HP accused of spying on Dell's printer plans

Former executive says HP paid for confidential Dell information, but HP says he was actually stealing HP's secrets.

A correction was made to this story. Read below for details.
HP accused of spying on Dell's printer plansA former Hewlett-Packard executive accused by the company of stealing trade secrets is now saying that he was instructed by the company's management to spy on rival Dell.

Karl Kamb Jr., previously HP's vice president of business development and strategy, was named as a defendant in a federal lawsuit filed by HP in 2005. It alleges that onetime HP employees illegally started a rival flat-screen TV company while still working at HP and it is claiming up to $100 million in damages.

Kamb, who has denied any wrongdoing, filed a countersuit in U.S. District Court for the Eastern District of Texas on Friday, according to legal documents. Among Kamb's allegations:

• That in 2002, HP hired Katsumi Iizuka, a president of Dell Japan until 1995, to supply information on Dell's plans to enter the printer business.

• That "senior HP management" signed off on the payments to Iizuka.

• That HP obtained Kamb's private phone records through pretexting, the practice of seeking information by masquerading as someone else. Among the defendants in Kamb's suit are former HP Chairman Patricia Dunn and former HP attorney Kevin Hunsaker.

In a statement on Wednesday, HP denied Kamb's accusations.

"This counterclaim is wholly without merit," HP said. "It's a blatant attempt to delay the prosecution of the original case...We intend to vigorously pursue our original claim and to defend ourselves against this action."

The countersuit, which seeks unspecified damages, comes only a few months after an embarrassing episode in HP's history, in which the company engaged in illegal pretexting to obtain the private phone records of journalists, employees and company board members as part of an effort to uncover a news leak on the board. Former HP Chairman Patricia Dunn has been charged with four felony counts related to the scandal and has pleaded not guilty.

The new allegations leveled at HP by Kamb do not appear to be directly tied to the hunt for the boardroom leak. However, Kamb has pointed to some of the evidence that surfaced during last fall's investigation into HP's pretexting, and a timeline indicates that the company had already employed pretexting for phone records around August 2005.

HP on Dell: What happened

Hewlett-Packard allegedly paid an ex-Dell exec to collect "competitive intelligence" about the activities of its rival in the printer business. Court documents provide a rare behind-the-scenes glimpse into corporate skullduggery, including code names used (Dell was "Everest" and Canon was "Fuji-san").

HP's complaint: Accuses ex-employees of expropriating HP info when starting new LCD company.

Kamb affidavit: Ex-VP Kamb denies it; claims he never used "any information proprietary to HP."

Response brief: Japan-based start-up, with Kamb as U.S. head, denies any wrongdoing.

Kamb's counterclaim: Describes alleged spying on Dell.

Kamb exhibit: Outlines a "Competitive Intelligence Investigation."

Kamb was a vice president of business development at Compaq Computer when that company merged with HP in April 2002 and was fired in the fall of 2005, Kamb said in his suit. He was living in Japan for much of that time and was assigned to research new technologies and to build ties with "computer industry experts," according to the suit. Today he's the U.S. chief executive of Byd:sign, the flat-panel TV company he's accused of founding unlawfully.

HP claims in its lawsuit--filed against Kamb, Byd:sign and other former HP employees--that Kamb had threatened to quit until he received a substantial pay raise.

HP asserts that Kamb owned, along with several associates, a significant share of Byd:sign, but failed to tell anyone at HP about his interest in the venture.

"While still employed by HP, these former high-level employees and their co-conspirators covertly organized and began operating a competing business venture using HP's resources, contacts and trade secrets," HP claims in .

More specifically, HP charges that Kamb was "siphoning" research and development funds from HP for Byd:sign's benefit.

In his filing, Kamb vehemently denied diverting any funds. (Click here for a PDF of Kamb's affadavit.)

Besides Kamb and Byd:sign, HP also named as a defendant Katsumi Iizuka, the former president of Dell Japan.

Kamb acknowledges meeting Iizuka in 2001 as part of his mission to build links with computer experts, according to court records. But Kamb characterizes the meeting merely as a business relationship that benefited HP.

Allegations of corporate espionage
The most incendiary allegations come in the new countersuit, which claims that HP executives became concerned about rumors that Dell was preparing a foray into the printer manufacturing, one of HP's most lucrative businesses. (Click here for a PDF of the Kamb's countersuit.)

As a member of HP's imaging and printing group's "competitive intelligence team," Kamb said he was in a position to know that HP senior executives signed off on a plan to pay Iizuka to obtain details of what Dell was up to. Iizuka turned over the information to Kamb and he passed it along to HP, Kamb claimed.

Kamb alleges that Iizuka declined to receive any money but instead requested that the money be paid to a company called "Dinner Inc." Payments were to be handled by a third party. "Iizuka then obtained information on Dell's anticipated launch of its printer business," Kamb claims. (Iizuka had left Dell in 1995 to start his own company.)

HP's version of the story confirms some details, but doesn't discuss the alleged corporate espionage or senior management involvement.

HP's version, in its own lawsuit, goes like this: In October 2002, Kamb arranged for HP to hire Iizuka as a consultant to provide market research regarding unnamed HP competitors. In addition, Kamb arranged for additional consulting fees, totaling about $10,000 a month, to be funneled to Iizuka through a consulting firm called "Imagine That," which was run by a Kamb paramour.

 

Correction: This story misidentified the company for which Lexmark International builds printers. Lexmark builds Dell's printers.
Among the documents Kamb included in his filing were e-mails he says were exchanged between himself, Iizuka and various HP employees.

In a pair of e-mails from January 2003, Iizuka appears to be exchanging information on Dell's upcoming printer lineup with HP employees. In one dated January 16, 2003, Iizuka says he has met the person responsible for managing printer sales for Lexmark, the company that builds Dell's printers. He adds: "I could try to get some information about Dell/Lexmark and Dell branded product over there."

Karl Kamb
Credit: KVVU
Karl Kamb Jr.

In a February 20, 2003, e-mail exchange that appears to be between two HP employees, one of the employees said "Dell will introduce three printer models in the late March/Early April timeframe," according to the filing. The e-mail includes prices and specifications of Dell printers.

Dell printers made their debut in March 2003. A Dell spokesman declined to comment about the court cases, but did say that Iizuka left Dell eight years before the company's entry into the printer business.

Both HP and the defendants named in its original suit are accusing each other of civil offenses. HP alleges trade-secret misappropriation, fraud, civil conspiracy and violations of the federal Computer Fraud and Abuse Act and the Racketeer Influenced and Corrupt Organizations Act. For his part, Kamb said HP is liable for breach of contract, civil conspiracy, invasion of privacy (tied to the use of pretexting), and also violations of the Computer Fraud and Abuse Act, and the RICO Act.

If any of the allegations are substantially true, prosecutors could bring criminal charges as well. Pretexting may violate state laws and common law rules prohibiting fraud. Trade secret misappropriation can be a federal crime under the federal Economic Espionage Act of 1996, and punishable by up to 10 years in prison.

More claims of HP pretexting
Following the alleged espionage campaign, Kamb says in his filing that someone at the company erroneously concluded he was pocketing some of the money meant to pay off Iizuka. He was ordered back to the U.S.

Some of the details at this point are sketchy. What is clear is that Kamb's former wife, Susan Michelle Kamb, filed for divorce on grounds that included adultery and sent HP a subpoena on August 4, 2005, asking for information about her husband's involvement with Byd:sign.

As a result, according to Kamb, sometime in August 2005, HP "engaged in clandestine acts" to obtain his private telephone records that included unsuccessful pretexting attempts aimed at T-Mobile and successful attempts aimed at Sprint. On August 31, 2005, Kamb's attorney sent Hunsaker, then an HP attorney, a demand that the company stop spying on him.

In a written response a few days later, Hunsaker denied that HP had ever tried to obtain his phone records. Hunsaker--who is also facing criminal charges arising from the pretexting of journalists, including three CNET News.com reporters--was a senior HP lawyer and its chief ethics officer.

Kamb says that last fall's investigation into HP's attempts to unearth a news leak demonstrates that HP attempted to spy on Kamb.

Last August, when it became clear that the public was to be made aware of HP's attempts to uncover a news leak, the company hired attorneys to interview everyone involved. Hunsaker was interviewed on August 25, 2006.

"Hunsaker first learned that HP had used pretexting to obtain phone records in July 2005 in connection with an unrelated HP investigation," attorneys working for law firm Wilson Sonsini Goodrich & Rosati wrote in their report, a copy of which was released by the congressional committee investigating HP. "One of the subjects of that investigation was going through a messy divorce." Wilson Sonsini, which had been hired by the board as an outside counsel, no longer works for the board but continues to provide services for HP.

A call to Hunsaker's attorney was not returned Wednesday, but he has said in the past that his client was misquoted by the Wilson, Sonsini attorneys who interviewed him.

Kamb is now living in Las Vegas. A local Fox News affiliate, Fox 5, announced earlier this month that it has retained him as a "Dream Team" member to provide commentary on how to get more from new "products and innovations to suit the Vegas lifestyle."

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