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Volume 18, Number 21 -- June 1, 2009

IBM Sues to Stop Exec from Getting a Dell (Paycheck)

Published: June 1, 2009

by Timothy Prickett Morgan

You can't really blame David Johnson, the senior IBM executive in charge of Big Blue's merger, acquisition, and divestiture strategy, from wanting to take a job at rival Dell. But last week, IBM sued Johnson to prevent him from jumping to Dell, the second time this year when IBM has had to sue to stop a high-level employee from going over to a competitor.

The complaint against Johnson, which was filed by Cravath, Swaine & Moore's managing partner and long-time IBM hired gun, Evan Chelser, on May 21 in the U.S. District Court for the Southern District of New York, says that for the past nine years Johnson has played a key role in IBM's acquisition strategy, presumably including the much-discussed near-takeover of Sun Microsystems in March and April. IBM alleges in its complaint that Johnson, who reports to chief financial officer, Mark Loughridge, has had access to "highly sensitive confidential information" that IBM uses "in its most sensitive strategic planning relating to the future of the corporation," and like Mark Papermaster, the Power chip guru that IBM tried to stop from taking a job at Apple earlier this year, is one of the 300 executives in Big Blue's "elite" Integration and Values Team. And like Papermaster, Johnson has a non-compete clause in his employment contract, which as far as IBM is concerned means he cannot take a job at Dell to do mergers and acquisitions. But the legal argument that IBM is making is that Johnson knows what deals IBM thought about doing, which ones it chased and didn't, and what it expected returns to be for past, current, and future acquisitions.

In a report from Bloomberg, an IBM spokesperson said that in the past nine years Johnson had received "significant compensation" precisely because of the sensitive nature of the work that he has done and for agreeing to the non-compete. Dell has admitted that it had hired Johnson, but won't say when or comment on the matter.

After a month of wrangling in the courts earlier this year, Power chip guru Papermaster was able to assure the judge and IBM's lawyers that he wouldn't be divulging secrets about IBM's Power chips, and was allowed to take a job as head of Apple's iPod and iPhone hardware development, reporting to ailing chief executive officer, Steve Jobs.

Dell has been on the hunt for acquisitions, and before the suit was filed, Johnson told his bosses at IBM that he was taking a job as senior vice president of strategy at Dell. IBM is seeking a preliminary and permanent injunction forbidding Johnson to take the job at Dell and is also asking the court to make Johnson pay its legal costs, too. Johnson now has to make the argument that he is not violating his non-compete and that the knowledge he has will not fall into Dell's hands. Papermaster did it, and Johnson could, too. We'll see.


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