Tag Archives: Apple

CCC’s: Employee No-Poach Agreement Compliance Talk: Knock it Off! Now!!

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A hot topic at the ABA Antitrust Section Spring Meeting in DC that I recently attended, and in antitrust in general, is the treatment of employee “no-poach” agreements between companies.  Naked no-poach agreements are illegal schemes wherein companies agree to not solicit or hire each other’s employees.  These per se illegal agreements have, till now, been prosecuted as civil violations.  In October 2016, however, the Antitrust Division and FTC issued joint Guidance to Human Resource Professionals warning that certain no poach agreements may be prosecuted criminally.  Since that time the Antitrust Division has repeated the message that naked no-poach agreements that begin or continue after October 2016 will be treated as any other cartel behavior; meaning the investigation and prosecution will likely be as a criminal violation.  Very recently, the Antitrust Division reached a civil settlement with rail equipment suppliers Knorr-Bremse and Wabtec over allegations of a long-standing agreement to not compete for each other’s employees.  The DOJ press release (here) explained the case was brought civilly because the illegal agreements ended before October 2016. There is more background in prior Cartel Capers posts here and here.

I applaud the Division’s commitment to treat naked no-poach agreement as possible criminal violations. It has puzzled me why employee (input) allocation agreements were ever thought to warrant civil treatment.  To be sure, there are times when an agreement not to hire away another company’s employees may be ancillary to some legitimate integration such as joint research.  You don’t want the other guy to size up your good people and steal them.  But, a naked agreement—I won’t hire away your employees if you won’t hire away mine—is a naked restraint of trade; to my mind just as bad as any customer or supplier allocation scheme.

A glimpse of how this collusion works is explained in an excerpt of a talk by then Assistant Attorney General Bill Baer discussing some of the details of a no-poach agreement between eBay and Intuit as alleged in a 2013 civil case (here):

“The behavior was blatant and egregious.  And the agreements were fully documented in company electronic communications.  In one email, eBay’s senior vice president of HR wrote Meg Whitman complaining that while eBay was adhering to its agreement not to hire Intuit employees, “it is hard to do this when Intuit recruits our folks.”  Turns out that Intuit had sent a recruiting flyer to an eBay employee.  Whitman forwarded that email to Scott Cook asking him to “remind your folks not to send this stuff to eBay people.”  Cook quickly responded with “…Meg my apologies.  I’ll find out how this slip up occurred again….”

Assistant Attorney General Bill Baer Speaks at the Conference Call Regarding the Justice Department’s Settlement with eBay Inc. to End Anticompetitive “No Poach” Hiring Agreements, Thursday, May 1, 2014.

Another graphic example of an employee collusion case is reported in the The Verge, Steve Jobs personally asked Eric Schmidt to stop poaching employees, January 27, 2012 (here)

  • Steve Jobs personally emailed Eric Schmidt to ask Google to stop poaching an Apple engineer, and Google responded by arranging to immediately and publicly fire the employee who initiated the call.

  • “Mr. Jobs wrote: “I would be very pleased if your recruiting department would stop doing this.”

  • Schmidt forwarded Mr. Jobs’s email to undisclosed recipients, writing: “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can.”

  • Geshuri [a Google executive] told Mr. Schmidt that the employee “who contacted this Apple employee should not have and will be terminated within the hour.” Mr. Geshuri further wrote: “Please extend my apologies as appropriate to Steve Jobs. This was an isolated incident and we will be very careful to make sure this does not happen again.”

  • Three days later, Shona Brown, Google’s Senior Vice President for Business Operations, replied to Mr. Geshuri, writing: “Appropriate response, thank you. Please make a public example of this termination with the group.”

This behavior is a particularly damaging form of collusion.  Imagine you are an employee at a high tech, or any firm.  You really don’t like your job.  Maybe it’s the boss you don’t get along with.  Maybe you get lousy assignments; no opportunity for advancement; you think you’re under appreciated, overworked and underpaid (maybe you work at a law firm?).  You’d like to get another job, but your application/resumes go unanswered.  You can’t seem to get any interest from the other big firm in town.  You not only are stuck at the same pay, same boss, same job, but your self-esteem takes a hit too.  (When I was in law school applying for jobs, my roommates and I jokingly made a ‘wall of shame” of all the rejection letters.  But, the disappointment was real).  No-poach agreements are restraints of trade that are very focused on individuals and have a significant impact on their lives.  The harm seems greater to me, and perhaps to a sentencing judge, than a price fixing scheme that inflates prices a small amount, though over perhaps thousands of customers.

Compliance guidance should not just explain the shift in DOJ policy towards naked no-poach agreements, but to explain how these agreements actually and very negatively can affect people’s lives and why they may be prosecuted criminally.  I rarely here the human side of the story emphasized or even mentioned in discussion about 15 U.S..C Section 1 (The Sherman Act); the per se rule versus rule of reason, etc.  Compliance guidance should also be clear about another potential human side to this story—some executive is going to be the first one facing a criminal charge with a possible sentence of up to 10 years in prison for an employee no-poach agreement.

PS.     Since no-poach agreements may be treated criminally by the Antitrust Division, it is important to remember that Corporate Leniency (that also covers cooperating individuals) may be available to the first organization that self-reports.

Thanks for reading.  Bob Connolly

FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones

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Company’s sales and licensing practices hamper Qualcomm’s competitors and threaten innovation in mobile communications, according to FTC

The Federal Trade Commission filed a complaint in federal district court charging Qualcomm Inc. with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products.

Qualcomm is the world’s dominant supplier of baseband processors – devices that manage cellular communications in mobile products. The FTC alleges that Qualcomm has used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.

Qualcomm also holds patents that it has declared essential to industry standards that enable cellular connectivity. These standards were adopted by standard-setting organizations for the telecommunications industry, which include Qualcomm and many of its competitors. In exchange for having their patented technologies included in the standards, participants typically commit to license their patents on what are known as fair, reasonable, and non-discriminatory, or “FRAND,” terms.

When a patent holder that has made a FRAND commitment negotiates a license, ordinarily it is constrained by the fact that if the parties are unable to reach agreement, the patent holder may have to establish reasonable royalties in court.

According to the complaint, by threatening to disrupt cell phone manufacturers’ supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject. These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers, the complaint alleges.

By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits, including those that foster the increased interconnectivity of consumer products, vehicles, buildings, and other items commonly referred to as the Internet of Things.

The FTC has charged Qualcomm with violating the FTC Act. The complaint alleges that Qualcomm:

  • Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
  • Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
  • Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.

The FTC is seeking a court order to undo and prevent Qualcomm’s unfair methods of competition in violation of the FTC Act. The FTC has asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions.

The Commission vote to file the complaint was 2-1. Commissioner Maureen K. Ohlhausen dissented and issued a statement. Both a public and sealed version of the complaint were filed in the U.S. District Court for the Northern District of California on January 17, 2017.