Bloomberg News

Apple, Google Must Try Again to Resolve Antitrust Hiring Claims

August 09, 2014

Apple Inc. (AAPL:US), Google Inc. (GOOG:US), Intel Corp. (INTC:US) and Adobe Systems Inc. (ADBE:US) have to go back to the negotiating table, or face trial, after a judge rejected their $324.5 million settlement of claims that they schemed to not recruit each other’s workers.

U.S. District Judge Lucy H. Koh in San Jose, California, ruled yesterday that the amount proposed by the technology giants and lawyers for the employees wasn’t enough in light of the $9 billion at stake if the case went to a jury. Koh also said the settlement fund should be bigger in light of a $20 million accord reached earlier with three other companies sued by employees -- Intuit Inc. (INTU:US) and Walt Disney Co. (DIS:US)’s animation studio Pixar and visual-effects specialist Lucasfilm Ltd.

“It is rare that a court rejects a settlement in an antitrust case,” Mark Lemley, a professor at Stanford Law School, said in an e-mail. “But here, the judge’s reasoning makes sense -- the settlement was actually less favorable to the plaintiffs than the one they got with other companies back in 2011, even though the plaintiffs look poised to win the case. I suspect the parties will return with a modestly larger settlement soon.”

Whether the case settles or goes to trial, Koh’s ruling stretches out a case filed in 2011 that’s been an embarrassment for Apple and Google in particular by revealing behind-the-scenes brokering among top executives at the expense of their workers. The lawsuit is a private action that mirrors claims the companies settled with the U.S. Justice Department in 2010.

Apple, Google, Intel and Adobe employees reached a settlement in May for about 1/10 of the $3 billion they planned to seek at a trial that was set to start four days later. Under federal antitrust law, damages won at a trial might have been tripled.

‘Unpredictable Nature’

“While the unpredictable nature of trial would have undoubtedly posed challenges for plaintiffs, the exposure for defendants was even more substantial, both in terms of the potential of more than $9 billion in damages and in terms of other collateral consequences, including the spotlight that would have been placed on the evidence,” the judge wrote.

Koh was urged to reject the settlement by a former Adobe computer scientist who was one of the lead plaintiffs in a group case representing 64,000 workers until he concluded the companies were getting off too cheaply.

His lawyer argued that the earlier agreement with Intuit, Pixar and Lucasfilm should have set the stage to extract a much bigger agreement from the remaining defendants. Employees from those three companies represented just 8 percent of the class (AAPL:US).

“The remaining defendants should, at a minimum, pay their fair share as compared to the settled defendants, who resolved their case with plaintiffs at a state of the litigation where defendants had much more leverage over plaintiffs,” Koh said yesterday.

‘Problematic Settlement’

Orly Lobel, a law professor at University of San Diego who specializes in labor and employment issues, agreed that the dollar amount proposed in the settlement is “problematic.”

“There is a significance in seeing this case through and having such leading companies internalize the illegality of these actions,” she said in an e-mail.

Intel is disappointed by the rejection of the deal that was “negotiated at arm’s length over many months,” Chuck Mulloy, a spokesman for the Santa Clara, California-based company said in an e-mail. Intel hasn’t made any decisions yet about what it will do, Mulloy said.

Adobe, based in San Jose, declined to comment on the ruling. Matt Kallman, a spokesman for Mountain View, California-based Google, and Kristin Huguet, a spokeswoman for Cupertino, California-based Apple, also declined to comment.

Kelly Dermody, a lawyer representing the employees, also didn’t respond yesterday to a call and e-mail seeking comment.

Fair, Reasonable

At a hearing in June, lawyers for the plaintiffs and the companies joined forces to argue that that the accord is fair and reasonable.

Koh questioned how much risk plaintiffs faced in going to trial in light of the e-mails that were unearthed during years of litigation detailing collusive agreements and indifference to the employees at issue.

Dermody told the judge there were “great hurdles” to proving that all the companies engaged in an “overarching conspiracy” and winning a unanimous jury verdict.

“You really think the damages would’ve been zero if this had gone to trial? I really think that’s a stretch,” Koh said. “I do have concerns about whether this is a sufficient recovery for the class.”

Engineers, Artists

The plaintiffs, who include software and hardware engineers, programmers, digital artists and other technical staff, alleged their employers conspired from 2005 to 2009 to suppress their pay.

E-mails cited as evidence of collusion included one to Apple co-founder Steve Jobs in 2007 in which Google Chairman Eric Schmidt said the company was terminating “within the hour” a recruiter who contacted an Apple employee in violation of the companies’ “do not call policy.”

“Apologies again on this and I’m including a portion of the e-mail I received from our head of recruiting,” Schmidt, who was then chief executive officer of Google and an Apple board member, wrote to Jobs. “Should this ever happen again please let me know immediately and we will handle. Thanks!! Eric.”

Jobs responded to the message with a smiling emoticon.

The case is In re High-Tech Employee Antitrust Litigation, 11-cv-02509, U.S. District Court, Northern District of California (San Jose).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net Peter Blumberg


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