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Amazon v. Smartsheet: Round 2

When I wrote my post on June 18, 2017, I was looking forward to seeing the oral argument in Amazon v. Smartsheet. This lawsuit had all the things that make a case worth following:

1. Known Players: Amazon and Smartsheet (maybe not known as well as the Big A, but still not a shrinking wall flower);

2. Intrigue: Amazon and Smartsheet were playing nice together and, then, Smartsheet decided to wake up the slumbering gorilla by hiring Amazon’s Vice President of Applications and EC2 Windows Team, Gene Farrell;

3. The Hmmm Factor: One of the members of the entity that gave Smartsheet venture capital funding is also an Amazon Board member; and

4. Blow back in the local community: Amazon’s decision to file suit against Smartsheet was viewed by many in the local tech community as an effort to restrict or at least impair the movement of tech talent.

Looking at this from the perspective of a Monday Morning QB without any inside knowledge other than what was published in Geekwire and other news sources (What I am trying to tell you is that this is my opinion based on reading tea leaves), each side played their hand well:

1. Right, wrong or indifferent, Amazon had a belief that Farrell’s departure would result in harm to Amazon. Amazon had, what it believed to be, an enforceable non-compete that prohibited Farrell from moving to a company like Smartsheet. Farrell knew what was hidden in the top secret cookie jar in Bezosworld. He knew about their cloud products, enterprise applications, future product offerings and strategies for sales and growth. Because of these fears, Amazon first attempted to negotiate and then acted to get a court order restraining Farrell from going to Smartsheet.

2. Smartsheet and Farrell handled this in a textbook fashion:

a. Smartsheet confirmed that Farrell had contractual restrictions that might make a move problematic;

b. Smartsheet had Farrell’s contract with Amazon reviewed by its legal counsel. That person felt Farrell’s contract did not prohibit Farrell from working at Smartsheet;

c. Farrell was transparent with Amazon. He told them he was leaving for Smartsheet.

d. When Smartsheet learned that Amazon objected to the move, it attempted to negotiate a resolution and made the decision to formally onboard Farrell only after those discussions fell apart.

Amazon won Round 1 on June 12. Round 2 (which was to have been held on June 23, 2017) was the mini-trial to address whether the temporary restraining order would become permanent pending the outcome of a full blown trial. This was set to be a make or break battle for each side and losing would have detrimental consequences. To Amazon, a loss would mean more defections, by key personnel to start ups, Farrell would go to Smartsheet without any restrictions and a detrimental impact on its key relationships within the startup community. To Smartsheet and Farrell, losing would mean Farrell would be unemployed, Smartsheet would not have a Head of Product at least until trial (in 12 to 18 months) or for the duration of the non-compete (18 months).

Sometimes it is the fear of the unknown (in this case what the Judge will do) that leads the parties to find common ground. That is what I believed occurred. On Wednesday, June 21, 2017, I learned from the court that the case had been resolved. Later that day it was reported in Geekwire.

What happened, who won and who lost?

The matter has been resolved. That lawyer shorthand for “it has been settled.” Apparently, the parties arrived at an agreement that Farrell could move to Smartsheet but with temporary restrictions on the type of work he could perform. We don’t know the nature of those restrictions or whether there was an exchange of money.

So, then, Smartsheet lost and Amazon won, right? Not so fast. I think this was case where both sides won. Smartsheet got Farrell as their Head of Product and any restrictions agreed to are temporary. Smartsheet avoided a protracted (and expensive) legal battle with a corporate behemoth that has bottomless resources. In addition, Smartsheet looks like a hero in the startup community for standing up to the 300lb gorilla. Amazon won because it can point to its win at the temporary restraining order hearing to dissuade others from leaving. Amazon, nevertheless, took a hit in terms of its perception within the tech community. Those that love Amazon will see this a blip on the radar while those that see Amazon as the neighborhood bully will see this as more evidence that Amazon is trying to rule the world. Fortunately, in the tech world memories seem to fade quickly.

Rod’s Takeaways:

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