BizLawCentral: USA - employment - non-competition clause

Mark Papermaster, formerly a senior executive with IBM joined Apple to take over the running of Apple's engineering division that develops the iPod and the iPhone.

But IBM says that Papermaster agreed to a non-competition clause in his employment terms which prevent him leaving IBM and joining a competitor within a year. IBM says that, even though Papermaster will not work on products that directly compete with anything IBM makes, he has "highly confidential trade secrets" that, if made known to Apple, would "irreparably harm" IBM's interests.

Papermaster's work at IBM was in relation to "blade servers" - a specific type of server has become a highly competitive area - both in terms of price and specification. He had been Vice President of Development, a position which IBM says put him "in possession of significant and highly-confidential IBM trade secrets and know how, as well as highly sensitive information regarding business strategy and long-term opportunities."

When Papermaster handed in his notice on 13th October, IBM allowed him to work out his notice and did not restrict his access to any data, says Papermaster in Court documents. This, he claims, shows that IBM did not consider Apple to be a competitor. And, Papermaster claims, Apple is in no way a competitor - its consumer products are not focussed on the same market as IBM's corporate products and there is no comparison between an iPhone or an iPod and a Blade Server.

IBM issued proceedings last month after IBM offered Papermaster first a counter-offer and then a year's paid gardening leave. Papermaster says that the restriction is too wide and effectively locks him out of the entire electronics industry for a year, by which time he will have lost the Apple opportunity and will have been out of touch for so long that he will find it difficule to secure a similar level job.

Even so, Federal Judge Kenneth Karas has issued a preliminary ruling, which he has not explained, that Papermaster must "immediately cease his employment with Apple, Inc. until further order." Karas said he would provide his reasons at a later date, and told the parties to appear before him on the 18th November with agreements for the conduct of the case to bring it to a speedy trial.

Central to that will be discovery in which IBM will have to show that Apple is, indeed, a competitor and Apple will have to show that it is not. At the core of that question will be how wide the Judge considers the clause should be to protect IBM's business whilst not placing undue restrictions on the ability of Papermaster to find fitting employment.