The IBM-Apple-Papermaster triangle: How far does a non-compete go?

The IBM-Apple-Papermaster triangle: How far does a non-compete go?

Summary: The courtroom tug-of-war between IBM and Mark Papermaster is getting nasty. Papermaster responded Friday to IBM's attempts to prevent him from taking over the iPod unit at Apple.

TOPICS: CXO, Apple, Hardware, IBM, Servers

The courtroom tug-of-war between IBM and Mark Papermaster is getting nasty. Papermaster responded Friday to IBM's attempts to prevent him from taking over the iPod unit at Apple. Papermaster argued that IBM doesn't compete with Apple in consumer electronics. IBM reiterated that Papermaster violated a non-compete agreement. Now a judge is preventing Papermaster from working at Apple. The two big issues: How binding is a non-compete agreement? And is the mere fact that microprocessors run consumer and enterprise technology enough to keep Papermaster from his dream job?

In this Papermaster case, those questions loom large. If Papermaster, the executive in formerly in charge of IBM's blade server unit, was going to Apple to run the xServe product line Big Blue would have an easy argument to understand. But since Papermaster is going into consumer electronics--a place where IBM doesn't play ball anymore--the executive has a good argument.

Here's a look at Papermaster's reply (PDF) to IBM's original suit, Big Blue's reply (PDF) and the judge's call (PDF). You can decide for yourself, but Papermaster may have a point when he complains that IBM's agreement is too broad.

Also see: Apple’s top iPod gun to depart; Papermaster in; Jobs succession gets murkier

IBM sues brainiac looking to leap to Apple; Download the docs

Here's Papermaster's argument in a nutshell:


The key elements in that excerpt are the following:

  • A lot of folks sign these non-compete agreements;
  • They are too broad;
  • IBM actions--leaving Papermaster's network account running--indicate that the company doesn't view Apple as a competitor.

That final point is very interesting. Rest assured that if Papermaster quit to go to HP's blade unit he would have been escorted out of the building.

IBM fired back at Papermaster.


The big argument here: All electronics run on microprocessors. Papermaster has IBM's trade secrets and knows the chip business. Therefore, Papermaster shouldn't be able to work at Apple. That's a bit broad, but it's hard to argue that chips don't run everything. IBM continued:


You can argue that IBM is stretching, but a judge obviously begs to differ. Papermaster can't join Apple before another hearing Nov. 18. This spat will make anyone think twice--or ask for more specific language--before signing any non-compete agreement.

Topics: CXO, Apple, Hardware, IBM, Servers

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  • Non-competes typically are enforced for... executives. Clearly Mr. Papermaster was an executive of IBM and therefore the non-compete is applicable. IMO he does have a strong argument that his new role is materially different enough where the non-compete is not applicable.

    To work around this he should "volunteer", unpaid, his time and effort at Apple managing the iPod division at Apple until such time as the non-compete is no longer appliable (I think it was a year of which IBM has already offered to pay his salary for that year).
    • volunteering

      IBM's argument isn't that he's getting paid to work for Apple, but that he has explicit IBM knowledge that could benefit Apple. So if he were to volunteer there, it's still a violation of the non-compete agreement. At least from IBM's point of view.
    • The right of it.

      If the above is true; I think Mr. Papermaster has a case of greed.

      If he would actually receive a years pay from IBM he should act as an unpaid advisor to Apple. He can easily study what he needs to know about the product at home while also making basic management decisions from his walkarounds as an advisor at Apple.

      Unless of course he wishes to use himself as a test case to overturn such overbroad anti-competitive contracts that companies like IBM use unjustifiably.
  • Non-compete should be illegal!

    A new round of individual protections are sorely needed.

    If IBM suspects and has evidence that Papermaster is sharing IBM's trade secrets with others then they would have a legitimate case.

    Non-compete contracts are onerous and morally WRONG! Now, thereare some who would say 'don't sign them if don't agree with them'. These people are hoping you will ignore that fact that every company requires them as a condition of employment.

    There should be a federal law yesterday, which strictly forbids non-compete contracts.
    Tim Patterson
    • Should not be enforceable

      unless the NDA was specific. I was forced to sign an NDA
      after I had already been employed a year+ at a former job.
      It was sign or be fired. The NDA was extremely broad and
      was without compensation/consideration for my signing
      away certain liberties.

      I would agree that there should be more settled law or
      case-law regarding NDAs, and that if a company is ever
      going to enforce an NDA, then said company is required to
      pay the higher of the two salaries (new or former
      employer) for that one year.

      Also, in civil law, contracts are meant to be enforced on
      very specific criteria. These NDAs are far too broad, IMO,
      to be enforced, especially in a case like this.
    • Adults should not give their word

      if they do not intend to keep it.
      • Who interprets the word though

        Only issue is my word is only a good as my understanding. So signed document of something I think means X when it actually means Y is kind of useless. Most people after all don't bring lawyers to job interviews where you might be expected to sign one at the end of your job interview.

        I mean I was lucky enough to have a very simple contract presented to me and I refused to sign it. Not everyone is so lucky. I've seen some others and I couldn't make heads or tails of it. Sure the basics were clear enough but all that extra stuff was confusing. Basically it would violate the contract to quit and open a business doing the same thing. That was clear. The other two pages of legal document were odd. I mean I couldn't tell if my friend could quit and work at all and not risk getting sued. I think they make them this way on purpose so they can sue you for anything you do that your former employer doesn't want you doing. Those should be illegal. A basic contract should be legal however.
        • Thats why its put in writing

          and lawyers make big bucks. Rule #1. If you do not understand it, DO NOT sign it.
    • re: Non-compete should be illegal

      Axe's opinion of "don't sign if you don't agree" disregards the fact that an employee is normally not in a strong negotiating position when any contract is signed.

      The conditions are normally "sign or get fired". Its equivalent to signing a contract with a gun ( virtual in this case ) against your temple.

      Yes, I know, they're not forcing you to work for them, but you wouldn't be applying for a job if you didn't need the money...and good job opportunities are rarely common. The consequence is that a person signs an unfair agreement in the hope that it never needs to be tested.

      Yes, I know. We are all big boys. If you sign the contract, you have to live with it...but imo this is only valid if you negotiated as equals.

      Let's face it, big business is only as honest as the law forces them to be. If it wasn't illegal, slavery would still be considered a brilliant business practice. Fortunately, we don't have to worry about slavery in western civilisation 'coz there's a law against it,but we don't have legal protection against exploitive, over-broad non-compete contracts!

      And then there is the final kicker: Regardless of the "right" or "wrong" of it, the party with the best lawyer always wins...and guess who can afford the best lawyers ? The guy looking for a job? ....get real.
  • Does IBM have good secrets?

    The question is, is this just sour grapes for IBM? Or
    are they legitimately concerned that Papermaster can
    leverage IBM's design strategy for...umm...iPods?

    If the latter, I don't blame IBM one iota for throwing
    the book at him. I'm guessing Jobs saw something in
    how IBM optimized the horsepower of it's chips. Maybe
    he thinks Papermaster can help the "power-to-battery-
    life" ratio on the next gen ipod/iphone.
    • re: Does IBM have good secrets? - Yes they do.

      I seem to recall that IBM generates more patents than any other company in the world. This would suggest that, yes, they do have at least some good secrets.
  • NCO should be illegal and even more

    Company should have to pay large penalty to concern worker who are on NCO

    if you quit the company you your salary and the difference with your new salary .....

    At some point the law will have to protect worker again corporate abuse in any form
  • Will he really be working the iPod unit?

    Or will he actually oversee design of Apple blade servers, while given the title "Head of Consumer iPod Division" or the like?

    For people that obtain that level in a company, with the secrets or future plans known to them, they should have to sign and honor an NDA: as long as the company he works for offers to pay his salary for the next 12 months.

    This way they can be given a fair chance to find new work should their reason for leaving be a dissatisfaction with their current employers, while not being able to be use that knowledge to help the new employer unfairly.
    • Indeed.

      Or perhaps the server farm to handle the Ipod and IPhone traffic???
  • RE: The IBM-Apple-Papermaster triangle: How far does a non-compete go?

    Non-compete agreements fly directly in the face of the idea of a free-market capitalist system. I think I can make an equally strong argument that they also impinge on the rights and freedoms of Americans. I hope the case is decided in Mr. Papermaster's favor. I would love to see these clauses relegated to their appropriate place in history. The dead past.
  • RE: The IBM-Apple-Papermaster triangle: How far does a non-compete go?

    I was thinking of working with IBM on a new software
    platform but now I am sure to avoid the legal implications.
    They are both right in this case but I don't like the idea
    that an NDA could limit someone who may not have
    intentions of harming the company. The NDA is meant
    more to protect against someone who steals secrets. No
    secrets have been stolen and Mr Papermaster has put it in
    writing that there is no intent to use IBM information. If Mr
    Papermaster goes against his promise, then IBM can use
    this to sue, but at this point it is all speculation.
  • RE: The IBM-Apple-Papermaster triangle: How far does a non-compete go?

    Papermaster should have filed a complaint in California,
    where he is now located and attempting to work. In
    California, non-compete clauses are generally void since
    there is a right to work built into the law.
  • Both are right, but he signed and tied.

    Everyone knows that you get hired to do A and end up doing B later. If IBM lets it slide, then they could easily be stabbed and were within their rights to tie his hands. You don't just forget what you know because this job is a little different. That was the commitment he made to IBM by signing it.

    I think Papermaster's defense was weak at best.
  • This is exactly why I don't sign them

    Or negotiate the language if I do, making them very specific about the intent and what they cover. I didn't sign one at all here, which was an exception.

    The last place I worked a day job the non-compete was specific to actual customers where I worked and terminated after a year. It was also one of the big reasons I went independent. Even then there were companies that wanted me to sign complicated non-disclosure agreements. Negotiating those was a pain.

    But there's been a price for that stance. I'm not an exec at IBM or Apple. Several jobs I had to pass on the interview because they said up front their non-com's were not negotiable.

    I have an issue with non-competes and home owners associations. If you can't work somewhere or buy a home somewhere without signing a legal document, then it's not voluntary in my book, it's coerced. Certainly you have a choice not to live in a particular neighborhood or work somewhere, but why do you have to make that choice because the other side chooses not to negotiate? It's not right.
    • And that is as it should be.

      If you find the terms unacceptable, don't accept them.