HP to pay $14.5M to settle lawsuit

Published December 8, 2006

SAN JOSE, Calif. - Hewlett-Packard Co. agreed Thursday to pay $14.5-million to settle a lawsuit brought by state Attorney General Bill Lockyer accusing the company of unfair business practices in its crusade to unmask the source of boardroom leaks to the news media.

The vast majority of the settlement - $13.5-million - will fund state and local investigations into privacy rights and intellectual property violations, Lockyer said in a statement as the lawsuit and settlement were filed in Santa Clara County Superior Court.

The remainder consists of $650,000 in civil penalties and $350,000 to cover the state's investigation and other costs.

The lawsuit marks the first civil case brought by authorities against HP of Palo Alto, Calif., for the scandal that erupted in September and led to criminal charges against former chairwoman Patricia Dunn and four others.

Lockyer separately has charged Dunn and four others with conspiracy and fraud over their involvement in an investigation into boardroom leaks. Dunn pleaded not guilty. Prosecutors said the company hired outside detectives who tricked phone companies into disclosing the private phone records of directors, journalists and others so the company could track the source of news leaks.

The company violated the privacy rights of those it spied on and broke California laws against deceiving telecommunications to gain access to phone records and committing identify theft. This process is known as "pretexting."

Dunn, who was ousted over the incident, former ethics chief Kevin Hunsaker and three outside investigators, Ronald DeLia, Matthew DePante and Bryan Wagner, have pleaded not guilty in Santa Clara County Superior Court.

"Fortunately, Hewlett-Packard is not Enron," Lockyer said. "I commend the firm for cooperating instead of stonewalling, for taking instead of shirking responsibility, and for working with my office to expeditiously craft a creative resolution."

HP has also agreed to various governance reforms, which Lockyer said will help protect privacy rights during any future HP investigations.

"We are pleased to settle this matter with the Attorney General and are committed to ensuring that HP regains its standing as a global leader in corporate ethics and responsibility," chief executive Mark Hurd said.

HP agreed to adopt new policies for five years. They include designating one of its board members, Wachovia Corp. CEO G. Kennedy Thompson, as an independent director to review the company's compliance with legal and ethical standards.

Hurd last month presided over a fourfold jump in fiscal fourth-quarter profit. In the same period, Hewlett-Packard reclaimed the lead in the personal computer market after lagging behind Dell Inc. for three years.

The results demonstrated Hurd's success in overcoming the leak scandal, investors said.