*NEWS*PRINTER TITANS CLASH OVER EXECUTIVE
*NEWS*PRINTER TITANS CLASH OVER EXECUTIVE
2006-04-14 at 11:23:00 am #15008
Printer Titans Clash Over Executive
In a case that could have long-term implications for the printer business, industry giants Lexmark and Hewlett-Packard are fighting in court over the future employment of veteran Bruce Dahlgren.
Two titans of the printer industry–Lexmark and Hewlett-Packard–are waging a pitched legal battle over the future employment of veteran Bruce Dahlgren. The outcome could have serious repercussions for the printer industry and channel.
According to court papers filed by Lexmark’s attorneys, Dahlgren, who served as Lexmark’s vice president and general manager of Lexmark’s North American Printing Solutions and Services divisions, allegedly violated his noncompete agreement in January when he jumped ship to work for rival HP, based in Palo Alto, Calif. (see Related Links, right).
Almost as soon as Dahlgren accepted the newly created HP post of senior vice president of worldwide enterprise sales on Jan. 6, HP lawyers filed a pre-emptive lawsuit in California superior court contesting the legality of Dahlgren’s noncompete agreement. HP has also indemnified Dahlgren from any legal costs or losses incurred in the fight over the noncompete agreement.
Days later, Lexmark filed a countersuit in the Kentucky court, seeking an injunction to prevent Dahlgren from assuming his post at HP for at least 12 months. If he is allowed to work for HP, he should not be able to recruit other Lexmark employees for at least three years, the countersuit maintains.
Both HP and Lexmark declined to comment on the litigation.
So far, according to court papers, Lexmark has won the first round. While the lawyers argue which state has legal jurisdiction, the Kentucky court agreed that Dahlgren’s defection would case irreparable harm to Lexmark and issued a preliminary injunction that prevents Dahlgren from working for HP in North America for at least one year.
“It really hurt them to lose him,” says Ian Hamilton, printer analyst at Current Analysis. “Lexmark is really trying to protect everything right now; they feel like they are losing a lot.”
Dahlgren is free to conduct non-North America business for HP, and he reportedly has set up an office in San Diego, where he now claims legal residence.
Dahlgren’s legal residency is paramount, since California’s employment laws are far more lenient than Kentucky’s, and noncompete agreements are often not recognized by the California courts. Lexmark’s complaint placed Dahlgren’s residence as Lexington, Ky.
After six years as a Lexmark executive, Dahlgren reportedly earned $400,000 to $500,000 annually in salary and bonuses, according to court testimony reported by local newspaper Lexington Herald-Leader. He also received stock options, which boosted his annual compensation to nearly $750,000 a year.
Lexmark is seeking reparation of nearly $600,000 in stock options it paid Dahlgren. Dahlgren was to forfeit those options should he breach the terms of his employment agreement. According to the Herald-Leader, Lexmark has filed a lean on Dahlgren’s Lexington home until the stock issue is resolved. Dahlgren’s Lexington home is on the market with an asking price of $779,000.
Implications for the printer industry.
The implications for the printer industry are potentially dramatic. The position HP crafted for Dahlgren would make him the No. 2 executive of the company’s $25 billion Imaging and Printing Group. He would report directly to Vyomesh Joshi, the group’s executive vice president, who has a direct line to CEO Mark Hurd. Dahlgren’s responsibilities would include managing HP’s 1,500 largest printing and imaging accounts, as well as direct contact with HP’s channel partners, who fulfill many of those orders.
“[He's] really just someone to come and help continuing build up this momentum around our enterprise sales capability,” says George Mulhern, HP’s senior vice president of enterprise imaging.
Lexmark’s concern is what Dahlgren is taking with him to HP. As a senior executive, Dahlgren was privy to Lexmark’s long-term technology, marketing and sales plans–information that could give HP a competitive advantage.
Wall Street and industry analysts have been underwhelmed with Lexmark’s prospects of late. Moors & Cabot reported that Lexmark’s core market of home and office printing is slowing, and that it isn’t well-positioned to capitalize on the emerging multifunction, photo and color-laser printer markets. And, while Lexmark is stepping up advertising and R&D spending, its efforts pale in comparison to those of HP.
Where Lexmark is most vulnerable, and Dahlgren’s defection could have serious consequences, is in the enterprise printer market.
“Over the next several years, we think a stepped-up focus on enterprises at HP will result in market-share losses for Lexmark,” Moors & Cabot wrote after Dahlgren’s arrival at HP in January. “Businesses typically drive about 80 percent of Lexmark’s operating profit. By our estimates, large enterprises drive about half of Lexmark’s operating profit. We believe this signals the beginning of stepped up-efforts by HP’s IPG in large enterprises.”
And the loss of enterprise customers and revenue is what Lexmark is trying to prevent in its lawsuit against HP. In court papers filed in Kentucky, Lexmark repeatedly quotes from HP’s announcement of Dahlgren’s appointment as proof of Dahlgren’s importance to the enterprise market. The suit notes HP’s assertion of “[Dahlgren's] wealth of experience delivering printing solutions specifically tailored to meet the needs of enterprise customers.”
The HP press release also notes that Dahlgren headed Lexmark’s most profitable business unit, a fact that Lexmark claims was never publicly disclosed. Lexmark contends this disclosure shows Dahlgren has the potential to pass trade secrets to HP.
“HP had and has reason to know that Dahlgren has knowledge of confidential information and/or trade secrets belonging to Lexmark, and that Dahlgren’s knowledge was acquired under circumstances giving rise to the duty to maintain secrecy or limit its use,” Lexmark wrote in its complaint.
The case is scheduled to return to California court in late May. If the state courts can’t resolve the jurisdiction issues, Lexmark could claim antitrust violations and seek to have the case moved to federal courts.