A judge has allowed former Microsoft executive Kai-Fu Lee to help Google establish operations in China by recruiting non-Microsoft employees to work there but restricted him from performing many other duties, including working on search or natural-language technologies, until the case proceeds to trial. The ruling reinforces the validity of the noncompete agreement that Microsoft requires new employees to sign. However, it leaves them some leeway to work for direct competitors in closely circumscribed areas.

Microsoft also settled several legal cases in summer 2005, including one it brought against a high-profile spammer, one involving patented server acceleration technology, and one involving a trademarked name.

Lee Injunction Mostly Upheld

Lee was the vice president in charge of Microsoft's Natural Interactive Services Division (NISD), which is charged with creating intuitive computer interfaces, from 2000 until July 2005, when he announced that he was quitting to help Google establish a research and development (R&D) facility in China.

Microsoft sued Lee and Google in the King County Superior Court (where Microsoft's headquarters are located), claiming that Lee signed an employment agreement preventing him from working for a competitor or recruiting Microsoft employees for one year and permanently preventing him from disclosing Microsoft trade secrets and other proprietary information. Microsoft requested a preliminary injunction enforcing the agreement, which a judge granted until hearings could be scheduled in Sept. 2005.

During these hearings, Microsoft claimed that Lee was instrumental in establishing Microsoft's Chinese business strategy, was the company's "public face" in China, and worked on areas directly related to Internet search—Google's core business.

Lee painted a different picture, saying that he recruited employees for Microsoft's Chinese research operations from 1998 to 2000, when he worked for a Microsoft subsidiary, but was only incidentally involved in Microsoft's Chinese business strategy after that. Lee acknowledged making recommendations for how Microsoft should do business in China—in particular, he suggested consolidating multiple Chinese R&D efforts—but said these recommendations were largely ignored. Lee also claimed that he did no work on Microsoft's Internet search engine, and that two NISD employees initiated the project that would later become MSN Desktop Search (although Lee signed off on the project once he became aware of it). Finally, Lee said that the employee agreement was not presented to him as a condition of his employment at Microsoft, but only as part of a packet of papers he signed after employment, and which he thought were "merely administrative."

On Sept. 13, King County Superior Court Judge Stephen Gonzales affirmed the validity of the employee agreement and issued an injunction preventing Lee from doing the following:

• Working for Google on any project related to search, including Internet, desktop, and mobile search (this provision expires one year after Lee's departure from Microsoft)
• Working for Google on any project related to natural language or speech (expires after one year)
• Setting budgets, compensation levels, or areas of research for Google's R&D facility in China (expires after one year)
• Disclosing any trade secrets or proprietary information received during his employment at Microsoft (permanent).

However, Judge Gonzales ruled that Lee's recruiting-related activities for Microsoft in China since 2000 were not covered by the employee agreement, because they were not an official Microsoft project and relied partly on Lee's reputation and actions before his Microsoft employment. Therefore, Lee may recruit for Google's Chinese R&D facility as long as he doesn't approach any Microsoft employees.

Either party may appeal the injunction, and it could be overturned or modified during trial, which is currently scheduled for Jan. 2006. In a separate lawsuit filed in California, Google is seeking to invalidate the Microsoft noncompete agreement completely (a hearing is scheduled for Oct. 2005 in that case), but Google might drop that lawsuit now that a judge has ruled that Lee may start work immediately.

According to testimony by Marc Lucovsky, another former Microsoft employee now working for Google, Microsoft brought this lawsuit partly to discourage other employees from leaving for Google. Although the threat of legal action alone could dissuade some workers from leaving, the judge's order seems to leave some leeway for employees to go work for a competitor, as long as they work in a different area and don't take proprietary information or teammates with them.

The text of the injunction and other legal orders in the case are available in PDF form at www.metrokc.gov/kcsc/rulings/msgoog.htm.

Spam, Chimney, BioCert Settlements

Microsoft also reached several legal settlements in summer 2005.

"Spam King." Scott Richter, the owner of bulk e-mail sender OptInRealBig.com who once proclaimed himself the "spam king," will pay Microsoft US$7 million to settle a lawsuit over deceptive e-mailing practices.

Microsoft and New York State Attorney General Eliot Spitzer filed the suit against Richter and several other companies in 2003, alleging that these companies violated antispam laws by sending commercial messages with fake or misleading subject lines, sender names, domain names, and IP addresses. Microsoft had grounds to participate in the lawsuit because these messages allegedly passed through MSN and Hotmail servers, costing the company money, but the company also hoped to score a public-relations win and help reduce spam, which is an increasing source of annoyance that could impact consumer PC sales.

Richter and OptInRealBig.com denied all wrongdoing as part of the settlement, and the company claims to have changed its e-mailing practices in response to the lawsuit.

After covering legal expenses, Microsoft will invest the remainder of the settlement in public programs, including US$5 million to train law-enforcement agencies to fight computer-related crimes and US$1 million for a program to provide broader computer access to underprivileged communities in New York State.

Alacritech (Chimney patent). Microsoft has settled a patent-infringement lawsuit and reached a cross-licensing agreement with networking equipment vendor Alacritech. This will allow Microsoft to incorporate a server acceleration feature, code-named Chimney, into Windows. The feature, TCP offloading, improves server performance by allowing a hardware component (such as an integrated circuit on a network interface card) to handle TCP networking tasks, thereby leaving more processing power for applications.

Alacritech filed suit over Chimney in Dec. 2004, claming that it was similar to Alacritech's Session-Layer Interface Control (SLIC), which Alacritech allegedly showed Microsoft in 1998 in hopes of reaching a business deal. In Apr. 2005, a judge granted a temporary injunction preventing Microsoft from working on or incorporating Chimney until the patent-infringement case was resolved. Now that a settlement has been reached, Microsoft plans to ship Chimney in early 2006 as a stand-alone upgrade for Windows Server 2003 called the Scalable Networking Pack and will eventually incorporate it into Windows Server.

As part of the settlement, Microsoft acknowledged Alacritech's ownership of technology that links Chimney to networking hardware, which in turn could encourage other companies to license Alacritech's patents. Networking chip manufacturer Broadcom signed a cross-licensing deal with Alacritech at the same time as Microsoft.

Artemis (BioCert trademark). Microsoft has settled a trademark infringement suit brought by Artemis over the name "BioCert" and will no longer use that name. In May 2005, Microsoft launched IP Ventures, a program to license technologies created by Microsoft Research to start-up companies. One of the technologies embeds biometric information onto an ID card to prevent counterfeiting. Instead of calling this technology "BioCert," Microsoft has renamed it "Microsoft Biometric ID."