Google Takes One From Mister Softie

by Lee Gesmer on September 14, 2005

“The thing to fear is not the law, but the judge”
Russian Proverb

Non Compete Agreements. The need to “spin” a litigation outcome to try to persuade the public that you won appears irresistible to large corporations. However, it’s hard to keep a straight face reading Microsoft’s pronouncements about the Seattle state court’s September 13th decision in Microsoft’s suit against Google and Dr. Kai-Fu Lee, until recently “the face of Microsoft in China.” Believe me, when your former employee is able to show up to work for your competitor the day after the decision on your preliminary injunction motion to enforce a non compete agreement, you have not won.

The fact is, a preliminary injunction seeking to enforce a non compete agreement is always highly uncertain. Some judges view non compete agreements as just another contract, to be enforced as written. Other judges have an almost philosophical antipathy to non competes, and will bend over backwards to find any reason not to enforce them. They believe that people should be free to work wherever they wish, and they rule accordingly.

The Seattle judge appears to fall into the second camp. Microsoft learned this when it tried to enjoin Dr. Lee, now the President of “Google China,” from establishing and staffing a Google development facility in China.

Although the Washington State judge initially entered a temporary restraining order against Google and Dr. Kai-Fu Lee in late August that prevented Dr. Lee from working for Google in any of the areas in which he had worked for Microsoft, on September 13, 2005, after a two day hearing, the judge entered a substantially narrower injunction that leaves Dr. Lee free to:

engage in recruiting activities relating to Google’s planned research and development facility in China . . . including establishing facilities, hiring engineers and administrative staff, interacting with public officials regarding the facilities and recruitment, meeting with university administrators and professors regarding recruitment, and offering general, non-technical advise to Google about doing business in China

What can’t he do? Recruit from Microsoft or use any confidential information from Microsoft.

How did the court reach this outcome given the fact that Dr. Lee’s one year non compete agreement with Microsoft prevents him from working in areas competitive with “products, services or projects” that he worked on at Microsoft, and his new job with Google puts him in a position where he runs an operation that is directly competitive with his former job at Microsoft? Because Dr. Lee’s work for Microsoft in China was primarily recruiting, his activities were not a “product” or “service.” Were they a “project”? One might think so, but the judge interpreted the word “project” to exclude recruiting efforts, freeing Dr. Lee to recruit for Google. A judge more inclined to enforce non compete agreements could easily have interpreted the non compete agreement against Google and Dr. Lee.

Although this case is scheduled to go to full trial early next year, we expect that it will settle quickly. As a practical matter the preliminary injunction is both the battle and the war in these kinds of cases.

A few other interesting observations about the case:

First, Dr. Lee’s lawyers were savvy enough to anticipate this suit and require Google to agree to pay Dr. Lee’s salary even if he was enjoined from working for Google for a year. We rarely see this, but Dr. Lee was well represented in this regard.

Second, Microsoft had Dr. Lee sign a boilerplate noncompete agreement when he began working for Microsoft in 1998, and then forgot all about the agreement until it came time to enforce it, at which time the agreement fell short. We’ve seen this time and time again. Where employees’ jobs change and success or failure can rest on a single word, it’s essential to revisit these agreements from time to time.

Third, it appears that before leaving Microsoft Dr. Lee may have begun advising Google and may have transferred confidential Microsoft documents to Google. This is the worst mistake an employee in this situation can make, and it’s often enough to tip a decision against the employee. Here, it wasn’t.

Fourth, according to the New York Times, immediately following the preliminary injunction decision Microsoft’s General Counsel announced to the press that it was prepared to settle this case on the terms of the preliminary injunction order entered that day. Google responded that this was the first it had heard of this. Why Microsoft would attempt to negotiate via the press in this manner is anybody’s guess, but it is highly unusual, and suggests that Microsoft considers this case a lost cause and wants to both save face and cut its losses as soon as possible.

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