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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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RE: BOOOOOOOOM !!!
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,


"Spreading the rumors, it's very easy because the people who write about Apple want that story, and you can claim its credible because you spoke to someone at Apple." -- Investment guru Jim Cramer














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