Silicon Valley collusion case offers insight into power of Jobs

A US judge has offered a behind-the-scenes look at the force of will with which Steve Jobs once held sway over Silicon Valley, as she threw out a proposed settlement of a lawsuit against Apple and three other tech companies.

The class action case had been brought on behalf of more than 64,000 tech workers over alleged collusion between the Silicon Valley companies not to poach each others’ staff.

"There is compelling evidence that Steve Jobs . . . was a, if not the, central figure in the alleged conspiracy," judge Lucy Koh wrote as she rejected a $324.5 million (€242 million) settlement. Seven tech firms have faced charges they agreed not to poach each others' workers, though three have settled.

According to judge Koh, a series of secret pacts began when Jobs reached a no-poaching deal for Pixar, the animation studio he controlled, with George Lucas, head of Lucasfilm.

That became the model for agreements with other companies, with “fear of and deference to” Jobs a big reason for the willingness of others to join in the alleged conspiracy, the judge added.

The mood was summed up by Google co-founder Sergey Brin, who was quoted as saying: "I think Mr Jobs's view was that people shouldn't piss him off. And I think that things that pissed him off were – would be hiring, you know – whatever."

Among those to buckle to Jobs's personal demands was Adobe chief executive Bruce Chizen, who first proposed a limited no-hiring deal covering junior staff before bowing to pressure not to approach any Apple employees.

Jobs complained

Google, meanwhile, made a “public spectacle” out of terminating one of its recruiters within an hour of Jobs complaining that the recruiter had approached an Apple employee. When

Eric Schmidt

, Google’s chairman, emailed Jobs to tell him about the firing and to apologise, the Apple co-founder passed his email on to another Apple executive with a simple emoticon, “:).”

At Jobs’s insistence Google even backed off hiring three engineers who had already left Apple, according to judge Koh, leading the internet search company to drop its plans to open a Paris engineering centre.

Ed Colligan, chief executive of rival smartphone maker Palm, was singled out on Friday for having stood up to Jobs's bullying. He wrote to the then-chief executive of Apple that a no-poaching agreement between the two companies would be "not only wrong, it is likely illegal". He also said Jobs was "out of line" for threatening a patent lawsuit in response to Palm's hiring of a single Apple employee.

Jobs wrote back pointing out “the asymmetry in the financial resources of our respective companies” when it came to the costs of legal action, concluding: “My advice is to take a look at our patent portfolio before you make a final decision here.”

Another company to resist the spread of no-hiring agreements in Silicon Valley was Facebook, which refused a Google call for a hiring "ceasefire" at a time when it was growing rapidly and trying to poach top engineering talent. The rejection prompted Google to revisit its pay practices, leading to an immediate 10 per cent across the board increase in salaries and $1,000 bonuses for all staff.

Besides Jobs, Mr Schmidt and Bill Campbell, the former boss of Intuit and an Apple director and Google adviser, were "key players in creating and enforcing the anti-solicitation agreements", judge Koh wrote.

Billion-dollar damages

Potential damages in the case, should it go to trial, could reach $9 billion, given the automatic trebling of any award in an antitrust case. Instead, the four companies – Apple, Google, Adobe and

Intel

– negotiated a settlement of $324.5 million, up to $82.5 million of which would go to plaintiffs’ attorneys in fees and costs.

Judge Koh said the amount “falls below the range of reasonableness” given what the plaintiffs could hope to achieve at trial and that the offer should have been “at least $380 million”.

Workers covered by the settlement would have received less than those in the earlier case – involving Pixar, Lucasfilm and Intuit – even though their legal position had strengthened considerably since then, she added.

A spokesperson for Apple could not immediately be reached for comment, while Google refused to comment.

– (Copyright The Financial Times Limited 2014)