International Business Machines Corp. v. Papermaster
|IBM v. Papermaster|
|Court||United States District Court, Southern District of New York|
|Full case name||International Business Machines Corporation v. Mark D. Papermaster|
|Citation(s)||No. 08-9078, 2008 U.S. Dist|
|Motion for preliminary injunctive relief granted|
|Judge(s) sitting||Kenneth M. Karas|
|non-compete clause, trade secret|
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.
IBM did not learn until the first hearing that Papermaster had already started working for Apple, and immediately filed for a restraining order 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.
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 disclosure, 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.
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 his 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 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.
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 Fadell, 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.
- IBM v. Papermaster, No. 08-9078, 2008 U.S. Dist. LEXIS 95516 (S.D.N.Y. Nov. 21, 2008).
- "IBM Forced to Pay $3 Million to Ex-Staffer (Papermaster-Apple Case)". Retrieved 2009-01-20.
According to Computerworld, the $3 million bond is designed to pay for any costs or damages that Papermaster might suffer, should it be proved that IBM wasn't entitled to an injunction.
- Altieri, Peter and David Clark, A New Byte of the "Inevitable Disclosure" Apple, EBG Trade Secrets & Noncompete Blog (February 12, 2009).
- "Mark Papermaster to Begin at Apple as Senior Vice President of Devices Hardware Engineering on April 24". Apple Inc.
- Beyers, Tim (January 30, 2009). "Big Blue Is Watching You, Apple". The Motley Fool.