OEM PRINTER TITANS CLASH OVER EXECUTIVE

[Anonymous]

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

[Author]

April 14, 2006 at 11:24 AM