Sept. 8 (Bloomberg) -- Hewlett-Packard Co.’s lawsuit seeking to block former Chief Executive Officer Mark Hurd from working at Oracle Corp. may be hard to win because California’s courts favor letting employees move freely, legal experts said.
HP said that serving as an Oracle president would make it “impossible” for Hurd to avoid using or disclosing HP’s trade secrets and confidential information, according to yesterday’s complaint in California’s Santa Clara County Superior Court.
The theory that trade secrets will inevitably be disclosed “won’t work in California as a reason to prevent someone from taking a job,” said Mark Lemley, a professor at Stanford Law School who specializes in intellectual property. “Neither will California courts enforce a noncompete agreement. HP will have to show real evidence that Mark Hurd is about to use its secrets at Oracle.”
Technology companies including HP, Apple Inc., Microsoft Corp., International Business Machines Corp. and Google Inc. have clashed over hiring in the past, with one side trying to bar moves by managers privy to sensitive information. In this case, that strategy collides with public policy in California, where Hurd and both companies are based, that promotes allowing people to change jobs to keep working in their areas of expertise.
Oracle CEO Larry Ellison said in a statement that the lawsuit was “vindictive” and that it would make it more difficult for the two companies to work jointly in the information technology market.
“Oracle has long viewed HP as an important partner,” Ellison said. “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.”
HP interim CEO Cathie Lesjak, speaking at an investor conference sponsored by Citigroup Inc., said she’s confident that the two companies can go back to being good partners.
“Business will prevail,” she said in New York.
Glenn Bunting, a spokesman for Hurd, declined to comment.
At HP, Hurd more than tripled profit by cutting costs and expanding beyond the company’s core business of computers and printers. On his watch, the company announced plans to eliminate at least 48,000 jobs and spent more than $20 billion on acquisitions that helped HP add services, networking equipment and smartphones.
“In his new positions, 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,” HP said in its complaint.
HP “will have an uphill climb” preventing Hurd from working at Oracle without evidence he has disclosed or used HP’s proprietary information, said Frederick Baron, chair of the employment and labor practice at Cooley LLP.
“The inevitable use doctrine has been argued around the country, but it is not well established in California or in many jurisdictions,” said Baron. “Oracle is assuming Mark Hurd can do his job based on his general know-how and talents.”
“To say that they have an uphill battle would be an understatement,” said Stephen Hirschfeld, a partner at Curiale Hirschfeld Kraemer LLP in San Francisco. “In this state, you can do pretty much whatever you bloody well want unless you compete with me unfairly.”
To win its case, HP would need to prove that Hurd used HP’s proprietary business knowledge to gain an unfair advantage in competition, he said.
While Hirschfeld gives HP little chance of extracting a monetary settlement from Hurd, he said the company may be able to force its ex-CEO to recuse himself from certain decisions about products or strategic issues for a period of time.
Hurd left HP Aug. 6 after the company said he violated standards of business conduct. An investigation into a sexual harassment claim said inaccurate expenses, filed by him or in his name, covered up a personal relationship with a contractor.
As part of his severance, Hurd was due to receive a payment of $12.2 million, plus other benefits that include restricted HP shares. Hurd signed agreements with HP in February 2008, 2009 and 2010 that prevent him from disclosing confidential company information, and from soliciting HP customers, employees or suppliers, according to HP’s complaint.
All told, Hurd may receive $40 million to $50 million, according to an estimate by Frank Glassner, CEO of Veritas Executive Compensation Consultants LLC in San Francisco.
As he left Aug. 6, Hurd signed an agreement not to enter into conflicting business arrangements for two years. Portions of agreements that touch on divulging confidential information would “apply at all times,” according to the complaint.
Hurd “was privy to the most sensitive of HP trade secret and confidential information,” HP said. The company asked the court to order Hurd to provide it with more information about his new job “pursuant to his trade secret protection agreements with HP.”
Because of Hurd’s Oracle plans, “HP is threatened with losing customers, technology, its competitive advantage, its trade secrets and goodwill in amounts which may be impossible to determine,” according to the complaint, which accuses him of breach of contract and doesn’t name Oracle as a defendant.
The $12.2 million in severance was due to be paid 30 days after Hurd resigned from HP, according to an Aug. 6 company filing with the Securities and Exchange Commission. Oracle announced Hurd’s hiring 31 days after he left HP.
Complaints of the kind filed against Hurd often are settled out of court, said Larry Drapkin, a Los Angeles-based employment law partner at Mitchell Silberberg & Knupp who litigates trade secrets cases.
“Under California law, the state just doesn’t look kindly on provisions that appear to be precluding a former employee from taking a job with a competitor,” he said.
Last year, Apple and IBM resolved a legal disagreement over Apple’s decision to hire IBM executive Mark Papermaster as engineering chief. Under the resolution approved in federal court in White Plains, New York, Papermaster agreed not to use or disclose confidential IBM information.
In 2007, HP paid printer maker Lexmark International Inc., $525,000 over HP’s hiring Bruce Dahlgren to oversee printer sales. Under the settlement filed in a Kentucky state court, Dahlgren was prohibited from recruiting Lexmark employees and from interfering with Lexmark’s customer relationships for 1 1/2 years.
Two years earlier, Google and Microsoft settled an employment dispute over Google’s hiring of former Microsoft Vice President Lee Kai-Fu to run a research facility in China. The confidential settlement was announced less than three weeks before a trial was scheduled to start in Seattle.
If HP’s case against Hurd doesn’t settle, the company can prevail in California only by showing actual or threatened misuse of a trade secret, Lemley said in an e-mail.
“California courts affirmatively encourage employee mobility,” he said. “That is one of the things that made Silicon Valley possible.”
In its complaint, HP proposed that the court appoint a special master to review and report monthly on Hurd’s compliance with his confidentiality obligations to HP.
Drapkin said he couldn’t imagine how that could be worked out.
“What is it they are going to do? Shadow Mr. Hurd?” he said. “I’m not sure a new employer is going to be all that excited about it either.”
The case is Hewlett-Packard Co. v. Hurd, 110-cv-181699, California Superior Court, Santa Clara County (San Jose).