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HP Lawsuit And The Sport Of Kings

Big time litigation is the sport of kings. A very recent example of a regal slugfest comes to us this week from the news headlines. We find that HP has sued its former CEO Mark Hurd because Hurd has signed up to go to work for Larry Ellison at Oracle. When it comes to the Kings of the Silicon Valley tribe, this is a fight between some of the heaviest hitters.

You can find a copy of the complaint HP filed in the Santa Clara County Superior Court here. The fascinating thing about this case – other than the prominent personages involved — is that HP did not have a broadly written covenant not to compete in Hurd’s employment contract. Instead, the contract (as disclosed in HP’s complaint) had only a limited non-compete that, so long as Hurd stayed in California, was specifically tied to the misuse of confidential information.

The lack of a broadly written covenant-not-to-compete means HP has to build one out of the clauses protecting trade secret information that were in Hurd’s contract. HP’s complaint seeks to lay the groundwork to do just this. While this kind of thing is entirely possible in some jurisdictions in the country, it is going to be a tall order to achieve in California. The California appellate courts are on the record as explicitly rejecting the “inevitable disclosure doctrine,” which is what HP’s complaint essentially asserts.

Like most states (including Alaska), California has adopted the Uniform Trade Secrets Act. This Act says that a court may enjoin an “actual or threatened” misappropriation of trade secrets. The “actual” misappropriation part of this provision is more or less straightforward. The “threatened” misappropriation part is not. Although the Act has been around for several decades now, there is no clear consensus among the various jurisdictions as to what it takes to constitute a legit “threatened” misappropriation.

Starting with the Seventh Circuit’s decision in PepsiCo., Inc. v. Redmond, some courts developed the “inevitable disclosure doctrine” to use in deciding what amounts to a bona fide “threatened” misappropriation. These courts use words that sound an awful lot like what is written in HP’s complaint. A “plaintiff may prove a claim of trade secret misappropriation by demonstrating that defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.”

The California courts, however, have been protective of an individual’s right to continue with his or her profession. They have rejected the “inevitable disclosure doctrine.” In Schlage Lock Co. v. Whyte, the California Court of Appeals did not mince words over the issue. “Lest there be any doubt about our holding, our rejection of the inevitable disclosure doctrine is complete.”

A later California decision (Central Valley General Hospital v. Smith) expanded on this somewhat. The court of appeals there said that “threatened” misappropriations may still be enjoined in California. The court, however, required specific evidence of misuse to support injunctive relief, other than the defendant just taking a position with a competitor. The court’s opinion discussed circumstances that might come within the “threatened” rubric, such as cases involving actual proof of intent to misuse information, or past instances of actual misuse, or wrongful retention of confidential information. None of these circumstances seems to fit precisely the facts alleged in HP’s complaint.

So it should be an interesting bout between the Regents and Rois for the hoi polloi watching from the sidelines. The lawsuit has a distinctly strategic “shot across the bow” flavor to it. But in order for HP to actually succeed in court it is going to have to fit itself into the limited “threatened” misappropriation category that California recognizes. Or perhaps it will have to make some new law on the subject.

(By the way, am I the only one who wonders whether Larry Ellison and Joe Miller, the upstart Republican nominee for U.S. Senate here in Alaska, have the same barber?)