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A three-month dispute between IBM (NYSE: IBM) and Apple (Nasdaq: AAPL) over a former IBM employee has been resolved, but probably to none of the parties' complete satisfaction. The two companies have agreed that Mark Papermaster, who served as vice president of IBM's blade development unit, can go to work for Apple. However, he must certify in court that he will not be using any of IBM's proprietary information. It appears that IBM will have the final say as to whether Papermaster crosses the line: He will be obliged to check in with Big Blue in the event any question arises over the issue.
Papermaster gave IBM his resignation in October 2008 in order to go work for Apple as senior vice president of devices hardware engineering. In that role, he'll be responsible for iPod and iPhone engineering. However, he had signed a noncompete agreement with IBM covering a one-year period.
In November, IBM sued Papermaster in the United States District Court in Manhattan to enforce the agreement. IBM argued that during Papermaster's 20 years of employment, he had access to Big Blue's intellectual property and trade secrets.
Suits and Countersuits
Papermaster countersued, charging that the noncompete agreement was too broad. He also maintained that IBM and Apple were not competitors, because Apple's focus was on consumer electronics, while IBM delivered enterprise applications and services.
IBM countered that its power processor technology -- Papermaster's area of responsibility -- was integral to both consumer and enterprise business lines.
The New York court issued a temporary injunction that prevented Papermaster from beginning his job at Apple.
Before the companies' arguments and counterpoints could be heard, however, the two sides reached an agreement. Papermaster will not start work at Apple until April 24. Between then and October -- when the term of his noncompete agreement expires -- he must certify in court that he is toeing the line.
California's Noncompete Law
Under the settlement, IBM will be the sole party to determine whether Papermaster's activities at Apple constitute a conflict of interest. Even though both sides say they are satisfied with the agreement, it is clearly a win for IBM, Charles King, principal with Pund-IT, told MacNewsWorld.
Had the contract been based on laws in California, where Apple is based, IBM most likely would have been powerless to stop Papermaster. "Noncompetes in California are not worth the paper they are written on," King said. "In other states, though, they can be very restrictive."
Indeed, the California Supreme Court invalidated a noncompete agreement between Arthur Andersen and a former employee in the company's Los Angeles office, finding that the contract violated California's Business and Professions Code, which declared void any type of agreement that restrained an individual from engaging in a lawful profession, trade or business.
Perhaps Papermaster thought that because he was moving to California he might have an easier time having the noncompete agreement voided, King suggested.
Now, Papermaster -- and probably Apple, which is grappling with a leadership void since Steve Jobs stepped down for health reasons -- will no doubt be chafing at the restrictions.
IBM is not likely to be entirely pleased with the compromise, either, Greg Sterling, principal of Sterling Intelligence, told MacNewsWorld.
"There is a legitimate interest on the part of IBM to protect its intellectual property, but at the same time, this seems a very awkward arrangement for all parties," he said.
IBM probably didn't want to lose Papermaster in the first place, Sterling continued, and it might be worried about its own employee morale. There is also the issue of enforceability. IBM is relying on Papermaster to voluntarily disclose what might be a conflict.
"If they suspect he is not meeting the agreement," he wondered, "how will IBM enforce it?"
