Just days after losing a copyright infringement lawsuit against Google, computer technology giant Oracle was back in court. This time it is defending a lawsuit by Hewlett Packard Enterprise (HPE), a spinoff of the former Hewlett-Packard (HP) that inherited HP’s server business. Hewlett Packard Enterprise is trying to convince a jury that Oracle is responsible for the declining fortunes of HPE’s pricey line of computer servers based on the Itanium chip.
HPE claims that Oracle wrongfully failed to create new versions of its database software that would support machines running Itanium. According to HPE, Oracle wanted to drive business from HPE to Sun Microsystems, an HPE competitor that Oracle purchased in 2010.
A key dispute in the lawsuit concerns the reason for Itanium’s declining popularity and the amount of money that HPE lost because Oracle failed to support the chip. The expert upon whom HPE relies endured a grueling cross-examination as Oracle attempted to persuade the jury that Itanium was doomed regardless of Oracle’s actions.
HP and Intel developed Itanium in 1994 to run a high-end line of HP servers. While HP made some inroads with its Itanium servers, many businesses preferred servers that used Intel’s less expensive x86 chips. Many server customers continued to buy HP machines, but they purchased the less profitable x86 machines rather than those that were running Itanium.
Sales of Itanium-based systems declined sharply after 2011. HPE blames that decline on Oracle. It argues that Oracle undermined Itanium when it announced in 2011 that it would no longer create new versions of its popular software products that would run on Itanium. According to HP, Oracle instructed its sales force to encourage customers to switch to servers manufactured by Sun Microsystems, which Oracle had recently acquired. Oracle claimed that that it was simply following the lead of other software companies that considered Itanium to be nearing the end of its market life.
HP sued Oracle, claiming that the settlement of an earlier lawsuit between the two companies required Oracle to continue supporting Itanium. In 2012, a judge agreed. The judge ordered Oracle to continue supporting Itanium in its new software as long as HP continued to sell machines with Itanium chips.
Oracle appealed, but it has obeyed the judge’s order while the appeal is pending. It contends that HP and HPE were not harmed, or that any harm was minor, because its current software will run on Itanium machines. HPE contends that the harm was done at the moment Oracle announced it would not support Itanium, causing customers to abandon servers with Itanium chips. HPE contends it cannot win those customers back. It wants to persuade the jury that Oracle’s breach of the settlement agreement resulted in a loss of $3 billion in sales of Itanium-based servers.
To prove the $3 billion loss, HPE is relying on the expert testimony of economist Jonathan Orszag. Among his other credentials, Orszag served on President Clinton’s National Economic Council.
Orszag based his loss analysis on a comparison of HP/HPE’s revenue from sales of Itanium-based products before and after Oracle announced that it would no longer support Itanium. Orszag noted that revenues began to fall as soon as Oracle made the announcement, and then began to snowball. Although Oracle began to support the product again 17 months later, Orszag testified that Oracle’s announcement created uncertainty that caused customers to turn to other platforms.
Orszag anticipates that losses will continue until 2020, the year in which HPE and Intel project the end of Itanium’s market life. Oracle contends that Itanium is already dead and that HPE has been hiding that reality from its customers and from the market in general.
An aggressive cross-examination of Orszag included an attempt to tarnish his credentials. Oracle’s lawyers accused Orszag of relying on his brother’s help to win a “relatively junior” White House post and of padding his resume with lists of the awards he’s won. The judge eventually agreed that the personal attacks were becoming irrelevant.
Oracle’s lawyers then attempted to poke holes in Orszag’s analysis. They pointed to other factors that could have caused a decline in Itanium sales, including Intel’s development of the competing E7 chip.
Oracle is expected to counter with the testimony of its own expert witness, economist Ramsey Shehadeh. In a preview of that testimony, Shehadeh argued that many other factors contribute to the declining sales of HP and HPE servers, including a decline in HP’s reputation before the company separated its home computer business from its server and business support divisions. Shehadeh also noted the industry’s belief that Itanium was nearing the end of its useful life, sparking defections to more stable product lines.
Oracle and HP/HPE have a long history of suing each other. How the jury will resolve this lawsuit will depend in part on its assessment of the competing views offered by the parties’ expert witnesses.