Back in 2010, Apple, Google, Intel, Adobe, and a few others settled with the US Department of Justice regarding their anti-poaching agreements concerning employees. While the CEOs did a good job of escaping possible prosecution, the affected employees filed a class action lawsuit about this, and judge Lucy Koh has just unsealed a number of emails concerning this case. They paint a pretty grim picture of Steve Jobs and Eric Schmidt engaging in mafia practices, threatening smaller companies with patent litigation if they didn’t agree to the no-poaching agreements, or demanding to handle matters verbally as to not leave a paper trail.
A no-poaching agreement is exactly what its name entails: it’s an agreement between two companies not to hire each other’s current and/or former employees. Courts are not particularly happy with these kinds of agreements because they limit the freedom of employees to seek employment where they desire, and it also keeps the price of labour down. If an engineer working at Apple can get a better deal working for Google, but there’s a no-poaching agreement between the two companies, the value of his labour is artificially being held down. Even if he applies for a job at Google on his own accord, his application will just be ignored.
The act of poaching employees is not illegal. If I see a competent employee working for a competitor, and I can offer him a better deal – higher function, better pay, more benefits, more freedom – I’m entirely within my right to do so. No-poaching agreements are designed to make it harder for employees to switch jobs by creating artificial barriers. This, in turn, could lead to price-fixing and reduced competition in the marketplace for both jobs and products.
As a result, the US Department of Justice investigated the no-poaching agreements in the technology industry. These weren’t official, signed agreements, but rather, “gentlemen’s agreements”. However, several large technology companies agreed on a settlement to escape prosecution. “In 2010, Google, Apple, Adobe Systems Inc, Intel, Intuit Inc and Walt Disney Co’s Pixar unit agreed to a settlement of a U.S. Justice Department probe that bars them from agreeing to refrain from poaching each other’s employees,” Reuters recalls, “The Justice Department and California state antitrust regulators then sued eBay Inc late last year over an alleged no-poaching deal with Intuit.”
However, this wasn’t the end of it. Five employees banded together as they felt that Apple, Google, Intel, and others entered into an “illegal conspiracy to eliminate competition for each other’s employees and drive down wages”. They’re seeking class-action status and requesting damages that could potentially run into the hundreds of millions of dollars. The technology companies had filed requests to keep documents about the case secret, but judge Lucy Koh has denied parts of this request, meaning we now have access to a treasure trove of communications between the accused companies.
For instance, it seems Google’s Eric Schmidt knew perfectly well that what the companies were engaging in was potentially illegal, as in an email Schmidt said that he wants this to be handled “verbally, since I don’t want to create a paper trail over which we can be sued later?” Similarly, Intel CEO Paul Otellini states in an internal email about the gentlemen’s agreements “We have nothing signed. We have a handshake ‘no recruit’ between eric and myself. I would not like this broadly known”.
However, the most infuriating email exchange comes courtesy of Steve Jobs and then-CEO of Palm, Ed Colligan. Steve Jobs had a phone conversation with Colligan, in which Apple requested that a no-poaching agreement be set up between Apple and Palm. If Palm did not agree to this, Apple would file a patent lawsuit against Palm. After – most likely – consulting with lawyers, Colligan replied to Apple’s threat in an email directly to Steve Jobs (the full email exchange is available at Scribd).
I have thought long and hard about our conversation on Wednesday, and I thought it important to let you know my position on the issues we discussed. I hope we can resolve our differences, but it has to be on terms that are right not only for our respective companies, but for the individuals potentially affected. Your proposal that we agree that neither company will hire the other’s employees, regardless of the individual’s desires, is not only wrong, it is likely illegal. I even thought about coming back with a proposal about limiting recruitment efforts, but frankly, I did not think it was something you would agree to do.
That said, I want to be clear that we are not intimated by your threat. Palm has a very robust portfolio of patents, having been in the handheld and smartphone business since the early 90’s. In addition, Palm now owns the former Siemens mobile patent portfolio, most recently held by BenQ Corporation. This mobile computing and communications portfolio includes over 1500 patent assets, the majority filed in Europe. If you choose the litigation route, we can respond with out own claims based on these patent assets, but I don’t think litigation is the answer. We will both just end up paying a lot of lawyers a lot of money.
Steve Jobs’ reply to Colligan’s email sent chills down my spine, and fully illustrate everything that is wrong about the technology industry today. Jobs basically states that the patents don’t matter, because due to Apple’s financial reserves, Palm’s patents don’t matter, strong or no. In other words, agree to the non-poaching agreement, or we’ll sue you to death. It’s all quite “magical”.
This is not satisfactory to Apple.
It is not just a matter of our employees deciding they want to join Palm. They are being actively recruited using knowledge supplied by Jon Rubinstein and Fred Anderson, with Jon personally participating in the recruiting process. We must do whatever we can to stop this. I’m sure you realise the asymmetry in the financial resources of our respective companies when you say: “We will both just end up paying a lot of lawyers a lot of money.”
Just for the record, when Siemens sold their handset business to BenQ they didn’t sell them their essential patents but rather just gave them a license. The patents they did sell to BenQ are not that great. We looked at them ourselves when they were for sale. I guess you guys felt differently and bought them. We are not concerned about them at all. My advice is to take a look at our patent portfolio before you make a final decision here.
The sheer mafia-like feel of all this is stunning. Schmidt and Otellini want to avoid papertrails because they knew full-well what they were doing would have legal ramifications. Steve Jobs threatened to sue a small company – which Palm was at the time – into oblivion if Palm didn’t agree to a likely illegal no-poaching agreement. By this point, anybody who still claims the patent system works as intended is not just delusional, but an actual idiot. This is not what patents were meant to do.
Of course, the people responsible for this – Jobs, Schmidt, Otellini, and others – have already escaped any form of scrutiny by agreeing to a (likely secret) settlement with the DoJ, but the people who were actually affected – the employees – have to fight expensive legal battles against the largest companies in the world, with the best lawyers and giant financial war chests.
As these documents show, this industry is sick. To its very core. These companies have become so powerful and so rich they essentially operate outside of the law. Even if their shady practices get investigated – as happened in this case – their lawyers make sure nobody gets in trouble, while smaller companies or individual employees are discarded like used toilet paper.
I’m pretty sure some will just call this “business” – but with that attitude nothing will ever change. This is not good for employees, not good for the market, not good for consumers, and not good for innovation, and thus, the progress of mankind. This must be stopped. I hope Koh elevates this to class action status, and that the affected employees get their hundreds of millions of dollars. It would be a drop in the ocean for these companies – further illustrating they essentially operate outside of the law, since punishments mean nothing to them – but at least it would set some sort of example.