

HP is right to sue Mark Hurd - yummyfajitas
http://seekingalpha.com/article/224524-hewlett-packard-is-right-to-sue-mark-hurd?source=feed

======
grellas
I understand the spirit of the author's point in this piece (and, in fact,
sympathize with it) but it really does not track the relevant California law.

This case will turn on what is known as the "inevitable disclosure" doctrine,
which has been explicitly rejected in California, going back to the _Schlage
Lock_ case in 2002 (see <http://library.findlaw.com/2003/Mar/18/132641.html>)
and most recently in _Flir Systems_ , where the court found that a trade
secrets case had been brought in bad faith because it was based on inevitable
disclosure. (A recent article on why this case law makes HP's Hurd case an
uphill fight appears here:
<http://www.law.com/jsp/article.jsp?id=1202471748471>).

Basically, California law prohibits non-competes in a post-employment context
unless coupled with a transfer of a goodwill interest (e.g., when your
business is acquired) and, when an employer complains that a former employee
will "inevitably" disclose valuable trade secret information by reason of his
position with a new firm, the courts have rightly interpreted this position as
an after-the-fact attempt by the employer to get what amounts to non-compete-
style protection where the law otherwise forbids this.

At the same time, HP is not without arguments because California's adoption of
the Uniform Trade Secrets Act does authorize courts to enjoin "threatened"
violations of an employer's trade secrets. This usually means the employer has
to present detailed evidence that the former employee's role in the new
company poses a clear threat that this would happen. Of course, without
additional evidence, the mere fact that the employee's new position poses such
risks really amounts to "inevitable disclosure" (which the courts reject) and
this means that a complaining party is not likely to win such a case unless it
really does have some other evidence strongly suggesting that trade secrets
are likely to be compromised. That is why it is such an uphill fight for the
employer.

Inevitable disclosure cases are often upheld elsewhere in the U.S. but even
then it most often happens when the departing executive is shown to have done
suspicious things along the way (see, e.g., this piece summarizing why a guy
who was one of a handful of people in the world to know the ingredients and
processes by which Thomas' English muffins achieve their "nook and cranny"
feel could legitimately be enjoined from joining a direct competitor, and
where the evidence showed that he hung around for months after secretly
accepting the competing employment and, in effect, gathered information from
his old employer in anticipation of the move:
[http://chicagobreakingbusiness.com/2010/07/english-muffin-
se...](http://chicagobreakingbusiness.com/2010/07/english-muffin-secrets-safe-
at-thomas-for-now.html)).

In my view of it, major egos are involved on both sides of this Hurd mess and
that is likely what is driving this lawsuit. It will therefore be brutally
fought and, if there is an ounce of anything in the law to support an
injunction, HP will scrape for and find it. Given the well-settled California
law, however, this effort is likely to amount only to a wild swing that is
unlikely to land. This may mean that Mr. Hurd will get a windfall while HP is
left with nothing but a black eye, but that is what is most likely to happen.

~~~
tptacek
In light of this situation, where it appears that HP agreed to pay Hurd a
large amount of money for a "graceful" exit to the company, how does this
impact your view of California's rule on noncompetes as a public policy
matter? I think noncompetes are usually abusive, but it's disquieting to me
that California's rules prevent people expressing reasonable agreements.

~~~
grellas
I don't have a serious problem with the California approach to non-competes
because, as you note, these are often widely abused in a variety of contexts.
It really burns me when I see low-level employees from companies, e.g., in
Washington state, get hog-tied with oppressive clauses that truly impair their
careers simply for having had the misfortune of working for a company that
uses non-compete provisions as hyper-control tools. As against this, the
California law is really a breath of fresh air, in general, and I truly
believe this is one of the reasons why Silicon Valley has functioned as such a
powerful engine over the years. I do tend to see this from the founder
perspective, however, as this is the client base with which I have worked
closely over the years.

That said, I think the California courts have gone too far in stripping
employers of reasonable protections precisely in this area of "inevitable
disclosure." To me, when I see someone as strategically placed as Mr. Hurd was
in HP simply move over to a co-president role and board-level position, the
prospects for misusing trade-secret information from his former employer are
basically sky-high and, given the existing law, I see him cynically laughing
at HP in spite of the serious risks his position poses to HP's trade secret
information and in spite of the fantastic sum they paid to him for a graceful
exit. In rejecting inevitable disclosure, the California courts have reasoned
that this doctrine effectively converts a confidentiality obligation into a
non-compete in circumstances where a departing employee is not even paid for
the non-compete itself and therefore would violate the public policy against
unreasonable restraints on trade. Based on this reasoning, the courts have
_categorically_ rejected the doctrine, i.e., declared it as invalid on its
face, and have been unwilling to apply it to selective cases where the public
policy concerns are not truly implicated (such as I believe this Hurd case
is). This goes too far, in my view. One of the carve-out provisions for an
_enforceable_ non-compete under California law is precisely that of a case
where the non-compete is needed to protect an employer's trade secret
information. This is routinely applied in cases of those who are exposed to an
employer's whole book of business, e.g., insurance brokers, and who could
otherwise just copy the list and raid the client base via a targeted
solicitation using confidential client information. It would not be a big
stretch for the courts to say that the inevitable-disclosure rule could
sometimes be applied in specific cases as a tool that is essential to protect
trade secrets and hence within a permissible exception (or carve-out) to the
ban on non-competes. If they were to do so, I would think it would be
relatively easy to say that a case such as that of Mr. Hurd is one by which an
effective non-compete provision is needed to protect the former employer's
interests. As so interpreted, the inevitable-disclosure doctrine would fit
within one of the established bases upon which a non-compete could be enforced
and could be used to prevent abuses of the type that might be occurring here
with Mr. Hurd. Nor would this violate the rationale advanced by the existing
California cases (that such an interpretation would effectively enable an
employer to impose a non-compete obligation on a former employer without
paying for the privilege), since, as here, the employer sometimes pays in
spades and should get the protection.

Thus, I don't have a problem with the general California law on this subject,
nor with its public policy rationale, but I think the courts have misapplied
that rationale to needlessly strip employers of protections for the type of
case presented here. That same law, and that same rationale, could easily be
applied to reach a more sensible outcome as long as the court decisions are
not so doctrinaire about protecting former employees at all costs. A more
sensible and balanced approach could easily be adopted without doing violence
to the existing public policy. The flaw is not in the policy but in its
application for this specific type of case.

Hope this helps.

------
rhooper
Strictly speaking, HP seems to want to enforce their confidentiality agreement
as a "generally unacceptable" (FTA) non-compete. The two are separate
entities, and although Hurd is trying to have his cake and eat it too, HP is
doing the same.

The article outlines an array of superficial "flaws" in the argument that Hurd
should be expected to work at a high-profile tech company.. given any real
thought, the article's hard backing of HP's corner is obvious.

>CEOs get paid handsomely for this very reason; they are set for life, at the
very least. So, if they are restrained from not working for a direct
competitor for two years after leaving the firm -- sitting on $33+ million
dollars, in Hurd's case -- so be it.

Hurd isn't restrained from working for any individual or party -- the
confidentiality agreement is, again, NOT a non-compete.

>Mark Hurd also has many options. He may choose to work in the technology
sector with a company that do not pose this strong a conflict of interest with
HP. HP most likely would not object to companies such as some smaller tech
firm, private equity, or venture capital, just to name just a few of the many
options available within technology.

Hurd has plenty of options, yes, but in the absence of a non-compete, who is
HP, or the author, to dictate his options? Why wouldn't they object to Hurd
working ANYWHERE that might utilize his same knowledge?

>Moreover, many exiled CEO`s work as business consultants, advisors, teach
classes at MBA programs, work for many diverse business organizations, etc.
during this natural transition period.

And again, more mindless spectation. Hurd could have done any of the above
options, but he likely chose the most profitable and beneficial. Who wouldn't?

I think Hurd is being thrown over a fire because HP is enforcing a
confidentiality agreement as a de facto non-compete, and everyone seems to be
going along with it. Even the author of the article himself states that Hurd
is violating the 'spirit and intent' of the confidentiality agreement. If that
'spirit and intent' is non-competition, then the agreement should have been
such.

This is a whole lot of PR spin on HP's part, and the legalities aren't being
looked at. If Hurd doesn't violate the confidentiality agreement by divulging
'trade secrets' or .. per the agreement.. "confidential" practices, then he
should absolutely be permitted to utilize his former work experience in a new
position. Isn't that what all of us do when transitioning to a new employer?

------
tptacek
Basically devastating: Hurd accepted over $30MM in an exit process that
involved him signing an agreement the spirit (and likely the letter) of which
enjoined him from accepting the role he appears to have taken at Oracle.

What's interesting about this to me is that it's a case where you can see a
downside to California's policy against noncompetes. It's hard to argue that
$30+MM(!) is inadequate consideration for an executive noncompete. Most
people, even those who (like me) detest noncompete agreements, can grudgingly
accept the notion that it's fair and reasonable for two parties to agree to
set one up with two lifetime's worth of compensation in exchange for avoidance
of competition.

So far as I can tell, none of the exceptions to the "noncompetes are invalid
in California" policy cover Hurd, who isn't a partner at HP and hasn't
accepted the noncompete as part of the sale of a huge chunk of HP stock. HP is
left with the much fuzzier trade secret enforcement path to express a much
simpler "don't go fuck us" agreement.

~~~
Blunt
I don't get this. HP = hardware and non-DB software. Oracle = database
company. How is HP threaten by Oracle again?

~~~
calloc
What company did Oracle recently buy that was built around something known as
the SPARC processor?

------
pmichaud
This piece is probably right, but in a purely sociopathic sort of way, Hurd
did the rational thing: take the $23m for signing the confidentiality
agreement, then worry about actually keeping that money later. A bird in the
hand...

~~~
po
The saying is not "A bird in hand AND the two in the bush." If he was
following that expression he would stay with his millions and ride it for a
year or two.

He knew he could lose his "bird in hand" by joining Oracle. This just makes me
wonder exactly what Oracle was offering him.

~~~
pmichaud
You don't get hired as a big wig in 1 month. That process takes quite a while,
so the one month was probably just the ending part, the culmination of many
months or even a year of recruitment effort.

That he took the $23m anyway just means that he would rather have a chance at
keeping it than no chance of keeping it, which is rational.

Plus, that amount of money makes enough interest to pay for its own legal
defense, so he really had no down side to accepting it with every intention of
breaking the agreement then getting sued for doing so.

If he loses, he breaks even, if he wins he gets $23m. Makes sense.

~~~
rbanffy
> You don't get hired as a big wig in 1 month

You do. Networking is everything.

And, if he loses, Oracle and Hurd will have damages to pay. By violating his
confidentiality agreement and going to work to a direct competitor (Oracle
acquired Sun after all) he will cause irreparable damage to HP's business.

It's unethical for Hurd to accept the job and unethical for Oracle to offer
it. I am not surprised.

------
spinchange
Given that there is no "non-compete" and only a confidentiality agreement, I
don't agree that HP is 'right' to sue seeking to bar his employment elsewhere.
If they felt this way, it should've been negotiated in the severance
agreement.

Perhaps HP can do what IBM did with Mark Papermaster when he went to Apple -
make him check in with the courts from time-to-time to swear that he's not
divulging confidential information.

~~~
jrockway
_If they felt this way, it should've been negotiated in the severance
agreement._

That's their problem; what HP actually wants is illegal in California. So they
are trying to get the same thing in a different way. (And will likely fail,
because hey, it's illegal.)

------
brownleej
Here's what I don't get. If the agreement he violated only required him to
protect HP's trade secrets and such, how can merely taking a job violate it?
Even if it's likely that he would reveal these secrets at some point in the
future, is that enough to constitute violating this agreement? Wouldn't they
need proof that he has already released sensitive information to Oracle?

~~~
po
The non-compete is not a non-disclosure agreement. The second he gives a
command to someone at Oracle he is using his knowledge of HP's competitive
position to inform his decision making process. It is impossible for him to
perform his role at Oracle without competing with HP.

 _EDIT_ Although, upon closer inspection they are saying it isn't a non-
compete agreement and are calling it a "confidentiality pact" whatever that
is.

~~~
tptacek
There's no such thing as a "non-compete" or an "NDA" _per se_ ; they're all
just contracts with terms. It's for this reason that you need to have a lawyer
you can send contracts to before signing them; you'd be surprised how often
you find non-compete and IP assignment clauses in "NDA's".

------
parfe
I don't understand why the golden parachute payout when combined with a non-
compete doesn't take the form of continued "employment". Keep the guy on the
payroll making $6million/year for 5 years.

The lump sum "thanks for all the fish" payout just seems like you are forcing
yourself to sue, rather than just fire the guy.

~~~
NumberFiveAlive
In this case, it's because HP was dumping Hurd because of the controversy. You
can't sever ties with someone but keep them on the payroll for 5 years. Even
if it amounts to the same thing.

------
raganwald
In Ontario, management have fewer protections under the law than rank-and-file
employees. For example, it is illegal to fire a rank-and-file employee just
for exploring other job options. If they look for a job on their own time and
equipment, that's their business and they can't be fired for this alone.

Managers are entitled to no such protection. A manager is considered to be a
more vital component of the company's value, and as such the act of seeking
another job without negotiating this in advance with your current employer is
considered a breach of your obligations to the company even if you do so on
your own time.

There's some fuzziness involved. Is a team lead considered a manager or a
senior developer with some project management responsibilities? Is an
Architecture Astronaut with no reports but crucial IP responsibility entitled
to job hunt without permission?

Getting back to this situation, my point is that there is a difference between
the obligations of a CEO and the obligations of a rank-and-file employee. Laws
erected to protect employees at the expense of the company shouldn't apply to
CEOs. Obviously, California's laws are whatever they are for whatever reason.
But even if Mark's actions are technically legal, I consider them wrong in
every way shape and form.

In fact, debating the legality of his actions is ridiculous for me. I'm not a
lawyer, nor do I consider it a worthwhile pursuit to argue what a law can be
interpreted to mean with flagrant disregard for the moral ideal.

Morally, I find this repugnant.

------
daniel-cussen
HP should have paid him a few million every year if he didn't take a job at a
competitor that year.

------
yummyfajitas
Just a note, the title reflects the opinion of the author, not me. I have no
opinion on the matter, but thought a counterpoint was useful.

~~~
rbanffy
I have to agree with the author. When you sign a confidentiality agreement you
have to expect to keep what you know about your job confidential.

