Hewlett-Packard sued by MicroTech over Autonomy software deal

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Hewlett-Packard is being sued by MicroTech, a small software reseller it named in a $5bn fraud claim against the founders of the British software group Autonomy.

MicroTech’s suit says the company is owed $16.5m by HP for Autonomy software that was never properly delivered. It is the latest twist in the battle between HP and the Autonomy founder, Mike Lynch, and his finance director, Sushovan Hussain.

The British executives are fighting accusations by HP that they used “improper” transactions with small software resellers, including MicroTech, to artificially boost their company’s revenues.

HP acquired Autonomy for $11bnin 2011 but subsequently wrote down its value.

Founded by the service-disabled US military veteran Tony Jimenez, Virginia-based MicroTech is a security-cleared contractor specialising in government computing. In a lawsuit filed with the US district court for northern California, the firm alleges breach of contract.

It claims Autonomy software, for which it had paid in cash, was never properly delivered, with the keys that would allow it to sell the software on to end users being withheld.

“Just because HP is a big company with billions in revenues doesn’t mean it can bully a small business owned by a veteran into not demanding our money back for something never delivered,” Jimenez said.

He has employed the attorney Lanny Davis, a former Bill Clinton adviser and White House spokesman, to bring the case.

Davis said: “HP is not entitled to keep both MicroTech’s money and Autonomy’s software that MicroTech duly purchased.”

The claims relate to two separate transactions, in which MicroTech signed contracts with Autonomy to buy its software for eventual use by two end customers, the Vatican Library and HP itself.

In the event, neither the Vatican nor HP bought Autonomy software from MicroTech or from Autonomy.

The Vatican deal, concluded in March 2010, saw MicroTech commit to purchase $11.6m of software. MicroTech said it paid $9.2m of that sum in cash to Autonomy. The balance was withheld after it became clear there were “issues” with the deal. MicroTech says it has received no money back, nor has Autonomy delivered the software purchased or the licence keys needed to activate the software.

The second transaction took place in June 2011, this time for an advance order of $7.35m of software which was due to be purchased by HP. “Autonomy again misrepresented to MicroTech that it had a deal in place with an end user for Autonomy’s software,” claim MicroTech’s lawyers. The deal never closed and no software or activation keys were issued.

MicroTech has offered a compromise: it is asking HP to relicense the software for a period of time to allow it to find an alternative buyer. Jimenez said: “We are confident a court will agree, the money or the software – you can’t keep both – under the law and principles of fairness.”

However, MicroTech features prominently in the fraud case filed with the UK high court earlier this year, in which HP is seeking a record $5bn (£3.3bn) in damages from Lynch and Hussain.

HP alleges that MicroTech was in fact paid, with profits, for its purchases of software intended for the Vatican and HP. Its lawyers claim the payments were made using a series of reciprocal deals in which Autonomy bought software and services from MicroTech for a marginally higher value than the software it had agreed to sell to the smaller firm.

On 16 August, Autonomy paid MicroTech $8.2m for the development of a “US Government Federal Cloud Platform for Autonomy Solution”. The platform, lawyers claim, was never delivered and it was never requested by Autonomy. A day later, on 17 August, Autonomy received $7.35m in cash from MicroTech, the claim alleges.

In the case of the Vatican, Autonomy paid MicroTech to set up an “Advanced Technology Innovation Center”, designed as a facility to display its technology. Lawyers claim that on 31 December 2010, Autonomy paid $9.6m for the centre – the entire cost of the project – in advance of its hiring its first member of staff. On the same date a payment of $6.3m was received by Autonomy from MicroTech.

HP’s claim lists nine transactions between MicroTech and Autonomy, worth a total of $33m, as questionable. One of those transactions was for $10m of software for use by another reseller, DiscoverTech.

Among MicroTech’s founding investors was David Truitt, the chief executive of DiscoverTech. This reseller was involved in $42m of “improper” transactions with Autonomy, according to the claim.

Truitt was also chief operating officer of Microlink. HP’s claim lists $22m of transactions between Autonomy and Microlink, before the reseller was purchased for $57m. Of the money owing, $9m was eventually written off after HP acquired Autonomy.

HP’s claim states that Truitt’s brother, Stephen, was chief operating officer of MicroTech, and that another of his brothers was an Autonomy employee. A spokesman for Truitt declined to comment.

According to HP’s claim, questionable transactions with a small group of resellers were designed “for the improper purpose of providing a pretext for the inappropriate or premature recognition of revenue”.

Lynch and Hussain reject the allegations and are contesting HP’s legal action.

A spokeswoman for HP said: “HP cannot comment as this is a pending legal matter.”

Powered by Guardian.co.ukThis article was written by Juliette Garside, for theguardian.com on Tuesday 19th May 2015 20.11 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010