IBM v. Papermaster
Encyclopedia
In 2008, Mark Papermaster
, IBM
's Vice President of the Blade
Development Unit, became the subject of a notable trade secret
misappropriation
and non-compete clause
case when he announced a plan to move to Apple as Senior Vice President of Devices Hardware Engineering. On October 22, 2008, IBM filed a complaint against Papermaster claiming breach of contract
and misappropriation
of trade secrets. They sought a preliminary injunction
to prevent Papermaster from working at Apple, claiming his employment violated Noncompetition Agreement.
to enjoin him from continuing to work. Judge Kenneth Karas
of the United States District Court
in the Southern District of New York heard the case and granted IBM's request. Before releasing the public opinion
, Judge Karas ruled that IBM must pay a $3,000,000 bond to Papermaster for any costs or damages that Papermaster might incur, meanwhile still unable to work at Apple.
, stating that because of Papermaster's position and responsibilities at Apple it was inevitable for him to apply knowledge learned at IBM to his work at Apple, thus aiding a competitor and harming IBM. Papermaster claimed that he could recall only two inconsequential areas in which Apple was, and only temporarily, in direct competition with IBM. Industry analysis disagreed and found Apple and IBM to be direct competitors. Papermaster had signed the Noncompetition Agreement which clearly stated that any breach of the agreement would cause irreparable harm. Judge Karas also found that, "Because Mr. Papermaster has been inculcated with some of IBM's most sensitive and closely-guarded technical and strategic secrets, it is no great leap for the Court to find that Plaintiff
has met its burden of showing likelihood of irreparable harm." This is also despite an employment agreement Papermaster signed with Apple which stated explicitly that he would not disclose trade secrets from prior employers. Karas writes that the Court doesn't believe Papermaster would act "dishonorably" but that he couldn't help but inadvertently share some information that could be considered a trade secret.
In considering whether or not the non-compete clause was caused undue hardship to Papermaster, the Court weighed the agreement with IBM against the once-in-a-lifetime opportunity of the SVP position. Judge Karas concluded that, since intellectual property
is IBM's most valued asset, the cost of trade secret disclosure to IBM outweighed the cost to Papermaster in delaying the opportunity.. The case was set to go to trial.
, who stepped down some months earlier. The settlement requires that Papermaster make two scheduled court certifications - the first having occurred on July 2009 and another in October 2009 - to testify that he will protect IBM trade secrets.
Mark Papermaster
Mark Papermaster was the Senior Vice President of Devices Hardware Engineering at Apple Inc. He replaced Tony Fadell who was responsible for the team that created the iPod. Papermaster worked at IBM from 1982–2008. His last position at IBM was as vice president of IBM's blade server division...
, IBM
IBM
International Business Machines Corporation or IBM is an American multinational technology and consulting corporation headquartered in Armonk, New York, United States. IBM manufactures and sells computer hardware and software, and it offers infrastructure, hosting and consulting services in areas...
's Vice President of the Blade
Blade
A blade is that portion of a tool, weapon, or machine with a cutting edge and/or a pointed tip that is designed to cut and/or puncture, stab, slash, chop, slice, thrust, or scrape animate or inanimate surfaces or materials...
Development Unit, became the subject of a notable trade secret
Trade secret
A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers...
misappropriation
Misappropriation
In law, misappropriation is the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate or by any person with a responsibility...
and non-compete clause
Non-compete clause
A non-compete clause , or covenant not to compete , is a term used in contract law under which one party agrees not to pursue a similar profession or trade in competition against another party . As a contract provision, a CNC is bound by traditional contract requirements including the...
case when he announced a plan to move to Apple as Senior Vice President of Devices Hardware Engineering. On October 22, 2008, IBM filed a complaint against Papermaster claiming breach of contract
Breach of contract
Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance....
and misappropriation
Misappropriation
In law, misappropriation is the intentional, illegal use of the property or funds of another person for one's own use or other unauthorized purpose, particularly by a public official, a trustee of a trust, an executor or administrator of a dead person's estate or by any person with a responsibility...
of trade secrets. They sought a preliminary injunction
Preliminary injunction
A preliminary injunction, in equity, is an injunction entered by a court prior to a final determination of the merits of a legal case, in order to restrain a party from going forward with a course of conduct or compelling a party to continue with a course of conduct until the case has been decided...
to prevent Papermaster from working at Apple, claiming his employment violated Noncompetition Agreement.
Restraining Order
IBM did not learn until the first hearing that Papermaster had already started working for Apple, and immediately filed for a restraining orderRestraining order
A restraining order or order of protection is a form of legal injunction that requires a party to do, or to refrain from doing, certain acts. A party that refuses to comply with an order faces criminal or civil penalties and may have to pay damages or accept sanctions...
to enjoin him from continuing to work. Judge Kenneth Karas
Kenneth M. Karas
Kenneth Michael Karas is a United States federal judge.Born in Colorado Springs, Colorado, Karas received a B.A. from Georgetown University in 1986 and a J.D. from Columbia University School of Law in 1991. He was a law clerk for the Hon. Reena Raggi, U.S. District Court for the Eastern District...
of the United States District Court
United States district court
The United States district courts are the general trial courts of the United States federal court system. Both civil and criminal cases are filed in the district court, which is a court of law, equity, and admiralty. There is a United States bankruptcy court associated with each United States...
in the Southern District of New York heard the case and granted IBM's request. Before releasing the public opinion
Opinion
In general, an opinion is a subjective belief, and is the result of emotion or interpretation of facts. An opinion may be supported by an argument, although people may draw opposing opinions from the same set of facts. Opinions rarely change without new arguments being presented...
, Judge Karas ruled that IBM must pay a $3,000,000 bond to Papermaster for any costs or damages that Papermaster might incur, meanwhile still unable to work at Apple.
Inevitable Disclosure
IBM claimed that because of the information Papermaster had access to, including trade secrets, there was "substantial risk or Mr. Papermaster disclosing this information to IBM's detriment" which would result in irreparable harm. They argued inevitable disclosureInevitable disclosure
Inevitable disclosure is a legal doctrine through which an employer can use trade secret law to enjoin a former employee from working in a job that would inevitably result in the use of trade secrets.- External links :* by Ivan Hoffman...
, stating that because of Papermaster's position and responsibilities at Apple it was inevitable for him to apply knowledge learned at IBM to his work at Apple, thus aiding a competitor and harming IBM. Papermaster claimed that he could recall only two inconsequential areas in which Apple was, and only temporarily, in direct competition with IBM. Industry analysis disagreed and found Apple and IBM to be direct competitors. Papermaster had signed the Noncompetition Agreement which clearly stated that any breach of the agreement would cause irreparable harm. Judge Karas also found that, "Because Mr. Papermaster has been inculcated with some of IBM's most sensitive and closely-guarded technical and strategic secrets, it is no great leap for the Court to find that Plaintiff
Plaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
has met its burden of showing likelihood of irreparable harm." This is also despite an employment agreement Papermaster signed with Apple which stated explicitly that he would not disclose trade secrets from prior employers. Karas writes that the Court doesn't believe Papermaster would act "dishonorably" but that he couldn't help but inadvertently share some information that could be considered a trade secret.
Enforceability of Noncompetition Agreement
The Court also considered whether or not the noncompetition agreement itself was reasonable and therefore enforceable. Karas found that, given IBM's international business, the geographic scope was necessary and the time restriction of one year was reasonable. Additionally, because of the similarity of the position at Apple to is work at IBM, the agreement was needed to prevent incidental misappropriation of IBM trade secrets. Critics believe the opinion could have repercussions such as "expanding inevitable disclosure doctrine" to the detriment of anybody attempting to further their career in a particular field by moving to another company in the same industry.In considering whether or not the non-compete clause was caused undue hardship to Papermaster, the Court weighed the agreement with IBM against the once-in-a-lifetime opportunity of the SVP position. Judge Karas concluded that, since intellectual property
Intellectual property
Intellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
is IBM's most valued asset, the cost of trade secret disclosure to IBM outweighed the cost to Papermaster in delaying the opportunity.. The case was set to go to trial.
Settlement
On 27 January 2009 it was announced that Papermaster's lawsuit with IBM had been settled and that he'd take over Senior Vice President of Devices Hardware Engineering at Apple on 24 April 2009, replacing Tony FadellTony Fadell
Anthony M. Fadell is a Lebanese American computer science engineer. He was known for being the Senior Vice President of the iPod Division at Apple Inc., having succeeded Jon Rubinstein in 2006. On November 4, 2008, Apple announced that Fadell would be stepping down as Senior Vice President but...
, who stepped down some months earlier. The settlement requires that Papermaster make two scheduled court certifications - the first having occurred on July 2009 and another in October 2009 - to testify that he will protect IBM trade secrets.