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Employee lawsuit brings startling document to light

You have to admire Apple, Inc.'s (AAPL) chutzpah.  Many would argue that the company's well-known iPhone "grid of icons" look is deeply derivative of Palms handheld PDAs -- the protosmartphones of the 1990s.  But despite Palm's role in trailblazing the technology that would one day send Apple stock soaring to new heights, Apple co-founder and CEO Steve Jobs allegedly had the audacity to threaten to sue Palm for patent infringement unless Palm agreed to a questionable no-hire policy.

I. Palm Rejected Jobs' Threats

Back in 2007, Palm CEO Edward Colligan was actively courting Apple engineers, looking to draw them away.  Palm would go on to launch the "Pre" smartphone in June 2009, which many view as the first serious competitor to the Apple iPhone.  While the Pre's successors would flop driving Palm to near bankruptcy and a fire-sale to Hewlett-Packard Comp. (HPQ), the initial Pre was an important device in setting a roadmap that would later be embraced by Android OEMs who would eventually greatly surpass Apple in unit sales.

The secret threat by Mr. Jobs to Mr. Colligan was rumored of, but never officially confirmed until now.  Palm would later address publicly employee "poaching" concerns, but until now the earlier exchange was never tipped.  

A group of five tech workers have filed suit against Apple, Google Inc. (GOOG), Intel Corp. (INTC), and others over a string of closed-door no-hire agreements that limited job mobility for talented engineers.  

Steve Jobs angry
Apple CEO Steve Jobs was allegedly outraged that Palm stepped up to his threats, but realized a lawsuit campaign would be too dangerous. [Image Source: Telegraph UK]

The case is being contested in the U.S. District Court for the Northern District of California before Judge Lucy Koh.  Judge Koh is perhaps best known for presiding over the famous and controversial $1.05B USD infringement verdict against Samsung Electronics Comp., Ltd. (KSC:005930), which was sued by Apple.

In a sworn statement obtained by the plaintiffs, Mr. Colligan recalls, "Mr. Jobs also suggested that if Palm did not agree to such an arrangement, Palm could face lawsuits alleging infringement of Apple's many patents."

He says that he responded that such an agreement was "likely illegal" and that Palm would not be "intimidated" by Apple or Mr. Jobs.  He recalls warning Mr. Jobs, "If you choose the litigation route, we can respond with our own claims based on patent assets, but I don't think litigation is the answer."

When it came to Palm, Mr. Jobs seemed to recognize that he was a chihuahua biting a bulldog: Apple never did file litigation against the rival gadget maker.  But allegedly, Mr. Jobs' threat was more effective against greener partners, or companies that were more dependent on Apple and its iTunes distribution network.

II. Evidence of Secret Deals Mounts

A 2010 U.S. Department of Justice (DOJ) probe found evidence that Google, Apple, Adobe Systems Inc. (ADBE), Intel, Intuit Inc. (INTU), and The Walt Disney Comp.'s (DIS) Pixar unit had agreements (mostly brokered by Apple) not to poach each others employees.  While formal charges were never brought, the respective companies were forced into a settlement in which they promised not to enforce such a no-hire pact.

Intuit would eventually get eventually dragged into a DOJ antitrust suit in 2012 after it allegedly broke its word and signed a no-hire agreement with eBay, Inc. (EBAY).  Californian state antitrust regulators have also filed suit over the alleged agreement.

The dispute over no-hire agreements is currently proceeding down two tracks.  On the one route you have government antitrust efforts.   EBay, currently a defendant in the Intuit case, is very unhappy with those efforts.  Its spokesperson griped to Reuters, "[U.S. antitrust law] does not exist to micromanage the interaction between the officers and directors of a public company."

A second route is civil litigation from workers in the tech sphere, who may have suffered from the possibly illegal agreements.  Judge Koh has yet to decide whether to allow the current lawsuit against Apple, et al. to proceed to trial.

But already the case is dredging up lots of interesting details, and not only on the late Steve Jobs' infamous bully streak.  Google is also implicated.  A former Google Human Resources director recalls [former Google CEO] Eric Schmidt urging him to effectively cover up a no-cold call agreement (a form of no-hire agreeement).  He says he asked Mr. Schmidt whether he could share the agreement with competitors and he recalls, "Schmidt responded that he preferred it be shared 'verbally, since I don't want to create a paper trail over which we can be sued later?"

Steve Jobs and Eric Schmidt
Erich Schmidt (right) reportedly sought to cover up his no-hire agreement with Apple BFF Steve Jobs (left) so Google didn't get "sued later". [Image Source: BusinessInsider]

Google spokeswoman Niki Fenwick in a comment did not directly address that remark, only saying that Google had "always actively and aggressively recruited top talent."

The plaintiffs' lawyers will get to grill Mr. Schmidt next month, which should make for some entertaining courtroom drama.

It's always tough to say whether individuals will be able to push a case against large corporate interests through the federal court system, given the tremendous monetary obstacles to such a quest.  However, based on the currently released information it appears the plaintiffs have a healthy body of relatively compelling evidence, details that give a fascinating look at a seedy tech industry practice which may have played an important role in shaping the electronics and internet software landscape over the past half decade.

Source: Reuters

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By TakinYourPoints on 1/23/2013 6:06:46 PM , Rating: 2
Apple said its net income for its fiscal first quarter ending Dec. 29 was $13.1 billion, or $13.81 a share, compared with $13.1 billion, or $13.87 a share, in the same period a year earlier.

The company’s revenue was $54.5 billion, up from $46.33 billion a year ago.

Flat profit on increased revenue. Goes to show how much new products like the iPhone 5 (the 4S was pure profit in comparison) and products like the iPad mini can affect profit margins.

By momorere on 1/23/2013 6:10:50 PM , Rating: 2
And it will only get worse if they truly do release a cheaper iPhone and the iPhone5s with multiple colors. Even worse if they release a high-end iPhone later on in the year as well. I believe they are too proud of themselves with their high profits to "stoop down" like everyone else in releasing lower-end phones with tiny if any profits.

By TakinYourPoints on 1/23/2013 6:33:13 PM , Rating: 2
We'll see if that happens. I'm not sure they'll "stoop down" to selling lower end devices; they pretty much own the high end and chasing marketshare at the bottom has never really been their game. The 4S by itself outsold the popular GS2, GS3, and GN2 combined, and the 5 has been selling even faster. The low end of the market doesn't seem like its worth their time no matter how big it is.

Apple's problems come from new devices that are initially more expensive to produce.

It also really shows how much profit they were able to squeeze out of the 4S. By then they'd figured out how to make tons of them for cheap (similar chassis with new guts) and last year's stock price was a reflection on that.

Either way, they sold more stuff and made the same amount of money while doing it. That's a negative indicator in the short term, same thing happened in 2010.

By retrospooty on 1/23/2013 9:23:26 PM , Rating: 3
Don't forget the competition. In previous years the competition was behind and now they are ahead of Apple. I know you may not agree with that specific point, but you at least have to look at today's 5 inch 1080 p androids running jelly bean and see that the competition is a helluva lot stronger than it used to be... At the very least you have to agree to that.

By TakinYourPoints on 1/24/2013 1:30:13 AM , Rating: 2
They've been doing a good job catching up, HTC devices like the Droid DNA are very nice. Apps and support are another matter, but at least catching up in hardware performance seems inevitable (it has to, right?).

From a marketshare standpoint I'm not sure this is relevant to Apple's high-end segment. Most of where Android is carving itself out globally is in the low end. The iPhone makes up over half of smartphones in the US and it is all in the high end. The high end on the Android side has mostly been Samsung (at the expense of Motorola and HTC), and those devices are far outsold by the iPhone.

Neither is going anywhere, and that's good, there's certainly room for both ecosystems to compete and they should. This has all really been at the expense of RIMM, Symbian, and WP.

By ven1ger on 1/25/2013 4:48:52 PM , Rating: 2
That depends on where your market is. In the US, Apple has the high-end market because people are willing to spend what it costs to get an Apple product. But outside of the US, Apple's market share isn't doing as well. For Apple to have any significant growth outside of the US, they will have to cater to cheaper devices because that is what the market wants outside of the US.

By Tony Swash on 1/23/13, Rating: -1
By momorere on 1/23/2013 7:13:50 PM , Rating: 5
You must stay really dizzy with all that spinning. I don't care about profits personally nor do I care about smartphones. I just can't stand people like yourself that defend any and every thing that crApple does.

You can't deny the fact that the iPad-mini is eating into the standard iPad sales therefor eating into their possible profits. If and when they do release a cheaper iPhone it will eat into the profits of the higher-end models as well.

So, it is only going to get worse, that is until they "invent" TV in the Macolyte's eyes, no matter how much you try and spin it. They are going back into the niche market that they used to be in and no longer seen as the "in or cool" things to have.

We all know that teenagers aren't the sharpest bowling balls but they are finally realizing that Apple isn't cool anymore. If they are losing customers at a young age due to longer cool image, that is potential future customers lost as well.

By GotThumbs on 1/24/2013 11:29:55 AM , Rating: 3
Your missing the point of why Apple would start selling less expensive products. Apple has enjoyed being the fashionable phone maker for sometime and reaped hugh profits because of it, but that's dying down. Apple makes billions not only because of their phones, but because they control 100%, of the only market you can buy content for your IProduct. Apple makes billions from its 30% share of any and all apps and content bought through ITunes. Thats were the real money is. Amazon saw that and practically gave away it's tablets. Content is king.

Apple is just wanting to start selling content to those who have not been willing to pay big bucks for an IPhone to date. They hope to bring these people into the fold by offering less expensive products.

Apple is 100% about making money (any successful company should be) so they realize their is still an untapped income source. People not willing to spend large amounts of cash on currently high priced Apple Products.

Amazon has shown it's not about profit on the device...its about the potential revenue through content consumption. Just as cell providers make their real money on the service and not selling the phones.

Personally, I will never use/buy an Apple product. I just have no respect for Jobs or how the company does business. It's a cultish company and I'm not a weak minded person anxious to be a follower.

Best wishes on the new year,

“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls

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