A California Judge has ruled in favor of Hewlett-Packard in its breach of contract lawsuit with Oracle. As a result of the verdict yesterday, Oracle is contractually obliged to continue developing software for its Silicon Valley rival, and now faces a damages claim that could run into billions of dollars.

It all started back in April last year, after the database giant announced it would discontinue software development for servers running Intel's Itanium processors. At the time it was seen by the industry as a direct attack on HP, who uses the processors in its “integrity” enterprise server products. Two months later the PC maker threatened Oracle with legal action if it didn't rescind its decision. Then in June last year HP filed the suit in the Santa Clara Superior Court seeking damages and remedies from Oracle.

“The settlement and release agreement entered into by HP, Oracle and Hurd on Sept. 20, 2010, 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,” Judge Kleinberg said. He added that both sides have 15 days to file an objection to the court.

The judge also ordered the companies back in court on August 22 to prepare for the second phase of the case, adding that he expects them to “meet and confer productively” beforehand. HP is believed to be seeking around $500 million in damages, according to an unnamed source speaking to Bloomberg. An independent analysis prepared for HP pins the estimated total loss rising to as much as $4 billion by 2020 if Oracle hadn't been ordered to continue developing the software in question.

“We know 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,” Oracle spokesperson Deborah Hellinger said. “HP’s argument turns the concept of Silicon Valley ‘partnerships’ upside down. We plan to appeal the Court's ruling while fully litigating our cross claims that HP misled both its partners and customers.”

A spokesperson for HP said the ruling was “a tremendous win for HP and its customers.”