Six Tech Firms Settle Federal Hiring Probe

The Wall Street Journal

 

The Justice Department and six leading technology companies reached a settlement Friday over civil charges that the companies violated antitrust law by agreeing not to poach each other's skilled employees.

The settlement prevents Google Inc., Apple Inc., Intel Corp., Adobe Systems Inc., Intuit Inc. and Walt Disney Co. unit Pixar Animation from agreeing not to solicit, recruit or compete for each other's talent. The companies didn't admit wrongdoing or pay a fine under the settlement.

The deal allows both sides to come away with something while avoiding the risk of fighting the case in court. The Justice Department can say it halted conduct it found improper, while the companies can maintain their position that their agreements were legal and avoid the potential consequence of a court loss—a wave of lawsuits brought by employees.

The Justice Department alleged that senior executives at the companies agreed not to cold-call each other's workers. For example, the department said, Apple and Google had such an agreement since at least 2006, while Google had similar agreements with Intel and Intuit since at least 2007.

The Justice Department said the agreements amounted to a form of collusion to restrict competition. It said cold-calling is an important way for high-tech companies to recruit highly skilled employees.

"The agreements … distorted the competitive process," Justice Department antitrust lawyer Molly Boast said in a statement.

In statements, representatives of Intel, Intuit, Adobe and Google said they didn't believe their actions violated the law. They predicted settling the matter wouldn't affect their ability to do business. Apple and Pixar didn't immediately respond to requests for comment.

Amy Lambert, associate general counsel for Google, said in a blog post that the search giant agreed not to cold-call employees at partner companies "to maintain a good working relationship," but dropped the policy last year. She said there was no evidence the policy hindered hiring or affected wages.

Laura Fennell, Intuit's general counsel, said her company has "agreed to disagree with the DOJ on the issue of any wrongdoing in this matter."

Intel spokesman Chuck Mulloy said the company "is settling the matter because it believes it would not harm the company or its ability to do business."

Adobe spokeswoman Holly Campbell said "we firmly believe that our recruiting policies have been consistent with the antitrust laws and have in no way diminished competition for talent in the marketplace."

The Justice Department has been investigating hiring practices in the technology industry for more than a year. The companies argued they needed to be able to offer each other assurances that they wouldn't lure away star employees if they were to collaborate.

Until this probe, policing the labor markets hadn't been a central focus of antitrust enforcers. The department said Friday it is continuing to investigate other no-solicitation agreements.

U.S. Tech Probe Nears End

The Wall Street Journal

Several of the U.S.'s largest technology companies are in advanced talks with the Justice Department to avoid a court battle over whether they colluded to hold down wages by agreeing not to poach each other's employees.

The companies, which include Google Inc., Apple Inc., Intel Corp., Adobe Systems Inc., Intuit Inc. and Walt Disney Co. unit Pixar Animation, are in the final stages of negotiations with the government, according to people familiar with the matter.

The talks are still fluid, these people said, with some companies more willing to settle to avoid an antitrust case than others. If negotiations falter, both sides could be headed for a defining court battle that could help decide the legality of such arrangements throughout the U.S. economy.

Still, there are powerful incentives for both sides to settle the potential civil case before it reaches that stage.

The Justice Department would have to convince a court not just that such accords existed, but that workers had suffered significant harm as a result.

The companies may not want to take a chance in court. If the government wins, it could open the floodgates for private claimants, even a class action by employees. A settlement would allow the Justice Department to halt the practice, without the companies having to admit to any legal violations.

Spokespeople for Google, Apple, Intel, Adobe and Intuit all declined to comment. Pixar had no immediate comment. A Justice Department spokeswoman also declined to comment.

The Justice Department's probe of hiring practices could reach beyond Silicon Valley.

During the course of its more than year-long investigation, the agency has uncovered evidence of such agreements in other sectors, according to the people familiar with the matter.

A settlement with tech companies—or a court fight—could therefore help determine what kinds of agreements are acceptable in other industries as well.

At stake are dueling visions of how far companies should be able to go in agreeing to limit the kind of headhunting that can help valuable employees increase their compensation.

The companies have argued to the government that there's nothing anticompetitive about the no-poaching agreements. They say they must be able to offer each other assurances that they won't lure away each others' star employees if they are to collaborate on key innovations that ultimately benefit the consumer such as improved Google SEO.

Some economists believe that banning such agreements could harm Silicon Valley's open, collaborative model.

"The effect of the lawsuit would be to reduce innovation because companies would worry about exposing their employees to each other," said Paul Rubin, an economics professor at Emory University, who isn't involved in the case.

For the Justice Department, such agreements amount to an effort by companies to limit competition for talent, harming employees' ability to get the best jobs and wages and reducing the incentives for people to enter professions in high demand, according to people familiar with the matter.

The government could argue that the agreements constitute an effort by companies to fix the price of labor, and are therefore just as harmful as price-fixing or bid-rigging—automatic violations of antitrust law.

"In a free market economy, you want the best people getting the best positions, and presumably all the rewards that come with that," said Spencer Waller, a law professor at Loyola University Chicago, who has no connection to the case. "This agreement, if the government has the facts, suggests that market for talent is being depressed by collusion."

The agreements under investigation varied in their scope and details, according to the people familiar with the matter. In conversations with the Justice Department, some companies have maintained they didn't have agreements not to hire each others' employees, only agreements not to "cold-call" partners' employees.

However, people familiar with the matter say the Justice Department believes that cold-calling is an important way in which people are hired in the sector. Even if the employees don't end up moving, their employer often has to sweeten their pay and conditions to make sure they stay.

After more than a year of investigation, the Justice Department antitrust division has concluded that many of these agreements have harmed people's ability to get better jobs or improve their conditions.

But proving that in court may be tricky, some antitrust lawyers said.

During the course of the investigation, more than a dozen tech companies have been questioned by the Justice Department, people familiar with the matter said. Those include Yahoo Inc., Genentech Inc. and IAC/InterActiveCorp.

However, some companies said they are no longer in the government's cross-hairs. "After a thorough investigation, the [Justice Department] antitrust division has advised IBM that it will not pursue a case against IBM," an International Business Machines Corp. spokesman said.

Microsoft Corp. also said it is no longer a target of the investigation. A Genentech spokeswoman said the Justice Deparment had relieved the biotech firm of the obligation to hold on to relevant information.

A Yahoo spokeswoman said the company fully cooperated in the investigation and believed its responses were sufficient. IAC didn't respond to requests for comment.

The agency has decided not to pursue charges against companies that had what it believes were legitimate reasons for agreeing not to poach each other's employees, said people familiar with the matter. Instead, it's focusing on cases in which it believes the non-solicit agreement extended well beyond the scope of any collaboration.

DOJ Deems Amended Google Book Search Deal Anticompetitive

eWeek

The Department of Justice Feb. 4 urged a New York District Court not to bless Google's amended Google Book Search deal with authors and publishers, citing copyright and antitrust issues that render the deal anticompetitive. The DOJ said the deal would let Google be the only competitor in the digital marketplace with the rights to distribute many works in multiple formats. The DOJ further agreed to work with Google, authors and publishers on a viable, fair solution. District Court Judge Denny Chin will hold a hearing on the amended settlement agreement Feb. 18.

The Department of Justice said copyright and antitrust concerns continue to make Google's amended settlement agreement for its Google Book Search project anticompetitive, suggesting the court presiding over the case shouldn't bless the deal.

Acknowledging that Google and authors and publishers have made considerable progress in their agreement to digitize books and offer them to readers through Google's  search engine, the DOJ told the U.S. District Court for the Southern District of New York Feb. 4:

"Although the United States believes the parties have approached this effort in good faith and the amended settlement agreement is more circumscribed in its sweep than the original proposed settlement, the amended settlement agreement suffers from the same core problem as the original agreement: it is an attempt to use the class action mechanism to implement forward-looking business arrangements that go far beyond the dispute before the court in this litigation."

Google and the Author's Guild and the Association of American Publishers in October 2008  struck their Google Book Search deal, a plan in which Google would scan millions of orphan books, or those works for whom authors can't be found or are unknown. Google would then let users search for them and pay to use the works, with authors and publishers taking 63 percent of the sales and Google taking the remaining 37 percent. 

The DOJ and Google's search rivals opposed the deal, arguing that it would give Google too much control over orphan works in an increasingly competitive space. Privacy advocates complained that Google wasn't taking the necessary precautions to protect readers' privacy.

Google, authors and publishers in November 2009 revised the settlement, which has been picked over and commented on by opponents and proponents while the District Court reviews the deal.

In a 31-page filing to presiding District Court Judge Denny Chin, the DOJ acknowledged the parties in the deal made "substantial progress" over such concerns as: enabling rivals to access orphan works; imposing limitations on provisions for future licensing; eliminating potential conflicts among class members; providing more protections for orphan works; and addressing the concerns of foreign authors and publishers.

However, the DOJ claimed the deal still affords Google "anticompetitive advantages." Specifically, the DOJ said the deal would let Google be the only competitor in the digital marketplace with the rights to distribute many works in multiple formats. The DOJ further agreed to work with Google, authors and publishers on a viable, fair solution.

Google's response to the DOJ's filing ignored the negative conclusion, playing up the positive. A Google spokesperson told eWEEK:

    "The Department of Justice's filing recognizes the progress made with the revised settlement, and it once again reinforces the value the agreement can provide in unlocking access to millions of books in the U.S.

    We look forward to Judge Chin's review of the statement of interest from the Department and the comments from the many supporters who have filed submissions with the court in the last months. If approved by the court, the settlement will significantly expand online access to works through Google Books, while giving authors and publishers new ways to distribute their works."

Despite Google's positive spin, experts have said they would be surprised if Chin disagreed with the DOJ and approved the amended settlement agreement, which comes almost five years after authors and publishers filed a copyright infringement suit versus Google.

Chin, who has received reams of documentation from opponents and proponents of the deal in the last few weeks, will hold a hearing on the amended settlement agreement Feb. 18.