More Apple antitrust woes: CEO, directors at hub of poaching case

April 19, 2012

It’s not easy for antitrust plaintiffs to get past a defense motion to dismiss. Before the U.S. Supreme Court raised the pleading standard for everyone in Ashcroft v. Iqbal in 2009, it imposed that tough burden on antitrust claimants in Bell Atlantic v. Twombly, a 2007 opinion that held it’s not enough just to argue that alleged conspirators engaged in parallel price-fixing. Under Twombly, antitrust complaints have to offer detailed and specific facts to support a plausible argument that defendants colluded to restrict competition.

On Wednesday evening, U.S. District Judge Lucy Koh of San Francisco federal court ruled that software engineers in a putative class action against Apple, Google, Intel, Intuit, Lucasfilm, Adobe, and Pixar met that high standard. As the judge explained in her 29-page opinion, it certainly helped the plaintiffs that the defendants all entered consent decrees with the Justice Department in 2010, agreeing to end their practice of restricting cold calls to recruit one another’s engineers. But what really convinced the judge not to dismiss the engineers’ case was the “significant influence” of former Apple CEO Steve Jobs; Google chairman and Apple board member Eric Schmidt; and Apple and Google director Arthur Levinson.

At least one of those three men, Koh said, had a hand in each of the six bilateral anti-poaching agreements among the defendants. “Their overlapping board membership lends plausibility to plaintiffs’ allegations that each defendant entered into this conspiracy ‘with knowledge of the other defendants’ participation in the conspiracy, and with the intent of . . . reduc(ing) employee compensation and mobility through eliminating competition for skilled labor,'” the judge wrote.

The Apple board members’ influence on all of the defendants tied the six company-to-company anti-poaching agreements into a broader price-fixing conspiracy, said class counsel Joseph Saveri of Lieff Cabraser Heimann & Bernstein. Saveri told me he was pleased that Koh also picked up on arguments that the identical agreements lent weight to the plaintiffs’ conspiracy allegations. As the judge wrote, “The fact that all six identical bilateral agreements were reached in secrecy among seven defendants in a span of two years suggests that these agreements resulted from collusion, and not from coincidence.”

The plausible inference from the plaintiffs’ evidence, Koh said, is that “the agreements were negotiated, reached, and policed at the highest levels of the defendant companies.” According to the judge, Jobs pushed particularly hard for anti-poaching agreements and had a hand in four of the six company-to-company deals. When, for instance, former Palm CEO Ed Colligan balked at an agreement, Jobs allegedly told him, “‘We must do whatever we can’ to stop cold calling each other’s employees and other competitive recruiting efforts between the companies,” Koh wrote.

My colleague Jon Stempel pointed out in his story on Koh’s ruling that Jobs also personally reached out to Apple board member Schmidt when Google was attempting to recruit an Apple engineer. “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote Schmidt. (The Google recruiter in the incident was subsequently fired, Stempel wrote.)

“Jobs was kind of thuggish,” Saveri told me. “He was a tough guy and a force of nature, and he ran over almost everyone, including CEOs of big companies.”

Saveri also said that thanks to Koh’s October 2011 order requiring defendants to turn over materials from the Justice Department investigation, the plaintiffs already have stronger evidence than what’s in the complaint Koh declined to dismiss. (She did dismiss California state-law business claims, but kept alive all state and federal antitrust allegations.) The class can now proceed with additional discovery.

I emailed Apple counsel George Riley and Michael Tubach of O’Melveny & Myers, who submitted the joint defense motion to dismiss, but didn’t hear back.

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