How much proprietary technology information can employees take with them from one company to another? [Case Study: HP v. Oracle]

September 20, 2010

When a high-level employee leaves one high-tech company for another, how much proprietary technology information can he take with him? Actually, quite a lot.

In a case from the current news, Hewlett-Packard Co. (HP) filed a lawsuit against its former CEO Mark Hurd on September 7, 2010. Hurd was forced out of HP recently due to allegations of improper claims on expense reports and a sexual-harassment investigation. He was given a separation package worth up to $40 million. A month later he joined one of HP’s rivals, Oracle. HP claims that he can not possibly perform his job at Oracle without revealing HP’s proprietary technology information to Oracle. He also appears to be in clear violation of the written terms of his separation agreement which prohibits him from working for a competitor.

The law appears to be squarely on HP’s side. An employee is free to take general knowledge with him when he leaves a company, along with any job skills he has developed. But he can not take information that was unique to his job and was treated as proprietary information. Often it is hard to draw a distinction between what is protectable information and what is not. In this case, it seems pretty clear. Hurd helped develop HP’s strategy on how to compete with Oracle. He also had detailed knowledge of HP’s products. This information should be proprietary.

Hurd did not just walk away from HP. He took a large separation package with him and signed a written agreement. His written agreement clearly states that for a period of twenty-four months after separation, he “will not provide services to a competitor that would involve conflicting business activities.” He seems to be in clear violation of his separation agreement.

(At least for now, HP’s complaint, along with the exhibits that consist of the contracts he agreed to, is available here.)

But Hurd probably still has the upper hand. Courts are very reluctant to keep employees from working in their chosen field. This policy makes sense when the employee is the little guy fighting against the big corporation. But in this case, Hurd is hardly suffering by having to forgo work for two years in return for about $40 million. That is a deal most of us would be very happy with. But judges can not really comprehend that kind of money. And they do not want to have to say that some employees are entitled to protection, and some are not. Where would they draw the line? A judge will probably treat Hurd the same way the judge treats other employees and just give him a slap on the wrist. The court is likely to say that while at Oracle, Hurd can not work on matters that are designed to compete with HP. That order will be mostly for show. How could anyone possibly enforce that order? Will HP be allowed to post one of its employees in Oracle’s executive washrooms? Of course not.

And HP can hardly claim to be the innocent victim. Just last year for example, HP did the same thing it is now claiming that Oracle has done. It hired away data storage chief David Donatelli from competitor EMC. EMC sued and this case was quickly resolved in court. The court allowed Donatellit to go to work for HP but barred him from working on data storage matters for one year. Anything HP said in that lawsuit in defense of hiring Donatelli can and will be used against it in a court of law by Oracle.

If a court wants to side partially with HP, it can order Hurd not to work for Oracle for say six months. That would be considerably less that the 24 months that Hurd originally agreed to. But this might be an effective approach. In the fast moving high-tech industry, how much information is really valuable after six months?

I am surprised that HP did not try to sue Oracle as well for what we lawyers call intentional interference with a business relationship or expectancy. Oracle induced Hurd to break his contract with HP. Hurd promised HP he would not work for a competitor and would not reveal HP’s secrets. Oracle induced him to come work for them, a competitor of HP, and it is hard to imagine that the executives at Oracle are not interested in finding out what Hurd knows about HP’s internal strategy and other proprietary information. Oracle interfered with HP’s contractual business relationship with Hurd.

This type of claim was used very successfully against news outlets and other companies that tried to get former tobacco company employees to expose the lies their bosses told about the health risk of cigarettes. The most famous case involved the prime time TV news show 60 Minutes. In 1993 a tobacco company fired one of its research scientists. He had been claiming within the company that nicotine is addictive and that the tobacco companies were intentionally trying to make their cigarettes even more addictive through the use of additives. He had signed a non-disclosure agreement with the tobacco company that prohibited him from revealing its propriety information. Shortly after he was fired, executives of the major tobacco companies testified before Congress that nicotine is not addictive. The scientist wanted to tell his story on 60 Minutes. The show was glad to have him. Shortly before the segment was to air, the tobacco company threatened to sue CBS, the owner of the show, for interference with its business relationship with the scientist. CBS backed down and ordered 60 Minutes to heavily edit the proposed segment.

Practice Tip: If you are the company hiring the ex–employee you should be very careful, especially if you are a small company that can not afford a major legal battle. Learn what separation agreement he or she has with the former employer and if you encourage the new hire to breach that agreement you do so at your own risk.

The most extreme case that I can remember of an employee leaving one high-tech company for another and taking propriety information with him was the Borland-Symantec case. In late 1992 Eugene Wang, a vice president of Borland’s computer languages division, left Borland to go to work in a similar capacity for competitor Symantec. Borland claimed he took its proprietary information with him. He denied the claim. Then Borland examined his work computer and discovered about a dozen emails that Wang had sent to Symantec CEO Gordon Eubanks in the days before resigning from Borland. Wang discussed the secrets he would share with Eubanks. Along with these emails Wang had sent a number of internal Borland documents that were labeled “Borland Confidential”. You can not get more blatant proof than that.

Based on these emails, Borland was able to convince the police to seize Wang’s personal computers from his home. On these computers they found even more incriminating evidence. Much of this evidence had been erased. But the police were able to un-erase the files using one of Symantec’s most popular products of the time, Norton Utilities. Wang does not come across as a very sophisticated computer expert.

So what happened? Nothing. Borland sued Wang and Symantec of course. Wang and Eubanks were indicted on criminal charges of conspiracy, trade secret violation and receiving stolen property. Many years later the criminal charges were dropped. About seven years after the civil case was filed, the parties settled. It appears that they just dropped the lawsuit completely. By that time many of Borland’s witnesses now worked for Symantec, and many of Symantec’s witnesses now worked for Borland. Wang only stayed with Symantec for three yeas and was long gone. And the information he had taken with him from Borland had long ago lost any value.

Executives change companies all of the time. And they take with them whatever knowledge they have been exposed to. And it is nearly impossible to stop them.

These comments apply only to situations where a high-level employee leaves one existing company for another. Things are a little different when the high-level employee leaves a company to start a new company. I hope to address that situation in a future blog.

UPDATE: Just as I was about to post this blog, HP announced that it had settled with Hurd. The details are not entirely clear yet, but it appears that Hurd can work for Oracle, and he promises not to reveal any of HP’s secrets but there are no specific restrictions on his employment. Hurd also retains the approximately $10 million in cash he received in his severance package but gives up his claim to about $30 million in HP stock that was also in his severance package. This seems like a good practical solution to the problem.

Our Vanishing Right of Privacy

September 14, 2010

An issue came up recently where a man was upset that people in his condominium complex were using the pool and Jacuzzi late at night. He wanted to take pictures of their activities to document their behavior in his complaint to the condo board. Can he do that?

The law recognizes a limited right to prevent other individuals from invading your privacy. There is a legal doctrine that there is no right of privacy for activities that are conducting in “open view.” If this person can see the activity from a window of his condo with an ordinary camera, I do not think there is any reasonable expectation of privacy. What if he can not see them from his window, but he can walk right up to them in a common area open to all condo owners. Is that still an “open view”? Does it matter what they are doing? Is there a difference between a group of friends just partying, and a couple making love? I would not think so.

My favorite case on this subject comes from the Woodstock movie. For those of us old enough to remember, in the movie about the original Woodstock festival there is a scene where a man and a woman are running through a field of tall grass, peeling off all of their clothes, and falling down together presumably to make love. One of the stage cameras had been turned around and the operator used his high powered zoom to capture this scene which actually took place behind and far from the stage in a field where no one else was around.

Well it turns out that a man had gone to the Woodstock festival but his wife could not make it. He came home and raved to her about how wonderful the festival was. When the movie about the festival came out he insisted that they go see it together. There they were sitting in the movie theater watching the movie when up popped the image of him running through the field with some other young woman. The wife divorced him. He sued the movie producers. The court held that he had no expectation of privacy. There may have been some anti-hippie bias in that ruling.

Back to our example with the condo person. What if he had to use special equipment, a high powered zoom lens or some special night vision lens to take his pictures. Would that matter? The answer is not clear.

In a more recent case, actress Jennifer Aniston was sunbathing topless in her own backyard surrounded by a fence. A photographer standing on the public sidewalk found that if he stood  in one particular spot, using a high powered zoom lens, he was able to get a picture of her which he intended to sell to some sleazy magazine. She threatened to sue. I believe he backed down and withdrew the picture. But it would have made for an interesting case.

Nowadays, satellite images are readily available on any personal computer. For example, many aerial details can be seen by using Google Maps. Does that change our reasonable expectation of privacy? An environmental group took a series of aerial photographs of the California coast, including the yard and house belonging to Barbra Streisand. She had chosen to live in a house set far back from the highway to maintain her privacy. She sued for invasion of privacy (and other claims) and lost. That type of photography is now readily available in Google Maps. Does that mean that we no longer have any right to privacy in our backyards?

That is why I love this area of law. There are no clear rules. And with advances in technology, the law is constantly changing. One of the effects is that the amount of our lives that is protected by the right of privacy is constantly shrinking. What do you think?

Don’t Trust People Who Say You Can Trust Me

September 11, 2010

I am preparing a list of my version of ‘the top ten mistakes entrepreneurs make’ for a later blog entry. The very first piece of advice is do not trust people who say you can trust me. In my experience, if someone says to you “You can trust me”, you should run away from them as fast as you can. Otherwise, you may end up with legal problems.

 People who can really be trusted do not have to say “You can trust me.” They say “You can trust me, and I will prove it to you. You want me to put it in writing, sure. You want references, sure. You want to talk to your attorney first, sure. No problem. What else do you need? I have nothing to hide.”

 But a person who is just saying “you can trust me” does not mean it. If they come up with an excuse not to put it in writing, there is a reason. They do not want you to know what they intend to do, or they want the option of changing the deal later, in their favor of course.

 A variation on the same theme is the statement “We don’t need lawyers”, or “I hate lawyers, let’s not waste our money on them.” True, there are plenty of bad lawyers who will make deals far more complicated than they need to be or even kill a good deal over minor legal concerns. But a blanket refusal to use lawyers usually has a bad reason behind it. The person making the claim does not want his deal examined too closely. Again, they probably do not want you to know what they intend to do, or they want the option of changing the deal later, in their favor of course. And they know involving lawyers will force them to put their intentions in writing and have their intentions examined by a third party.

Another variation is “We don’t have time to put it in writing. You can trust me. Let’s just proceed.” It is rarely the case that this is true. Usually it is just a negotiating tactic. It is a way of putting pressure on you to not put the deal in writing. Insist that there is time. If the deal is worth doing, it is worth doing right. And it is worth putting in writing.

 Once in a while, there is a valid reason to trust someone and not to put something in writing, but even then, it is not a good idea. I had a client who wrote a book with another person. The other person had agreed that he would write material that my client could use in her book and she would pay him half of the royalties. He was a very respected elder American Indian. He would not put their agreement in writing. He said that his word was his bond. This feeling came from a long tradition. So she agreed. He died before the book was published and his heirs, who then owned his property, including his writings, tried to stop the publication of the book, claiming there had been no deal. She had a major problem proving that he had wanted her to use his writings. Her problem could have been prevented if instead of trusting him, she had insisted on putting their deal in writing. Even if you really think you can trust the person, don’t. Get more information, put it in writing, and when it is about something that really matters, have your attorney look it over too.

Hello world!

September 10, 2010

Welcome to my blog, Marshall2Law. In this blog I will be commenting on issues involving law, business, the Internet, society, and social responsibility.  My primary target audience is socially conscious business entrepreneurs. Entries will range from business and legal tips to brief insights into major social issues. I welcome comments, suggestions and an open discussion. You can also find my blog on facebook at Law Offices of Gary Marshall.