HP suing former CEO Mark Hurd
9/08/2010 11:05:00 AM
kenmouse
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Hewlett-Packard is suing Mark Hurd, a day after word came of his hiring by Oracle.Court documents filed Tuesday morning in California's Santa Clara County show that HP is accusing its former CEO of breach of contract and threatened misappropriation of trade secrets.
HP released a statement Tuesday morning saying that "Mark Hurd agreed to and signed agreements designed to protect HP's trade secrets and confidential information. HP intends to enforce those agreements."
According to court documents (embedded below), HP believes that Hurd's hiring by Oracle is a threat to the company and violates confidentiality agreements he signed on three different occasions during his tenure at HP.
Hurd was hired as co-president of Oracle, one of HP's competitors, on Monday.
"Despite being paid millions of dollars in cash, stock, and stock options in exchange for Hurd's agreements to protect HP's trade secrets and confidential information during his employment and following his departure from his positions at HP as chairman of the board, chief executive officer, and president, HP is informed and believes and thereon alleges that Hurd has put HP's most valuable trade secrets and confidential information in peril," the suit says.
Working at Oracle, Hurd "will be in a situation in which he cannot perform his duties for Oracle without necessarily using and disclosing HP's trade secrets and confidential information to others," according to the suit.
HP is asking for unspecified "injunctive relief" and an order for Hurd to provide written notification to HP of his employment by Oracle.
HP and Oracle have been business partners as well as competitors, but based on a press release issued by Oracle CEO Larry Ellison Tuesday afternoon, it appears the two won't be collaborating on much in the future.
"Oracle has long viewed HP as an important partner," Ellison said in a statement. "By 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."
In August, Hurd resigned suddenly after HP's board of directors concluded that he had violated the company's code of business conduct in connection with his relationship with a former marketing contractor who worked with HP. Ellison, who is a personal friend of Hurd, lashed out at Hurd's former employer soon after. He called HP's decision to oust Hurd, "the worst personnel decision since the idiots on the Apple board fired Steve Jobs many years ago" and claimed the board "failed to act in the best interest of HP's employees, shareholders, customers and partners."
At the heart of HP's case against Hurd is the separation agreement that Hurd signed on August 6 when he resigned from HP. It does not include any noncompete clause, however, the document states "the Confidentiality Agreements shall remain in full force and effect."
According to HP, the confidentiality agreement Hurd signed states that after leaving the company he would not provide services to any competitor of HP in any capacity. That agreement also states he would not solicit any HP customers, employees, or suppliers after leaving the company.
If he did take a job with a competitor in the year after leaving HP, Hurd had agreed to provide HP with written notice before taking the job, according to court documents. HP says he failed to do so when hired by Oracle.
Focus on trade secrets
The interesting part of the legal skirmish is HP's claim of "threatened misappropriation of trade secrets." HP is effectively suing Hurd for something he hasn't done yet, which is share HP's trade secrets with Oracle. It's an odd claim, but also a legal maneuver made necessary because the state of California looks askance at noncompete agreements.
"California is very hostile [toward] claims of noncompetition like this one," said Stephen Kramarsky, partner at the law firm Dewey, Pegno & Kramarsky. "It does enforce a company's ability to protect its trade secrets, and that's the allegation they have left, that [Hurd] has stolen trade secrets."
Because the suit was filed just a day after Oracle announced it planned to hire Hurd, and because HP probably doesn't yet have evidence suggesting that trade secrets may have been stolen, HP can only claim "inevitable disclosure" of such proprietary information about his former company. Essentially, in the normal course of doing his job as co-president at Oracle, Hurd would inevitably draw on information gathered while at the helm of HP--which HP states in the complaint.
Lawsuits like this one face tough going in California because the state specifically does not want companies turning confidentiality agreements into after-the-fact noncompete agreements, according to Kramarsky.
"It's an interesting little dance [HP's lawyers have] to do," he said. "His confidentiality agreements are enforceable. He can't post HP confidential documents on the Internet. But that doesn't mean he can't use the knowledge that's in his brain."
Also of note is what HP didn't ask for. Instead of filing a temporary restraining order preventing Hurd from beginning work at Oracle, which is what companies typically do in these types of suits--as IBM did when it sued Mark Papermaster over his hiring at Apple in 2008--HP asked for retroactive notice that he is joining Oracle, something that is now practically meaningless.
But several times in the complaint, HP ties Hurd's confidentiality agreement to the large settlement Hurd received upon his agreement to resign last month.
"If you're not getting a restraining order, then probably what you're doing is maneuvering for position in a settlement," said Kramarsky. Many times these cases are settled out of court, as we saw in the Papermaster-IBM battle, as well as Microsoft's 2005 suit over Kai-Fu Lee joining Google.
And as part of any such eventual settlement--and most of these cases do settle out of court--HP could be angling for Hurd to give back some of his severance package, which is reportedly worth up to $40 million.
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