Lawsuit concerning HP's “fraudulent” printing supply sales resurrected following appeal

A lawsuit against HP alleging the company defrauded investors is set to continue after a US appeals court reversed a ruling which dismissed the case. 

The case was previously dismissed amid claims that complainants had filed a legal challenge too late. 

However, the 9th US Circuit Court of Appeals overturned the decision on Tuesday, potentially paving the way for a renewed challenge. 

Complainants in the case argue that HP misled shareholders by making “fraudulent statements” about its printing supplies business in 2015 and 2016. 

A key element in the case is that HP unveiled plans to reduce product inventories across distribution channels in June 2016. 

The firm said at the time that this move would reduce revenue from printing supplies by nearly $450 million across two quarters in that year. 

However, in September 2020 the Securities and Exchange Commission (SEC) issued HP with a $6 million fine over these sales practices. 

 The SEC said at the time that regional managers had incentivized staff to “accelerate sales” and offer discounted supplies to HP-linked resellers, meaning that the company cannibalized sales from affiliate distributors. 

“During the period relevant to this case, HP sold its supplies through a ‘push model’. Under this model, HP offered incentives to ‘Tier 1’ distributors to purchase printing supplies,” legal documents read. 

“Those Tier 1 distributors, in turn, sold to ‘Tier 2’ distributors who sold HP products to other resellers or to end users,” read the court documents.

“These sales, offered at a discount, “[cannibalized]” sales from local distributors, who would have to lower prices to compete with marked-down goods from other territories.”

HP investors were not informed of these practices, the SEC noted, which prompted a swift legal challenge just weeks after the SEC settlement agreement. 

In March 2022, a California court dismissed the case, claiming that investors should have lodged a complaint within a two-year time frame of the ‘discovery’ of fraudulent activities. 

However, it was argued that investors could not have known of such activities prior to the SEC ruling.  

“Lead plaintiff Maryland Electrical Industry Pension Fund alleged that HP and individual defendants made fraudulent statements about HP’s printing supplies business,” court documents read.

“The district court concluded that the complaint, filed in 2020, was barred by the two-year statute of limitations, 28 U.S.C. § 1658(b)(1), because the public statements, loss in profits, and reductions in channel inventory at the heart of Maryland Electrical’s claims had all taken place by 2016.”

The successful appeal means that investors could pursue compensation against the California-based firm. 

Darren Robbins, an attorney for the Maryland-based pension fund leading the lawsuit, told Reuters that the decision will help investors seeking a resolution to the dispute. 

ITPro has approached HP for comment.