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Lessons From Hewlett-Packard V. Mark Hurd
Law360, New York (October 18, 2010) -- Hewlett-WĂĐŬĂƌĚ Ž͛͘ƐƵŐƵƐƚ ϮϬϭϬŽƵƐƚĞƌŽĨŝƚƐĐŚĂŝƌŵĂŶĂŶĚK͕DĂƌŬ ,ƵƌĚ͕
ǁĂƐ ƚŚĞ ƚĂůŬ ŽĨ ďŽƚŚ ďŽĂƌĚƌŽŽŵƐ ĂŶĚ ĚŝŶŶĞƌ ƚĂďůĞƐ͘ dŚĞ ƐĂůĂĐŝŽƵƐ ĨĂĐƚƐ ƐƵƌƌŽƵŶĚŝŶŐ ,ƵƌĚ͛Ɛ ƐƵĚĚĞŶ ĚĞƉĂƌƚƵƌĞ ĨƌŽŵ ,W
(claims of sexual harassment and falsified expense reimbursements) and the high-ƉƌŽĨŝůĞ ŶĂƚƵƌĞ ŽĨ ,ƵƌĚ͛Ɛ ĞŵƉůŽLJŵĞŶƚ
;,ƵƌĚƚƵƌŶĞĚĂĨůĂŐŐŝŶŐ,WŝŶƚŽƚŚĞǁŽƌůĚ͛ƐůĂƌŐĞƐƚƚĞĐŚŶŽůŽŐLJĐŽŵƉĂŶLJͿĐƌĞĂƚĞĚƚŚĞƉĞƌĨĞĐƚŵĞĚŝĂƐƚŽƌŵ͘
The scandal polarized many who followed it. Some people thought HP did the right thing by firing Hurd because, in doing
so, HP bravely reaffirmed its corporate values above all other interests.
KƚŚĞƌƐ ƚŚŽƵŐŚƚ ƚŚĂƚ ,W͛Ɛ ďŽĂƌĚ ĞdžĞƌĐŝƐĞĚ ŵŝŶĚ-numbingly poor judgment by firing an extraordinarily talented executive
when lesser sanctions might have addressed his alleged offenses.
>ĂƌƌLJůůŝƐŽŶ͕ĂĨƌŝĞŶĚŽĨ,ƵƌĚ͛ƐĂŶĚƚŚĞKŽĨ,WĐŽŵƉĞƚŝƚŽƌKƌĂĐůĞŽƌƉ͕͘ƚŽŽŬƚŚĞůĂƚƚĞƌƉŽƐŝƚŝŽŶĂŶĚƉƵďůŝĐůLJďůĂƐƚĞĚ,W͛Ɛ
ďŽĂƌĚĨŽƌŵĂŬŝŶŐ͞ƚŚĞǁŽƌƐƚƉĞƌƐŽŶŶĞůĚĞĐŝƐŝŽŶƐŝŶĐĞƚŚĞŝĚŝŽƚƐŽŶ ƚŚĞƉƉůĞďŽĂƌĚĨŝƌĞĚ^ƚĞǀĞ:ŽďƐŵĂŶLJLJĞĂƌƐĂŐŽ͘͟
The Battle Royale
The media frenzy appeared to subside after HP settled the sexual harassment claims and gave Hurd a lucrative severance
package worth an estimated $35 million. However, on Sept. 6, 2010, EůůŝƐŽŶŚŝƌĞĚ,ƵƌĚĂƐŽŶĞŽĨKƌĂĐůĞ͛ƐĐŽ-presidents.
HP responded by filing a lawsuit against Hurd. In its suit, HP alleged that, by accepting the job at Oracle, Hurd violated
various written contracts with HP that 1) prohibited him from using and disclosinŐ ,W͛Ɛ ƚƌĂĚĞ ƐĞĐƌĞƚƐ ĂŶĚ ĐŽŶĨŝĚĞŶƚŝĂů
information; 2) prohibited him from taking a job with an HP competitor if that job necessarily involved the use and
ĚŝƐĐůŽƐƵƌĞŽĨ,W͛ƐƚƌĂĚĞƐĞĐƌĞƚƐĂŶĚĐŽŶĨŝĚĞŶƚŝĂůŝŶĨŽƌŵĂƚŝŽŶ͖ĂŶĚϯͿƌĞƋƵŝƌĞĚŚŝŵƚŽŐŝǀĞŶŽƚŝĐĞƚŽ,P of his acceptance of
any job with an HP competitor.
,WĂůůĞŐĞĚƚŚĂƚ͞,ƵƌĚ΀ĐŽƵůĚŶŽƚ΁ƐĞƌǀĞĂƐƉƌĞƐŝĚĞŶƚĂŶĚĂŵĞŵďĞƌŽĨƚŚĞďŽĂƌĚŽĨĚŝƌĞĐƚŽƌƐŽĨKƌĂĐůĞǁŝƚŚŽƵƚƵƚŝůŝnjŝŶŐĂŶĚ
ĚŝƐĐůŽƐŝŶŐ,W͛ƐƚƌĂĚĞƐĞĐƌĞƚƐĂŶĚĐŽŶĨŝĚĞŶƚŝĂůŝŶĨŽƌŵĂƚŝŽŶ͕͟ŝŶĐůƵĚŝŶŐ,W͛ƐƉƌicing, costs, margins, marketing and customer
names and needs.
/ƚƐŽƵŐŚƚĚĂŵĂŐĞƐĨŽƌ,ƵƌĚ͛ƐĂůůĞŐĞĚďƌĞĂĐŚĞƐŽĨĐŽŶƚƌĂĐƚĂŶĚĂŶŽƌĚĞƌĞŶũŽŝŶŝŶŐ,ƵƌĚĨƌŽŵǁŽƌŬŝŶŐĨŽƌKƌĂĐůĞďĂƐĞĚŽŶ
,ƵƌĚ͛ƐĂůůĞŐĞĚ͞ƚŚƌĞĂƚĞŶĞĚ͟ŵŝƐĂƉƉƌŽƉƌŝĂƚŝŽŶŽĨ,W͛ƐƚƌĂĚĞƐĞĐƌĞƚƐĂŶĚĐŽŶfidential information. HP also asked the court to
ĂƉƉŽŝŶƚĂ͞ƐƉĞĐŝĂůŵĂƐƚĞƌ͟ƚŽƌĞŐƵůĂƌůLJĞǀĂůƵĂƚĞ,ƵƌĚ͛ƐĨƵƚƵƌĞƉĞƌĨŽƌŵĂŶĐĞŽĨŚŝƐĐŽŶƚƌĂĐƚƵĂůŽďůŝŐĂƚŝŽŶƐ͘
/ŶƚŚĞĚĂLJƐĨŽůůŽǁŝŶŐ,W͛ƐĨŝůŝŶŐŽĨƚŚĞůĂǁƐƵŝƚ͕ŶĞĂƌůLJĞǀĞƌLJŽŶĞŝŶƚŚĞƉƌĞƐƐǁŚŽǁĂƐĐŽǀĞƌŝŶŐƚŚĞ suit seemed to have an
ŽƉŝŶŝŽŶĂďŽƵƚ,W͛ƐĐŚĂŶĐĞƐĨŽƌƐƵĐĐĞƐƐ͘dŚĞtĂůů^ƚƌĞĞƚ:ŽƵƌŶĂůƋƵŽƚĞĚĂŚƵŵĂŶƌĞƐŽƵƌĐĞƐĞdžĞĐƵƚŝǀĞĨƌŽŵŚŝĐĂŐŽǁŚŽ Ͷ
ŝŶ ŽƉŝŶŝŶŐ ƚŚĂƚ ,ƵƌĚ͛Ɛ ĂĐĐĞƉƚĂŶĐĞ ŽĨ Ă ũŽď ͞ŝŶ ƚŚĞ ƐĂŵĞ ŝŶĚƵƐƚƌLJ Žƌ ĨŽƌ Ă ĐŽŵƉĞƚŝƚŽƌ ǁŽƵůĚ ǀŝŽůĂƚĞ͟ ŚŝƐ ĐŽŶƚƌĂĐƚƵĂl
obligations Ͷ virtually proclaimed HP the winner even before Hurd had a chance to respond to it.
dŚŽƐĞŽĨƵƐǁŚŽƉƌĂĐƚŝĐĞĞŵƉůŽLJŵĞŶƚůĂǁŝŶĂůŝĨŽƌŶŝĂ͕ŚŽǁĞǀĞƌ͕ǁĞƌĞŶ͛ƚƐŽƐƵƌĞ͘
ƐŝƚƚƵƌŶƐŽƵƚ͕,WǁĂƐŶ͛ƚƐŽƐƵƌĞŝƚŚĂĚĂŐŽŽĚĐĂƐĞĞŝƚŚĞƌ͘KŶ^ĞƉƚ͘ϮϬ͕Ϯ010, 13 days after it filed the action, HP agreed to
dismiss the suit on the condition that Hurd return half of the HP stock options he received under his severance package.
Perhaps the suit was intended all along to merely create leverage to renegotiate HƵƌĚ͛ƐĚĞĂůǁŝƚŚ,W͘
EŽǁƚŚĂƚŝƚ͛ƐŽǀĞƌ͕ƉƌĂĐƚŝƚŝŽŶĞƌƐŚĂǀĞƐƚĂƌƚĞĚƚŽĚŝƐƐĞĐƚƚŚĞĐĂƐĞ͕ĂŶĂůLJnjĞŝƚƐǀŝĂďŝůŝƚLJĂŶĚĚĞƚĞƌŵŝŶĞǁŚĞƚŚĞƌĂŶLJůĞƐƐŽŶƐ
ĐŽƵůĚďĞůĞĂƌŶĞĚĨƌŽŵŝƚ͕ĂƐ/͛ǀĞĚŽŶĞďĞůŽǁ͘
Analysis of the Suit
ůƚŚŽƵŐŚǁĞĚŽŶ͛ƚŬŶŽǁǁŚĂƚĞǀŝĚĞŶĐĞ,WĐŽƵůĚ ŚĂǀĞƉƌŽĨĨĞƌĞĚŽƌǁŚĂƚ,ƵƌĚ͛ƐĚĞĨĞŶƐĞƐǁĞƌĞ͕ŝƚŝƐĐůĞĂƌƚŚĂƚ,WŚĂĚĂ
tough battle on its hands.
HP sought an injunction barring Hurd from working for Oracle based on a threatened misappropriation of its trade secrets
and confidential information. Under ĂůŝĨŽƌŶŝĂůĂǁ͕ŚŽǁĞǀĞƌ͕ŝƚĚŽĞƐŶ͛ƚŵĂƚƚĞƌƚŚĂƚ͕ĂƐ,W͛ƐĨŽƌŵĞƌK͕,ƵƌĚŚĂĚĂĐĐĞƐƐ
ƚŽ͕ĂŶĚŬŶŽǁůĞĚŐĞŽĨ͕,W͛ƐƉƌŝĐŝŶŐ͕ĐŽƐƚƐ͕ŵĂƌŐŝŶƐ͕ŵĂƌŬĞƚŝŶŐĂŶĚĐƵƐƚŽŵĞƌŶĂŵĞƐĂŶĚŶĞĞĚƐ͘
California has long rejected the so-ĐĂůůĞĚ ͞ŝŶĞǀŝƚĂďůĞ ĚŝƐĐůŽƐƵƌĞ ĚŽĐƚƌŝŶĞ͕͟ ǁŚich allows a company to enjoin a former
ĞŵƉůŽLJĞĞ ĨƌŽŵ ǁŽƌŬŝŶŐ ĨŽƌ Ă ĐŽŵƉĞƚŝƚŽƌ ƐŝŵƉůLJ ďĞĐĂƵƐĞ ƚŚĞ ĞŵƉůŽLJĞĞ ƉƌĞǀŝŽƵƐůLJ ŚĂĚ ĂĐĐĞƐƐ ƚŽ ƚŚĞ ĐŽŵƉĂŶLJ͛Ɛ ƚƌĂĚĞ
secrets. Schlage Lock Company v. Whyte (2002).
dŽŽďƚĂŝŶŝŶũƵŶĐƚŝǀĞƌĞůŝĞĨƵŶĚĞƌŝǀŝůŽĚĞ^ĞĐƚŝŽŶϯϰϮϲ͘Ϯ;ĂͿ͕ĂůŝĨŽƌŶŝĂ͛ƐǀĞƌƐŝŽŶŽĨƚŚĞhŶŝĨŽƌŵdƌĂĚĞ^ĞĐƌĞƚƐĐƚ͕,WŚĂĚ
ƚŽƉƌŽǀĞƚŚĂƚ,ƵƌĚϭͿŵŝƐƵƐĞĚ,W͛ƐƚƌĂĚĞƐĞĐƌĞƚƐŝŶƚŚĞƉĂƐƚ͕ϮͿŝŶƚĞŶĚĞĚƚŽŵŝƐĂƉƉƌŽƉƌŝĂƚĞ,W͛ƐƚƌĂĚĞƐĞĐƌĞƚƐĂƐĂŶKƌĂĐůĞ
employee and/or 3) refused to return the trade secrets in his possession. Central Valley General Hospital v. Smith (2008).
Such evidence would have been difficult, if not impossible, to obtain.
HP also would have had an uphill battle on its breach of contract claim. Hurd presumably would have denied that he
ƉƌĞǀŝŽƵƐůLJĚŝƐĐůŽƐĞĚ,W͛ƐƚƌĂĚĞƐĞĐƌĞƚƐŽƌƚŚĂƚŚĞǁŽƵůĚŚĂǀĞƵƐĞĚ,W͛ƐƚƌĂĚĞƐĞĐƌĞƚƐŝŶŚŝƐŶĞǁũŽďǁŝƚŚKƌĂĐůĞ͘
To rebut his denials, HP would have had the unenviable job of proving what Hurd would necessarily have done in the future
in a job for another company. This would not have been an easy task.
&ƵƌƚŚĞƌ͕,ƵƌĚůŝŬĞůLJǁŽƵůĚŚĂǀĞĂƌŐƵĞĚƚŚĂƚKƌĂĐůĞ͛ƐƉƌĞƐƐƌĞůĞĂƐĞĂŶŶŽƵŶĐŝŶŐŚŝƐĂƉƉŽŝŶƚŵĞŶƚĂƐĐŽ-president of Oracle
ĐŽŶƐƚŝƚƵƚĞĚ ƚŚĞ ͞ƉƌŽŵƉƚ͟ ŶŽƚŝĐĞ ŚĞ ǁĂƐ Đontractually obligated to give regarding his acceptance of a job with an HP
competitor.
,WŵŝŐŚƚŚĂǀĞƋƵŝďďůĞĚŽǀĞƌǁŚĞƚŚĞƌƚŚĂƚŶŽƚŝĐĞǁĂƐ͞ƉƌŽŵƉƚ͕͟ďƵƚƐƵĐŚĂŶĂƌŐƵŵĞŶƚǁĂƐĂƉƚƚŽďĞŵĞƚǁŝƚŚĂ ƐƚŝĨůĞĚ
yawn. Cases based on alleged breaches of contractual ŶŽƚŝĐĞƉƌŽǀŝƐŝŽŶƐĚŽŶ͛ƚƐĞĞŵƚŽƐƵŐŐĞƐƚĂůĞǀĞůŽĨƐĞƌŝŽƵƐŶĞƐƐƚŚĂƚ
justifies their filing as courts frequently question whether actual damages exist to support the claim.
&ŝŶĂůůLJ͕ ŝƚ ƐĞĞŵƐ ƵŶůŝŬĞůLJ ƚŚĂƚ ƚŚĞ ĐŽƵƌƚ ǁŽƵůĚ ŚĂǀĞ ĂŐƌĞĞĚ ƚŽ ĂƉƉŽŝŶƚ Ă ͞ƐƉĞĐŝĂů ŵĂƐƚĞƌ͟ ƚŽ ŵŽŶŝƚŽƌ ,ƵƌĚ͛Ɛ ĨƵƚƵƌĞ
performance of his contractual obligations. To do so, the court necessarily would have to 1) consent to an almost ad
ŝŶĨŝŶŝƚĞŵĐŽŶƚŝŶƵĂŶĐĞŽĨƚŚĞĐŽƵƌƚ͛ƐũƵƌŝƐĚŝĐƚŝŽŶŽǀĞƌƚŚŝƐĚŝƐƉƵƚĞĂŶĚϮͿĂůůŽǁƚŚĞƉĂƌƚŝĞƐƚŽƚĂŬĞƚŚĞŝƌ fight to yet another
forum (over which the court must provide oversight).
Because judges favor efficiency and economy, the court almost certainly would have been loathe to entertain these
extreme measures.
Lessons Learned
Given the challenges that HP faced ŝŶ ƉƌŽǀŝŶŐ ŝƚƐ ĐůĂŝŵƐ͕ ŝƚ ǁĂƐ ƵŶůŝŬĞůLJ ƚŚĞ ƐƵŝƚ ĞǀĞƌ ǁŽƵůĚ ŚĂǀĞ ŐŽŶĞ ƚŽ ƚƌŝĂů͘ ,ƵƌĚ͛Ɛ
ĚĞĨĞŶƐĞ ƚĞĂŵ ƉƌŽďĂďůLJ ǁŽƵůĚ ŚĂǀĞ ĨŝůĞĚ Ă ĚŝƐƉŽƐŝƚŝǀĞ ŵŽƚŝŽŶ ƚŽ ĚŝƐŵŝƐƐ ,W͛Ɛ ĐůĂŝŵƐ ŽŶ ƚŚĞ ŐƌŽƵŶĚƐ ƚŚĂƚ ,W ĐŽƵůĚ ŶŽƚ
establish either a threatened misappropriation of its trade secrets or a meaningful breach of contract. It therefore was not
surprising that HP agreed to settle the case.
What did surprise some practitioners was the amount Hurd agreed to give up to settle about $12 million in stock options.
That amount seemed extremely high for a case with so many problems.
/ƚ͛ƐŚĂƌĚƚŽƐƉĞĐƵůĂƚĞĂďŽƵƚǁŚLJƐŽŵĞŽŶĞůŝŬĞ,ƵƌĚǁŽƵůĚŚĂǀĞƐĞƚƚůĞĚŽŶƚŚŽƐĞƚĞƌŵƐ͘/ĂƐƐƵŵĞŚĞĚŝĚŝƚďĞĐĂƵƐĞŚĞĚŝĚŶ͛ƚ
want to bear the emotional and financial cost of protracted litigation and because ŚĞƚŚŽƵŐŚƚŚĞ͛ĚŵĂŬĞƚŚĞŵŽŶĞLJďĂĐŬĂƚ
Oracle with a combination of stock options and incentive compensation.
,W͛ƐƐƵŝƚĂŐĂŝŶƐƚ,ƵƌĚŝƐƵƐĞĨƵůĨƌŽŵĂ͞ůĞƐƐŽŶƐůĞĂƌŶĞĚ͟ƐƚĂŶĚƉŽŝŶƚ͘/ƚŝƐĚŝĨĨŝĐƵůƚƚŽƉƌĞǀĞŶƚĂĂůŝĨŽƌŶŝĂ-based executive,
like Hurd, from woƌŬŝŶŐ ĨŽƌ ĐŽŵƉĞƚŝƚŽƌƐ ĞǀĞŶ ŝĨ ŚĞ ŚĂƐ ĂŶ ŝŶƚŝŵĂƚĞ ǁŽƌŬŝŶŐ ŬŶŽǁůĞĚŐĞ ŽĨ ŚŝƐ ĨŽƌŵĞƌ ĞŵƉůŽLJĞƌ͛Ɛ ƚƌĂĚĞ
secrets and confidential information.
The threshold for establishing a claim for threatened misappropriation of trade secrets is extremely difficult to satisfy and
the California courts routinely invalidate any contract that has the practical effect of preventing an employee from working
for the employer of his or her choice.
If a company is litigation averse, perhaps the next best thing it can do under these circumstances is to put some distance
ďĞƚǁĞĞŶƚŚĞĞdžĞĐƵƚŝǀĞ͛ƐƐĞƉĂƌĂƚŝŽŶĂŶĚƚŚĞĐŽŵŵĞŶĐĞŵĞŶƚŽĨŚŝƐͬŚĞƌũŽďǁŝƚŚƚŚĞĐŽŵƉĞƚŝƚŽƌ͘KǀĞƌƚŝŵĞ͕ƚŚĞĐŽŵƉĂŶLJ͛Ɛ
confidential information might grow stale or become less useful to the competitor.
To accomplish this, the company could 1) retain the executive as a consultant with a continuing duty of loyalty to the
company so competitors cannot legally hire him/her for a specific period; 2) incentivize the executive to comply with
his/her contractual confidentiality obligations by negotiating a severance package that defers the payment of compensation
over time; and 3) disincentivize the executive from working for competitors by paying the executive additional bonuses for
not working for competitors.
It is unclear whether these alternatives were acceptable or available to HP before it filed suit.
--By Michael F. Donner, Stein & Lubin LLP
Michael Donner (mdonner@steinlubin.com) is a litigation partner in Stein & Lubin's San Francisco office. He represents both
senior-level executives and companies in employment matters.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or Portfolio
Media, publisher of Law360.