Tech Firms May Find No-Poaching Pacts Costly

Tech Firms May Find No-Poaching Pacts Costly

The New York Times

By ANDREW ROSS SORKIN

Apple CEO Steve Jobs, left, and Google CEO Eric Schmidt, right, smile as they introduce the iPhone during Jobs' keynote address at MacWorld Conference & Expo in San Francisco, Tuesday, Jan. 9, 2007. (AP Photo/Paul Sakuma) 

http://finance.yahoo.com/news/tech-firms-may-no-poaching-005407951.html

It is the talk of the Valley.

A high-stakes negotiation is taking place in Silicon Valley among some of the biggest names in the industry — Apple and Google among them — over accusations that they were involved in a collusion to prevent their employees from being hired at rival companies. The employees filed a class-action suit, contending that the illegal hiring practices cost employees $9 billion in lost wages. Now the companies are locked in mediation sessions, hoping to settle the case in the next several weeks.

The question being whispered all over town now is how much will Apple, Google, Intel and Adobe ultimately have to pay?

The companies privately scoff at the $9 billion figure that the plaintiffs are seeking, contending it amounts to extortion. The employees, who number about 100,000, suggest that the facts are so damning against the companies — and so embarrassing — that they won’t settle for anything less than a blindingly high number.

Indeed, the evidence against the firms, which already settled a Justice Department complaint in 2010 without paying any fine, appears to be about as one-sided as you can imagine.

Steve Jobs, the chief executive of Apple at the time, could not have been any clearer of his intentions to collude with Google and prevent his company from hiring away employees from his frenemy and vice versa.

“If you hire a single one of these people that means war,” he told a Google executive.

Apple’s human resources sent out a note:

“Please add Google to your ’hands-off’ list. We recently agreed not to recruit from one another so if you hear of any recruiting they are doing against us, please be sure to let me know.”

A trove of similar emails has emerged in the case, many of which have been unearthed and highlighted by Mark Ames of PandoDaily, who has diligently followed the case.

Google’s chief executive, Eric Schmidt, was just as explicit in an email after Mr. Jobs queried him about why Google was trying to hire one of his employees. “I believe we have a policy of no recruiting from Apple and this is a direct inbound request,” Mr. Schmidt wrote to his team. “Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can.”

Mr. Schmidt clearly understood the legal jeopardy such an arrangement could create. In another similar email chain about the policy with another technology company that was ostensibly part of the no-hire cartel, he told a colleague to communicate it “verbally since I don’t want to create a paper trail over which we can be sued later.”

Well, here we are.

How deep was the no-hire policy? When Google sought to hire an Apple employee based in Paris, Google literally sought permission from Mr. Jobs first. “Google would like to make an offer to Jean-Marie Hullot to run a small engineering center in Paris. Bill, Larry, Sergey and Jean-Marie believe it is important to get your blessing before moving forward with this offer,” a Google vice president wrote to Mr. Jobs. “Google’s relationship with Apple is extremely important to us. If that relationship is any way threatened by this hire, please let me know and we will pass on this opportunity.”

Mr. Jobs later objected and Google rescinded the offer to Mr. Hullot’s team. “Steve is opposed to Google hiring these engineers,” the vice president wrote. “He didn’t say why, and I don’t think it is appropriate for me to go back for clarification. I can’t risk our relationship with Apple to make this happen over his objections.”

All of this does raise a reasonable question: Is it ever appropriate to agree with a “partner” company not to poach an employee?

Some lawyers I surveyed on the subject, most of whom refused to comment on the record because they work at one of the dozens of firms involved in the Silicon Valley case, said that it might be permissible for a company to decide against poaching an employee of a business partner in a specific instance — even if it was just about keeping good relations with the company — but that a blanket ban on hiring as part of systemic strategy would be plainly anticompetitive.

Some defense lawyers argued that as long as there was not a reciprocal stated arrangement, companies had wide latitude about their hiring practices.

“The alleged do-not-cold-call agreements between Google, Apple, Intel and Intuit did not reflect ‘parallel’ conduct from which to infer a conspiracy, as plaintiffs contend,” Google said in a motion.

But the executives involved at the highest levels of the no-hiring cabal appear to have known it was illegal, or at least in a substantially gray area.

“We have nothing signed,” Paul Otellini, the chief executive of Intel, told a colleague about the agreement he reached with Mr. Schmidt of Google. “We have a handshake ‘no recruit’ between Eric and myself. I would not like this broadly known.”

Sheryl Sandberg, the chief operating officer of Facebook and a former Google employee, said in a court filing, “Google agreed, at Intuit’s request, to not solicit the Intuit employees who would be involved in the discussions and/or the potential partnership.”

Of course, it may be hard to sympathize with the engineers in Silicon Valley, who are often paid mid-six-figure compensation packages, if not more.

So how to determine how much was truly lost by this no-hiring collusion?

That’s hard to determine. If the case ever gets to trial next month in San Jose — which is looking increasingly less likely because the companies are deep in settlement talks — it is possible that both sides will present a series of economic experts to estimate the damages. But at $9 billion, that would mean that each of the 100,000 employees was owed $90,000.

That’s a lot of money. It is hard to believe the settlement will be that high. In a town that mints billionaires, though, whatever the number is, it will be the equivalent of a rounding error.

Paul Otellini

Paul S. Otellini was the president & CEO for the Intel Corporation, a member of the President's Council on Jobs and Competitiveness, is a steering committee member for the Partners for a New Beginning, and a director at Google Inc.

Note: Sheryl K. Sandberg was a member of the President's Council on Jobs and Competitiveness, the VP for Google Inc., and a trustee at the Brookings Institution (think tank).

Penny S. Pritzker was a member of the President's Council on Jobs and Competitiveness, the national finance chair, fundraiser for the 2008 Barack Obama presidential campaign, a co-chair for the 2009 Barack Obama inaugural committee, a fundraiser, national co-chair for the 2012 Barack Obama presidential campaign, a contributor for the 2013 Barack Obama inaugural committee, the host for the Barack Obama fund-raising dinner, 7/2/2008, is the secretary of the U.S. Department of Commerce for the Barack Obama administration, and a member of the Commercial Club of Chicago.

Steve Case was a member of the President's Council on Jobs and Competitiveness, and married to Jean N. Case.

Jean N. Case is married to Steve Case, a steering committee member for the Partners for a New Beginning, and a Partners for a New Beginning steering committee member for the Aspen Institute (think tank).

Madeleine K. Albright is the chair for the Partners for a New Beginning, and a trustee at the Aspen Institute (think tank).

James S. Crown is a trustee at the Aspen Institute (think tank), and a member of the Commercial Club of Chicago.

Lester Crown is a member of the Commercial Club of Chicago, and was a lifetime trustee at the Aspen Institute (think tank).

L. John Doerr is trustee at the Aspen Institute (think tank), and a director at Google Inc.

Foundation to Promote Open Society was a funder for the Brookings Institution (think tank), the Aspen Institute (think tank), the New America Foundation, and the Climate Reality Project.

George Soros was the chairman for the Foundation to Promote Open Society.

Walter Isaacson is the president & CEO for the Aspen Institute (think tank), the vice chair for the Partners for a New Beginning, and the writer for Steve Jobs (2011 autobiography).

Steve Jobs authorized Walter Isaacson to write his biography, was the co-founder & chairman for Apple Inc., and married to Laurene Powell Jobs.

Laurene Powell Jobs was married to Steve Jobs, and a director at the New America Foundation.

Helene D. Gayle is a director at the New America Foundation, and a steering committee member for the Partners for a New Beginning.

Eric E. Schmidt is the chairman of the New America Foundation (think tank), the chairman for Google Inc., was a funder for the New America Foundation (think tank), a director at Apple Inc., and a 2008 Bilderberg conference participant (think tank).

Bruce Sewell is the general counsel & SVP for Apple Inc., and was the general counsel for the Intel Corporation.

Paul S. Otellini was the president & CEO for the Intel Corporation, a member of the President's Council on Jobs and Competitiveness, is a steering committee member for the Partners for a New Beginning, and a director at Google Inc.

Albert A. Gore Jr. is a senior adviser for Google Inc., the chairman for the Climate Reality Project, a director at Apple Inc., and a partner at Kleiner Perkins Caufield & Byers.

E. Floyd Kvamme was the EVP for Apple Inc., and is a partner emeritus at Kleiner Perkins Caufield & Byers.

John L. Hennessy is a director at Google Inc., and an investor in Kleiner Perkins Caufield & Byers.

Kleiner Perkins Caufield & Byers is an investor in Google Inc.

Wilmer Cutler Pickering Hale and Dorr was the lobby firm for Google Inc.

Cameron F. Kerry was an associate at Wilmer Cutler Pickering Hale and Dorr, a general counsel; acting secretary for the U.S. Department of Commerce, is John F. Kerry’s brother, and a fellow at the Brookings Institution (think tank).

Sheryl K. Sandberg was a trustee at the Brookings Institution (think tank), the VP for Google Inc., and a member of the President's Council on Jobs and Competitiveness.  

Akin, Gump, Strauss, Hauer & Feld, LLP was the lobby firm for Google Inc.

Vernon E. Jordan Jr. is a senior counsel for Akin, Gump, Strauss, Hauer & Feld, LLP, an honorary trustee at the Brookings Institution (think tank), Valerie B. Jarrett’s great uncle, a director at the American Friends of Bilderberg (think tank), and a 2008 Bilderberg conference participant (think tank).

Cyrus F. Freidheim Jr. is an honorary trustee at the Brookings Institution (think tank), and a member of the Commercial Club of Chicago.

Valerie B. Jarrett is Vernon E. Jordan Jr’s great niece, the senior adviser for the Barack Obama administration, and a member of the Commercial Club of Chicago.

Penny S. Pritzker is a member of the Commercial Club of Chicago, the secretary of the U.S. Department of Commerce for the Barack Obama administration, was a member of the President's Council on Jobs and Competitiveness, the national finance chair, fundraiser for the 2008 Barack Obama presidential campaign, a co-chair for the 2009 Barack Obama inaugural committee, a fundraiser, national co-chair for the 2012 Barack Obama presidential campaign, a contributor for the 2013 Barack Obama inaugural committee, the host for the Barack Obama fund-raising dinner, 7/2/2008.

Cameron F. Kerry was a general counsel; acting secretary for the U.S. Department of Commerce, an associate at Wilmer Cutler Pickering Hale and Dorr, is John F. Kerry’s brother, and a fellow at the Brookings Institution (think tank).

Wilmer Cutler Pickering Hale and Dorr was the lobby firm for Google Inc.