Thursday, July 28, 2005

Google Counters and Microsoft Files For Restraining Order

On July 25, 2005, Microsoft filed a Motion for Temporary Restraining Order in Washington state court to “prevent the actual and substantial injury that will result if Dr. Lee is allowed to violate his non-competition promises.” Dr. Kai-Fu Lee worked at Microsoft’s Chinese Research facility for two years. In 2000, Dr. Lee was promoted to Vice President of the Natural Interactive Services Division within Microsoft in the United States. On August 8, 2000, Dr. Lee signed an Employment Agreement with Microsoft. The non-competition agreement provided in relevant parts that:

Non-Competition and Non-Solicitation. While employed at Microsoft and for a period of one year thereafter, I will not (a) accept employment or engage in activities competitive with products, services or projects (including actual or demonstrably anticipated research or development) on which I worked or about which I learned confidential or propriety information or trade secrets while employed at Microsoft…. If during or after my employment with Microsoft I seek work elsewhere, I will provide a copy of this Agreement to any persons or entities by whom I am seeking to be hired before accepting employment with or engagement by them.

In arguing for the temporary restraining order, Microsoft argued that this restriction would be no greater than necessary to protect Microsoft’s legitimate business interests, the Agreement imposes no undue burden on Dr. Lee or the public, and that if Dr. Lee is not stopped, Microsoft will suffer actual and substantial injury. Google countered by stating that the non-compete agreement is unreasonable because it would bar Dr. Lee from working “anywhere in the software industry, for a full year.” The hearing was set to take place today.

Google’s California Complaint for Declaratory Relief:

In an attempt to gain an advantage over the litigation, Google brought a Complaint for Declaratory Relief in the Superior Court of Santa Clara on July 21, 2005. The complaint attempts to “seek judicial relief from an overreaching and unlawful non-compete provision drafted by defendant Microsoft Corporation.” Google contends that California’s Business and Professions Code section 16600, which invalidates any contract that restrains anyone from “engaging in a lawful profession, trade, or business of any kind….”

Google, however, has an uphill battle in persuading a California court that this case should be heard in California. Dr. Lee signed the non-compete agreement in Washington, the non-compete has a provision that states that it is governed by the law of the State of Washington and the agreement provides for venue in a state or federal court located in King County, Washington. Google argues in its motion that:

The laws of the State of Washington relating to contract provisions such as the
Covenant Not to Compete are in fundamental conflict with California law. The
State of California has a materially greater interest than the State of
Washington in having its law applied to decide the enforceability of the
Covenant Not to Compete (a) because of the strong public policy in California in
favor of free mobility of employees and against provisions restraining anyone
from engaging in any lawful profession, trade, or business, and (b) because the
Covenant Not to Compete is interfering with the California-based employment
relationship between Google and Dr. Lee.

It is all from certain what a California judge could find persuasive, but Google’s best argument (and one which they make) is that Microsoft’s Washington state non-competition contracts are now having an effect on California businesses and its residents, and that California’s courts are more “enlightened” than other courts in their approach to non-competition agreements. If the California court accepts this argument it could have dramatic effects on the enforceability of non-compete agreements across the United States. (In fact, a California court has held that California law applies to the enforceability of a noncompetition agreement between a Maryland-based employer and an employee who was recruited to work in California but was not a California resident.) Note to every employee who has a non-compete agreement: Move to California, get a California driver’s license, move your cat and dog to California, and then magically you may not be bound by your noncompete agreement under another state’s laws.

It is also interesting to note that Google’s complaint does not mention that Microsoft has already filed suit in Washington state to enforce the non-competition agreement. The fact that Microsoft beat Google to the courthouse could have a very dramatic effect on the outcome of this litigation. The fact that there is already a pending lawsuit on the exact same issue in another state could bar a California court from hearing the case. (Note: Microsoft anticipated Google’s attempt to move the litigation to California by filing a complaint for declaratory relief in California, and that is why Microsoft did not even let Dr. Lee leave the meeting in which he was terminated before it served him a copy of the lawsuit filed in Washington state.)

Different reports have speculated that Google is positioning itself to compete directly against Microsoft, and not only in search engine technology but also within desktop software. A review of the Google job openings evidences this. Google has been raiding Microsoft’s talent for some time now, and this lawsuit is a shot across Google’s bow (and other start up companies) that the talent can leave, but Microsoft has the resources to make it an expensive ordeal.

In the larger perspective, Microsoft’s attempt to prevent Dr. Lee from working at Google will not effect the two companies much. It is likely that the litigation will not be resolved within one year, which is the same time Dr. Lee is restricted to work for a competitor under the non-compete agreement. In this case, both companies are large and it would be difficult to see how one person, such as Dr. Lee could make a significant difference, at least within the short term, on either company’s China strategies. However, Microsoft has sent an effective message to smaller companies that do not have the resources to fight a legal battle in two different state courts.


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