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HP dispute over Autonomy acquisition shows why arbitration is a good option for settling major IT disputes, says expert

The "bitter" public dispute between Hewlett-Packard (HP) and the former chief executive of software firm Autonomy shows why confidential dispute resolution and arbitration should be considered rather than resolving disputes in the courts, an expert has said.28 Nov 2012

IT and telecoms disputes specialist Clive Seddon of Pinsent Masons, the law firm behind Out-Law.com, said that the "entrenched positions" adopted by HP and Dr Mike Lynch in their dispute, allied to the fact the dispute has been conducted in the public domain, has "limited" the chance of an out-of-court settlement being reached.

"It was strange when HP bought Autonomy as Autonomy was always known as a big UK technology house, whereas HP is more of a services and global enterprise company," Seddon said. "With hindsight it was not a great fit strategically as it was not completely obvious how the deal would work for customers. Sure enough it has not worked. The question is why that is and who is responsible."

"HP is blaming 'accounting irregularities' for the failure of the Autonomy business to perform up to expectations, whilst Lynch has openly asked HP whether the huge write-down could and should be attributed to HP's management of the post completion integration programme. This high profile blame game makes litigation inevitable. From a litigators' perspective the opportunities for settlement here seem quite limited. This is because of the publicity surrounding this case. It certainly looks like any confidentiality provisions agreed between the parties have been ignored and that they have decided to escalate the dispute publically," the expert added.

"There is a current trend towards arbitration in big technology matters. The parties are able to conduct their disputes in private and get to positions that result in commercial settlements. Because of the public nature of the HP/Autonomy dispute one of the parties is going to have to make a public climb down from their position and admit wrong-doing if there is to be a settlement. The position adopted by the parties appears very entrenched," Seddon said.

"Lynch will be keen to salvage his and his former company's reputation, whereas HP's position is that they have suffered substantial loss which they are going to be seeking to recover on the basis that accounting irregularities occurred. It could take HP approximately three months to prepare a claim here and to initiate court proceedings, which could take a couple of years to play out, during which time the parties could run up millions of dollars each in legal costs," he added. "You can therefore understand why parties would ordinarily want to include an arbitration provision in their contracts. Public and bitter disputes makes settlement difficult and can lead to complex and costly legal proceedings and damage reputations."

Last week HP reported that its purchase of Autonomy had cost its software business $8.8 billion, but attributed "the majority of this impairment" to "serious accounting improprieties, disclosure failures and outright misrepresentations at Autonomy" which it said "occurred prior to HP's [£7 billion] acquisition of Autonomy" in 2011 and which affected the "trading value" of shares, it claimed.

However, HP's claims prompted Dr Mike Lynch, Autonomy's former chief executive to fervently deny the allegations.

Dr Lynch has now issued an open letter calling on HP to make "immediate and specific explanations for the allegations" it has made, which he described as both "shocking" and "highly damaging". In the letter, published by Reuters news agency, he said that Autonomy's finances had been "handled in accordance with applicable regulations and accounting practices" and that accountancy firm Deloitte, which had audited the accounts, had "confirmed the application of all appropriate procedures".

In response HP said that its internal investigations had "uncovered extensive evidence of a wilful effort on behalf of certain former Autonomy employees to inflate the underlying financial metrics of the company in order to mislead investors and potential buyers," according to a report by the Wall Street Journal.

HP said it would leave the UK's Serious Fraud Office, the US Securities and Exchange Commission and the US Department of Justice to decide how to "engage" with Dr Lynch and that it would "take legal action against the parties involved at the appropriate time".

"While Dr. Lynch is eager for a debate, we believe the legal process is the correct method in which to bring out the facts and take action on behalf of our shareholders. In that setting, we look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury," HP said in its statement, according to the report.