HP vs. Mark Hurd — Inevitable Lawsuit over Inevitable Disclosure

What to make of these recent events?  First, Mark Hurd resigns as Hewlett-Packard’s board Chair, CEO and President under a cloud of alleged misbehavior and inappropriate personal relationships; next, Mr. Hurd is paid over $12 million dollars for the voluntary departure;  then, Oracle Corporation, in bold style, hires Mr. Hurd as its “co-president;”  finally, and its seems only moments later, HP sues Mr. Hurd because it believes in his new position at Oracle he will “be in a situation in which he cannot perform his duties for Oracle without necessarily using and disclosing HP’s trade secrets and confidential information.”  And, to add a curious post-modern twist, the complaint relies on media speculation about how Mr. Hurd will use his knowledge acquired at HP while in the employ of Oracle. 

However HP’s lawsuit may be characterized, the core theme appears to be that Hurd has violated continuing obligations to HP, based upon two fundamentals: (i) the announcement that he has accepted a new position, and (ii) HP’s opinion that he will necessarily disclose and use HP’s trade secrets in that new position.  HP’s lawsuit, filed yesterday, may be read here.

All this, in a state that holds as void, illegal and unenforceable any agreement that restrains trade or competition (“non-compete agreements”).

Much of the legal press commentary on these developments has focused on what is known as the “doctrine of inevitable disclosure.”  This doctrine would allow a plaintiff, like HP, to establish that Mr. Hurd is threatening to use or disclose HP’s trade secrets by merely proving that Mr. Hurd’s new employment will inevitably lead him to rely on HP’s trade secrets, without proof of actual use or disclosure.  California trade secret law allows a party to obtain an injunction against “threatened” use or disclosure.  But, there is a huge catch: California’s courts have rejected the doctrine of inevitable disclosure (see, Whyte v. Schlage Lock Co. (2002) 101 Cal.App.4th 1443, 1462 [125 Cal.Rptr.2d 277]) .  Yet HP’s allegations seem directly to challenge the this precedent.  And, of course, California’s statutory and judicial law also confirm that non-compete provisions like some of those recited in HP’s complaint are illegal and unenforceable.

To understand the context of HP’s legal claims involves two distinctly separate ideas:  (i) political tactics that might lead to a new agreement, using the court action as the vehicle; and (ii) the fabric of the legal thread between, on the one hand, actual threats to use or disclose trade secrets and, on the other hand, merely accepting a new position with a competitor (normally an entirely legal act in California).

A court in Wisconsin, curiously enough, has explained California’s unique position on inevitable disclosure as well as anyone:  actionable threatened use or disclosure can be proven by showing that a defendant possesses trade secrets and has, in the past misused or disclosed them, or that the defendant “intends to misuse or disclose” them, or that the defendant possesses trade secrets and “wrongfully” refuses to return them after a demand to do so.  But, threatened misappropriation cannot be established by showing only that the defendant possesses trade secrets, or that the defendant’s new position inevitably leads defendant “to rely upon the plaintiff’s trade secrets.” (See, Clorox Co. v. SC Johnson & Son, Inc., 627 F. Supp. 2d 954, 969 (ED Wisconsin 2009).

HP’s action against Mark Hurd will likely fall somewhere on the legal spectrum between actual threat and inevitable use.  But it will be very interesting to follow for reasons related to both concepts mentioned above.  Legally, it explores the boundaries of “threatened” misuse of trade secrets vs. the doctrine of inevitable disclosure.  Politically, and likely unrelated to the legal issues, it presents a tactic in a presumably larger strategy designed to somehow place Mr. Hurd on the sidelines for awhile.  Whatever the case, HP will need more evidence than media OpEd columns as evidence to support the injunction it seeks.

Perhaps it was inevitable that Mr. Hurd would be sued for going to work for a competitor so soon after “settling” on a severance package.  However, if the court grants an injunction to stop him from working it begs the question whether any CEO who, by job definition, possesses valuable trade secrets that might be disclosed, can safely take another C-level executive job without being sued?

Stephen C. Gerrish and Jeffrey A. Snyder, Employment Group