Judge: Papermaster Must Stay True To Big Blue, Apple Job In Limbo

A New York judge Friday ordered ex-IBM executive Mark Papermaster to "immediately cease" working with his new employer, Apple, based on IBM's lawsuit, claiming Papermaster violated a noncompete contract.

The preliminary injunction was handed down by U.S. Federal District Judge Kenneth Karas in Westchester, N.Y. IBM filed suit against Papermaster after he announced his resignation to take over as head of Apple's iPod and iPhone division, replacing Tony Fadell. Lawyers for both sides have to submit papers by Nov. 11, and the court will hear the case on Nov. 18.

IBM and Papermaster have entirely different ideas about what constitutes corporate competition in this case, and both sides claim that if the other gets its way, it would spell doom.

IBM's lawsuit alleges that by joining Apple, Papermaster has violated a noncompete agreement he signed in which he agreed not to work for a competitor for one year if he left the company. According to IBM's filing, Papermaster is "in possession of significant and highly confidential trade secrets and know-how, as well as highly sensitive information regarding business strategy and long-term opportunities. The company would suffer irreparable harm if he failed to comply with the noncompetition and nonsolicitation covenants."

IBM also said in its filing that it is a competitor against Apple "in the design, manufacture and sale of electronic devices, including servers, personal computers and microprocessors."

In his own court filing, Papermaster refuted IBM's claims that the companies could be considered competitors. He pointed out that IBM is no longer in the PC business after selling its personal computer division to Lenovo in December 2004 in a deal worth roughly $1.75 billion. Papermaster also noted that IBM serves the business industry while Apple is a consumer-oriented company, and that he was hired to act solely as a product manager and was not hired to develop technology across product lines.

"Blade servers are not a consumer product," Papermaster said in the filing. "To the best of my knowledge, IBM does not design, manufacture or market consumer electronic products.

"Apple, on the other hand, is in the business of designing, manufacturing and marketing consumer-oriented hardware and related products I do not recall a single instance of Apple being described as a competitor to IBM during my entire tenure at IBM."

Papermaster said that he was pursued by Apple in January 2008, and told a company recruiter that he was happy at IBM and turned down an offer to interview for a senior managerial position, he said in court papers. He later changed his mind when he was asked to reconsider working for Apple.

After Apple decided he wasn't right for one senior position, Papermaster was offered a less senior job with Apple's laptop division, which he turned down, he said in court documents. He later accepted the job left vacant by Fadell's impending resignation.

"I was very surprised when IBM filed the present lawsuit against me as the IBM executives gave me no reason to believe that they questioned my integrity when I informed them I would be taking a position at Apple," Papermaster said. "At no point during any discussion with IBM was I asked to terminate my position immediately. Nor did anyone restrict my access to documents or information, but rather I continued my normal job functions for two weeks after giving notice. No one from IBM watched me clear out my office or escorted me out of the building."

"If I am forced to 'sit out' from the electronics industry for one year, I will suffer severe hardship. Opportunities such as the position at Apple seldom come along, and I do not believe I will be able to find a comparable position in a year (if ever), especially given the downward trajectory of the economy."