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Vendor Lawsuits Get Personal

Light Reading
News Analysis
Light Reading
6/28/2000

Plenty of companies in the optical networking industry have already taken legal action in an effort to prevent their proprietary r+d information from finding its way into the hands of competitors. But now some of these cases are getting personal. Specifically, some vendors are now suing individuals, rather than the companies they leave to join.

Just last week Lucent Technologies Inc. http://www.lucent.com filed a lawsuit in US District Court in Boston against 10 former engineers who left to work for Cisco Systems Inc. http://www.cisco.com in a neighboring facility in suburban Boston.

It's a tactic that has already paid off for Ciena Corp. http://www.ciena.com. Last November it filed an injunction against one of its employees when he tried to leave to work for a competitor, Sycamore Networks Inc. http://www.sycamore.com. A judge in US District Court in Baltimore upheld the contract and imposed a temporary restraining order on the employee preventing him from working for Sycamore.

Unlike other recent lawsuits such as Alcatel vs. Cisco, Nortel Networks vs. ONI Systems, or Siemens vs. Qtera, the Lucent and Ciena cases target specific employees, not their new employer. In both instances, the vendors allege that the employees have violated non-compete contracts. Essentially, these agreements are intended to prevent employees who have access to proprietary information from working for a direct competitor.

"It's like giving someone your playbook and then they go play for the other team," says Ruffin Cordell a principal attorney with Fish and Richardson, PC, a firm that specializes in technology litigation. "You can't let them do that; it just isn't fair."

The only state that doesn't recognize non-compete agreements is California, says Cordell. That means that in most states other than California judges are likely to uphold a non-compete contract, but in California companies rely on confidentiality agreements to help protect trade secrets. The difference between the two types of agreements is that with a non-compete agreement, employees are forbidden to work for a direct competitor for a certain amount of time. A confidentiality agreement allows people to work for competitors, but they must not reveal any confidential or proprietary information while working there.

While most everyone agrees that intellectual property and proprietary information should be protected, many times start-ups are the targets of bogus threats, some companies say. In fact, letters threatening legal action are common when start-ups begin hiring a significant number of employees from a large company, even if the two companies are not direct competitors. The mere threat of a lawsuit is often enough to scare off many start-ups.

"The last thing you need is to be tied up in litigation," says one company's CEO who wished not to be named. "It takes time and money that you just don't have. A lot of times it's just not worth it."

But some start-ups refuse to back down from pressure from bigger vendors. Hyperchip, a Canadian start-up that is developing a petabit router for the Internet core, has already had a few run-ins with Nortel over hiring some of its employees. Even though Hyperchip doesn't consider itself a direct competitor of Nortel's, which hasn't announced plans for a similar product, Nortel's lawyers sent several scathing letters to Hyperchip accusing the company of poaching Nortel employees, Hyperchip says.

"It's really ridiculous and annoying, " says Richard Norman, president and CTO of Hyperchip http://www.hyperchip.com. "Sure it's a little intimidating to have a big company after you, but I just won't stand for them trying to bully us."

--Marguerite Reardon, senior editor, Light Reading http://www.lightreading.com

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