Non-Compete Agreements In Action - Microsoft v. Google

Non-Compete Agreements are controversial documents that restrict a person’s right to work with competitors of a former employer. The effectiveness of one such non-compete agreement is on display in a recent lawsuit filed by Microsoft against Google.

Dr. Kai-Fu Lee

Dr. Kai-Fu Lee joined Microsoft in 1998 and was in charge of creating and running company operations in China. Over the last few years, Lee has been working on Microsoft’s speech recognition system. The system is rumored to be the next big add on for future Windows operating systems. On top of this, Microsoft claims Lee has been responsible for the overall development of the MSN Internet search program. In short, he has intimate knowledge of company trade secrets including technology developments as well as business and marketing planning.

When Non-Compete Agreements Attack

In 2000, Microsoft moved to protect itself by requiring Lee to sign a non-compete agreement. Although not yet public, the agreement undoubtedly requires Lee to forgo employment with any direct competitor of Microsoft. Notwithstanding this agreement, Lee quit this past week upon notifying Microsoft that he was moving to Google.

No doubt infuriated, the powers that be at Microsoft sued Google and Lee in the State of Washington on Monday. Microsoft claims Lee violated the terms of his agreement and seeks an injunction prohibiting him from working at Google. Microsoft also claims that Google is liable for inducing Lee to leave Microsoft, ostensibly for the purpose of discovering Microsoft trade secrets. In turn, Google countersued Microsoft in a California court claiming the non-compete agreement constituted an illegal restraint on trade.

Non-Compete Agreement To Be Upheld?

Predicting the outcome of the dispute is going to depend significantly on a surprising issue…jurisdiction. Jurisdiction simply refers to the court system, Washington or California, which has the right to hear the case.

California is a “right to work” state, which means courts require any non-compete agreements to be very narrow. If the Agreement is broadly worded to preclude Lee from working for “direct competitors” or some such language, Microsoft will have a difficult time prevailing in a California court. Washington law, on the other hand, would be more likely to uphold such wording.

Determining jurisdiction is a tricky issue. Essentially, one looks to the facts of the disputed to arrive at an opinion. An analysis of jurisdiction is beyond this article, but Google has clearly made a major mistake with Dr. Lee. In a press release announcing the hiring of Lee, Google noted he would be working in China, not California. This significantly damages any claim that California has jurisdiction over the matter. Google’s attorneys are undoubtedly unhappy with the individuals in the press relations department.

Ultimately, Google and Microsoft will most likely reach a settlement agreement. Lee will be allowed to work for Google, but will be restricted from working in certain areas. Still, Lee’s decision to switch positions is a blow to Microsoft.

Richard A. Chapo is with SanDiegoBusinessLawFirm.com - legal services for San Diego businesses. Read more business law articles to help your business.