HP spy scandal lawsuit settled
Hewlett-Packard Co.’s settlement of a lawsuit stemming from the spying scandal that rocked the Silicon Valley icon could set new standards for corporate behavior and strengthen enforcement of privacy laws, legal experts said Thursday.
HP agreed to pay $14.5 million to settle the case brought by California Atty. Gen. Bill Lockyer accusing the computer maker of unfair business practices in its efforts to root out the source of boardroom leaks to the media.
The Palo Alto company also agreed to change the way it deals with privacy questions so that independent directors and, for the next five years, the state attorney general are informed of possible violations.
Most of the settlement money -- $13.5 million -- will fund state and local investigations and prosecutions of violations of privacy and intellectual property laws, which Lockyer called a privacy and piracy fund.
Thursday’s settlement does not affect the criminal charges against former HP Chairwoman Patricia C. Dunn and four others. Dunn, who resigned Sept. 22, had ordered a wide-ranging investigation that ultimately included gaining access to private phone records of board members and reporters. HP could still face civil claims from those whose privacy was compromised.
Lockyer, whose office filed the suit and the settlement simultaneously in Santa Clara County Superior Court, said the accord could “guide companies across the country as they seek to protect confidential business information without violating corporate ethics or privacy rights.”
Santa Clara University law professor Stephen Diamond said the settlement broke new ground by giving an independent director oversight authority on ethical and privacy issues. “It creates a new power center in a major corporation,” he said, “someone who will be answering to a broader set of standards.”
Joel Reidenberg, director of Fordham University’s Center on Law and Information Policy, said, “This will establish a benchmark for settlements of other corporate cases in the country.”
But white-collar defense attorney Jan Handzlik criticized Lockyer’s “micromanagement” of HP. Lockyer “seems to have lost sight of the fact that HP continues to be a well-run company with a long-standing reputation for honest and ethical business practices,” Handzlik said. “This settlement will not have much of a deterrent effect, since the improper conduct was both stupid and aberrational.”
HP Chief Executive Mark V. Hurd said the company, which did not admit wrongdoing, was “committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility.”
Under the settlement, HP must pay $650,000 in civil penalties and $350,000 to cover the attorney general’s investigation and other costs. Also, Lockyer won’t pursue civil action against current or former HP executives.
HP took quick steps to rectify internal procedures that had allowed the internal investigation to get out of control. It hired experts to help redesign internal privacy and ethical controls and restructured the board to designate an independent board member as a lead director with certain oversight duties.
“We broadened and amplified on the reforms that HP already had begun,” Lockyer said.
The attorney general said he expected that the privacy and piracy fund, similar to environmental prosecution funds, would be replenished by defendants who paid the costs of investigating their crimes.
Handzlik, however, said such funds pose a conflict of interest when prosecutors bring charges, for instance, against competitors of the company whose payment set up the fund. It would “raise the question of whom the attorney general really represents.”
Besides, the fund “gives the impression that companies regularly sneak and snoop like this,” Handzlik said. “That just isn’t the case. One of Inspector Clouseau’s investigations would look good compared to this operation.”
