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The Microsoft v. Google-Lee Hearing
Wednesday, September 07 2005 @ 08:40 AM EDT

The first reports from the hearing in the Microsoft v. Google et al litigation are in. The best and quickest background on the case is IDG's Juan Carlos Perez's account. Two thorough reports of what happened at the hearing are AP's and Todd Bishop's for The Seattle Post-Intelligencer.

Dr. Kai-Fu Lee, the executive both sides are fighting over, testified, and so did Steve Ballmer, by video. Microsoft seems to like to have its highest executives testify that way. I figure it's either because Ballmer is way too busy to show up in person, or maybe it's so his attorneys can edit out any chair throwing.

Only kidding. . . . Sorta.

Bishop tells us that others testified by video too, and that they played excerpts from depositions of Google's Sergey Brin and CEO Eric Schmidt, and Gates, too.

As you will recall, this is litigation over a noncompetition agreement [PDF], which also has a confidentiality clause. The issue at the hearing was whether or not to grant Microsoft an injunction, or more exactly whether to continue a temporary injunction [PDF] all the way through to the trial, which is now scheduled for January 9.

I've seen a lot of media coverage saying that Microsoft "won" the temporary injunction in July, but that isn't really entirely accurate. It misses a detail. Google and Dr. Lee had already stipulated [PDF] that he wouldn't do any type of work on technical projects like search, natural language and speech technology until the scope of the agreement between Dr. Lee and Microsoft can be parsed out clearly by the court at trial. So Microsoft "won" its Motion [PDF] in that it won what Google had already stipulated to. It wants more.

The big issue left on the table at the hearing was whether the noncompetition clause covers setting up, staffing, and running a research and development center for Google in China. Is that covered by the agreement? Can Dr. Lee do that, despite the agreement? It is Google's position that the agreement speaks only about "activities that are competitive with products, services or projects" he worked on at Microsoft, and that doesn't include setting up and running a research and development center.

Microsoft says it does too, and Ballmer claims they have a "secret sauce" method of recruiting and doing business in China that Dr. Lee knows about from working there, and Microsoft wants him forbidden from reproducing that secret method for Google.

Google says that wasn't the core function Dr. Lee had while at Microsoft, not after he signed the agreement in 2000. He was working on search technology, not hiring people. Microsoft countered in cross-examination at the hearing by showing Dr. Lee attended more than a dozen meetings concerning Microsoft's business in China in his last months with the company. The issue is, does he know too much about Microsoft's methods?

So, at the hearing, Microsoft had the unenviable task of trying to convince the judge that their methods of hiring people are a kind of trade secret or something. I know. I laughed too. But that's their story, and they are sticking to it.

I thought, from reading the filings, that Microsoft might be seeking to block Dr. Lee not just for a time under the noncompetition clause, which is limited to a year, but forever, under the confidentiality clause. There is a great deal at stake. Actually, even if it is only a year they are fighting over, it is significant. But according to CNET, Microsoft reportedly opened their remarks at the hearing by saying this is a dispute about noncompetition. Presumably, that is because they must be aware that no court is going to uphold an agreement that says a man can't work for any competitor for the rest of his life. I'm not convinced, though, because the CNET report seems to me a bit confused about the legal issues, and I fail to see why Microsoft would stress the "secret sauce" business, unless they ultimately mean to block him by citing the confidentiality clause. I'll be tracking that point as the litigation goes forward.

However, CNET makes clear that Microsoft tried to paint Dr. Lee's work as being pretty much like what Google wants him to do, and Google tried to downplay Dr. Lee's involvement:

Speaking from the witness stand, Lee discussed his responsibilities spearheading an effort to move jobs to China. Lee said he was put in charge of ensuring Microsoft made good on a 2002 pledge that CEO Steve Ballmer made to outsource $100 million worth of jobs over a three-year period.

Lee testified that nearly all of the jobs were software testing jobs. In an obvious softball, Lee's lawyer asked whether that experience would be a conflict with his job duties at Google. "I believe Google is trying to hire great people, not to move jobs," Lee said.

According to AP, Ballmer testified that through a process of trial and error, Microsoft had developed a "secret sauce" for successful operations in China. To counter, Google found and presented an email Dr. Lee wrote while still at Microsoft to another Microsoft executive, complaining that their methods in China were incompetent. Dr. Lee testified that Microsoft's methods in China were so incompetent, it was embarrassing to him, which goes to the issue of whether he'd even want to copy Microsoft's "secret sauce", even if there were such a thing as a trade secret method of recruitment:

Former Microsoft Corp. executive Kai-Fu Lee accused the software titan of incompetence in its plans to gain a business footing in China, and testified Tuesday that being yelled at by Chairman Bill Gates was a low point of his career before he defected to rival Google Inc.

In testimony during a hearing on Microsoft's lawsuit against Lee and Google, Lee said he wrote a memo to another Microsoft executive saying he was "deeply disappointed at our incompetence in China -- that we have wasted so many years in China with little to show for it."

Lee went on to say in the e-mail that he was embarrassed by Microsoft's business practices and that people in the government joke about Microsoft's internal politics. But he provided few details in his testimony Tuesday about what exactly the Chinese government was frustrated with. . . .

In his testimony, Lee also complained that Microsoft had more than 20 business groups operating virtually autonomously in China, with little cohesion.

Among other problems, Lee said, was a commitment Microsoft Chief Executive Steve Ballmer made in 2002 to outsource $100 million in work to China. Within the last year, after it had become clear that Microsoft wasn't fulfilling this promise, Lee said, he was put in charge of outsourcing jobs to China.

Brilliant move by Google, don't you think? They are saying to the judge: you don't need to order Dr. Lee not to replicate Microsoft's allegedly "secret" methods of recruiting and doing business in China. He wouldn't touch those methods with a ten-foot pole. He left Microsoft because he couldn't stand their methods of doing business. They can breathe easy, therefore, because if they are seriously worried about being copied, there is no chance it will happen. Whether it will be enough to prevail, I can't say, but it's a very effective strategy.

Further, they argued that whatever Dr. Lee knows, he learned before he even got to Microsoft, while he was working at Apple and other companies. Microsoft didn't listen to his counsel on how to handle business in China, but Google will, with presumably very different methods being pursued. It is Google's position that Microsoft is just using the litigation as an anticompetitive weapon, to slow Google's progress in China, and that the issue of recruiting has nothing to do with protecting any alleged secret business methods.

Dr. Lee also testified that one reason he left was because Bill Gates yelled at him. Talking about China, Gates allegedly used the F word, when expressing displeasure with China. It was, Lee said, the low point of his career. Gates has "adamantly" denied, through his attorneys, that he ever made such a comment. Both top execs have now had to deny that they lost their temper with underlings and used profanity. Ballmer made a similar denial earlier. I don't know, guys. We're starting to get that "where there's smoke" feeling.

Bishop tells us that Lee found working for Microsoft totally frustrating, and that he couldn't get Microsoft to follow his advice:

"Microsoft just wasn't getting it," the former executive, Kai-Fu Lee, testified Tuesday in King County Superior Court, recounting exchanges with Gates and others about the company's approach in China. . . . "We talked a lot about Google and the threat ... they represented, and he definitely raised my thinking about the importance of that," Gates said during his deposition, recounting discussions with Lee. . . .

Among other things, Gates said in his deposition that Lee helped prepare correspondence from Gates to then-Chinese President Jiang Zemin.

Ballmer, in his deposition, said Lee had "a huge impact on what we did in China very broadly, including all the issues around government relations." Ballmer described Lee as the executive in Redmond responsible for "shepherding all of our R & D activities in China." But lawyers for Lee and Google repeatedly showed a Microsoft organizational chart to point out Lee's position in the Server and Tools division, separate from the MSN and Microsoft Research units involved in the company's search business.

Lee also testified that he couldn't have had much influence over Microsoft's China strategy, because he failed to persuade Microsoft executives to reform dramatically their approach to the Chinese market. . . .

Lee testified that Microsoft, in his view, was too focused on achieving quick profits in China, rather than first building the relationships and goodwill needed to succeed there. He also spoke of "unethical business practices" by the company's team in China, although he wasn't specific.

The article is worth reading for another detail: it hints that Gates was upset and used the F word about the Chinese government maybe in part because of their decision to adopt open source software.

You can see how the legal system works here. Each side takes a position, and then they look for evidence to support their positions. Microsoft presented evidence, such as the timeline, showing Dr. Lee was involved in the China strategy and testimony from executives magnifying the importance of Dr. Lee's involvement in its China strategies; Google presented evidence and testimony that Dr. Lee was ignored, so clearly he wasn't running or even influencing Microsoft's policies, which he strongly disagreed with.

For the poor judge who has to draw the line, there are really only a couple of issues: does the agreement cover the kind of work Google wants Dr. Lee to do in the next year? If he can't decide that in the negative as a matter of law, then the issue is, if the agreement does cover it, would Microsoft be irretrievably harmed by letting Dr. Lee set up and run the center for Google right now pending trial? Would Google be irretrievably harmed by having to wait? If Microsoft ultimately prevails, would it be an empty victory, if Dr. Lee meanwhile has been running the center for Google?

The judge isn't, at this point, deciding who is ultimately going to prevail, only if Microsoft needs to be protected from certain activities pending trial, so that in the event Microsoft wins in the end, the victory would be meaningful. Once secrets are out, they can't be put back into secrecy, so if recruitment techniques are (excuse me while I snort) capable of being a trade secret, then he may feel he has no choice but to find for Microsoft on this matter. While not everything Microsoft said at the hearing is ridiculous by any means, I find it hard to see how Dr. Lee can violate the noncompetition agreement by hiring people to staff the center. But then, no one asked me.

Say, this case is getting intriguing. I'm wondering if we should start to send people to attend the court hearings on this case. If any of you are in the Seattle area, and would be interested and available, please email me. The BBC and even Pravda did articles on the hearing, so interest seems very high all over the world, so I'm thinking more and more that we should keep this one under our microscope too. I don't know about you, but I'm interested in learning about Microsoft's business methods.

For that matter, the hearing continues today, if anyone can run on over. It's at the King County Courthouse, 516 Third Avenue, Seattle, before King County Superior Court Judge Steven Gonzalez, Room W905. That's between 3rd and 4th Avenues and Jefferson and James streets in the Pioneer Square District of downtown Seattle. Entrances to the courthouse are on 3rd and 4th Avenues. According to Todd Bishop's article, there will be cross-examination of Dr. Lee today, among other things. For more court filings in this case, go here and here.

Whoever does get to attend, be aware that John Keker is considered one of the finest trial lawyers in the country. Frankly, that's who I'd want to represent me if I was ever in a real pickle and seriously needed a lawyer, and I know lawyers who have expressed the same thing. The State Bar of California has had since 1994 an annual Trial Lawyer Hall of Fame Award, which Keker won in 2002, and on that page, it tells us this about him:

John Keker is widely recognized as one of the nationís great trial lawyers. A graduate of Yale Law School, Mr. Keker served as a law clerk to retired Chief Justice Earl Warren and founded Keker & Van Nest in 1978. Mr. Keker specializes in complex civil and criminal litigation, and has tried dozens of high profile cases during his distinguished career.

He was the lawyer most frequently identified by his peers as the attorney they would hire if they had a problem. Mr. Keker was named as Criminal Defense Lawyer of the Year in 1995, served as Chief Prosecutor in United States v. Oliver North, and is a fellow of both the American College of Trial Lawyers and the International Academy of Trial Lawyers.

So, if you go, you will see some very fine lawyering. A simple search on Google will show you some clients he has represented, and here's a starter list.


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