Court bars EMC top exec from working for HP

EMC executive Donatelli files a lawsuit to negate his noncompete clause

A state court in Massachusetts yesterday cited a noncompete agreement as it issued a temporary order barring a former high-ranking EMC Corp. storage executive from taking a job at Hewlett-Packard Co. as executive vice president for enterprise servers, storage and networking.

The court said David Donatelli cannot start his new job until EMC and HP resolve a legal dispute over the terms of a noncompete clause Donatelli signed with EMC.

EMC wouldn't comment on the case other than to say it is aware of the court's decision.

In response to the ruling, an HP spokesperson said, "we are disappointed that the Massachusetts court saw fit to delay Mr. Donatelli's employment with HP. However, the court's order is preliminary, and we are confident that Mr. Donatelli will be permitted to join HP in a leadership role once a full hearing of the issues is held. We are similarly disappointed by the lengths to which EMC has gone to impede Mr. Donatelli's efforts to seek other employment."

Donatelli preempted EMC's suit by filing one of his own on April 27 in a Superior Court in California, asking that the court negate his employee agreement, which states that he cannot work for a competitor for 12 months after leaving EMC. Unlike Massachusetts, California generally doesn't recognize noncompete clauses.

Hopkinton, Mass.-based EMC filed its lawsuit the next day in Superior Court in Massachusetts, seeking a preliminary injunction to keep Donatelli from working for Palo Alto, Calif.-based HP, which it considers to be a direct competitor. The California court is expected to hold its hearing on the case May 15.

In court documents, Donatelli contends that "only 20% of his job overlaps with his previous EMC job duties," while the majority of his work will center on servers and networking equipment.

At the heart of the two civil cases is a legal concept known as the "inevitable disclosure doctrine."

The doctrine raises the question of whether it is possible for someone in Donatelli's position, a high-level executive with access to his company's trade secrets, to work in a similar position at a competitor and not give away those trade secrets, said Randy Kahnke, a specialist in intellectual property law in the IT industry with the law firm of Faegre & Benson LLP in Minneapolis.

An appeals court in California rejected the inevitable disclosure doctrine, stating that to prevent a former employee from going to work for a competitor amounts to an "after-the-fact covenant not to compete" that restricts "employee mobility."

Donatelli's attorney argued at a court hearing in Massachusetts that Donatelli should be allowed to move to California and thereby escape the obligations of the covenant, the court ruling stated.

However, Massachusetts Superior Court Judge Stephen Neel ruled that California's interpretation of noncompete agreements does not "trump" common law in Massachusetts.

Donatelli, who joined EMC in 1987, ran the company's storage division, the company's largest unit, which accounted for 80% of EMC's $14.9 billion in revenue last year, according to court documents. He oversaw the development of EMC's biggest products, the Symmetrix and Clariion storage arrays, the Celerra network attached storage controller and the Centera content-addressed storage array.

According to court documents, Donatelli signed his noncompete agreement in May 2002. The agreement stated: "For the twelve-month period following the effective date of your termination, for any reason, from the Company, you agree not to directly or indirectly compete with the Company ... including any services ... as an employee ... to any entity that is developing, producing, marketing, soliciting or selling products or services competitive with products or services being developed, produced, marketed or sold by the Company as of the effective day of your termination."

Over the past three years, Donatelli was paid more than $17 million by EMC. On top of that, this past January, he received a $70,000 bonus in recognition of his efforts to drive flash technology deployment in EMC's storage products.

HP is no more guilty than EMC when it comes to wooing talent from competitors. EMC has hired several HP executives, including Mark Lewis, former vice president of worldwide marketing for HP's network storage solutions group, who is now EMC's president of Content Management and Archiving, and Howard Elias, HP's former senior vice president of business management and operations, who is now president of EMC's Global Services and Resource Management Software group. Kahnke said civil cases revolving around noncompete agreements are becoming more common because of consolidation in the IT industry, which leaves fewer companies and more direct competition.

"First, it's a state-law issue. Noncompete agreements, trade-secret misappropriation and confidential information contracts are all creatures of state law," he said. "The feds keep their hands out of it. [The cases] can end up in federal court, but the federal court then figures out which state's law to employ."

"Someone at [Donatelli's] level," Kahnke said, "you would certainly be operating under the assumption that they were tuned in to what they were signing. If someone signed one 20 years ago, who knows?" Kahnke said.

As a practical matter, Kahnke said, EMC won't know whether Donatelli disclosed EMC's confidential information to HP until new products begin to surface, and by that time, the proverbial cat would be out of the bag.

"We have a battle of courts here, and there are very interesting and complicated jurisdictional and procedural issues that surround this," Kahnke said.

Copyright © 2009 IDG Communications, Inc.

  
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