Apple 2.0

Covering the business that Steve Jobs built

IBM settles; Papermaster to join Apple in April

January 27, 2009: 3:10 PM ET

IBM court papers

In the end, they split it down the middle.

On Tuesday, International Business Machines (IBM) announced that it has resolved the lawsuit against a newly appointed senior vice president at Apple Inc. (AAPL) that was, for a brief moment last November, the hottest story in technology -- a bi-coastal drama that pitted one of the world's largest and most established computer companies against one of the brashest.

The case involved Steve Jobs' decision to hire Mark Papermaster, a 25-year IBM veteran, to replace Tony Fadell as head of the iPod/iPhone division. (Fadell, once considered a rising star in Cupertino, was said to be stepping down to devote more time to his family, according to Apple's press release.)

IBM complained loudly and litigiously, arguing in a 10-page complaint filed last October that Papermaster was "in the possession of significant and highly-confidential IBM trade secrets and know-how" -- secrets he was now in a position to deliver to a major competitor. The case rested on a noncompete agreement that Papermaster signed in 2006.

IBM management seemed to believe that the iPod division job Papermaster had been given was a subterfuge -- a "placeholder," as PBS columnist Robert Cringely put it, until the noncompete year was up and Papermaster could take the job for which Cringely and others believed he was really hired: "to lead Apple's PA Semi acquisition and create a new family of scalable processors optimized for Snow Leopard and beyond." (link)

Papermaster's lawyers argued that Apple and IBM were in totally different businesses and besides, noncompete agreements are not enforceable in Texas (where Papermaster worked for 17 years) or California (where Apple is headquartered).

On Nov. 7, a U.S. district court judge granted IBM a preliminary injunction, ordering Papermaster to "immediately cease his employment with Apple Inc."

A week later, Papermaster's lawyers filed their counterclaims. Two days after that, the judge ordered IBM to put up a $3 million bond to guarantee payment of any costs or damages, should it turn out that the injunction should not have been issued.

Things got very quiet after that.

Then, on Tuesday, IBM issued a statement that reads, in part:

"IBM and Mr. Papermaster have now agreed on a resolution of the lawsuit under which Mr. Papermaster may not begin employment with Apple until April 24, 2009, six months after leaving IBM, and will remain subject thereafter to all of his contractual and other legal duties to IBM, including the obligation not to use or disclose IBM's confidential information. Following commencement of his employment with Apple, Mr. Papermaster will be required to certify, in July 2009 and again in October 2009, that he has complied with his legal obligations not to use or disclose IBM's confidential or proprietary information. The preliminary injunction will be replaced by a court order under which the Court will have continuing jurisdiction over this matter, including compliance enforcement powers, until October 24, 2009, one year after Mr. Papermaster's departure from IBM."

So Papermaster had to wait six months, not 12, before he could take the job at Apple, and he has to promise to the court that he will abide by his noncompete.

Apple's press release says only that "litigation between IBM and Mark Papermaster has been resolved," and adds that Papermaster will be reporting to Steve Jobs on April 24.

Case closed.

Here's the link to the consent order and stipulation of "dismissal with prejudice," that the two parties worked out on Jan. 24.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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