United States: Oracle Claims Customer Is "Solely" Responsible For Determining If Oracle Cloud Services Meet Customer's Technical, Business, And Regulatory Requirements

Last Updated: September 30 2019
Article by Pamela Fulmer

Oracle further argued in its demurrer in the Barrett Business Services, Inc. v. Oracle America, Inc.  case that it expressly disclaimed that its services would meet the customer’s requirements or expectations and that it was not liable for any issues related to “performance, operation or security of the services that arise from your content”.  Oracle also relied in its demurrer on the language in the contract which put the responsibility “solely” on BBSI for determining if the cloud services purchased met its “technical, business or regulatory requirements.” Oracle contended that it performed the services using commercially reasonable skill and care as described in its Service Specifications, and therefore was not in breach.  

Clearly Oracle customers contemplating Oracle cloud should seek to negotiate these provisions, as California courts will enforce warranty disclaimers unless they are unconscionable.  A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 484 (1982).  Given the facts alleged in BBSI’s First Amended Complaint (“FAC”), BBSI will likely argue (in addition to its other arguments) that Oracle’s warranty disclaimer is unconscionable.  In A&M Produce  the court in finding a warranty disclaimer unconscionable reasoned that “the evidence establishes that A & M had no previous experience with weight-sizing machines and was forced to rely on the expertise of FMC in recommending the necessary equipment. FMC was abundantly aware of this fact. The jury here necessarily found that FMC either expressly or impliedly guaranteed a performance level which the machine was unable to meet. Especially where an inexperienced buyer is concerned, the seller's performance representations are absolutely necessary to allow the buyer to make an intelligent choice among the competitive options available. A seller's attempt, through the use of a disclaimer, to prevent the buyer from reasonably relying on such representations calls into question the commercial reasonableness of the agreement and may well be substantively unconscionable. The trial court's conclusion to that effect is amply supported by the record before us.”  A & M Produce Co. v. FMC Corp., 135 Cal. App. 3d 473, 492 (1982).

Here BBSI appears to be setting up a similar argument, as well as setting up the reliance element of its fraud claim.  According to the FAC, “[a]t all of BBSI's discussions with Oracle and KBACE, BBSI's representatives also made clear that they were ignorant as to Oracle's HCM Cloud system or any other Oracle products or how they performed and were relying wholly on Oracle and KBACE to advise them as to the suitability and capabilities of the product or system vis-a-vis BBSI's requirements.” In addition, the FAC recites that “Oracle and KBACE, too, consistently reaffirmed the HCM Cloud system's suitability for BBSI, its capabilities relative to BBSI's requirements as well as KBACE's ability to successfully implement the system in conformity with BBSI's requirements for user interface, payroll, time entry, billing and taxes, among others.”  Companies negotiating Cloud Agreements with Oracle should be aware that if something goes wrong with the implementation, despite Oracle’s representations to the contrary, Oracle will likely invoke the contractual language that puts it “solely” on the customer to determine if the cloud services purchased meet the customer’s “technical, business or regulatory requirements.”  Oracle will rely on such language to attempt to defeat your claim, and indeed in Barrett, Oracle has asserted defenses including ones for failure to state a claim, intervening or superseding acts of third parties, no duty, assumption of the risk, contractual limitation of liability, and the parol evidence rule.  

Although not raised in the Barrett  case, another problematic provision that prospective Oracle cloud customers should be aware of, involves Oracle’s disclaimers pertaining to third party content or services.  Unlike many other cloud providers like AWS and Azure, Oracle rents data centers from other companies and does not own the data centers. And in its disclaimer of warranties Oracle has the following language: “WE ARE NOT RESPONSIBLE FOR ANY ISSUES RELATED TO THE PERFORMANCE, OPERATION OR SECURITY OF THE SERVICES THAT ARISE FROM YOUR CONTENT OR THIRD PARTY CONTENT OR SERVICES PROVIDED BY THIRD PARTIES.” Moreover, at least one of Oracle’s cloud service level agreements provides that “[t]he Service commitment does not apply to any unavailability of the applicable Oracle Cloud Infrastructure Service… that result from… third party equipment, software or other technology (other than third party equipment within Oracle’s direct control).” Reading these two clauses together gives Oracle the ability to point the finger at third parties and say that they own the hardware in the data centers and not Oracle, and that you therefore have no direct claim against Oracle for any disruption in Oracle’s cloud.  

According to other publicly filed lawsuits, Oracle Sales has been known for pushing cloud, even where Oracle’s on-premises software might be a better solution for the customer.  Oracle is accused of doing so, as it seeks to catch up with AWS, Azure, and other market leaders.   The Barrett  FAC actually notes that Oracle probably could have delivered the product that BBSI was seeking had it simply sold Oracle on-premises software rather than cloud.  Oracle customers contemplating moving to the cloud should get Oracle to commit in writing to exactly what it is delivering.  If Oracle will not do so, perhaps the customer should explore other options.

Tactical Law will continue to monitor the case.  Check back for further updates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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