Lee Suit a Turf War

Any real-estate pro will tell you the three most important things are location, location and location. It’s the same in the tug-of-war between Microsoft and Google over the latter’s recent hiring of Kai-Fu Lee.

When Lee told Microsoft senior vice president Eric Rudder that he was leaving to work for Redmond’s arch-enemy, he was sued on the spot, according to an affidavit filed last Friday.

Microsoft sued Lee and Google in Washington State court in July for violating a non-compete agreement that Lee signed.

Redmond won a temporary restraining order barring Lee from working at Google. Microsoft argued that Lee was bound by a provision in his contract that barred him from working for competitors for a year.

Google countersued in California district court, claiming that the non-compete clause wasn’t enforceable in California, because the state’s law prohibits contracts that keep people from engaging in lawful work.

Where these suits are tried — and which one gets tried first — will have a huge impact on the results, said Robin Meadow, a partner in the law firm Greines Martin Stein & Richland.

When Lee signed his Microsoft employment contract, he promised not to compete with Microsoft for one year after he left. He agreed not to “accept employment or engage in activities competitive with products, services or projects (including actual or demonstrably anticipated research or development) on which I worked or about which I learned confidential or proprietary information or trade secrets while employed at Microsoft.”

He also agreed that any litigation arising out of the contract would be tried in state or federal court on Microsoft’s home turf of King County, Washington. Now, Google claims, he’s a Californian and none of that applies.

In its countersuit against Microsoft, Google made its case that Lee should be treated as a citizen of California: The day after he gave notice at Microsoft, court documents claim, he began living and reporting to work in California, establishing a home address and two local phone numbers. He’s also paying state taxes. (Google agreed to pay Lee even if he was prevented from coming to work by such a suit.)

Because Microsoft already has obtained the order temporarily preventing Lee from working at Google, the California state court is much less likely to immediately rule in Google’s favor, as the search giant has asked.

“If Google had gotten to court first and got its own temporary restraining against enforcement of the contract, it might have stopped Microsoft from filing a lawsuit at all,” Meadow said.

Meadows tried a similar multi-jurisdiction lawsuit over a non-compete agreement between Advanced Bionics Corporation and Medtronic. As a general principle, he said, a court in one state won’t go against what a court in another state has ruled.

“The basic rule is that each state has to give full faith and credit to the judgments of other states.”

Next, Microsoft got its case removed to federal court, where it’s scheduled for a hearing in San Jose on Oct. 14. Google’s filing on Friday asked that court for an immediate ruling that the non-compete clause of Lee’s contract can’t be enforced.

Even though Microsoft’s case is now being heard in federal court, that court typically will apply the law of the state in which the action is brought, Meadow said. He thinks Microsoft’s change of venue is part of a checkers game and that the next jump will be to get the case moved to federal court in Washington.

Because there’s no federal law covering non-compete clauses in employment contracts, Meadow said, the federal court will judge the case according to the laws of the state in which it’s located.

Therefore, a Washington federal court would be more likely to uphold the non-compete clause under that state’s more liberal views.

The actual merits of the case do matter, of course, Meadow said. “A Washington court could be convinced from Google’s evidence that Lee would not compete with Microsoft. Google could win on the merits in Washington, but the deck is kind of stacked against it.”

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