HP-Hurd Settle: More Convention than Wisdom

Yesterday’s settlement between Hewlett-Packard and its ousted CEO, Mark Hurd, contradicts conventional wisdom that said HP’s lawsuit against Hurd for breach of contract and threatened misappropriation of trade secrets was a clear loser.  HP filed the lawsuit two weeks ago alleging that Hurd breached or threatened to breach that contract by signing up for a new job at Oracle.  Experts and other observers called the suit absurd or worse; many waxed hyperbolic about how California law never lets companies and departing employees form binding commitments about post-employment activity of the sort HP and Hurd agreed to in an August 6 separation agreement.  In a post last week, I questioned that dominant view.

In the settlement, Hurd reaffirmed all his obligations set out in the separation agreement, according to HP’s filing with the SEC summarizing it.  This forever prohibits Hurd from disclosing confidential HP information and, for two years, restricts his right to pursue conflicting business activities or to solicit HP customers, employees or suppliers. In the settlement agreement, the parties also renegotiated downward, by about $14 million, Hurd’s departure compensation, eliminating HP’s commitment to let Hurd cash-out some 346,000 stock grants Hurd had been entitled to under the August agreement.

The settlement is thus a decisve victory for HP and a clear loss for Hurd. Some say that $14 million is nothing to a man of Hurd’s wealth and they note he gets to continue his new job at Oracle.  But the $14 million was a big component of what he had bargained for a month ago that he has now given up and HP never sought to prevent Hurd from working at Oracle–only to enforce Hurd’s promises of confidentiality and protective covenants.  More credible, there’s little doubt that factors besides probability of success in the lawsuit entered into the settlement agreement. As the companies, and the press, emphasize, there was a greater need of the two enterprises to get this dispute behind them. There are valuable business relations the companies need to maintain in several product areas.

Even so, vital are the contract the two signed and the business and legal context in which they signed it.   California law leaves room for restricting post-employment misappropriation of trade secrets.  It still believes in freedom of contract.  And there’s an enduring belief in the country, including in California, that sophisticated people like Hurd who willingly make business promises in bargains ought to be held to them.   The lawsuit was never a clear loser despite conventional wisdom, which sometimes is longer on convention than on wisdom.

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4 Responses

  1. Lawrence Cunningham says:

    Readers interested in a fine, nuanced account of Hewlett-Packard v. Hurd, written between the dates of my two posts on the subject, might consider the following post by Prof. Michael Risch (Villanova) and his former law partner, Jack Russo, of Computer Law Group in Palo Alto:

  2. Thanks for posting our link! Just a note that Chris Sargent, an associate at the firm, contributed a great deal to the long post as well.

  3. SagatAdon says:

    I love hearing cases like HP. As a mediator and negotiator, any successful press for ADR and settlements if a good thing as I think lawyers, though having a place in the world, can really muddle up a situation: http://lawblog.legalmatch.com/2010/04/02/alternative-dispute-resolution-%e2%80%93-it%e2%80%99s-like-the-new-coke-just-not-awful-and-unnecessary/

  4. Ken Rhodes says:

    I, too, was delighted with the outcome, because it reinforced a fundamental I always thought was paramount in business: You gotta keep your word.

    Sometimes lawyers seem to get in the way of that, but this case proves that sometimes they don’t.