In HP’s short-lived lawsuit against its former CEO Mark Hurd, the company suggested that it was inevitable that Hurd would disclose its trade secrets in his new position as co-president of Oracle.
“In his new positions, Hurd 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 to others,” HP said in its complaint.
However, California law doesn’t recognize the inevitable disclosure principle, first propounded in the 1995 7th Circuit case Pepsico v. Redmond. That principle holds that if someone with access to trade secrets takes a position with a competitor, it is inevitable that he would use those trade secrets in the new job. This argument gives companies a legal weapon against a former employee not bound by a noncompete.
“A lot of states have adopted inevitable disclosure, but not California–it does not recognize it,” says Paul Peralta, a member at Moore & Van Allen. “That was an impediment for HP in going after Hurd.”
So most observers weren’t surprised when the two sides settled after just two weeks. In such situations, companies have to set aside emotions and consider their ultimate objectives, says Larry Drapkin, a partner at Mitchell, Silberberg & Knupp. “Rather than trying to win the argument [in court], both sides have to ask if the fight is going to be worth it,” he says. “If they step back and try to negotiate it, they can avoid the necessity of a protracted legal battle.”