IBM v. Apple (Mark Papermaster)

Apple hired 26-year IBM veteran Mark Papermaster to run its hardware engineering team. IBM sued to enforce its two-year non-compete with Papermaster and obtained an injunction preventing him from going to work with Apple. The judge ordered that IBM post a 3 million-dollar bond. See the links below regarding the case:

news.yahoo.com/s/nf/20081104/bs_nf/62825

www.internetnews.com/bus-news/article.php/3785391/Papermaster+Fires+Back+in+IBMApple+Tussle.htm

Happy Thanksgiving!

Disclaimer

The Non-Compete Playbook: The TRO

Picking up on last week's entry, Company A has decided it will file a lawsuit against Jordan James in Dallas district court and seek a temporary restraining order ("TRO"). A TRO typically precedes a temporary injunction, but the grounds for relief are largely the same. Most TROs or injunctions are prohibitory in nature, meaning they prohibit a party from certain conduct. In some cases a TRO or injunction can request mandatory or affirmative conduct, such as the return of a customer list or other company documents.

In order to obtain a TRO, Company A must show:
1. A request for permanent relief;
2. A probable right to relief; and
3. A probable injury.

Within the allegations contained in the lawsuit, Company A must set forth why a TRO is necessary. Those allegations must be verified; meaning someone from Company A must swear that the factual matters set forth are true. Company A should be prepared to file a bond assuming that the TRO is granted. Also, in Dallas County, unless there are extenuating circumstances, James must be provided with two hours notice of Company A's intent to obtain the TRO.

In Dallas County, the lawyer will file the lawsuit and the clerk will put the newly filed lawsuit in a red jacket. The lawyer will take the red jacket to the judge who has been assigned the case. If the judge is not around, the lawyer will have to find another judge to consider the matter. There is no "live" evidence presented at a temporary restraining order hearing. The judge considers the lawsuit papers and the arguments of counsel.

Assuming the court finds in Company A’s favor, it will enter the TRO, set a bond amount, and set the injunction hearing for within 14 days. After the bond is posted, the clerk will then issue a citation for the original petition, notice of the TRO, and the TRO. At that point, Company A must serve James with the actual lawsuit and TRO. Once service has been completed, any violation of the TRO is treated like a contempt of court. In our next analysis, we will discuss the temporary injunction hearing.


Disclaimer

The Non-Compete Playbook: Preliminary Considerations

The Scenario
Assume the following: Jordan James, a successful legal recruiter employed at Company A has left to start her own placement firm. James signed a non-compete and non-solicitation with Company A and it is believed that James took her Microsoft Outlook contacts that contains all of her client information. What should Company A do and what should James anticipate?

Preliminary Considerations

(1) What are Company A's objectives? Is James worth the time and money from a cost/benefit analysis? Is James competing with Company A a threat? Even if not, has she taken information that is important to Company A? The reality is James will be able to compete some day against Company A but she should not be able to with information that does not belong to her or in violation of her contractual covenants.

(2) Is the non-compete enforceable? Before Company A instructs its lawyer to file a lawsuit and obtain a temporary restraining order (discussed in next week's entry), the next question should be what is the likelihood of enforceability of the non-compete? Obviously, no lawyer can predict what a Court can do, but they can give an educated guess. Hopefully, Company A already had this discussion with the lawyer who drafted the non-compete, but in many cases a lawyer wasn't involved and the law changes.

(3) Are James' documents in order? This includes any employment agreement, her employment file, and any company manuals that contain policies she is subject to. Can you capture (within the confines of the law) James' most recent communications (email/phone messages) with clients? Is there any evidence of James' contacting clients after her departure from Company A?

(4)What clients did James service? Were they serviced primarily by James or others at Company A? Would it make sense to contact the clients James worked with at Company A and let them know she has departed and who will be taking over her responsibilities? Not only will contacting them potentially protect business and preempt James, it is a means for developing allegations in a lawsuit and the basis for a temporary restraining order by finding out if she is talking to Company A clients and customers.

Next, the focus will be the filing of a lawsuit seeking a temporary restraining order.

Disclaimer

Merrill Lynch/B of A Non-Compete Update

Merrill Lynch and Bank of America appear to have resolved the non-compete issues discussed in my last entry:

To: All Merrill Lynch and BAI financial advisors

On October 24, Bank of America and Merrill Lynch announced transition programs for retaining financial advisors. Today, Bank of America and Merrill Lynch are pleased to announce a plan for the combined brokerage platform to be a member of the Protocol for Recruiting Brokers. This is one of the initial decisions coming out of the transition assessment process that is currently underway in preparation for Bank of America's acquisition of Merrill Lynch, which is scheduled to close on or after December 31, 2008, subject to regulatory and shareholder approvals.

Merrill Lynch, Pierce, Fenner & Smith Incorporated is currently a member of the protocol and will remain a member after the transaction closes. Merrill Lynch FAs will continue to be able to move between protocol member firms as permitted by the protocol.

Banc of America Investment Services, Inc. (BAI) is not currently a member of the protocol. The transition team is currently determining the specifics of how and when BAI will become a member of the protocol. Additional details will be communicated prior to the closing of the merger.

“Today’s announcement is one example of how we’re moving quickly to bring together Bank of America and Merrill Lynch,” said Keith Banks, president of Bank of America’s Global Wealth & Investment Management division. “This work will help ensure we maximize the benefits of this combination to better serve our clients.”

“We were one of three founding members of the recruiting protocol,” added Robert McCann, vice chairman and president, Global Wealth Management at Merrill Lynch. “Over the last few years, it has worked well for both our Financial Advisors and our clients."

If you have any questions, please contact your manager.

Disclaimer

Financial Advisors and Non-Competes in a Brave New World

After Bank of America ("BofA") purchased Merrill Lynch it put on the full-court press to keep one of Merrill's most important assets, its brokers. What has resulted is "The Advisor Transition Program ("ATP")", which provides financial incentives for brokers who remain following the merger. Reportedly, if a broker leaves during the seven year term of the ATP, he or she has to return all customer information and records and can be enjoined from disclosing such records. This provision has raised some questions.

Merrill and other large brokerage houses are members of the Protocol for Broker Recruiting (the "Protocol"). A district court in Iowa recently described the Protocol as an agreement between signatories that allows for "reciprocal 'poaching' of registered representatives and the registered representative's clients from the former firm, apparently on the assumption that they will gain as much as they lose in the exchange." Though a broker's employment agreement, at Merrill for example, may contain a non-disclosure, Merrill had essentially agreed not to enforce the provision as long as the departing broker moved to another Protocol member.

So when BofA took over, the question became whether it intended to enforce the terms of the non-disclosure contained in the ATP? Merrill stated last week, "The Advisor Transition Program does not change any of the rights or obligations that exist for our financial advisors under the [Protocol]. It has no impact on the Protocol. Suggestions to the contrary are likely the product of those who want to recruit our financial advisors to other firms."

So the answer for now appears to be that the Protocol is alive and well at Merrill. Nevertheless, as a non-signatory of the Protocol, BofA could potentially still enforce a non-compete or non-disclosure. The enforceability of the non-disclosure in the ATP will vary from state to state and what BofA will do on down the road remains to be seen. Today's news indicates that many brokers are unhappy with the ATP's financial incentives.

Disclaimer