Lawyers representing the software giant sent a cease-and-desist letter last week to Esiod Systems, a small, Monroe, Wash.-based software company formed early this year by former Microsoft developers Siddhartha Rao and Caleb Doise. The letter demands that the company halt planned distribution of Schnazzle, an inexpensive shareware application Esiod had planned to begin selling this week.
Microsoft claims that Schnazzle--which allows PCs on a home network to share music, photos and other media--is similar to planned Microsoft technology and therefore violates the non-compete clause of the employment agreements Rao and Doise signed when they began working for Microsoft. The company's standard employment contract prohibits ex-employees from using knowledge they gained at Microsoft to work on competing products for one year after they leave the software giant.
The Microsoft letter says Schnazzle competes with a planned extension to the Windows operating system that would allow PCs to wirelessly stream media files to other devices.
A Microsoft representative confirmed the letter and said the company is negotiating with Esiod. "We're working with them to protect our intellectual property rights," the representative said.
Rao said he and Doise never had access to the code for the Microsoft project cited in the letter and their software uses completely different networking methods.
"Schnazzle is based on an extremely proprietary protocol we dreamed up," he said. "We created this highly secure, tightly coupled peer-to-peer network, which has nothing to do with what Microsoft is talking about."
Rao said the case also raises questions about the scope of non-compete agreements, given Microsoft's position in the technology industry.
"They do everything in the software industry," he said. "I think a court would have a hard time agreeing with the idea Microsoft should be able to restrict someone from doing anything in the software industry for a year."
The Microsoft representative said the company's employment contract uses standard non-compete language to protect intellectual property rights.
Rao said he's agreed to temporarily withhold Schnazzle from distribution but will fight Microsoft's demand for him to turn over the source code for the application.
"We will fight this until we run out of cash...and my family has a lot of cash to lend me," he said. "We refuse to let a big bully like Microsoft take us out of business."