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The Man Who Knew Too Much - the Google-Dr. Lee/Microsoft Litigation - UPDATED
Sunday, September 04 2005 @ 09:29 PM EDT

I guess you've heard that Microsoft's CEO, Steve Ballmer, has been quoted in a declaration filed in the Microsoft v. Google/Google v. Microsoft dueling lawsuits, as saying he will blankety blank kill Google and "bury" its CEO, Eric Schmidt. Here's the report, and excuse his language:
Microsoft Corp. CEO Steve Ballmer vowed to "kill" internet search leader Google Inc. in an obscenity-laced tirade, and Google chased a prized Microsoft executive "like wolves," according to documents filed in an increasingly bitter legal battle between the rivals.

The allegations, filed in a Washington state court, represent the latest salvos in a showdown triggered by Google's July hiring of former Microsoft executive Kai Fu-Lee to oversee a research and development centre that Google plans to open in China. . . .

Ballmer's threat last November was recounted in a sworn declaration by a former Microsoft engineer, Mark Lucovsky, who said he met with Microsoft's chief executive 10 months ago to discuss his decision to leave the company after six years.

After learning Lucovsky was leaving to take a job at Google, Ballmer picked up his chair and hurled it across his office, according to the declaration. Ballmer then pejoratively berated Google CEO Eric Schmidt, Lucovsky recalled. "I'm going to f---ing bury that guy, I have done it before, and I will do it again," the declaration quotes Ballmer. "I'm going to f---ing kill Google."

I await with eager anticipation the cries of moral outrage from Rob Enderle and Laura Didio and Darl McBride and everyone else who has accused the FOSS community of verbal extremism.

That may be quite a wait, so let me be the first to call on the proprietary software community to condemn in no uncertain terms such violent speech coming from their community. Death threats are never acceptable, don't you agree?

Such threats coming from the CEO of the largest software company in the world are far more serious than they would be coming from some teenage Slashdotter, because Ballmer surely has the means to follow through, does he not, should he actually mean it?

If you were Mr. Schmidt, how safe would you be feeling today? It was a metaphor, you say. Likely it was, but are you positive? And let's say you answer yes, it was a metaphor. Is it all right for a convicted monopolist to threaten to "kill" a competing company?

Ballmer now denies he ever made such threats. That is possible. It's also possible the Microsoft lawyers turned pale upon learning of the statement and insisted on a public denial.

He sort of has to deny it, since antitrust issues leap into our minds otherwise, and that is one of the things Google is complaining about in its litigation, not to mention that should Mr. Schmidt from this day forward have so much as a headache, the whole world will blame Mr. Ballmer. Should he actually die, an investigation is certain to at least be considered, I would think. If I were as rich as Mr. Schmidt, I'd probably hire bodyguards, if we assume that Mr. McBride needed them on far less provocation.

All this made me decide to look into what would have Mr. Ballmer allegedly throwing a chair at the wall and making such threats. For the record, and so that Mr. Ballmer doesn't sue me or, gasp, decide to "bury" me, too, here's what he says about it:

In a statement, Ballmer described Mark Lucovsky's recollection as a "gross exaggeration. Mark's decision to leave was disappointing and I urged him strongly to change his mind. But his characterization of that meeting is not accurate."

It's not true, the man says. OK. But it *feels* true, doesn't it? At least it does to me. So, appropriately inspired, I set out to find out what this was all about.

And here you go, everything I could find on the Google-Microsoft battle so far. Note that there are some documents missing, because some state courts don't make filings as fully available as District Courts, but this is what I've learned and the significant documents that are available. Unfortunately, the one document we most want to see, the one that tells about Ballmer allegedly throwing a chair across the room and threatening Google's life and limb, isn't available yet. I'll explain the documents we do have, but remember that it's just my impression, I don't have all of them, and I'm not giving it the fine-grained analysis I do in the SCO litigation, so feel free to read the documents themselves and draw your own conclusions. This is more for fun.

Microsoft v. Google and Google v. Microsoft

First, there are two lawsuits filed. Microsoft filed first in Washington State and a few days later, Google filed in California. Google's was then assigned to a US District judge. It's a dispute about Google hiring a Microsoft employee out from under them, Dr. Kai-Fu Lee, and it centers on a non-competition agreement which he signed in 2000.

Microsoft filed first, so it has that advantage, and it got a temporary restraining order [PDF] until a hearing on September 6 on whether or not to extend it until the trial. Frankly, getting to trial is likely to take longer than a year, which is all the non-compete clause covers, so we'll see what the judge does, but it seems likely that the court will extend the restraining order. As I will explain, that doesn't mean Microsoft will win in the end, just that the judge wants to prevent unfixable damage. But the first question is: which court will be the one that decides this dispute? The parties are fighting hard over that issue.

The Fight Over Jurisdiction

Where this gets heard is huge. As it happens, California tends to toss non-compete's overboard, so Google wants California to take the case long enough to do just that. They have a motion for summary judgment [PDF] filed, asking that the agreement be declared invalid and unenforceable and against public policy in California. Let's pick up the narrative by looking at the various court filings. Because I only have access to most of the Google v. Microsoft filings and only a few of the Microsoft v. Google filings, there could be gaps here or there, but a number of the Microsoft v. Google documents are filed in the Google v. Microsoft case as exhibits, including the Complaint, so we can get a pretty good picture.

Google and Dr. Kai-Fu Lee filed their action on July 21. It's Case No. CV-05-03095 RMW. Why not just file an answer to Microsoft's complaint and bring counterclaims? To get it out of Washington and into California, silly. It might not work, but it's certainly worth a try.

Dr. Lee, in his Declaration [PDF] in support of their Motion for Summary Judgment, which has the non-competition agreement [PDF] attached as Exhibit A, tells us that it was he who approached Google, asking for a job, and they ultimately offered him one that he officially accepted on July 19. The Declaration says he told his Microsoft boss he quit on July 18, and immediately thereafter, Microsoft served a complaint [PDF] on him, the one filed with the state's Superior Court of the State of Washington. The case is No. 05-2-23561-6 SEA, Microsoft Corporation v. Kai-Fu Lee and Google Inc., for those of you wanting to track it down at the courthouse to get the rest of the filings. Here are documents in the case that you can read without a Pacer account. They don't seem to make filings in general available on their website, however, just the rulings.

Microsoft has already begun filing sealed documents, which isn't a shock, because this is a case about secrets and because it's Microsoft, and there's an order [PDF] on how to handle such sealed documents already. They have also demanded redactions from Google, notably a quotation from Bill Gates, something that Google said he said about Dr. Lee.

Going to the court is about the only way to get the rest of the court filings for that case, I think, unless I'm just missing them somehow, which is always possible (the declaration by Lucovsky was reportedly just filed on Friday, and so it wouldn't be available on Pacer yet anyway). For that matter, the Google v. Microsoft complaint isn't available either, because it was filed in state court, and when the case was reassigned to US District Court, it wasn't sent over. They only have on Pacer what happened after that point.

I guess I should explain that in the US, states often call their lowest courts by high-sounding names like Superior Court or Supreme Court. By that, they mean in contrast to things like city courts, like traffic court, not suggesting in any way that they are the ultimate court. The US Supreme Court is the ultimate. So here, the Superior Court is the first step, the trial court, in the chain of courts that might ultimately hear a case.

OK. So Microsoft got the first bite. Why were they in such a hurry? I am only guessing, but I believe it is likely because Google has its offices in California, and that is where Dr. Lee was headed. California has a strong public policy of not allowing non-competition agreements to interfere with a man's employment opportunities. Washington State does not. So, naturally, since Microsoft's position is that the agreement blocks Dr. Lee from working for Google for a year on anything that is remotely the same as what he was doing for them, they'd prefer to avoid California.

The Non-Compete Agreement

In Microsoft's Motion for Temporary Restraining Order and Order to Show Cause [PDF], they tell us their reasons for concern:

Dr. Kai-Fu Lee -- with Google's encouragement -- is blatantly violating his non-competition promises to Microsoft. He is doing so by defecting Microsoft for Google, a direct competitor in markets as to which Dr. Lee holds Microsoft's most sensitive technical and strategic information. The non-compete provisions Microsoft seeks to enforce are narrowly drawn and were agreed to by Dr. Lee as a condition of his return to Redmond as a Microsoft Vice President, a position for which he was paid over a million dollars last year alone.

For the past five years, Dr. Lee has held leadership positions with respect to Microsoft's efforts to develop new and improved search engine technologies. Microsoft is engaged in intense competition with Google in the market for these products. By virtue of his leadership roles, Dr. Lee learned Microsoft's most sensitive technical and strategic business secrets about search technologies. Throughout this time he was also deeply involved in Microsoft's efforts to expand its business in China and learned Microsoft's confidential strategic plans regarding that crucial new market.

Dr. Lee decided to defect Microsoft for Google in order to lead Google's new China operation developing search technology. This places him in direct competition with Microsoft on two issues -- search engines and China strategy -- where Dr. Lee holds Microsoft's most proprietary, confidential, and competitively sensitive information. This is a clear violation of the non-compete provisions of Dr. Lee's Employment Agreement. Microsoft is therefore compelled to seek a Temporary Restraining Order to prevent the actual and substantial injury that will result if Dr. Lee is allowed to violate his non-competition promises.

They call it narrowly drawn for a reason. No court in the world will say a man can't work at all in his chosen field ever again. It's obvious that at a certain level, you really couldn't work anywhere ever again, if an agreement were allowed to be written broadly enough. So Microsoft here is stressing that they aren't asking for more than the law allows. The standard in Washington, according to Microsoft, is this:

[A] noncompete agreement will be enforced so long as it is reasonably necessary to protect the employer's business, does not impose on the employee any greater restraint than is reasonably necessary for that protection, and is not contrary to the public interest.

Dr. Lee has limited options, given his area of speciality and how few search engine companies there are, so the court has to weigh his interest in staying employed against his former employer's interest in keeping their secrets secret from a competitor. The agreement had confidentiality clauses also, they tell us. That is significant, because there is no time limit on them. He agreed, they claim, to *never* reveal confidential matters or *ever* to solicit Microsoft employees to leave the company for a job elsewhere. The non-compete clause is considerably easier to justify. Clause 9 reads like this:

9. 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 proprietary information or trade secrets while employed at Microsoft; (b) render services to any client or customer of Microsoft for which I performed services during the twelve months prior to leaving Microsoft's employ; (c) induce, attempt to induce, or assist another to induce or attempt to induce any person to terminate his employment with Microsoft or to work for me of for any other person or entity. 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.

Personally, I'd just stick to an agreement if I'd signed it, but that's just me. I'd stick to an agreement if I simply *said* I would, let alone signing anything.

[UPDATE:

I have gotten two more documents from the Microsoft v. Google litigation, and they definitely clarify the situation considerably:

It turns out that Dr. Kai-Fu Lee and Google unilaterally stipulated that pending trial Dr. Lee will not work on any technical areas listed by Microsoft in its proposed preliminary injunction, but that wasn't enough for Microsoft to drop its motion. According to Google, Microsoft is claiming that they have confidential methods of hiring people and Dr. Lee shouldn't be allowed to do that either, ever. Here's a segment from Google's opposition to Microsoft's Motion for Preliminary Injunction, and you'll note the redaction at the very beginning, apparently demanded by Microsoft:

To address Microsoft's purported concerns about Dr. Lee's knowledge of "confidential" Microsoft information, Defendants have stipulated that, pending trial to determine what technical or strategic information Dr. Lee actually worked on or knew, and whether it could be put to competitive use for Google, Dr. Lee will not work or consult in any of the technical areas identified in Microsoft's proposed preliminary injunction. Rather, pending trial, he will open a product development center in China, and staff it with non-Microsoft personnel.

But Microsoft wants far more. It interprets its standard non-compete agreement to ban Dr. Lee from doing any work for Google -- or for any other software company -- in China, or anywhere else, that falls within the range of all of Microsoft's business globally. Microsoft brought this preliminary injunction motion not out of concern for any confidential information, which Google and Lee have stipulated to protect, but out of a desire to delay Google's entry into China, and make an example of Dr. Lee for other Microsoft employees who might have the audacity to "defect" from Microsoft. See Microsoft TRO Mtn. at 1.

Microsoft has no legal right, contractual or otherwise, to prevent Dr. Lee from utilizing his charismatic, personal qualities and general skills to start up a facility and hire from China's universities, and from companies other than Microsoft. Microsoft's claim that its non-compete covers recruiting is contrary to the terms of the non-compete covenant itself, which applies only to "products, services and projects," such as research, for which Dr. Lee was responsible, and not to the general activities Dr. Lee engaged in as a vice president, such as interviewing prospective executive hires. . . . Microsoft has not identified any confidential recruiting information or relations, and Dr. Lee knows of none, that could be put to competitive use for Google. Every aspect of what Microsoft has alleged is its "confidential" recruiting information and relations -- has been publicly disclosed on Microsoft's website and in public presentations by its management, besides being generally known.

II. STATEMENT OF FACTS

A. Google hired Dr. Lee to start and staff its product development center in China because of his reputation in China, and with Chinese students, not to obtain Microsoft information

Google hired Dr. Lee to help it start up a China development center because of his stature in China, his integrity, his leadership and managerial skills, his technical credentials, and his commitment to and connection with Chinese students. Every Google executive deposed in this case has so testified. . . .

Google did not hire Dr. Lee to obtain Microsoft information. Google is admittedly ahead of Microsoft in search technology. . . .

B. Dr. Lee's unique personal skills belong to him -- not Microsoft.

The unique skills and qualities that make Dr. Lee an ideal recruiter for Google are personal to him -- Microsoft does not own them and cannot prevent Dr. Lee from using them on behalf of Google.

As you can see, there have already been depositions. This litigation is moving a lot faster than SCO v. IBM, wouldn't you say? It shows what can be done when your object is actually resolution of the issues and not just delay. This makes it clearer that Google isn't even asking to get out of the noncompete agreement, only to clarify at trial exactly what is covered by it. Personally, I'm very relieved to see that. This also impacts on my analysis, so keep that in mind as you read on. I gave Microsoft too much of the benefit of every doubt, I realize, on reading the newly acquired filings. [End Update.]

But there is a line that the law recognizes. If there is, in any contract, parties that are not evenly matched, shall we say, then the law scrutinizes such an agreement more carefully, and the weaker party may not be bound by what can be viewed as overreaching terms. You see the issue come up regularly in pre-nuptial agreements, if the man has more education and money than the wife, particularly if she had no attorney of her own.

To give a more extreme example, if a mobster holds a gun to your head and tells you to sign over your business to him or else something might happen to you, the courts aren't going to hold you to your "word". They will figure the "bargain" wasn't fairly entered into because you weren't in a position to negotiate equitable terms, and they won't uphold the deal. Precisely where that line is between a hard bargain between equals and an unconscionable agreement varies from state to state, case to case.

But Microsoft makes a reasonable point when it points out that it relied upon Dr. Lee's promises and that it never would have hired him or given him access to confidential information at such a high level without those promises. In any contract, if one side relied on the promises of the other side, it reinforces the validity of the contract, so that is why they are saying that. It's also probably true that without the agreement, they would have kept him from confidential materials, but at a certain point, you can't do your job unless they reveal what you need to function, so it's true only to a point.

Microsoft says he sat in on high level meetings regarding plans for China up until May of 2005. Dr. Lee, they tell the court, managed technical teams working on MSN Search technology. At one point he was "even in charge of Microsoft's overall business efforts for MSN Search." The tech he managed includes improvements in "natural language processing" and speech research to improve the ability to search for audio and video files, and "highly confidential new and innovative search technologies using machine learning concepts." He therefore knows the "software architecture, source code, and algorithmic structure for the current MSN search engine" as well as Windows Desktop Search, and he is familiar with Microsoft's strategies for the future to "market and monetize" search products, according to Microsoft. You can almost hear them throwing up at the very thought of Dr. Lee defecting to Google with all that inside his head. (Dear Dr. Lee: Please don't ever donate anything to Linux, okay? We have enough trouble.)

An interesting detail is that Microsoft says it has a Google competition "playbook". It's funny to me how all these corporations think in sports terms. It must be a guy thing. Dr. Lee went to a meeting at which top executives were briefed on "The Google Challenge" in March. So he knows precisely how Microsoft plans to compete against Google in the search engine marketplace, Microsoft complains. Both the product line and the geographical market "directly overlap."

You can understand this from their standpoint if you think of a worst-case scenario: your competitor secretly sends someone over to you to seek employment. He doesn't say he is from your competition. You hire him and teach him a bucket of stuff, and then he quits and goes back to your competitor with all your information. In the cutthroat business world, which is more like war than sports, except for the actual killing part (one hopes), no doubt someone would try it or has, and that is what non-competition agreements are supposed to prevent.

Here, though, Microsoft has one problem. This agreement is worldwide. Usually they are geographically limited, and Microsoft here realizes this could be a problem, so it says that a non-compete can be as broad in scope as the business you're in. Microsoft's business is worldwide. But that is the same as saying that Dr. Lee can't work for anyone anywhere for a year. Well. He can sling hash, I suppose. Microsoft says he can work for any competitor as long as he takes a position that isn't directly competitive. But what would that be at Google? I did hear they are looking for a chef, but that isn't Dr. Lee's field of expertise. With his training and experience, what really can he do for Google that wouldn't compete with some aspect of Microsoft's business interests?

Microsoft also argues that there is no public impact on Dr. Lee cooling his heels for a year, but I can think of a public interest, although I doubt the court will view it as anything to shake a stick at: we have an interest in search engines that work well, so innovation in that field is to our benefit. If Dr. Lee were to die, for example, before he gets to build his vision of what a search engine can do, we will be the losers. Well, he wasn't personally threatened with burial, so I guess that is remote. But personally, if Microsoft did "kill" Google, the whole world would be bereft.

Dr. Lee's Side of the Story

Dr. Lee, in his Declaration, tells us that he moved to California on the 19th, then registered to vote in California, got telephones in his name there, including a new cell phone, got a new driver's license in California, giving up the one he had in Washington State, and is now paying payroll taxes and income taxes to California. No doubt Google expected Microsoft might sue, and we can assume that because Dr. Lee negotiated, as part of his package, that Google would pay his legal bills, should such a lawsuit ensue. Microsoft in its Motion for a temporary restraining order points out that Dr. Lee still has a residence in Washington State. I'm guessing that is just because he hasn't found a buyer yet.

All of this is to prove to the court that Dr. Lee is a California resident now, with plans to stay there for the foreseeable future, so that the court will be inclined to accept the case and rule in his favor on the non-compete issue. And that is what their Motion for Summary Judgment is about. They ask the court to rule as a matter of law that the agreement is against public policy, is invalid and unenforceable and shouldn't be upheld. They also say in their complaint that Microsoft's efforts to enforce the agreement violates California law and is an unlawful business practice, illegal restraint of trade.

Why Microsoft is suing Google too is a puzzlement to me. Maybe they did it because when you are working very fast, and their lawyers were, you throw in anything you think you might need, so you are covered. But as Google points out in their response [PDF] to Microsoft's Notice of Pendency, they are being sued essentially for offering a man a job, which is not an illegal activity. They are not parties to the agreement in question.

Lee's supervisor was Eric Rudder, we learn from Microsoft's Answer and Affirmative Defenses [PDF], filed in answer to Google's California Complaint, and we learn that Dr. Lee submitted his resignation by letter. Microsoft's Motion for the TRO fills in a detail. It seems Dr. Lee told his boss on July 5 that he was considering going to Google. Rudder talked him out of it, urging him to wait and "explore opportunities for a Microsoft position in China." That explains how the lawyers were able to work so fast and serve Dr. Lee immediately after his meeting with Rudder on the 19th, when he handed in his letter of resignation. They were ready for him, just in case, apparently. Several Microsoft executives met with Dr. Lee to try to get him to change his mind. But Microsoft says Google offered Dr. Lee the opportunity to "build and lead its China office 'end to end.'" I've heard that is how Google gets folks on board -- they offer you the opportunity to make your vision, whatever it is, come true. You have to admit, that is irresistible to anyone with a vision.

I'm further guessing that Microsoft has templates from earlier defections on hand to work from. If I were Microsoft, with all the money in the world, and lawyers to burn, metaphorically speaking, I'd ask them to prepare and keep up-to-date every possible type of complaint, just in case. Their claim in the Washington lawsuit is that in addition to Dr. Lee being in violation of the agreement, the "conduct of Google and Dr. Lee constitutes threatened misappropriation of trade secrets" and that Google's conduct "constitutes or threatens tortious interference with contractual relations."

Constitutes or *theatens*? Well. OK. Call that a placeholder. They want to do discovery, I guess, and naming Google too makes that amply possible. No doubt they want to know exactly how much has been revealed to Google already, they want to prevent any further leaks, and they want it to cost Google an arm and a leg, metaphorically speaking, part of the I'll-blankety-blank-kill-you threat's fulfillment, perhaps.

Microsoft's Temporary Restraining Order

Microsoft was easily able to get a temporary restraining order [PDF] from the state court. I say it was easy, because the nature of the claim makes it very hard for any court to deny such a request. The bar will be higher, though, when it comes to getting a restraining order lasting until trial. But with so much at stake, I frankly can't see how a court will say no. The reason is that if they don't restrain him, the damage will be done and irreversible. Microsoft will be left without a remedy, even if it wins the case. By the time it goes to trial, the non-compete clause is likely to have run out, so without a restraining order, they could win at trial, but have it be too late to do them any good. Mere money won't make them whole, even if there existed a way to quantify their loss accurately. Dr. Lee would have benefitted from the bargain, they point out, getting the Microsoft job and the salary, but then he flies off without keeping his side of the bargain, so Microsoft gets no benefit at all from the agreement.

If they do restrain him until trial, and Google and Dr. Lee prevail, the damage to Dr. Lee is minimal, by comparison. Microsoft had to post a million-dollar security to pay costs and damages in the event that the defendants are found to have been wrongfully enjoined, but you can't put secrets back into secrecy, once they are let free. The damage to Google is real, but they did know about the agreement going in, and they were willing to hire him anyway. If I were the judge, that's how I'd see it, anyhow. But a decision like that isn't an indication of which side the judge thinks has the strongest case. He's balancing the equities, trying to figure out how to keep both sides reasonably whole no matter which way it ultimately goes, since there really is no way to know who is right this early in the game.

So, now you know what it means when you hear about forum shopping. That is step number one in major litigation, and no good lawyer would not think about it. Where you file matters. This case shows why. An non-competition clause is the heart of the case. Dr. Lee did sign the document, and now he would like to say clarification of exactly what it covers. He has other arguments too; for example, it is his position that what he will be doing for Google isn't the same as what he did for Microsoft, so the agreement doesn't apply in the situation, and that he can't do anything like the work he did for Microsoft for over a year anyway, since Google has no center built in China yet, but the quickest and easiest solution, from his standpoint, is to get the agreement tossed out, so he can get to work immediately, without worrying about all this.

He was hired, he tells us, to help Google open and establish a new research and development center in China. "The exact business plans and focus of this new project research and development center have yet to be fully determined," he says, "It is intended, however, that the new center will develop products to be used throughout the numerous markets that Google serves. I was expected to oversee recruiting and facilities construction in China for the new research and development center beginning in late 2005." Then, he adds, he'll be moving to China for a couple of years on a temporary basis, but retaining his California residence and continuing to pay taxes there.

This is to say, in legalese, as I understand it, that the agreement not to compete can't be said to apply to what he'll be doing, because no one even knows yet precisely what he will be doing so making a claim that it is the same as what he promised not to do has to fail, and he can't start doing it until the center is built and running, and that is sure to take a year anyway, and since the non-compete clause is only for a year, this is all a fuss about nothing.

That is his argument, but I'm sure Microsoft will view that with a cynical eye and point out that he isn't being hired for his human resources or building construction skills. His resume tells you what he will likely be doing, and he knows too much about Microsoft's secrets; they accuse him of already sending confidential documents to Google, which Google denies. You can read Google's specific explanation of what Dr. Lee sent in their Public Version of Google Inc.'s Opposition to Microsoft's Motion for Preliminary Injunction. It was all public information, they say.

The TRO says he can't hire away any of Microsoft's employees either, so that seems to be a real concern of Microsoft's. Google's announcement of his joining the company said that he will serve as President of the company's Chinese operations and that the new center will strengthen Google's search efforts, as well as focusing on "developing new innovative technologies and projects," Microsoft points out, and they flat out say that he was hired to work on search and to do so immediately. That is in direct competition with Microsoft, hence covered by the agreement. He was, they tell us, "one of the main architects of Microsoft's business strategies in China." No doubt that worries them plenty too. And that is an area that is bound to get serious, because of some eternal confidentiality clauses in the agreement.

In their Answer, Microsoft denies that their "limited non-competition provision" violates California public policy or is invalid or unenforceable under California law, and Microsoft doesn't think the agreement is governed by California law anyway. It says troubles will be aired out in Washington. They also don't think they are guilty of illegal restraint of trade, which Google has alleged. Dr. Lee was the initial employee of Microsoft Research Asia in China in 1998. It wasn't until he went to work in Redmond, Washington in 2000 that he signed the agreement. This could end up mattering, depending on what he will be doing for Google in China and what he did for Microsoft since 2000. If what Dr. Lee will be doing for Google is similar to what he did for Microsoft in China but not what he did later in Redmond, Microsoft could be up a creek without a paddle.

That is the kind of detail that lawyers need and depend on the client to provide, so if you are ever in litigation, be sure to tell your lawyer everything you can think of. Your lawyer will know which detail, like this one, might matter under the law. You might not, so just tell everything, and when you see your attorney's eyes light up, you'll know it matters.

From Microsoft's Answer, we also learn that Dr. Lee was on sabbatical from Microsoft as of June of 2005. We learned already that he approached Google in May, and quit in July, so the timing seems, well, pointedly helpful, should a person want to house hunt, let's say, or register to vote in a new state. Microsoft, in a footnote, say that Microsoft's sabbatical policy is that you can't use it to job hunt and then not return. Dr. Lee "confirmed" the policy in writing and orally, they say. Sheesh. Maybe Microsoft should look to its policies. That kind of regimentation must make some yearn to escape the bird cage, I would think. And, as we see, people act like people anyway, so what's the point?

UPDATE:

In Google's Public Version of Google Inc.'s Opposition to Microsoft's Motion for Preliminary Injunction, they answer this allegation:

Microsoft has accused Dr. Lee of breaching a formal, written policy, allegedly set forth in a document he signed, requiring him to return after his sabbatical term ended. Senior Microsoft VP Eric Rudder, who declared to those facts under oath, has now admitted, also under oath, that no such written policy is set forth in the documents signed by Lee.

Rudder was Dr. Lee's boss, remember. Are we starting to get a feel for why Dr. Lee was unhappy working for Microsoft? [End update]

The agreement, Microsoft points out, provides that it be governed by the laws of the State of Washington and that exclusive venue for any action lies in state or federal court located in King County, Washington. Personally, I wouldn't want to sign any agreement with Microsoft with such a provision. I think we can assume a home court advantage in a state that likely rakes in mucho dinero in taxes and political contributions from Microsoft. Then there is the golf course schmooze factor. California has no stake here, Microsoft argues, on one additional ground: the agreement was entered into in Washington State between two Washington residents. (Here they are using the corporate entity as a "person" residing in that state.) Dr. Lee agreed to the terms of the agreement, and it should stand.

Google and Dr. Lee's request for declaratory relief should at least be stayed or the California court should abstain from hearing the case at all, Microsoft asserts, "in favor of the first-filed, ongoing, and more advanced Washington State court action."

"More advanced" is a bit of a stretch, when you consider that the two complaints were filed within days of each other in mid-July and their Answer is dated August 11, but a lawyer's job is to advance every possible argument. Microsoft really doesn't want this heard in California, and you can't blame them. I wouldn't either. But their argument is that they got a temporary restraining order already in Washington State, so Google and Dr. Lee can't ask for summary judgment in California, that they are barred by collateral estoppel and/or res judicata. That is a bit of a stretch too, but hey. Microsoft requests that the California complaint be dismissed and that they get their legal fees regarding the matter paid, as per the agreement, which has a clause that loser pays.

The Confidentiality Promises

By my reading, the non-compete issue is the least of Dr. Lee's worries. That only lasts one year. It's the rest, the confidentiality promises, that last for the rest of his life. It reads in part like this:

During my employment and at all times thereafter, I will not disclose to anyone outside MICROSOFT nor use for my purpose other than my work for MICROSOFT: a) any MICROSOFT confidential or proprietary information or trade secrets; or b) any information MICROSOFT has received from others that it is obligated to treat as confidential or proprietary.

There's more, but that is enough to give you the flavor. But think about this man's skills and experience. They are suing him in advance of any known violation. Where can he work now, for the rest of his life? Doing what? Whether a court, even in Washington, will uphold such a timeframe in a field as narrow as this seems doubtful to me, and I have to wonder at Microsoft's nerve in even asking an employee to sign such a document. On the other hand, nerve has never been in short supply in Redmond.

So you can get the taste of the litigation, without having to lift a finger even to click on a PDF, here is Google's and Dr. Lee's RESPONSE TO MICROSOFT CORPORATION'S NOTICE OF PENDENCY OF OTHER ACTION, as text.

*************************

STEPHEN E. TAYLOR (SBN 58452)
JAN J. KLOHONATZ (SBN 111718)
STACEY L. WEXLER (SBN 184466)
[address, phone, fax, emails]

Attorneys for Plaintiffs
GOOGLE INC. and KAI-FU LEE

IN THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

GOOGLE INC. and KAI-FU LEE,

Plaintiffs,

v.

MICROSOFT CORPORATION,

Defendant.

__________________________

Case No.: C 05-03095(RMW)

GOOGLE INC.'S AND KAI-FU
LEE'S RESPONSE TO MICROSOFT
CORPORATION'S NOTICE OF
PENDENCY OF OTHER ACTION

(PURSUANT TO CIVIL L.R. 3-13)

Pursuant to Civil Local Rule 3-13(c), plaintiffs Google Inc. ("Google") and Kai-Fu Lee ("Dr. Lee") responds as follows to defendant Microsoft Corporation's ("Microsoft") Notice of Pendency of Other Action.

I. RELATIONSHIP OF THE ACTIONS

In the case pending before this Court, Google and its employee, Dr. Lee, seek a declaration that the covenant not to compete contained in Dr. Lee's employee agreement with his former employer, Microsoft, is an unlawful restraint of trade, and thus is invalid and unenforceable pursuant to well-established California law and public policy. Google and Dr. Lee filed their complaint in this action in the Superior Court of the State of California for the County of Santa Clara on July 21, 2005. Microsoft thereafter removed the case to this Court on the basis of diversity jurisdiction on July 29, 2005, acknowledging that Dr. Lee is a California citizen.

From August 2000 through mid-July 2005, Dr. Lee, a computer scientist, worked for Microsoft in the State of Washington. Prior to that time, Dr. Lee had been employed by two California companies, and from late 1998 until approximately August 2000, by an affiliate of Microsoft in China. Dr. Lee signed the Microsoft employment contract at issue in this lawsuit upon his return to Washington from China in August 2000. The covenant not to compete contained in that agreement provides, in pertinent part, as follows:

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 proprietary information or trade secrets while employed at Microsoft . . . .

See Microsoft's Notice of Pendency of Action, Exh. A, at p. 5:1-4.

On or about July 5, 2005, while on sabbatical, Dr. Lee informed Microsoft he intended to resign his position at Microsoft and was considering employment with California-based Google. On his last day of employment with Microsoft, July 18, 2005, Microsoft served Dr. Lee with a complaint filed in the Superior Court of the State of Washington for King County. That action is entitled Microsoft Corporation v. Kai-Fu Lee and Google Inc., Civil Case No. 05-23561-6. The complaint in

1.

the Washington action alleges that Dr. Lee violated the terms of his employment agreement with Microsoft by accepting employment with Google, that Dr. Lee's conduct "threatens to disclose" or Dr. Lee "inevitably will disclose" Microsoft's trade secrets to Google, and that Google tortiously interfered with Microsoft's contract with Dr. Lee by offering him a job. See Microsoft's Notice of Pendency of Other Action, Exh. A, at pp. 8:13-10:7.

On July 19, 2005, Dr. Lee moved to California to begin his employment at Google. He is a citizen of the United States and is currently living in California. While he is expected to spend time in China as part of his job responsibilities for Google, traveling to and from California during the course of his overseas assignment, Dr. Lee will at the same time report to and remain in ongoing contact with senior management and other employees with whom he will be working at Google's headquarters in Mountain View, California. Dr. Lee intends to maintain permanent residency in California while he is on overseas assignment in China. Dr. Lee's employment agreement with Google provides that he is not to disclose any confidential or trade secret information of his former employer to Google.

II. FURTHER PROCEEDINGS

Microsoft contends that the Court should dismiss this action or stay the proceedings pending the outcome of the Washington state court action. The Washington action is currently scheduled for trial on January 9, 2006, with a preliminary injunction hearing set for September 6, 2005. The Washington state court entered a Temporary Restraining Order against Google and Dr. Lee on July 28, 2005. . . . According to Microsoft, this Court should defer to the Washington state court to "avoid conflicting judgments."

Contrary to Microsoft's request, the California Supreme Court has held in similar circumstances that parallel proceedings in different courts should go forward. See Medtronic, Inc. v. Advanced Bionics Corp., 29 Cal. 4th 697 (2002). In Medtronic, the Supreme Court reversed an antisuit injunction that prohibited the parties from litigating the enforceabilty of the same non-compete provision in Minnesota, while a parallel California action was allowed to proceed. Although the Supreme Court did not prohibit the litigants from continuing Minnesota case, the Court found that the pendency of the Minnesota action did not divest California of jurisdiction. See id. at 708.

2.

This California-based action similarly must be allowed to proceed independently to promote fundamental public policy in California. Since 1872, with the enactment of the predecessor statute to Business and Professions Code section 16600 ("Section 16600"), California has had a well-established public policy of ensuring free movement of employees unencumbered by post-employment restrictions. Section 16600 provides, in pertinent part, that "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."

California's public policy in favor of competition and "freedom of movement of persons whom California-based employers . . . wish to employ," and against contracts in restraint of trade, is deeply rooted. See Application Group, Inc. v. Hunter Group, Inc., 61 Cal. App. 4th 881, 900-01 (1998). California's policy is intended to ensure that its employers remain competitive, and has been held by California courts to outweigh the interest that out-of-state employers may have in enforcing anti-competitive covenants -- even covenants allowed under the laws of other states. See id. "[T]he interests of the employee in his own mobility and betterment are deemed paramount to the competitive business interests of the [former] employer. . . ." Id. at 900 (quoting Diodes, Inc. v. Franzen, 260 Cal. App. 2d 244, 255 (1968)). California steadfastly adheres to its fundamental public policy, notwithstanding that other states hold a differing view. See Hill Med. Corp. v. Wycoff, 86 Cal App. 4th 895, 900-01 (2001).

3.

Google and Dr. Lee submit that this action thus must proceed to resolve the present case under the law of California. This Court's ruling on the pure question of law that Google and Dr. Lee present in their declaratory relief action need not await the outcome of the lengthy and fact-based proceedings mandated by Washington law regarding the enforceability of covenants not to compete. Put simply, Google's principal place of business is in California and Dr. Lee is a California resident. This Court is uniquely situated to determine as expeditiously as possible the rights of the parties under California law.

Respectfully submitted,

TAYLOR & COMPANY LAW OFFICES, INC.

Dated: August 15, 2005
By:___[signature]___
Stephen E. Taylor

Attorneys for Plaintiffs
GOOGLE INC. and KAI-FU LEE

4.


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