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

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.

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