Are Apple and IBM Competitors?

by Lee Gesmer on November 8, 2008

Many people knowledgeable about these two companies may be surprised to learn that IBM has persuaded a U.S. District Court judge in New York that indeed, they are competitors.  The judge has enjoined Mark Papermaster, a 25-plus year employee of IBM, from working for Apple Computer.  While at IBM Mr. Papermaster was a product development executive in the area of blade servers.  After Apple engaged in an extensive, year-long interview process it hired Mr. Papermaster as the senior executive for the iPod/iPhone development team.

Of course, Apple was well aware of Mr. Papermaster’s non-compete agreement with IBM, which prohibited him from working for a competitor, and I assume that it seriously considered whether it could defend a challenge of this sort by IBM.  Apple probably concluded that servers and iPods were sufficiently far apart that it would be safe hiring Mr. Papermaster.  The fact that this decision went against it highlights once again the extent to which the outcome in a case of this sort is determined by the disposition of the judge who happens to draw the case, rather than the underlying legal principles, which give the judge an enormous amount of discretion to rule either way.

The Justia page for this case is here.  It appears that Justia has decided to make access to court filings in the case free of charge, and therefore the legal memoranda arguing each side’s position are available (docket entries 4 and 10).

Docket entry 18 is the judge’s order, which reads in part:

For the reasons that will be stated in a forthcoming Opinion, Plaintiff’s Motion for Preliminary Injunctive Relief is GRANTED. It is further ORDERED that Defendant, Mark D. Papermaster, will immediately cease his employment with Apple, Inc. until further Order of this Court;  . . .  and it is further ORDERED that the Court will hold a status conference on November 18, 2008, at 10:00 am, at which it will discuss, and encourages the Parties to discuss beforehand, an expedited schedule for discovery and trial.

Expect significantly more activity in this case (including an emergency appeal) if Apple and IBM aren’t able to work out their differences out of court.  I suspect that IBM knows that it got a somewhat lucky role of the dice on this ruling.  At least on the face of it, a settlement that assured IBM that Mr. Papermaster would stay away from any server development at Apple should be enough to resolve this dispute.

Of course, my discussion is based on the public record disclosed in the court filings.  In the world of Steve Jobs (who, according to the court filings, was directly involved in the decision to hire Papermaster), what you see and what’s really going on can be very different.  For the back story on this case, see this Fortune article and this Cringely column, from which the following quote is drawn:

Apple still hopes to convince a judge that it is correct about Papermaster. But if Apple fails in that, Steve Jobs will just pick up the phone and choose IBM Microelectronics as the fab to build the next generation of Apple’s PowerPC processors – a contract worth billions, but ONLY if IBM drops all legal action.

Apple will win in the end — I guarantee it. And the way Jobs negotiates, Big Blue will probably end up losing money on the chip deal, too.

Update: This case was settled in January 2009.

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