationship defined by the parties’ past

course of dealing. The language providing that Oracle “will continue to offer its product

suite on HP platforms . . . in a manner consistent with that partnership” maintains—not

enlarges—the parties’ scope of activities as conducted before the Hurd dispute. But

unlike the express ratification of a prior contractual agreement that serves only to

preserve the prior agreement’s legal effect (cf. Barham, supra, 33 Cal.2d at p. 425), this

mandatory language, which appears in a contractual setting where previously no contract

had existed, necessarily creates new legal duties. The parties in the agreement, therefore,

have bound themselves by contract to “continue” certain conduct, the scope of which is

defined by past, voluntary practices.

Oracle next points to the agreement’s overarching purpose—resolution of Hurd’s

employment dispute—and its employment of an integration clause as support for its

proposed interpretation. Oracle questions how a 17-page agreement that is

“overwhelmingly dedicated” to resolving the controversy over the terms of Hurd’s

employment can be read to surrender “in just two sentences” each company’s control

over its development obligations. Oracle argues that to read a “sweeping porting

obligation” into the agreement is inconsistent with the integration clause stating that the

agreement “constitutes the entire agreement among the Parties regarding the resolution

and settlement of the [l]awsuit” (italics added) over Hurd, especially because specific

30

porting agreements were still operative between the parties and contained detailed

provisions regarding duration, remedies, intellectual property rights, and payment.13

We perceive no contradiction between the commitments made in the affirmation

clause and the settlement of the Hurd dispute. Oracle’s hiring of Hurd precipitated a

tumultuous period in which the parties’ partnership—and particularly Oracle’s continued

commitment to offering its product suite on Itanium—was in question. As Oracle states

in its opening brief, quoting the trial court’s findings, “the reaffirmation clause was a

reaction to Oracle’s public threat to end all business collaboration just days before, and

arose from HP’s concern that ‘the litigation might permanently damage its relationship

with Oracle.’ ” Recital B of the agreement, in which the companies expressly recognized

“the mutual advantages of the continuation of the HP-Oracle partnership and its benefits

to their joint customers” suggests that reaffirming the partnership was central to settling

the dispute over Hurd’s hiring.14 By assuring Oracle’s continued offering of its product

suite on HP’s platforms, the reaffirmation clause furthers the overarching goal of the

entire agreement to continue the companies’ partnership for the benefit of their joint

customers, particularly as expressed in the joint press release provision and statement.

Finally, Oracle challenges the trial court’s determination that to construe

paragraph 1 as having reserved for the companies the “absolute discretion not to work

together” would be “essentially illusory.” Oracle claims it was error to characterize its

interpretation as illusory when it both constrained Oracle from altogether ending the

13

For example, in 2006 HP contracted to pay Oracle up to $10.3 million to port an

application software product, the E-Business Suite, to Itanium (EBS agreement). The

EBS agreement is a 14-page commercial contract with terms defining the products

covered by the agreement, Oracle’s porting and maintenance responsibilities, contract

duration (set to expire December 31, 2013), the amount HP would pay, and limitation of

liability provisions, among other standard commercial contract terms.

14

The other two recitals, Recital A and Recital C, address the procedural history

of HP’s lawsuit against Hurd and specify the effect of the agreement on Hurd’s

obligations under his prior separation agreement with HP.

31

relationship with HP and abandoning Itanium (which it submits it was free to do in

September 2010) and prevented it from allowing the Hurd dispute to interfere with its

relationship. Oracle relies on Third Story Music, Inc. v. Waits (1995) 41 Cal.App.4th 798

(Third Story) and other authorities to argue that illusoriness is determined from the entire

contract, not a single provision, and that even entirely discretionary provisions in

contracts are frequently upheld. Oracle further disputes that its interpretation renders the

affirmation clause illusory, since it conferred on HP the “temporary benefit” of

preventing Oracle from terminating the relationship. Oracle cites Asmus v. Pacific Bell

(2000) 23 Cal.4th 1, 16 (Asmus), in support of the proposition that a short-term benefit is

not illusory where the promisee obtains the benefit of the promise while it remains in

force.

Asmus concerned an employer’s implied power to terminate a unilateral contract

in the employment context and does not help Oracle here, both because the contract in

question does not confer the implied-in-fact unilateral power discussed in Asmus and

because Oracle’s exercise of its purported discretion under the agreement lacked any of

the procedural protections identified in that case. (See Asmus, supra, 23 Cal.4th at p. 18

[concluding, based on the application of contract principles, that “an employer may

terminate a unilateral contract of indefinite duration, as long as its action occurs after a

reasonable time, and is subject to prescribed or implied limitations, including reasonable

notice and preservation of vested benefits”].) More to the point, in our view the issue is

not whether the agreement was illusory, or even contained an illusory promise, but

whether the reaffirmation clause may be construed to mean that Oracle reserved absolute

discretion to decide whether to offer its next generation products on HP’s platform.

In stark contrast with Third Story and other cases cited by Oracle, the contractual

language does not expressly grant a discretionary power. (Cf. Third Story, supra, 41

Cal.App.4th at pp. 801–802 [marketing contract promised to market music, or to refrain

from doing so, at the election of the promisor]; Carma Developers (Cal.), Inc. v.

32

Marathon Development California, Inc. (1992) 2 Cal.4th 342, 376 (Carma) [lease

provision granting the lessor the right to terminate and recapture tenant’s lease “to claim

for itself appreciated rental value of the premises was expressly permitted by the lease

and was clearly within the parties’ reasonable expectations”].) The trial court in this case

used the phrase “essentially illusory” to mean that interpreting the reaffirmation clause as

“ ‘an agreement to continue to work together . . . that reserves the absolute discretion not

to work together . . . gives [it] no real meaning.’ ”

Applying de novo review to the agreement’s terms, we agree with the trial court’s

interpretation. Oracle’s proposed construction of the reaffirmation clause as an

obligation-free reaffirmation of an entirely voluntary partnership is contrary to the plain

language of the second sentence and renders the provision superfluous, since the

affirmatory public restatement of the partnership was addressed by paragraph 15, which

required issuance of a joint press release. “An interpretation which gives effect is

preferred to one which makes void. (§ 3541; see also Rest.2d Contracts, § 203, subd. (a)

(1981) [interpretation which gives a reasonable meaning is preferred to one which

renders a part of no effect].) Oracle’s interpretation runs contrary to the statutory

preference for a construction of the contract which gives meaning to all the terms.

We conclude that the phrase “ ‘in a manner consistent with that partnership as it

existed’ ” is not reasonably susceptible to an interpretation that would transform the

“ ‘will continue’ ” language in the first part of the sentence into language meaning “ ‘may

continue’ ” or “ ‘has the discretion not to continue.’ ” Simply put, the language of the

reaffirmation clause and the agreement as a whole do not support Oracle’s claim to

absolute discretion over whether to continue offering its products on HP’s platform. To

the contrary, as noted ante, in agreeing that it “will continue to offer its product suite on

HP platforms . . . in a manner consistent with th[e] partnership as it existed prior to

Oracle’s hiring of Hurd” (italics added), Oracle ceded its discretion over whether to offer

those products by taking on a new legal obligation to do so.

33

Our analysis thus far has focused on ascertaining the parties’ mutual intent based

solely on the agreement’s plain language. Though the words of the affirmation clause are

clear and explicit and may be understood in an ordinary, non-technical way (§§ 1638,

1644), words alone “do not have absolute and constant referents.” (Pacific Gas, supra,

69 Cal.2d at p. 38.) In our view, more information about the “partnership as it existed

prior to Oracle’s hiring of Hurd” is needed to understand what that arrangement entailed

and the resulting expectations or limitations it imposed on each company. Paragraph 1 of

the agreement thus exemplifies the need to appraise “ ‘circumstances surrounding the

making of the agreement . . . including the object, nature and subject matter of the writing

. . .’ so that the court can ‘place itself in the same situation in which the parties found

themselves at the time of contracting.’ ” (Id. at p. 40.)

To accomplish this task, we turn to the extrinsic evidence offered during the phase

1 trial.

b. Extrinsic Evidence

Oracle maintains that the uncontroverted course-of-dealing evidence, set forth in

the trial court’s findings of fact, confirms the voluntary nature of the partnership

arrangement, whereby Oracle conducted “over 99% of all porting to HP-UX/Itanium”

voluntarily and without contractual obligation. It asserts that even HP’s witnesses

testified that each company had “ ‘discretion’ ” under the arrangement not to offer

products, in Oracle’s case, and not to support products, in HP’s case. Oracle further

contends that the parties’ negotiations over the agreement terms and HP’s conduct after

executing the agreement confirm that the parties did not intend for the reaffirmation

clause to impose any new obligations.

It is well settled that courts may consider extrinsic evidence insofar as it sheds

light on a meaning to which the contract is reasonably susceptible. (Iqbal, supra, 10

Cal.App.5th at p. 8.) “Extrinsic evidence is ‘admissible to interpret the instrument, but

34

not to give it a meaning to which it is not reasonably susceptible.’ ” (Parsons, supra, 62

Cal.2d at p. 865.) Accordingly, we review the extrinsic evidence to understand the

objective intent behind the agreed-upon point of reference for the reaffirmation clause,

namely the “partnership as it existed prior to Oracle’s hiring of Hurd.” Because the

extrinsic evidence relevant to our analysis is largely uncontradicted, we apply

independent review, even when conflicting inferences may be drawn from the evidence.

(Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1126 (Wolf).)

To the limited extent that we refer to disputed evidence, we defer to the trial court’s

determination of witness credibility if supported by substantial evidence in the record.

(See Tin Tin, supra, 170 Cal.App.4th at p. 1225.)

The record is replete with descriptive evidence of how the companies viewed and

portrayed their strategic partnership. For example, marketing material from October

2009 touted the companies’ more than “25 years of collaborative partnership” and

“140,000 joint customers” and highlighted their joint support of solutions and market

share in each other’s products. Even after the acquisition of Sun, Oracle’s top software

executives told their HP counterparts that the company was committed to releasing new

versions of software on Itanium in parity with their release on competitor platforms.

Joint meeting minutes from the February 2010 meeting (after the Sun acquisition)

attended by executives on both sides listed “[c]ommitment to the partnership” as a “key

decision[] reached” (capitalization omitted) and covered topics like release parity of

Oracle’s products on Itanium. And meeting minutes from the “joint alliance executive

review” in April 2010 reflect Oracle co-president Catz’s opening statement about the

companies’ “[s]trong relationship from many years of working together” and Oracle’s“

commit[ment] to [the] HP relationship and running Oracle Software on HP

Infrastructure.” As these examples illustrate, the parties’ own conception of their

partnership in the timeframe prior to Oracle’s hiring of Hurd centered on serving their

35

joint customers by continuing to offer Oracle’s software on HP’s hardware in a way that

was competitive with other platforms.

Evidence specific to the parties’ course of dealing in the years and months before

Hurd’s hiring further demonstrates that the porting of Oracle’s products to HP’s

platforms, the companies’ joint sales and marketing of those products, and coordinated

joint support constituted the defining features of the partnership. Most notably, the

partnership history between HP and Oracle contained no instance of Oracle offering a

product on an HP platform, carrying out the initial port, and then electing not to continue

to offer the product by porting subsequent versions or releases to the platform.

Oracle’s executive vice-president of software development confirmed that “once

we made the ports available[,] subsequent versions were available on Itanium.” When

customers expressed concern about a rumored change in Oracle’s commitment to Itanium

after it acquired Sun, Oracle’s “updated drawer statement” for HP to share with

prospective customers highlighted Oracle’s products that were available on HP’s Itanium

servers and reiterated Oracle’s “target[]” to ship upcoming Oracle releases to Itanium in

parity with “the other strategic UNIXes.”

We conclude this evidence of Oracle’s unbroken practice of porting the newest

versions and releases of its product suite to existing HP platforms supports the only

plausible reading of the agreement’s commitment to furthering the companies’ business

relationship (recital B) and “delivering the best products and solutions to [their] more

than 140,000 shared customers” (appended press release). It would be objectively

unreasonable for the parties to agree to further their business relationship and to publicly

announce their commitment to delivering the best products to their customers while

giving Oracle unbounded discretion to refuse to port to their shared customers the latest

versions of those products, which as the trial court correctly noted “are perforce its ‘best

products,’ ”—an authority that Oracle had not previously exercised with respect to HP’s

server platforms.

36

The evidence surrounding formation of the agreement also does not support

Oracle’s construction of the reaffirmation clause as having preserved its discretion to

decline to port products that were already being offered on the platform. From the outset,

both sides expressed a desire to preserve the strategic relationship. That relationship, as

just discussed, was premised on a course of dealing in which Oracle made available,

typically without contract or fee, and through mutual cooperation and joint efforts, the

latest versions of its product suite on HP’s server platforms. When Livermore and Catz

spoke on September 11, 2010, after HP initiated the Hurd lawsuit, Livermore conveyed

HP’s desire that the settlement include “reaffirmation of the partnership” “as part of the

contract.” Catz testified that she viewed reaffirming the partnership as “a very modest

ask.”

Second, the parties quickly agreed that the strategic relationship was not bounded

by their preexisting written contracts. HP deleted Oracle’s initial, proposed partnership

language that limited the reaffirmation commitment to the “longstanding strategic

partnership as established under” the companies’ “existing contractual commitments and

their mutual desire to continue to support their joint customers.” Oracle accepted the

deletion of the existing contracts limitation and adopted HP’s modified version of what

became the first sentence of paragraph 1.

Third, the parties agreed to omit language that was preferential to HP or would

have put HP in a better position than it had been prior to Oracle’s decision to hire Hurd.

Oracle firmly rejected HP’s proposal that would have favored HP over other competitors,

with Catz and Livermore agreeing that the purpose of reaffirmation was not to put HP in

a better position than it currently enjoyed. In a draft proposal on September 12, 2010,

Oracle retained HP’s proposed language that “Oracle will continue to offer its product

suite on HP platforms and HP will continue to support Oracle products . . . on its

hardware” but replaced the term that would have advantaged HP over other competitors

with the phrase “in a manner consistent with that partnership.” Daley highlighted

37

Oracle’s intent on this point in her cover e-mail to HP, stating that the reaffirmation

clause “was intended to reaffirm and continue the existing relationship and not to put HP

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

contractual commitment.”

Fourth, the parties ultimately agreed to exclude specific commitments and instead

used their “partnership as it existed prior to Oracle’s hiring of Hurd” as the point of

reference for the strategic partnership. This point was closely tied to HP’s early efforts to

include preferential language. Daley’s September 12 e-mail rejected this approach,

stating that Catz and 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.” Livermore agreed the

next day not to add more specific language into the agreement. Livermore testified that

she was satisfied at that point that the draft provision addressed her concerns about

Oracle continuing to offer its product suite on HP’s server platform. Livermore also

understood from Catz that Oracle was committing to continue its past course of action

and was not taking on new obligations. Consistent with this understanding, Livermore

quickly stepped in when HP’s lawyers tried to add specific terms for Oracle to “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.” Livermore told Catz that the

lawyers’ language got past her and was a mistake.

In the final exchanges surrounding the negotiation of the agreement, Oracle

deleted language about supporting “all ongoing versions of HP-UX . . . in competitive

terms that Oracle has provided HP for the past five years,” and HP modified the

partnership reference to specify that the parties were reaffirming their relationship “as it

existed prior to Oracle’s hiring of Mark Hurd.” Daley, Catz, and HP’s general counsel

38

Holston each testified that the parties intended to refer to the partnership and course of

dealing before the controversy erupted over Oracle’s hiring of Hurd.

Our observations here reinforce the plain meaning of the reaffirmation clause and

the extrinsic evidence pertaining to the parties’ partnership. Oracle repeatedly refused to

commit to granting preferential terms to HP in relation to the marketing or pricing of its

products, but it did not protest the inclusion of an explicit commitment to continue

offering its product suite on HP’s platform in the same manner it had immediately prior

to the Hurd dispute. Oracle adopted the proposed language and framed it in terms of the

preexisting partnership, which was undeniably premised—both in external messaging and

internal planning—on the consistent and prospective availability of the latest versions of

Oracle’s software on HP’s platforms.

Oracle contends that this interpretation is inconsistent with its rejection, during

negotiations, of language proposed by HP “that would have included a new duty to port,”

as well as with the parties’ mutual understanding that Oracle “was not ‘taking on any new

obligations or work.’ ” Oracle cites its rejection on September 12, 2010, of language that

would have committed it “to continue to offer its product suite on HP Platforms on terms

that are as good or better than any other platform,” and on September 13 of language that

would have committed it to “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.” Oracle suggests the common element of these spurned clauses was the porting

obligation and claims it was implausible for the trial court to instead infer that the

rejection pertained to the preferential terms.

But these arguments ignore what the record plainly shows. Most significantly,

Oracle rejected the proposed language on September 12 that related to “terms that are as

good or better than any other platform” but accepted the obligation to “continue to offer

its product suite on HP Platforms . . . .” Oracle in fact adopted that language in its

39

responsive proposal and added to it, inserting HP’s commitment to “continue to support

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

manner consistent with that partnership.” Oracle’s further rejection of the language

proposed by HP’s lawyers on September 13, which again contained preferential language

regarding pricing and marketing, does not change its express acceptance and adoption of

the “will continue to offer its product suite” language.

In accepting that language, Oracle manifested an objective intent to “continue []

offer[ing]” (i.e., porting) its product suite to existing HP server platforms. The record

does not support Oracle’s attempt to draw a contrary inference, particularly given Daley’s

contemporaneous e-mail in which she disclaimed Catz and Livermore discussing

“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.” Daley’s testimony at trial that she “made a reference to porting and joint

marketing as examples of the kinds of things that would not become obligatory as a result

of that affirmation provision” cannot be reconciled with the text of the e-mail. We defer

to the trial court’s credibility finding on this point, as articulated in the statement of

decision, that “Daley’s testimony is the precise opposite of what [her] email actually

stated and is entitled to no weight.”

Nor does the evidence of Oracle’s assertion that it was taking on no new

obligations help its case. There is no question that Catz emphasized, and Livermore

understood, that Oracle would not commit to “any new obligations or work.” Oracle

contends that this manifestation of intent confirms the parties did not agree to a new

porting obligation. We agree there were no “new” obligations in the reaffirmation clause

because the agreement was for each party to continue to do what it had done in the past.

In Oracle’s case, it agreed that it “will continue to offer its product suite on HP

40

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

hiring of Hurd.”

We do not construe the invocation of no “new obligations or work” as tantamount

to disavowing any legal commitments altogether. Taken to its logical conclusion,

Oracle’s insistence on no new obligations would have precluded it from entering into a

contract, which by definition entails a “new” legal obligation. By agreeing to continue to

offer its product suite on HP’s platforms in a manner consistent with the partnership as it

existed prior to Oracle’s hiring of Hurd, Oracle did exactly what the parties at the outset

had agreed upon, which was to “reaffirm their commitment to their longstanding strategic

relationship and their mutual desire to continue to support their mutual customers.” In

Oracle’s case, the uncontested evidence is that its past practice was to continue porting

new versions of its product suite to the HP servers that HP continued to sell to its

customers.

Oracle complains that in construing the agreement to require Oracle to “port all its

software, indefinitely and without charge,” the trial court contravened the parties’ mutual

intent not to put HP “in a better position” than it had enjoyed prior to the agreement. Yet

the trial court did not construe the agreement to require Oracle to port all its software but

to continue to offer the software, including new versions, releases, or updates, that made

up the product suite that was already offered for Itanium at the time the parties signed the

agreement. The trial court did not construe Oracle’s obligation to apply without charge

indefinitely but “until such time as HP discontinues the sale of its Itanium-based servers.”

Each of these obligations reflected the continuation of past practices, consistent with the

objective intent of the agreement.

Oracle contends that HP’s conduct in the months after signing the agreement,

before the present controversy arose, demonstrates the parties’ understanding that the

reaffirmation clause did not impose upon Oracle a duty to port. Oracle cites, for

example, evidence that HP never told its executives responsible for the Oracle-HP

41

relationship that Oracle was required to port. Oracle also suggests that HP did not act in

conformity with the understanding of the agreement it professes, because in December

2010 it offered to support Oracle Enterprise Linux and Oracle VM products—both which

were already expressly listed in paragraph 1 of the agreement—if Oracle agreed to pay $5

million and guarantee continued porting to Itanium.

Oracle advances a form of “practical construction” placed upon a contract by the

parties before a controversy has arisen as to its meaning, which under appropriate

circumstances may be entitled to great weight by the court. (Crestview Cemetery Ass’n v.

Dieden (1960) 54 Cal.2d 744, 753–754; see Universal Sales Corp. v. Cal. etc. Mfg. Co.

(1942) 20 Cal.2d 751, 761–762.) HP responds that this approach “ ‘may be considered

only when the acts of the parties were positive and deliberate and done in attempted

compliance with the terms of the agreement.’ ” (United States Liab. Ins. Co. v.

Haidinger-Hayes, Inc. (1968) 263 Cal.App.2d 531, 538 (Haidinger-Hayes).) The

Restatement, which “ ‘California usually follows’ ” (Airs Aromatics, LLC v. CBL Data

Recovery Technologies Inc. (2020) 50 Cal.App.5th 1009, 1014), indeed suggests that

such evidence of acceptance or acquiescence in a course of performance requires

“repeated occasions for performance by either party with knowledge of the nature of the

performance and opportunity for objection to it by the other.” (Rest. 2d, Contracts

§ 202(4).) An exemplary application of the doctrine may be found in Oceanside 84, Ltd.

v. Fidelity Federal Bank (1997) 56 Cal.App.4th 1441, 1450–1451, where the court

determined that a borrower’s payments on a loan for five years, without objection, in the

face of periodic rate adjustments may be considered acquiescence in the lender’s

interpretation of the method for calculating the interest rate adjustments.

Here, however, none of the conduct cited by Oracle meets the specifications of the

interpretational doctrine of practical construction because, unlike in Oceanside 84, there

was no meaningful and sustained opportunity prior to the onset of this litigation for the

parties to engage in or test their performance under the agreement. For example, while it

42

is true that the key individuals at HP responsible for the Oracle relationship were

informed only that a settlement had been reached and they should carry on with “business

as usual,” that messaging was wholly consistent with the agreement’s terms (including its

confidentiality provision), because the HP employees understood their obligation was to

keep doing what they had been doing before the agreement.

Regarding HP’s offer to support Oracle’s Enterprise Linux and VM products,

Oracle omits to mention that the evidence adduced at trial on this subject, which included

testimony from several fact witnesses, showed that HP’s offer was in reference to

providing “enhanced OEL/OVM support and marketing” (italics added) after actions

taken by Oracle on pricing appeared to disadvantage HP’s competitiveness. Oracle also

appears to misconstrue HP’s communications as an attempt to “negotiate a porting

agreement for Itanium” (which would be unnecessary had it believed it already had one).

But the evidence Oracle relies on shows only a discussion about Oracle’s commitment to

“continued parity for HP-UX” in timing its software releases and does not seek a

commitment to porting generally. HP’s conduct in this context may not be fairly

construed as evidence of a deliberate effort to comply with the terms of the agreement.

(Cf. Haidinger-Hayes, supra, 263 Cal.App.2d at p. 538.)

c. Definite and Enforceable Terms

In addition to these arguments grounded in extrinsic evidence, Oracle also

challenges the agreement as lacking sufficiently definite and enforceable terms. It

contends that the reaffirmation clause omits material terms including the scope of the

duty involved, performance limits, duration, and compensation, as well as other terms

necessarily included in prior porting agreements between the parties. HP responds that

the parties used their course of dealing to supply the material terms for the agreed-upon

porting and product support obligations. We agree that the parties’ past practices afford

an adequate basis to ascertain and enforce the obligations under the agreement.

43

The object of the agreement, defined as “the thing which it is agreed, on the part of

the party receiving the consideration, to do or not to do” (§ 1595) is, in this case, entirely

ascertainable. Oracle agreed to continue to offer and update its product suite—those

software products already available on Itanium when the agreement was signed—on

HP’s existing platform. Even so, Oracle complains that the agreement fails to identify

products or platforms, does not discuss porting fees or address project management,

maintenance, or support, and includes no warranties, disclaimers, damages limitations, or

provisions on intellectual property ownership. Oracle contrasts the sparseness of the

reaffirmation clause against more detailed provisions of the agreement, like the multi-

paragraph “standstill agreement” pertaining to possible takeover activity, or the duration-

specific provisions limiting Hurd’s activities at Oracle. Oracle maintains, citing

Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th 199, 215 and Vons Companies, Inc. v.

United States Fire Ins. Co. (2000) 78 Cal.App.4th 52, 58 (Vons), that the trial court

improperly supplied terms the contract lacked and did so in a manner inconsistent with

the express terms of the parties’ written porting agreements and with the terms that would

have been specified had two, sophisticated parties sought to negotiate an “unconditional,

comprehensive porting agreement.”

Oracle’s argument rests on a faulty premise. The reaffirmation clause is not an

unconditional, comprehensive porting agreement; nor do we believe the trial court’s

construction of the agreement made it one. Simply put, the reaffirmation clause creates

an obligation to continue with an expressly identified course of dealing (offering and

supporting Oracle’s products on HP’s existing platforms as long as they are sold by HP)

no different from the course of dealing that had defined their strategic partnership for

years prior to Oracle’s hiring of Hurd. Our independent review of the plain language and

of the relevant extrinsic evidence, including the past course of dealing and circumstances

surrounding formation of the agreement, confirms the trial court’s interpretation that

44

paragraph 1 of the agreement requires Oracle to continue to offer its product suite on the

HP Itanium platform, which HP continued to sell.

To be sure, the trial court articulated terms in its order granting HP declaratory

relief. But it did so by inferring from the parties’ past practices and longstanding course

of dealing on each of those topics. This was entirely acceptable. “Unexpressed

provisions of a contract may be inferred from the writing or external facts.” (Cal. Lettuce

Growers v. Union Sugar Co. (1955) 45 Cal.2d 474, 482 (Cal. Lettuce).) While courts

may not “create for the parties a contract that they did not make” (Vons, supra, 78

Cal.App.4th at p. 59), courts may look to the nature and circumstances of the contract to

effectuate the intent of the parties where it can be reasonably ascertained. “ ‘The law

does not favor, but leans against the destruction of contracts because of uncertainty; and

it will, if feasible, so construe agreements as to carry into effect the reasonable intentions

of the parties if that can be ascertained.’ ” (Cal. Lettuce, at p. 481.)

California case law provides numerous examples of the use of extrinsic evidence

to infer or clarify a contractual term. (See, e.g., Cal. Lettuce, supra, 45 Cal.2d at

pp. 484–485 [inferring price setting features and obligation to purchase from prior

dealings of the parties]; Consolidated Theatres, Inc. v. Theatrical Stage Employees Union

(1968) 69 Cal.2d 713, 729 [inferring term of duration from “the nature of the contract and

the circumstances surrounding it”]; Okun v. Morton (1988) 203 Cal.App.3d 805, 818

[rejecting uncertainty of business ventures contract where extrinsic evidence introduced

at trial was “sufficient to establish . . . the ways in which future ventures were to be

financed, owned, and operated by the parties”].)

In this case, extrinsic evidence of the strategic partnership provided detailed

information about the parties’ course of dealing as it related to Oracle’s porting practices

to HP’s existing server platforms, summarized ante (part II.A.2.b.). Oracle does not

question that the products it offered for Itanium when the agreement was signed properly

defined the product suite. It does not dispute that over 99 percent of porting at the time

45

had occurred or was occurring without a written contract or exchange of payment, and

that once it made a product available on Itanium by porting, it continued to release

subsequent versions of the software on the platform as long as HP offered the platform.

These practices comprised the course of dealing for many years and formed the basis for

the strategic partnership. Because the reaffirmation clause identified the “partnership as

it existed prior to Oracle’s hiring of Hurd” as the reference point for Oracle’s

commitment to continue offering its product suite on HP platforms, the trial court did not

err in construing the agreement to require the contractual partnership to continue—and

end—on those same terms.

d. Summary

For these reasons, we conclude that the agreement is not reasonably susceptible to

Oracle’s proposed interpretation. To construe the reaffirmation clause as affirming only

the voluntary or discretionary basis of the HP-Oracle partnership is inconsistent with both

the plain language of the agreement and with the record of the parties’ past course of

dealing, which we view as the defining feature of their strategic partnership. While there

may not have been a contractual porting obligation prior to the signing of the agreement,

there was an established and uninterrupted porting practice in which Oracle partnered

with HP to make each subsequent release of software available on Itanium, without

payment or limitation. Oracle’s stated desire to enter into a contract without taking on

any new obligations does not supersede the mutually expressed intent of the parties, as

evidenced by the words of the contract and confirmed by robust extrinsic evidence, to

continue their practice of offering and supporting Oracle’s product suite on HP’s existing

platform as long as HP continued to sell the platform, as that practice existed before the

Hurd dispute arose. Accordingly, the trial court did not err in its construction of

paragraph 1 of the agreement as set forth in its statement of decision following the phase

1 trial.

46

B. Breach of Contract and Breach of Implied Covenant Claims

Oracle attacks the jury verdict for breach of contract and breach of the implied

covenant of good faith and fair dealing. With respect to breach of contract, Oracle

contends that the undisputed evidence at the phase 2 trial established that there was never

a breach of the agreement because Oracle resumed porting to Itanium in time to complete

the next significant port of a product version around the same time frame it made that

version available on competitor platforms. Oracle maintains that HP’s actual claim,

based on the March 2011 announcement to end porting to Itanium, was for anticipatory

repudiation. Further, Oracle asserts that HP waived any right to damages for anticipatory

breach by seeking, obtaining, and accepting performance.

As for the verdict on breach of the implied covenant, Oracle contends that because

the reaffirmation clause had no express porting provision and was not a “porting

agreement,” the implied covenant could not impose a substantive duty to port and could

not be breached by Oracle’s (later retracted) decision to cease porting.

HP responds that Oracle failed to assert the anticipatory repudiation argument in

the trial court and has forfeited its claim that HP waived the right to contract damages.

HP otherwise contends that substantial evidence supports the jury’s conclusion that

Oracle’s March 2011 announcement and the ensuing conduct breached the express terms

of the agreement and the implied covenant of good faith and fair dealing.

1. Breach of Contract

We begin with Oracle’s challenges to the jury verdict for breach of contract. We

address and reject HP’s contention that Oracle has forfeited this argument on appeal. We

next apply the law governing contract repudiation and breach to uncontroverted facts in

the record to decide as a matter of law whether HP waived any claim to damages based

on Oracle’s March 2011 announcement.

47

a. Forfeiture

HP frames Oracle’s anticipatory repudiation claim as an issue newly asserted on

appeal. HP contends that nowhere in motion practice, in limine motions, or in any other

filings in the trial court, including in its proposed jury instructions, did Oracle argue that

HP could not pursue contract damages because the purported basis for Oracle’s liability

was anticipatory repudiation of the agreement. Oracle responds that HP’s forfeiture

argument is “perplexing” given that Oracle attempted at numerous points in the phase 2

trial to limit HP’s contract claim and available damages based on the fact that HP

received and accepted performance under the contract.

“ ‘As a general rule, theories not raised in the trial court cannot be asserted for the

first time on appeal; appealing parties must adhere to the theory (or theories) on which

their cases were tried. This rule is based on fairness—it would be unfair, both to the trial

court and the opposing litigants, to permit a change of theory on appeal.’ (Eisenberg et

al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2015) ¶ 8:229; p. 8–

167.) ‘New theories of defense, just like new theories of liability, may not be asserted for

the first time on appeal.’ ” (Nellie Gail Ranch Owners Assn. v. McMullin (2016) 4

Cal.App.5th 982, 997.)

Having reviewed the record, we agree with Oracle that it raised the relevant issues

of breach of contract and anticipatory repudiation numerous times before and during the

phase 2 trial. For example, Oracle argued in briefing filed before the phase 2 trial that the

trial court should adopt Oracle’s proposed special instructions on damages, in part

because HP’s failure to plead “any theory of breach by anticipatory repudiation . . . is

fatal to any effort by HP to claim lost profits damages based on the statement contained

in Oracle’s March 2011 announcement.” Oracle asserted that if HP were permitted to

pursue damages based on the theory that the March 2011 announcement constituted an

anticipatory repudiation, it could not claim lost profits from a period before performance

was due, because when the repudiating party retracts its repudiation before performance

48

is due, “ ‘the repudiation is nullified and the injured party is left with his remedies, if any,

invocable at the time of performance.’ ” (Citations omitted.) Oracle argued that since

both parties acknowledge the agreement is still in force, any belated attempt by HP to

claim damages based on an anticipatory repudiation theory “cannot succeed.”

Oracle also sought leave to move for summary adjudication of HP’s cause of

action for breach of contract before the phase 2 trial. Oracle argued that because it

fulfilled its stated intent after the phase 1 trial to deliver its software for Itanium on the

same schedule as other platforms, the court should determine prior to trial whether the

“real-world contractual performance of the [agreement], as interpreted by this Court,

voids HP’s breach of contract and promissory estoppel claims.” Oracle asserted in the

proposed summary adjudication motion that HP’s only possible theory of breach was

based on Oracle’s March 2011 announcement that it would not discharge its future

obligation (as defined by the trial court in phase 1); however, that theory of anticipatory

breach was incompatible with HP’s subsequent demand for and acceptance of Oracle’s

performance under the contract. The trial court denied Oracle leave to file the proposed

motion for summary adjudication.

These instances demonstrate Oracle’s attempts before and during the phase 2 trial

to challenge HP’s contract claim on the grounds that (1) Oracle fully performed under the

contract, precluding liability for breach of contract, and (2) HP had waived any claim

based on anticipatory repudiation by demanding and accepting performance.

Oracle’s showing more than satisfies the minimum standard for preservation of

claims on appeal, which “ ‘is that the asserted error must have been brought to the

attention of the trial court.’ ” (DiPirro v. Bondo Corp. (2007) 153 Cal.App.4th 150, 178.)

Both the trial court and HP were aware of Oracle’s grounds for challenging HP’s breach

of contract claim by the phase 2 trial. We decide that Oracle has not forfeited its right to

assert on appeal its anticipatory repudiation argument; therefore we address its merits.

49

b. Breach of Contract and Anticipatory Repudiation

Oracle’s contention that HP’s breach of contract claim is actually a claim for

anticipatory repudiation, for which HP has waived its right to damages, rests on two

premises—first, Oracle’s interpretation of the parties’ obligations under the agreement;

second, application of the laws governing breach of contract and anticipatory repudiation

to certain undisputed statements made by Oracle.

We begin by summarizing the governing rules and principles. As the facts

relevant to ascertaining the nature of HP’s breach claim are not in dispute, we generally

exercise independent review. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799.) To the

extent there are factual disputes concerning any of the relevant historical facts, we defer

to the decision of the trial court where supported by substantial evidence. (Id. at p. 800.)

Oracle relies on principles of contracts, anticipatory repudiation, and double

recovery. “California law recognizes that a contract may be breached by

nonperformance, by repudiation, or a combination of the two.” (Central Valley General

Hospital v. Smith (2008) 162 Cal.App.4th 501, 514, fn. omitted; see Rest.2d Contracts,

§ 236 (1981).) “Any breach, total or partial, that causes a measurable injury, gives the

injured party a right to damages as compensation.” (Witkin, Summary of Cal. Law (11th

ed. 2020) Contracts, § 877.) Nonperformance typically refers to an unjustified or

unexcused failure to perform a material contractual obligation when performance is due.

(Central Valley, at p. 514, fn. 3.) But “[t]here can be no actual breach of a contract until

the time specified therein for performance has arrived.” (Taylor v. Johnston (1975) 15

Cal.3d 130, 137 (Taylor).) By contrast, “an anticipatory breach of contract occurs when

the contract is repudiated by the promisor before the promisor’s performance under the

contract is due.” (Central Valley, at p. 514, citing Taylor, at p. 137.) In other words, “if

a party to a contract expressly or by implication repudiates the contract before the time

for his or her performance has arrived, an anticipatory breach is said to have occurred.”

(Romano v. Rockwell Internat., Inc. (1996) 14 Cal.4th 479, 489 (Romano).)

50

Oracle maintains that HP’s breach of contract claim is, in fact, a claim for

anticipatory breach involving an express repudiation. An express repudiation “is a clear,

positive, unequivocal refusal to perform.” (Taylor, supra, 15 Cal.3d at p. 137.) The

California Supreme Court’s 1975 opinion in Taylor illustrates the principles of

repudiation and anticipatory breach.

The plaintiff in Taylor contracted to breed his two thoroughbred mares to the

defendants’ stallion. (Taylor, supra, 15 Cal.3d at p. 133.) The defendants sold the

stallion and shipped it to buyers in Kentucky before the time for performance under the

breeding contracts was due. The plaintiff refused to accept the defendants’ written

“ ‘release []’ ” from his “ ‘reservations’ ” for the stallion and insisted on performance.

(Ibid.) The plaintiff shipped the mares to Kentucky where the defendants arranged for

the breeding to go forward. (Id. at pp. 133–134.) But after numerous failed attempts to

secure a date for the breeding, the plaintiff abandoned the effort and bred his mares to a

different stallion for a substantially higher stud fee. (Id. at pp. 134–135.)

In the breach of contract action that followed, the trial court awarded the plaintiff

damages after finding the defendants liable for breach. (Taylor, supra, 15 Cal.3d at

p. 135.) The California Supreme Court in Taylor reversed. The court noted that while

the trial court found the defendants’ continuous course of conduct from the sale of the

stallion through the plaintiffs’ last attempted effort to schedule a breeding “amounted to a

repudiation which [the] plaintiff was justified in treating as an anticipatory breach,” the

conduct “cannot be treated as an undifferentiated continuum amounting to a single

repudiation but must be divided into two separate repudiations.” (Id. at p. 138.) The

court explained that where the plaintiff did not treat the defendants’ repudiation (selling

the stud to buyers in Kentucky) as an anticipatory breach and instead acted on the

defendants’ retraction of the repudiation (by arranging for breeding in Kentucky), the

“retraction nullified the repudiation.” (Ibid.)

51

The high court disagreed with the trial court’s conclusion that the defendants’

repeated, subsequent cancellations of the plaintiffs’ attempts to reserve the stallion

constituted a second repudiation. (Taylor, supra, 15 Cal.3d at pp. 138–139.) The court

observed that there was no evidence the defendants had expressly refused to perform, nor

did their conduct amount to an unequivocal refusal to perform, since at the time the

plaintiffs abandoned their efforts there still remained time in the breeding season to

attempt performance. (Id. at p. 139.) The court reasoned that while the defendants’

conduct may have “cast doubt upon the eventual accomplishment of performance[,] it did

not render performance impossible.” (Ibid.) The court concluded that “as a matter of law

this conduct did not amount to an unequivocal refusal to perform and therefore did not

constitute an anticipatory breach of the contract.” (Id. at p. 141.)

In reaching its conclusion that there had been no anticipatory breach of the

contract, the California Supreme Court in Taylor explained the legal consequences of an

anticipatory repudiation. “When a promisor repudiates a contract, the injured party faces

an election of remedies: he can treat the repudiation as an anticipatory breach and

immediately seek damages for breach of contract, thereby terminating the contractual

relation between the parties, or he can treat the repudiation as an empty threat, wait until

the time for performance arrives and exercise his remedies for actual breach if a breach

does in fact occur at such time. [Citation.] However, if the injured party disregards the

repudiation and treats the contract as still in force, and the repudiation is retracted prior to

the time of performance, then the repudiation is nullified and the injured party is left with

his remedies, if any, invocable at the time of performance.” (Id. at pp. 137–138.) The

court, in a later case, described the principle of anticipatory breach as a recognition that

“the promisor has engaged not only to perform under the contract, but also not to

repudiate his or her promise.” (Romano, supra, 14 Cal.4th at p. 489.)

Oracle contends that its March 2011 announcement that it was discontinuing

software development for Itanium was not a breach of the agreement because the time for

52

performance had not yet arrived. Oracle maintains that the March 2011 announcement

equally cannot serve as the basis of a claim for anticipatory breach for which HP can

recover damages because HP did not consider the announcement as a repudiation but

instead treated the contract as in force and accepted Oracle’s eventual performance.

Oracle argues that for HP to treat the repudiation as a breach and seek damages while

also demanding continuing performance conflicts with the established rule whereby the

injured party, upon repudiation, “faces an election of remedies.” (Taylor, supra, 15

Cal.3d at p. 137.)

Oracle compares HP’s posture to that of the plaintiff in Taylor after the breeding

arrangements in Kentucky effectively nullified the retraction. Oracle claims that because

HP pressed for performance of the agreement and accepted and relied upon Oracle’s

September 2012 announcement retracting any repudiation, it was limited to its “remedies

that might arise at the time of performance” (Taylor, supra, 15 Cal.3d at p. 138) if Oracle

failed to perform. Oracle further contends that as the non-repudiating party suing for

breach of contract damages, HP had to reject the breaching party’s tender of performance

or else waive its right to pursue damages for anticipatory breach.

Oracle’s attempt to characterize HP’s claim as a waived claim for anticipatory

repudiation rests on two assumptions about the agreement. First, Oracle assumes that the

reaffirmation clause, interpreted by the trial court to require “Oracle to continue to offer

its product suite on HP’s Itanium-based server platforms” sets the time of performance as

Oracle’s release of the next versions of software in its product suite available on Itanium.

In Oracle’s words, “[t]he time for performance had not yet arrived, and would not arrive,

until Oracle actually released the software versions that it purportedly had agreed to port

to Itanium.”

Second, Oracle assumes that the agreement defines the mandatory conduct strictly

in terms of the obligation to port, ignoring the broader context and purpose to publicly

reaffirm the continuation of the strategic partnership in service of the joint customers.

53

These assumptions, if correct, would support the application of an anticipatory

repudiation framework to Oracle’s March 2011 announcement, as anticipatory

repudiation exists to address a repudiation before the promisor’s performance under the

contract is due. (Romano, supra, 14 Cal.4th at p. 489.)

However, the agreement’s text, as we have construed it above, does not support

these assumptions. The agreement obligates Oracle to “continue to offer its product suite

on HP platforms, . . . in a manner consistent with th[e] [companies’] partnership” before

the Hurd dispute arose. (Italics added.) As we have explained above, the timeframe for

performance was immediate because the agreement provided for the continuation of

conduct that was ongoing at the time the parties signed the agreement. The evidence at

trial, which described the nature and function of the partnership before the Hurd dispute,

was for all intents and purposes uncontroverted. This evidence established that the

process for Oracle to “offer its product suite” on the Itanium platform required ongoing

coordination and collaboration around porting that did not have a definitive endpoint

since software requires new releases, updates, and constant tuning to run on the platform.

Performance here is defined as continuing conduct that was already established

between the parties and was in full swing when Oracle made its March 2011

announcement. It is difficult to imagine circumstances in which a company’s public

announcement that it was discontinuing all software development for a specified platform

would not constitute actual breach of an agreement in which the company had agreed to

“continue to offer” its software products on that platform consistent with the above-

detailed prior practice.

Furthermore, Oracle’s claim that the March 2011 announcement did not constitute

a breach of contract ignores a fundamental feature of the agreement, which was its public

reaffirmation of the HP-Oracle partnership. Here, as HP points out, the announcement by

its very nature undermined customer confidence in the HP-Oracle relationship.

Immediately after the March 2011 announcement, Oracle posted on its customer website

54

a list of the “next software release[s]” that would not be available for Itanium. In the

months that followed, Oracle ceased all ongoing work to port new versions of its

software to the Itanium server platforms. HP introduced evidence that Oracle capitalized

directly on the opportunity to further weaken HP’s position by mobilizing its sales force

to try to convert Itanium customers who depended on Oracle’s software to Oracle’s Sun

platforms. HP also introduced evidence that customer uncertainty about the future

availability of Oracle’s database software (in particular) on Itanium provoked many

customers to switch their business to other platforms, and that by the time Oracle released

its September 2012 statement recommitting to Itanium, many customers “had made

alternate plans.” HP asserts that its Itanium business suffered immediate and irreversible

harm as a result of the March 2011 announcement and subsequent actions taken by

Oracle.

Under these circumstances, Oracle’s March 2011 announcement did more than

assert “a clear, positive, unequivocal refusal to perform” (Taylor, supra, 15 Cal.3d at

p. 137) as in an express repudiation. The announcement precipitated nearly 18 months of

conduct (until Oracle’s subsequent September 2012 statement in which it reversed

course) during which Oracle arguably did not perform what under the terms of the

agreement was a continuing contractual obligation to offer its software on the Itanium

platform, and during which time customers were revaluating their positions and choices

regarding next-generation database and other software applications. Although Oracle’s

course reversal in September 2012, after the phase 1 ruling, allowed it to complete the

port of Oracle’s database application and other products, substantial evidence in the

record supports HP’s position that the damage from Oracle’s initial decision to

discontinue porting and the conduct that attended that decision had an “immediate and

devastating” impact. This evidence provided a sufficient basis for the trial court to allow

the breach of contract claim to go to the jury.

55

We conclude that because the time for performance began when the parties signed

the agreement, and the nature of the performance was both continuous and public, the

March 2011 announcement did not constitute an anticipatory repudiation but was

substantial evidence from which a reasonable jury could find Oracle had committed an

actual breach of the agreement.

2. Breach of Implied Covenant of Good Faith and Fair Dealing

Oracle similarly challenges the jury verdict on breach of the implied covenant of

good faith and fair dealing. Oracle does not appear to challenge the sufficiency of the

evidence; rather, it attacks the legal basis for the judgment in HP’s favor, claiming that

there was no porting contract from which a covenant of good faith and fair dealing could

be implied and that any purported breach arose only from Oracle’s anticipatory

repudiation. Oracle also contends that the trial court’s erroneous interpretation of the

reaffirmation clause “necessarily infected” the jury’s consideration of whether Oracle

acted in good faith and consistently with the purposes of the agreement.

The California Supreme Court has articulated the relevant framework. “The

covenant of good faith and fair dealing, implied by law in every contract, exists merely to

prevent one contracting party from unfairly frustrating the other party’s right to receive

the benefits of the agreement actually made.” (Guz v. Bechtel Nat. Inc. (2000) 24 Cal.4th

317, 349, italics omitted.) The implied covenant “finds particular application in

situations where one party is invested with a discretionary power affecting the rights of

another. Such power must be exercised in good faith.” (Carma, supra, 2 Cal.4th at

pp. 371–372.) The implied covenant cannot, however, “impose substantive duties or

limits on the contracting parties beyond those incorporated in the specific terms of their

agreement.” (Guz, at pp. 349–350.) In other words, “the scope of conduct prohibited by

the covenant of good faith is circumscribed by the purposes and express terms of the

contract.” (Carma, at p. 373.) It “will only be recognized to further the contract’s

56

purpose; it will not be read into a contract to prohibit a party from doing that which is

expressly permitted by the agreement itself.” (Wolf, supra, 162 Cal.App.4th at p. 1120.)

We perceive no error in the trial court’s application of the implied covenant of

good faith and fair dealing. We have addressed and rejected Oracle’s contention that the

agreement imposes no duty to port. The reaffirmation clause requires Oracle to “continue

to offer its product suite on HP platforms . . . in a manner consistent with th[e]

partnership as it existed prior to Oracle’s hiring of Hurd.” As discussed in detail above,

the extrinsic evidence overwhelmingly confirms that to “offer its product suite” is

synonymous with porting and impossible without porting. Oracle is therefore incorrect to

assert that there was no porting obligation from which a covenant of good faith and fair

dealing could be implied.

This is not a case in which a court has read a contract’s implied terms to vary or

impermissibly expand upon the express terms (see Carma, supra, 2 Cal.4th at p. 374),

because the express terms affirmatively identify the conduct required by the contract.

Oracle’s decision to cease porting its products to Itanium directly contradicted the

contractual term that it would continue to offer those products on HP’s platform in a

manner consistent with the parties’ partnership before the Hurd dispute. This

arrangement stands in contrast with cases like Wolf, where the contract expressly granted

“unfettered discretion” to a party (Wolf, supra, 162 Cal.App.4th at p. 1121), rendering

any attempt to limit that discretion by use of an implied covenant improper as a matter of

law (id. at pp. 1120–1121). Here, we have little difficulty concluding that Oracle’s

decision to stop porting activities, and its subsequent conduct, could properly serve as the

basis for the jury to consider breach of the implied covenant as “contrary to the contract’s

purposes and the parties’ legitimate expectations.” (Carma, at p. 373.)

Oracle also contends that the trial court’s “erroneous interpretation of the

reaffirmation clause” that Oracle was required to port and had no discretion to do

otherwise “necessarily infected the jury’s consideration of whether Oracle’s conduct was

57

in good faith and consistent with the purposes of the agreement.” Oracle submits that the

verdict on the breach of the implied covenant of good faith and fair dealing claim must be

reversed because HP’s theory that Oracle “lacked subjective good faith in the validity of

its act” (Wolf, supra, 162 Cal.App.4th at p. 1123) was, in effect, predetermined by the

trial court’s erroneous evidentiary rulings and jury instructions. Oracle focuses on the

jury instruction that conveyed the trial court’s findings regarding the meaning of the

agreement and on evidentiary rulings during Catz’s phase 2 trial testimony which

prevented her from explaining her reasons for rejecting HP’s proposed terms on porting.

It is true that over Oracle’s objection, the jury instruction for HP’s breach of

contract cause of action repeated the trial court’s findings in the phase 1 statement of

decision. As noted ante, the jury was instructed that it was the court’s duty to interpret

the meaning of the agreement at issue in the case, and that at the conclusion of phase 1,

the court determined the agreement “is a binding contract between HP and Oracle.” The

jury was instructed that it “must accept as true” the court’s findings regarding the

meaning of the agreement, including that the agreement “requires Oracle to continue to

offer its product suite on HP’s Itanium-based server platforms and does not confer on

Oracle the discretion to decide whether to do so or not.”

Oracle contends that this instruction prevented the jury from even considering

Oracle’s subjective good faith, especially because Oracle says the trial court’s evidentiary

rulings during the phase 2 trial excluded evidence that showed why, even if mistaken,

Oracle believed it was not required to continue porting. Oracle points out that the trial

court sustained certain objections and did not allow Oracle to elicit testimony from Catz

regarding her decision to reject the porting term that HP had proposed during the

agreement negotiations, nor did it allow the jury to view the redlined draft agreement

striking out HP’s proposed terms even though that exhibit had been admitted in phase 1.

Oracle contends that having instructed the jury that Oracle was required to port its

software to Itanium and having prevented the jury from hearing the already admitted

58

evidence that supported Oracle’s contrary view of its obligations, the jury’s consideration

of the implied covenant claim was “indelibly tainted.”

Oracle has not on appeal challenged the trial court’s evidentiary rulings or jury

instructions; therefore, we do not examine those decisions for error. We note in relation

to Catz’s testimony that although the trial court sustained an objection to a question

asking why she struck language from a draft proposal during negotiations and did not

allow the redlined draft to be published to the jury, it otherwise allowed Catz to testify in

detail about her decision to reject HP’s proposed language regarding Itanium and

development commitments. What is more, Oracle calls our attention in a perfunctory

manner, in what amounts to a few paragraphs of summary argument, to issues that were

fully litigated before and during the phase 2 trial. For example, the extent of the binding

effect of the phase 1 findings at the phase 2 trial was the subject of extensive briefing and

argument to the trial court.

We recognize that in challenging the implied covenant verdict, Oracle seeks to

highlight more broadly what it sees as the cumulative effect of the erroneous phase 1

rulings and interpretation of the agreement imposing an affirmative porting obligation on

Oracle. Yet having determined that the trial court’s interpretation of Oracle’s obligations

under the contract was not erroneous, and that the agreement did not authorize Oracle to

discontinue porting to Itanium but expressly required that it continue offering its product

suite on HP’s Itanium platform in a manner consistent with the partnership before

Oracle’s hiring of Hurd, we see no basis, as a matter of law, for reversal of the verdict on

this ground.

C. Damages

Oracle requests that we reverse the jury’s damages award of $3.014 billion for

HP’s lost profits. Oracle’s two claims center on the testimony of HP’s damages expert,

economist Jonathan Orszag. First, Oracle claims that Orszag’s calculation of damages

was predicated in part on Oracle’s announced intent to appeal the trial court’s phase 1

59

ruling, effectively penalizing Oracle for exercising its right of appeal under the Petition

Clause of the First Amendment of the United States Constitution, and infringing on

Oracle’s litigation privilege (§ 47, subd. (b)) and the fair-and-truthful reporting privilege

(§ 47, subd. (d)(1)). Second, relying primarily on Sargon, supra, 55 Cal.4th 747, Oracle

claims that the trial court should have excluded Orszag from testifying because his

testimony about HP’s lost profit damages was impermissibly speculative.

1. Standard of Review

We apply de novo review to Oracle’s claim that the jury’s damage award

erroneously included lost profits based on Oracle’s constitutionally protected and

statutorily privileged statement that it would appeal. (See In re Taylor (2015) 60 Cal.4th

1019, 1035.) With respect to Oracle’s challenge to the trial court’s admission of Orszag’s

expert testimony, “[e]xcept to the extent the trial court bases its ruling on a conclusion of

law (which we review de novo), we review its ruling excluding or admitting expert

testimony for abuse of discretion.” (Sargon, supra, 55 Cal.4th at p. 773.) “A ruling that

constitutes an abuse of discretion has been described as one that is ‘so irrational or

arbitrary that no reasonable person could agree with it.’ . . . [¶]. . . ‘The scope of

discretion always resides in the particular law being applied, i.e., in the “legal principles

governing the subject of [the] action . . . .” Action that transgresses the confines of the

applicable principles of law is outside the scope of discretion and we call such action an

“abuse” of discretion. . . . [¶] The legal principles that govern the subject of discretionary

action vary greatly with context. . . . They are derived from the common law or statutes

under which discretion is conferred.’ ” (Ibid., citations omitted.)

2. Additional Background

a. HP Expert Orszag’s Testimony

Prior to the phase 2 jury trial in 2016, HP’s damages expert Orszag produced three

written reports, two in 2012 and one in 2015. His original report was finalized in March

60

2012 and calculated HP’s estimated damages from Oracle’s breach of contract to be

between $3.8 billion and $4 billion. As described above, in its September 2012 statement

Oracle announced a reversal of its previous decision and stated it would resume porting

to Itanium. Oracle wrote in a letter to the trial court that its September 2012 statement

was “without prejudice to [its] rights to appeal” the rulings relevant to phase 1. In an

earlier press release from August of that year, Oracle had also referenced its right to

appeal when it criticized the trial court’s “preliminary opinion” and stated that “[w]e plan

to appeal the Court’s ruling.”

In order to address the impact of Oracle’s decision to resume porting to HP

products, the trial court allowed the parties to serve supplemental expert reports and

engage in additional discovery. In December 2012, Orszag produced a supplemental

written report on damages. Shortly thereafter, the trial court conducted an evidentiary

hearing in March 2013 on the admissibility of expert testimony, including that of Orszag,

under the standards set out in Sargon, supra, 55 Cal.4th 747.

Orszag testified at the March 2013 evidentiary hearing. Orszag stated that, in

formulating his opinions, he relied on HP documents and projections, industry data,

Oracle documents, industry analyst reports, and press releases or announcements, among

other materials.

In his original March 2012 report, Orszag divided his analysis into two time

periods: (1) a “pretrial” period from March 2011 until “effectively today” and (2) from

“today through 2020” and analyzed what HP’s revenues for the Itanium business would

have been but for Oracle’s breach of contract.

For the pretrial period, Orszag stated that he used three alternative approaches to

estimate damages. The first approach was the “Itanium constant market share” approach,

in which he assumed that Itanium’s market share in 2010 remained constant through

2020. His second approach used multiple versions of a regression (which he defined as a

“statistical or econometric analysis of the relationship between variables”) to project

61

HP’s damages. His third approach relied on an internal HP forecast of the Itanium

business, referred to as the “kinetic plan,” which HP had completed shortly before the

Oracle announcement in March 2011.

For the posttrial period, of the three methodologies he had used for the pretrial

period, Orszag employed only those based on constant market share and kinetic plan.

Orszag gave several reasons for his decision to extend future damages to 2020, including

his use of data from a “roadmap” in place between HP and Intel (the supplier of the

Itanium microprocessor) that went through 2020. In projecting future damages, he

testified that he took into account factors other than Oracle’s March 2011 announcement,

including market and sales trends. Orszag noted that the high-end server market in which

Itanium competed against IBM’s and Sun’s proprietary servers (the RISC/EPIC market)

had performed worse than projected in March 2011, which caused him to adjust down his

projection of HP’s damages. He also considered in his calculations that some of the sales

HP had lost were recaptured by other parts of HP’s business, including HP’s x86 server.

Regarding the monetary damages that he calculated using the three methodologies,

Orszag stated that in his original March 2012 report he had calculated damages to be

between $3.8 billion and $4 billion depending on the methodology. Based on his

experience as an economist, the numbers resulting from the different approaches were

“robust” and showed a “pretty tight range for an estimate of damages.”

In his December 2012 supplemental report, Orszag updated his prior opinion from

March 2012 to account for new data from industry analysts and Oracle’s announcement

that it “would reverse their previous decision and now port their Database software to the

Itanium product.” Orszag did not assume that HP’s business would have grown

exponentially but for Oracle’s conduct; rather he assumed that HP’s Itanium revenue

“would have shrunk.” Orszag incorporated more recent industry data that revealed a

“slightly more pessimistic view than [analysts] previously had” and which caused him to

reduce in the December report his calculation of the amount of estimated damages.

62

Orszag discussed the impact of Oracle’s September 2012 announcement that it

would resume porting to Itanium. Based on his review of the data, HP’s Itanium business

continued to deteriorate following Oracle’s September 2012 announcement. Orszag did

not assume that any Itanium customer would be unable to get the Oracle product it

wanted. However, he concluded that HP had still suffered damages because of the gap

between March 2011 and the September 2012 announcement. He relied in part on

industry analysts’ observations that “[t]he damage had been done.” Orszag noted there

had been a drop in sales because of the change in the mix of information to customers

who “want to have reliability and assurance that the products they need for years are

going to be there, and it wasn’t there.” On cross-examination, he stated, “I am not

assuming there are customers who lost software today” but rather “[t]here are customers

who believed that they were going to lose software tomorrow, that affected their

decisions today because they are buying servers for a multi-year use period.”

On cross-examination, Orszag acknowledged that one of the factors he took into

account in his December 2012 supplemental report was Oracle’s August 2012 press

release stating Oracle’s intent to appeal and its filing of a petition for writ of mandate.

Orszag’s supplemental report highlighted the fact that “Oracle will appeal and there is no

guarantee of the outcome.”

Following Orszag’s testimony at the pretrial hearing on the admissibility of expert

testimony, Oracle’s damages expert Ramsey Shehadeh also testified. He criticized

Orszag’s reasoning as “circular.” For example, addressing Orszag’s constant market

share methodology, Shehadeh stated that Orszag “assumes that HP would maintain a

constant market share of what he describes as the RISC EPIC market” and that “his

regression analysis evaluates the statistical correlation relationship between HP sales and

that same RISC EPIC market.” According to Shehadeh, Orszag’s regression analysis “is

constructed to yield the exact same assumption about the performance of the HP business

that his constant market share approach does.” However, Shehadeh testified that in his

63

own analysis he, like Orszag, had relied on a constant market approach and industry

analyst data to make certain of his calculations.

Shortly after the evidentiary hearing, on March 20, 2013, the trial court issued a

written order finding that Orszag’s expert testimony was admissible and rejecting

Oracle’s argument that it failed to meet the Sargon standard. The trial court found that

“[u]nlike the expert’s ‘employer’ in Sargon, HP is the veritable definition of an

‘established’ business, and Orszag was entitled to look at company records and statistics”

and that, furthermore, “the analysis he undertook appears to be based on that data.” The

trial court found that “Orszag’s testimony provides a logical basis for his conclusions,

meets the standards proscribed in Sargon and the [Code of Civil Procedure], and will be

admitted into evidence.”

In its analysis of Orszag’s testimony, the trial court did not reference Orszag’s

consideration of Oracle’s statement that it intended to appeal in calculating HP’s

damages. However, the trial court did address Oracle’s intent to appeal in the context of

its discussion of Oracle’s expert Shehadeh. The trial court stated, “whether the ‘we

intend to appeal’ statement has a probative effect or not is for the jury to decide. It is but

another prong in HP’s damages argument which may, or may not be persuasive at trial.”

b. Oracle’s Motion in Limine Regarding its Constitutional Right to

Petition

On April 5, 2013, Oracle filed a motion in limine seeking to exclude argument and

evidence of lost profits that failed to disaggregate lost profits arising from Oracle’s plan

to appeal (Oracle’s motion in limine). Oracle argued that HP was precluded from

asserting such damages based on Oracle’s constitutional right to petition under the United

States and California Constitutions, California’s litigation privilege, and California’s

substantive law governing breach of contract and promissory estoppel. HP opposed

Oracle’s motion in limine, arguing Orszag’s testimony should be presented to the jury.

Oracle’s motion in limine remained pending while the parties litigated Oracle’s anti-

64

SLAPP motion. The trial court dismissed Oracle’s anti-SLAPP motion as untimely, and

this court affirmed that order in 2015. (Hewlett-Packard, supra, 239 Cal.App.4th at

p. 1196.) (See ante, part I.B.5.)

In November 2015, following the delay in the litigation due to Oracle’s anti-

SLAPP appeal, Orszag prepared his third and final report. The purpose of his final report

was to update his December 2012 supplemental report with “actual data of what had

happened over a three-year period.” He calculated a new damages estimate of $3.014

billion. As he testified at trial, Orszag reduced his calculation of damages from his

previous estimate of approximately $4 billion because the RISC/EPIC market had shrunk

much faster than analysts had forecast.

On May 23, 2016, prior to the phase 2 trial, the trial court addressed the parties’

pending motions in limine, including Oracle’s motion to exclude arguments and evidence

of lost profits that failed to disaggregate potential damages arising from Oracle’s exercise

of its appellate rights. At the hearing, relying on its constitutional rights to freedom of

speech and petition and the litigation privilege, Oracle argued that the jury could not base

any damages on Oracle’s announcement that it would appeal the trial court’s phase 1

ruling. After hearing argument from counsel, the trial court denied Oracle’s pretrial

motion.

c. Expert Testimony on Damages and Jury Award

Orszag testified at the phase 2 jury trial on June 20, 2016 and June 21, 2016. On

direct examination, he stated that he had based his damages opinion on Oracle’s decision

in March 2011 to discontinue porting, its public announcement of that decision, and “the

reaffirmation of that announcement over the next 17 and half months or so.” Orszag

testified that under the constant market approach—his “preferred approach for

damages”—he calculated that HP’s damages for the period of March 22, 2011, until

65

October 31, 2015, were $1.699 billion.15 Regarding future damages from November 1,

2015 to October 31, 2020, Orszag estimated the damages at roughly $1.3 billion.

On cross-examination, Orszag confirmed that he was “not measuring damages

based on a failure to ultimately deliver software.” Rather, in Orszag’s view, HP had

suffered damages because Oracle had created uncertainty in the marketplace, and the risk

that Oracle would win on appeal was part of the conduct that created the marketplace

uncertainty. According to Orszag, “There was uncertainty in the marketplace about the

fact that they were porting their software under protest, and that’s reflected in the real

world decisions of businesses buying mission-critical hardware products.” When asked

if, assuming Oracle had a legal right to appeal, Orszag’s current damage estimates could

tell how much damages were caused by the uncertainty of the appeal, Orszag responded

that that was “not an analysis that [he had] undertaken.” Orszag stated that he had not

examined the damages caused by Oracle separate from its right to appeal and could not

“give you an answer one way or the other.”

The jury in the phase 2 trial ultimately awarded HP $1.699 billion in damages for

“[p]ast lost profits” and $1.315 billion in “[f]uture lost profits” for a total damages award

of $3.014 billion. In November 2016, Oracle filed a motion for new trial requesting a

new trial on damages, or, in the alternative, a reduction of the damages to the maximum

amount Oracle’s expert (Shehadeh) had testified was supported by the evidence ($559

million). Oracle asserted that the jury award was both excessive and contrary to law. It

argued that Orszag’s statistical models were flawed in that they did not include “even one

other causative factor that would have played a significant role in the declining market

share” for Itanium but rather concluded that Oracle’s “announcement caused 100% of

this decline in market share.” Oracle further argued that Orszag “did not attempt to

15

Orszag segregated past from future damages using October 31, 2015, as the final

date for which he was able to include past data when preparing his third and final report

in November 2015.

66

separate the impact to Itanium of other factors that by law cannot form the basis of any

damages award, such as Oracle’s statements and actions that it would appeal the Phase 1

decision” and that Orszag “admitted that, if Oracle’s assertion of its right to appeal was

legally proper, then he had no opinion on the amount of damages in this case.”

The trial court denied Oracle’s motion for new trial. Among its other findings, the

trial court addressed Oracle’s argument “that the litigation privileges immunize[] it from

any liability arising from its statement in the September 2012 announcement that it would

appeal the Phase [1] decision in this action.” The trial court found that “HP did not claim

that this statement caused its damages, merely that this and other circumstances created

uncertainty surrounding Oracle’s commitment to Itanium, explaining why the September

2012 announcement did not cause HP’s market share to recover.”

3. Constitutional Claim

We begin with Oracle’s claim that the trial court erred as a matter of law in

allowing Orszag to base his calculation of damages in part on Oracle’s constitutionally

protected and privileged statement that it would appeal the trial court’s phase 1 decision.

Oracle broadly asserts that its statement of intent to appeal was protected by the First

Amendment right to petition the courts and the California litigation and fair-and-truthful

reporting privileges. Oracle submits that Orszag both attributed damages to the intent to

appeal and conceded he could not disaggregate those damages from damages caused by

other factors.

“[I]t is a fundamental principle of appellate procedure that a trial court judgment is

ordinarily presumed to be correct and the burden is on an appellant to demonstrate, on the

basis of the record presented to the appellate court, that the trial court committed an error

that justifies reversal of the judgment.” (Jameson v. Desta (2018) 5 Cal.5th 594, 608–

609.) This principle of appellate practice is founded in the constitutional doctrine of

reversible error. (Ibid.; see Cal. Const., art. VI, § 13.) It precludes reversal of the

67

judgment on the ground of the improper admission of evidence unless, after examining

the entirety of the matter before us, we conclude that “the error complained of has

resulted in a miscarriage of justice” (Cal. Const., art. VI, § 13) which, in this case, may be

conceived as damages that penalize Oracle for exercising a constitutional right.

We recite these basic principles in observance of several, unaddressed gaps in

Oracle’s arguments for reversal of the jury’s damages verdict on constitutional and

privilege grounds. As explained further below, we decide that Oracle has failed to

establish both that there was legal error in admission of this testimony and that the jury’s

damages award was actually based on an impermissible consideration of Oracle’s

protected or privileged conduct.

As a threshold matter, to demonstrate that the jury impermissibly assigned

damages based on constitutionally protected conduct, Oracle must first establish that its

conduct was protected. Oracle relies on the Petition Clause in the First Amendment to

the United States Constitution and cites a single line from a single case, Borough of

Duryea v. Guarnieri (2011) 564 U.S. 379 (Guarnieri), to support the premise that its

September 2012 announcement was an exercise of its constitutionally protected right to

petition.

Guarnieri, however, bears little relationship to the dispute at issue here. Guarnieri

addressed “the extent of the protection, if any, that the Petition Clause grants public

employees in routine disputes with government employers.” (Guarnieri, supra, 564 U.S.

at p. 382.) In Guarnieri, the United States Supreme Court described the right of petition

as “the right of individuals to appeal to courts and other forums established by the

government for resolution of legal disputes.” (Id. at p. 387.) This general statement does

not establish whether invoking the intent to appeal in a press release in a private,

contractual, commercial dispute implicates the Petition Clause. (See Guarnieri, at

pp. 388–389 [“A petition conveys the special concerns of its author to the government

and, in its usual form, requests action by the government to address those concerns.”].)

68

Other leading cases from the United States Supreme Court on the Petition Clause

are similarly far afield. (See e.g., Bill Johnson’s Restaurants, Inc. v. N.L.R.B. (1983) 461

U.S. 731, 733 [considering whether the National Labor Relations Board may issue a

cease-and-desist order to halt the prosecution of a state court civil suit brought by an

employer to retaliate against employees for exercising federally protected labor rights];

California Motor Transport Co. v. Trucking Unlimited (1972) 404 U.S. 508, 511

[concluding that the right of access to the courts is an aspect of the First Amendment

right to petition the Government for redress of grievances and construing the antitrust

laws as not prohibiting the filing of a lawsuit, regardless of the plaintiff’s anticompetitive

intent or purpose in doing so, unless the suit was a “ ‘mere sham’ ” filed for harassment

purposes].)

In short, Oracle’s conclusory reference to the right of petition, accompanied by

neither argument nor application to the facts presented, is insufficient to establish that its

press release raised a constitutionally protected right. But even if we assume that

Oracle’s statement of intent to appeal comes within the ambit of the Petition Clause of

the First Amendment, Oracle offers no authority connecting the exercise of the right of

petition in the context of a breach of contract claim with what it presents as “black letter

law” that the First Amendment prohibits courts from awarding damages that would

penalize protected speech. The cases upon which Oracle relies bear no resemblance to

the circumstances here.

For example, Oracle cites Snyder v. Phelps (2011) 562 U.S. 443, in which the

United States Supreme Court considered whether the First Amendment shields church

members from tort liability for picketing near a soldier’s funeral service. The court

examined the nature of the speech, whether of public or private concern, as determined

by the circumstances of the case (id. at pp. 450–451), and concluded that the First

Amendment barred the plaintiff’s recovery on tort claims like intentional infliction of

emotional distress (id. at p. 459) and intrusion upon seclusion (id. at p. 460). The Court

69

reasoned that the church members’ speech was “at a public place on a matter of public

concern” and therefore “entitled to ‘special protection’ under the First Amendment.” (Id.

at p. 458.) Oracle does not demonstrate how its press release falls within this rubric.

Oracle cites another case along this vein of protected speech, Freitag v. Ayers (9th

Cir. 2006) 468 F.3d 528, 532, in which a jury found three prison administrators liable for

retaliating against a former correctional officer for engaging in constitutionally protected

speech. After determining that a jury instruction erroneously listed examples of

unprotected speech as well as protected speech, the Ninth Circuit remanded to the district

court to decide whether the error was harmless (i.e. whether the jury verdict finding

retaliation was affected by the erroneous inclusion of the two or three examples of

unprotected speech) (id. at p. 546) and whether the compensatory damages award

remained valid (id. at p. 547). In its decision, the Ninth Circuit relied on a then-recent

decision from the United States Supreme Court, which held that the First Amendment

protects speech by public employees only when “the speech in question addresses a

matter of public concern” and is not made pursuant to their official duties. (Id. at

pp. 543–544 [analyzing Garcetti v. Ceballos (2006) 547 U.S. 410].)

Oracle does not attempt to explain the relevance of these cases to the issues

presented here, beyond the unremarkable generalization that the First Amendment

prohibits penalizing protected speech. The reliance on this overarching principle does

not establish constitutional error in the damages award—particularly because Snyder and

Freitag involve the protection of speech, whereas here Oracle claims a violation of its

right to petition. Further, there was no dispute in Snyder and Freitag that the speech had

directly resulted in significant penalties (in the case of Snyder a substantial tort judgment

and in the case of Freitag the termination of employment), whereas here the link between

the asserted right to petition and the money judgment for breach of contract and the

implied covenant of good faith and fair dealing is—at best—substantially more

attenuated.

70

The only other case in support of its constitutional claim that Oracle refers to is an

unreported opinion from the Central District of California. That case examines the

contours of “[s]ubstantial truth” as a defense to defamation and trade libel/commercial

disparagement claims under California and Illinois law. (See Aurora World, Inc. v. Ty

Inc. (C.D. Cal., Aug. 24, 2010) 2010 WL 11506546, at *13.) We fail to see its relevance

to this appeal.

In sum, in failing to develop a reasoned argument supported by legal authority for

its First Amendment claim, Oracle improperly leaves this court to decode what amounts

to little more than “ ‘a bare assertion that the judgment, or part of it, is erroneous’ ” . . . .’

(Eisenberg et al., Cal. Practice Guide: Civil Appeals and Writs (The Rutter Group 2018)

¶ 8:17.1, p. 8-6).” (Lee v. Kim (2019) 41 Cal.App.5th 705, 721.) For this reason alone,

Oracle’s First Amendment argument cannot prevail.

Nonetheless, recognizing the possibility that Oracle’s stated intent to appeal may

fall within its First Amendment right of petition (Guarnieri, supra, 564 U.S. at p. 387)

and the likelihood that damages arising from the protected conduct are prohibited (see,

e.g., NAACP v. Claiborne Hardware Co. (1982) 458 U.S. 886, 926–927, 933 [reversing

judgment where state court imposed liability on organizers of a boycott for business

losses resulting in part from nonviolent, protected speech and assembly]), we examine

Oracle’s contention that the jury was permitted to award damages based on Oracle’s

exercise of its constitutional right to petition the courts.

Oracle claims that Orszag’s approximately $3 billion damages figure was based on

“two Oracle statements”: the March 2011 announcement that it would discontinue future

product development on Itanium and the September 2012 statement that it would comply

with the trial court’s order, though it was appealing the court’s decision. Oracle further

states that Orszag attributed all of HP’s damages to these announcements and admitted

that he could not allocate damages between them. To assess the accuracy of Oracle’s

claim, we consider Orszag’s testimony.

71

There is no dispute that Orszag’s testimony about how he calculated HP’s

damages included consideration of Oracle’s stated intention to appeal the phase 1 ruling.

Orszag told the jury that HP had suffered damages because Oracle had created

“uncertainty” in the marketplace, and the risk that Oracle would win an appeal was part

of the conduct that created the marketplace uncertainty despite Oracle’s announcement

that it would resume porting to HP’s products. As summarized by Orszag to the jury on

direct examination, “When the decision [after the phase 1 trial] had been reached they

said that they were disappointed in the decision and that they intended to appeal that

decision. Then some time after that, within a few weeks, . . . they announced that they

would resume porting. So, they would resume the future development of—future

software development of their Oracle Database for Itanium. And that they would do so,

effectively under protest, because they were still appealing the decision.” Orszag

confirmed that he took those announcements into consideration in calculating damages,

explaining that in the “actual world” of data he reviewed after the September 2012

announcement, customers were “making buying decisions with the knowledge that

Oracle is currently porting its database software, A. And B, that they are appealing the

decision. So, I’m taking that into account. And those buying decisions are the buying

decisions that we observed in HP’s data.”

Oracle argues, based on this testimony and similar statements, that the claimed

uncertainty was the sole basis for HP’s claim that Itanium would continue to lose market

share even after Oracle resumed porting “and is the entire basis for Orszag’s damages

from that point in time forward.” But this assertion substantially oversimplifies Orszag’s

testimony.

For example, Oracle’s counsel pressed Orszag in cross-examination to identify

whether the damages he calculated after Oracle’s September 2012 announcement “are

100 percent based upon the effect of the announcement and zero percent based upon the

actual availability or nonavailability of the software? [¶] That was your position;

72

correct?” Orszag responded,

This text is long and has been trimmed here. Open the source document for the complete record.