*NEWS*HP STEALING EMPLOYEES FROM LEXMARK

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*NEWS*HP STEALING EMPLOYEES FROM LEXMARK

 user 2006-04-05 at 11:54:00 am Views: 83
  • #14947

    Lexmark non-compete clause contested by HP
    In the fierce printer industry, Lexmark International has always taken aim at behemoth Hewlett-Packard.
    But during the past three months, the war has been waged in courtrooms as much as in the marketplace.
    A
    Lexmark manager, considered by the company to be among its top 20
    executives, left in January for HP. Lexmark alleges Bruce Dahlgren, in
    doing so, violated a non-compete clause he signed after he joined the
    Lexington company in 2000.
    A Lexington judge ruled Dahlgren must
    abide by the agreement, prohibiting him from working in his new job at
    HP for one year and from luring away Lexmark’s employees or certain
    customers for three years.
    But two weeks later, a judge in
    California, where non-compete clauses are generally prohibited, said
    Lexmark could not enforce that ruling.Also at issue is a part of
    Dahlgren’s Lexmark contract that requires employees to pay back gains
    from stock incentives if they violate the non-compete clause. Lexmark
    is seeking to attach a lien to Dahlgren’s Lexington home, which is on
    the market, to ensure it is repaid almost $600,000.While both companies
    and their attorneys have declined to comment, the case continues to
    move forward in Lexington and California.
    A silent departure
    Dahlgren
    left Lexmark on Jan. 9 after nearly six years as a vice president and
    general manager. He oversaw North American sales and marketing for
    Lexmark’s Printing Solutions and Services Division, where he earned
    about $400,000 to $500,000 annually in base salary and bonuses,
    according to the court testimony of his supervisor, Executive Vice
    President Paul Rooke. With stock compensation added, he came close to
    earning $750,000 a year.
    In later court filings, Lexmark said
    Dahlgren “refused to reveal the reason for his resignation or whether
    he had accepted employment elsewhere.”
    Three days before his
    departure, Dahlgren had accepted the new position of senior vice
    president of Worldwide Enterprise Sales for HP’s Imaging and Printing
    Group.
    Four days after leaving Lexmark, Dahlgren and HP filed suit
    in Santa Clara County, Calif., arguing that Lexmark’s contract
    restrictions are void under California law. Lexmark filed suit in
    Fayette Circuit Court less than a week later to enforce the agreement.
    Lexmark
    says Kentucky or Delaware law, which allow non-competes, should be
    enforced because the agreement was signed in Kentucky and Lexmark is
    incorporated in Delaware.
    If Dahlgren were allowed to immediately work for HP, Lexmark alleges, he could reveal proprietary information.
    “Dahlgren
    will have a critical role in competing directly with Lexmark products
    and printer solution services in the same markets, through the same
    marketing channels and interfacing with the same customers of Lexmark
    that just over one week ago he served for Lexmark,” Lexmark attorneys
    wrote in a Jan. 19 filing.
    HP disputes the claim, emphasizing that
    customers buy from both companies and that Dahlgren’s knowledge was
    limited almost exclusively to already released products. HP also argued
    that Lexmark’s agreements were overly broad and restrictive.
    “As
    Lexmark applies the contract,” HP’s attorneys wrote, “Mr. Dahlgren
    could work for no technology company that sells a printing solution
    that competes with Lexmark anywhere in the world.”
    Plus, HP said
    that during his employment at Lexmark, Dahlgren was told on at least
    two occasions that “the only penalty (he) might face if he went to work
    for a competitor was a financial one,” referring to the provision that
    requires a forfeiture of stock gains.
    It also pointed out that
    Dahlgren’s work would include geographic areas including “Asia and the
    Pacific, Europe and Africa, geographic areas over which he had no
    involvement while with Lexmark.”
    Reached this week by phone, a
    person in Dahlgren’s office at HP said he was in a series of meetings.
    He did not return the reporter’s call.
    Victories at home
    On Feb.
    14, Fayette Circuit Judge Thomas Clark ruled in favor of Lexmark,
    issuing a restraining order enforcing the majority of the agreement.
    Clark
    ruled that for one year, Dahlgren could not work for a Lexmark
    competitor, but he tailored his ruling only to North America, the area
    of responsibility Dahlgren had at Lexmark.
    He also ruled Dahlgren must refrain from recruiting Lexmark employees for three years.
    Dahlgren also would be restrained from soliciting Lexmark customers in North America from the past three years.
    Clark did not specifically address the financial penalty section of the agreement.
    Two
    weeks later, California Superior Court Judge Kevin McKenney issued a
    temporary restraining order barring Lexmark from enforcing its employee
    agreement, specifically mentioning Clark’s ruling.
    Back in
    Lexington, Lexmark filed a motion to attach a lien to Dahlgren’s
    property in the Hartland Estates neighborhood, which is on the market
    with an asking price of $779,000.

    Settlements typical
    Non-compete agreements and subsequent litigation are becoming typical in high-tech industries.
    Microsoft
    and Google became embroiled in a similar dispute last year after Google
    hired Microsoft employee Kai-Fu Lee to lead its Chinese expansion.
    The companies settled in December.
    Settlements
    are typical because of the high costs of litigation and because
    non-competes can expire within six months or a year, said Daniel McCoy,
    a partner in the employment practices group at the Fenwick and West
    legal services firm.
    “And it is so disruptive to the businesses of
    both companies involved, not withstanding the actual employee who’s at
    the center of it,” McCoy said.
    The costs, McCoy said, can easily range in the six figures and rise even higher.
    “Ultimately, you’ve got to say, is this guy worth a million bucks?” McCoy said.
    “For
    big companies like Microsoft and HP, who are going after serious,
    serious talent, it’s likely going to be worth it. But for the average
    high-tech company … they can’t afford that in terms of just dollars
    and in terms of the disruption to the business.”
    One man’s value
    Dahlgren’s
    perceived importance to HP is his experience in selling printing
    solutions, which involves helping companies improve workflow and
    printing needs.
    In a research report, Moors and Cabot analyst Cindy
    Shaw said it appears HP is “beginning to step up its efforts in what we
    think is Lexmark’s most profitable division.”
    During an investor
    conference call in January, Lexmark’s chief financial officer, John
    Gamble, said the company has a competitive advantage in managing large
    accounts, known as the enterprise market.
    “Our ability to service
    the enterprise market with very high-end market products and extremely
    good solutions offerings is very, very good,” said Gamble.
    That same area is one that HP hopes to grow.
    “We really need to get after the enterprise,” said HP’s CEO, Mark Hurd, in a late February investment symposium.
    “The
    enterprise segment, the top 2,000 accounts on the planet, when you go
    out into ’08, ’09, will probably be $750 billion worth of revenue,”
    Hurd said. “We certainly don’t have anything like commanding share of
    that market.”
    While the two companies battle over market share,
    their battle in the courtroom continues. A hearing about the temporary
    restraining order in California is set for this month. In Lexington,
    where attorneys are in the discovery stage, HP’s attorneys have
    requested a hearing about the proposed lien.