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IBM and Apple mix it up

I haven’t seen something take over the news like this since Microsoft and Google went after each other as a result of Google’s hiring of Kai-Fu Lee. (Click here to read about that case.) That case ultimately resulted in a settlement or, as lawyers tend to say, “It has been resolved to the satisfaction of the parties.”

So what caused this battle between IBM and Apple? Glad you asked. It all erupted when Apple hired Mark Papermaster from IBM. Papermaster, the IBM guru of its Power architecture and its X-64 based blade servers, signed a non-compete agreement in 2006. IBM alleges the non-compete was violated when he accepted a position at Apple that gave him oversight of the iPod and iPhone. It appears that IBM believes that Apple might try to use Papermaster to expand its share of the server market. Although Papermaster and Apple disputed this contention, the trial judge issued an injunction prohibiting Papermaster from accepting a position at Apple, but it did not come without a cost. Here, the judge ordered IBM to post a $3 million bond as a condition of issuing the injunction. The bond was designed to cover any financial losses that Papermaster may have suffered in the event that the judge determines that the injunction should not have issued.

Tactics and strategy.

In most cases of this nature, which don’t involve high profile individuals, the employee quits and joins a competitor without disclosing its intentions to their former employer. Once the employer learns of this, it immediately feels wronged and suspects the worst. More often than not a judge will agree because of the manner in which the employee left their former employer. It’s like Aunt Effie used to say, “If you got nothin’ to hide then why are you hidin’??”

Here Papermaster was up front about his intentions. He told his employer that he intended to leave for a position at Apple. IBM immediately met with him to offer a substantial pay increase to stay or, in the alternative, to offer him a year’s pay if he would agree to abide by IBM’s interpretation of the non-compete agreement. From a tactical standpoint, IBM’s response was a model of positioning. IBM anticipated that Papermaster might argue the non-compete would keep him from earning an income for a year given his unique skill set. By offering a year’s wages for compliance with the one year non-compete, IBM effectively nullified that argument.

Once it was clear that Papermaster would not accept IBM’s overtures, IBM had to decide where it was going to pick its fight. It had two choices; New York, where Papermaster worked ,or California, where Apple is headquartered. Obviously realizing that the non-compete would probably not be enforced in California, IBM immediately went to court in New York.

The Battle Continues….

Although IBM won the first round by getting the preliminary injunction, this fight is far from over. In a recent filing, Papermaster attacked the heart of the non-competition agreement. He argues that IBM’s non-compete is overly broad in three respects. First, it prohibits him from working for a part of Apple that is not competing with IBM, namely iPhone and iPod divison. Second, the agreement prohibits him from working for a competitor anywhere in the world. Third, the one year duration is too long since any trade secrets Papermaster possesses would lose value in a much shorter duration do to the ever changing nature of the technology world.

The Bottom Line:

How this will turn out no one knows. This is one of those cases that you don’t want to see resolved by the parties because the issues are so interesting. It is also a model of great litigation tactics by the parties. Here are my take-aways:

Employer take away:

1. Make sure your non-competes are vetted by an experienced employment lawyer. (I’ll have more tips on non-competes in a later post.) 2. If you don’t have a non-compete, you still may have protection under the Uniform Trade Secrets Act. 3. If you intend to enforce a non-compete, make sure you do so in such a manner that is fair and creates the perception of fairness.

Employee take away:

1. Transparency with your employer will go a long way. Remember, you not only have obligations under the non-compete, but, in many states, you have a duty of loyalty to your current employer. 2. In addition, depending on your position, you may have duties under the Uniform Trade Secrets Act. 3. If you think your employer won’t enforce the agreement, think again. Like Aunt Effie says, “Just because the armadilla is on the side of the road, don’t mean he’s been run over.” 4. Always consult an experienced employment law attorney. How you plan to leave can be more important than leaving.

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