HP worried about an Oracle takeover after Hurd switched sides

HP wanted assurances against a hostile bid in the settlement of its suit against Hurd

Hewlett-Packard voiced concerns about Oracle attempting a hostile takeover after it hired former HP CEO Mark Hurd as co-president, Oracle's lead counsel told a judge on Monday.

HP sued Hurd shortly after he went to Oracle in September 2010, and the two companies quickly tried to settle the dispute. One of HP's core demands was a "standstill" agreement blocking takeover bids by Oracle for a period of time, said Dorian Daley, Oracle's senior vice president, general counsel and secretary, a key player in the negotiations with HP. But Daley dismissed HP's worries.

"I said, 'Are you kidding me?'" Daley said during questioning by Oracle in front of Judge James Kleinberg in Santa Clara County Superior Court in San Jose, California. "It was a very surprising ask, from my perspective," because HP is three times as big as Oracle, Daley said.

The so-called Hurd Agreement that the companies reached within weeks of HP's lawsuit is at the heart of the case they are now arguing. In March 2011, a few months after that deal, Oracle announced it would stop porting its software to HP's Itanium server platform.

HP is suing its former partner for alleged breach of contract, saying the Hurd Agreement requires Oracle to keep offering its database and other software for Itanium. Oracle says it's not bound to do so and that it is dropping Itanium because the platform is dying. The case has unearthed emotional reactions to perceived betrayals on both sides.

In this phase of the trial, scheduled for completion by June 25, Judge Kleinberg is to decide whether there was a contract between the two companies and what its terms might be. If he finds there was, the case can move on to a jury trial over whether Oracle breached that contract.

On Monday, HP rested its case and Oracle called Daley as its first witness. Daley's questioning by both Oracle and HP attorneys focused on the flurry of drafts, emails and phone calls between the companies' lawyers and executives in the days immediately after HP sued Hurd on Sept. 7, 2010.

HP's attorney, Robert Frank, repeatedly objected to questions by Oracle attorney Daniel Wall on the grounds that Wall was improperly trying to get to the intent behind Daley's drafts and emails rather than relying on what she had written. Wall made similar objections as Frank cross-examined Daley.

HP was worried that as an Oracle executive, Hurd would use customer relationships and confidential information against it. The key points that HP's board of directors wanted covered in the agreement over Hurd were the standstill agreement, restrictions on Hurd's activities during his first year or more at Oracle, and Hurd's severance deal with HP, Daley said. HP, which was facing legal action by its shareholders over the rich severance deal for Hurd, wanted to get some of that money back, she said.

Daley said she was surprised at HP's demands because she believed the company had little chance of prevailing in its suit against Hurd. Most of all, she objected to a demand that Hurd stay out of Oracle's hardware business for his first 15 months.

"I was astonished and frustrated," Daley said. "This effectively said Mark need not come to work for a year-and-a-half."

But now the most critical provision of the Hurd Agreement is its first paragraph, in which the companies reaffirmed their partnership and said they would continue to work together just as before Hurd was hired by Oracle. HP says that provision is a commitment to continued porting, while Oracle co-President Safra Catz has called it nothing more than "a corporate hug."

In one of the many drafts that went back and forth between the companies, Daley referred explicitly to continued porting and joint marketing opportunities. In cross-examination on Tuesday, Frank, the HP attorney, grilled Daley over whether that draft reflected the substance of talks between Catz and HP enterprise business chief Ann Livermore, who were the lead negotiators of the agreement. Daley said it didn't all come out of those talks.

"Safra and Ann did not talk about porting. That was my language," Daley said. "I was using those as examples, myself."

Attorneys for the two companies also clashed over the witness list in the case. Oracle said it might call two more witnesses: Hurd and Oracle Chief Corporate Architect Edward Screven. HP objected, saying the requests had come too late and it had only been informed last weekend. Judge Kleinberg said he would allow Hurd to testify but would take more time to consider whether Screven could be called.

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com

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