IBM’s Injunction Bid Foiled (non-compete issues) - 26 June 2009

IBM’s Injunction Bid Foiled

IBM claims Johnson can’t be trusted not to disclose its secrets to Dell

By Maureen O'Gara

IBM Friday lost its bid for a preliminary injunction that would stop
its ex-M&A chief David Johnson from going to work for Dell.

Flummoxed, IBM’s now going to try rushing to the Court of Appeals for the injunction.

District Court Judge Stephen Robinson vacated the June 4 order that
let Robinson join Dell but basically restricted his activities to just
looking around. IBM Friday asked that the order be reinstated until
July 1, long enough to get an expedited hearing by the appeals court.
The judge has yet to make a ruling.

Robinson found that IBM was unlikely to prove at trial that
Johnson’s non-compete was a valid contract – thus failing one of the
basic tests for an injunction.

In freeing Johnson to work for Dell as senior VP of strategy, the
judge said the man would be more damaged if he were sidelined for a
year than IBM would be if Johnson went to work for Dell.

IBM claims Johnson knows all of its “strategies, competitive
initiatives, product development plans, technological initiatives and
marketing strategies and plans” for years to come and is “inevitably”
bound to disclose them to Dell.

But the judge dismissed IBM’s case of the jitters, saying he also
based his decision on the fact that New York “strongly
disfavors…non-competition covenants in employment contracts.”

According to the ruling, Mr. Johnson, whom the judge called both
“too clever by half” and “an extremely credible and reasonable
witness,” signed a non-compete in 2005 on the line that IBM was
supposed to sign. He did it on purpose as a stall while he weighed
whether to stay at IBM or not, figuring the way he had signed made the
document worthless, a trick the judge said worked.

It seems Johnson had passed on an opportunity to be CEO of a tech
company in 2001 based on assurances that he would be considered for a
general manager’s job inside IBM within two years. It didn’t happen.

In 2004 IBM again indicated his next job would be a general manager. Again it didn’t materialize.

In 2005 IBM started demanding that its senior executives sign
non-competes and made their equity compensation dependent on their
signing.

That year Johnson took the job issue to Randy MacDonald, the head of
HR. MacDonald told Johnson he would get back to him by the end of June.
Meanwhile, June 1 was the deadline for Johnson to sign the non-compete
– hence his gambit with the signature.

Then that fall Johnson’s boss, IBM CFO Mark Loughridge, told Johnson
to forget about being a general manager – that financial guys didn’t
become general managers at IBM – and denied that Johnson had been
promised the job in 2001 and 2004.

Accord to Loughridge, the judge repeated, such “conversations never occurred.”

A few months later, IBM, slow on the uptake, started asking Johnson to re-sign the non-compete. He refused to do so.

The fact that IBM chased after Johnson for months to get him to sign
the non-compete properly indicated to the judge that the company didn’t
regard the agreement as binding. It didn’t process it like a legitimate
contract and never signed the document itself. It didn’t even keep the
original.

The judge said that between Johnson’s “ambiguous acceptance” of the
non-compete, the evidence that IBM misled Johnson about the job and the
indications that it didn’t think the agreement was valid make it
“daunting, if not insurmountable” for IBM to prove breach of contract.

The judge also found that IBM “overstated its case” in alleging that
Johnson’s defection to Dell endangered its trade secrets – as an
M&A guy what he knows isn’t your classic trade secret.

And the judge said the company offered nothing substantive to
dispute Johnson’s contention that his ability to identify potential
acquisitions was based merely on analyzing publicly available sources
not any

more...http://soa.sys-con.com/node/1017713