In the wake of its ultimately successful efforts to obtain an injunction against former executive Mark Papermaster following Papermaster’s move to Apple, IBM recently sought to enjoin David Johnson from joining Dell. Johnson, who was IBM’s Vice President of Corporate Development, recently joined Dell as its Senior Vice President of Strategy. After conducting a preliminary injunction hearing, Judge Stephen Robinson of the U.S. District Court for the Southern District of New York denied IBM’s motion for preliminary injunction.
Judge Robinson issued his ruling on June 26, 2009, 22 days after Judge Karas of the Southern District issued an order authorizing expedited discovery and permitting Johnson to work for Dell, subject to a restriction that he could not advise it regarding Dell or IBM strategy. Judge Karas had also required Johnson to supply his counsel with a daily log of his activities at Dell with “reasonable specificity,” including the amount of time spent on the activities and the persons involved. The log was to be made available to IBM’s counsel on request, if ordered by the Court.
Judge Robinson’s primary reason for denying IBM’s motion was a rather basic one: he found it unlikely that IBM could show that Johnson agreed to the non-compete provision upon which IBM based its claim. Johnson worked for IBM for 27 years, the last nine of which he directed IBM’s mergers, acquisitions, and divestitures strategy. In 2005, IBM asked Johnson to sign a non-competition agreement as part of a company-wide effort to have senior executives do so. Johnson was reluctant to sign the agreement without researching his future with the company, so he took the creative step of signing the agreement on the signature line for IBM. When IBM learned of Johnson’s tactic, it sent him a blank agreement to execute. IBM’s human resources department followed up with a number of calls and e-mails to ask Johnson to sign the agreement on the employee line. IBM did not execute the version of the agreement that Johnson signed on the IBM line, nor did it retain an original copy of the agreement. IBM also provided Johnson with annual equity award for 2005-08, despite the fact that entitlement to such awards in 2005 and 2006 was dependent on executing the non-compete agreement.
The Court found that IBM faced a “daunting, if not insurmountable, task” in establishing that Johnson signed his non-compete agreement. It stated that Johnson’s conduct in not agreeing to the non-compete document by signing on IBM’s signature line was ambiguous, thus exposing him to the risk that IBM would misunderstand his intent not to assent. However, when IBM asked Johnson to re-sign the agreement and he refused to do so, his statement of his intentions became unambiguous. IBM’s subsequent efforts to induce Johnson to sign, as well as its general counsel’s raised eyebrows when Johnson disclosed the HR department’s efforts indicated that IBM did not believe that Johnson had executed the agreement. The Court further found that IBM’s 2005 and 2006 equity awards to Johnson were not concurrent with his “signing” of his non-compete agreement. Finally, the Court rejected IBM’s argument that Johnson had intended to mislead it, concluding that Johnson instead intended to buy himself more time to clarify his position at IBM. Of no small import was the Court’s conclusion that Jonson was “an extremely credible and reasonable witness.”
The Court also addressed IBM’s claims regarding the hardship that it would suffer without injunctive relief. In that section, the Court shifted its focus from whether Johnson signed his non-compete agreement to whether Johnson possessed (and presumably would inevitably disclose) IBM trade secrets. The Court addressed IBM v. Papermaster directly. It cited the technical knowledge that Papermaster possessed regarding IBM microprocessors and concluded that Johnson’s business knowledge was, in comparison, not clearly proprietary to IBM. Ultimately, the Court concluded that the balance of equities tipped away from IBM because Johnson’s skill-set would erode if he were enjoined from working in the industry, as would his relationships with a “large personal network” of investment bankers, consulting groups, and chief information officers. Thus, Judge Robinson denied IBM’s motion for preliminary injunction and vacated Judge Karas’s June 4, 2009 order.
IBM appealed Judge Robinson’s decision immediately. On June 29, 2009, the Second Circuit Court of Appeals reinstated Judge Karas’s order placing restrictions on Johnson’s work for Dell and establishing reporting requirements. The Court of Appeals intends to hear IBM’s appeal on an expedited basis.