HP Lawsuit Filed Against Former CEO Will Meet Significant Obstacles

Former Hewlett-Packard (HP) Chief Executive Officer Mark Hurd has made national headlines once again with the announcement that, after his firing from HP, he will join Oracle Corp., the world’s second largest software company, as a president and board member. This announcement comes just a month after Hurd’s public departure from HP following allegations that he violated standards of business conduct.

As Business Week reports, this is an excellent move for both Hurd and Oracle. Oracle is shifting its focus from software to hardware, and Hurd has experience with both. In exchange, Hurd has been given an annual salary of $950,000, with a target bonus of $5 million for Fiscal Year 2011.

However, not everyone is thrilled with this development. Notably, HP has filed a lawsuit seeking to prevent Hurd from joining Oracle. In the complaint HP alleges that Hurd cannot possibly serve as president of Oracle without using and disclosing HP trade secrets. HP also claims that Hurd’s employment threatens the company with “losing customers, technology, its competitive advantage, its trade secrets and goodwill.”

As many have noted, HP’s lawsuit is unlikely to succeed. Certainly, companies have an interest in protecting their trade secrets and the knowledge that executives develop in the course of employment. At the same time, individuals have an interest in being able to secure employment. Every state balances these competing interests differently.

In this case, both companies are based in California and the lawsuit has been filed in a California court. California courts recognize a strong public policy stance favoring the free movement of employees and do not enforce “non-competition” agreements, which are valid in other states.

Notwithstanding HP’s position in its complaint, California also does not recognize the doctrine of “inevitable disclosure” (also recognized in other states) which holds that an employer can stop a high-level employee from working for a competitor without showing that he has actually revealed any secrets because it is “inevitable” that he will do so. Thus, to prevail in court, HP would have to demonstrate that Hurd has actually used HP’s proprietary business knowledge in order to secure an unfair competitive advantage for Oracle. This is very difficult to prove. More likely, the case will be settled out of court. Even though HP is unlikely to prevail in a trial, Hurd and Oracle may be willing to make concessions to avoid dealing with the time and expense of litigation.

Any time an employee is leaving a company for a competitor, there is a potential for significant conflicts. In these situations, both parties may have some legal protections. To protect your personal interests or the interests of your company, consult with a knowledgeable attorney.