IBM Sues to Block Server Executive from Joining Apple

Published: November 3, 2008

by Alex Woodie

IBM last week filed a lawsuit to prevent former executive Mark Papermaster from taking a job at Apple. IBM claims that, as its "top expert" in the Power architecture and head of development for X64-based blade servers, Papermaster would use his knowledge to hurt IBM's server business as he helps expand Apple's fledgling server business, and thereby violate a non-compete clause along the way.

Papermaster told his supervisors on October 20 that he would leave Big Blue for Apple after 26 years with the company. IBM says it tried hard to stop him, offering him a "substantial increase" in his salary if he stayed. When he declined, IBM offered to give him a year's worth of salary in exchange for abiding by his non-compete clause, which stipulated he could not work with a competitor for a year after leaving IBM. He declined, IBM says, and on October 22, IBM's attorneys, Cravath, Swaine and Moore, sued Papermaster in the Southern District of United States District Court in New York for violating his non-compete clause.

In the filing, IBM calls Papermaster one of its "top executives" who is in possession of "significant and highly confidential IBM trade secrets and know-how," as well as sensitive information about IBM's long-term strategy.

For much of his career, Papermaster worked on IBM's high-end Power server architecture. In its claim, IBM labeled Papermaster as its "top expert" in the Power architecture. Recently, he has worked on X86 and X64 blade architectures, as vice president of the IBM's blade development unit.

Since 2006, Papermaster has worked in the "Integration and Values Team," a group made up of 300 senior managers at IBM that "is charged with addressing the most difficult and important issues facing IBM, such as developing corporate strategy and driving innovation and growth," according to IBM's filing, which is available at this link. As an IV&T member, Papermaster gained access to the most sensitive strategic information at IBM, including long-term product and marketing plans, IBM says.

When Papermaster took the position on the IV&T in 2006, he signed a non-compete agreement. In its claim, IBM says Papermaster would be violating that clause by working for Apple, which competes against IBM in the PC and server business. Although IBM sold its PC business to the Chinese company Lenovo three years ago, IBM says it still has an interest in the company and the product. Apple's X64-based Xserve server line competes with IBM's X64 server lines, System x and BladeCenter, IBM says.

IBM and Apple were close partners until 2005, when Apple decided to stop using IBM's PowerPC processors in its Macintosh line of PCs and Xserve servers, and use Core and Xeon processors from Intel. Since then, Apple has enjoyed a resurgence of interest in the Mac, largely at the expense of Microsoft and its challenged Windows Vista roll-out.

But it's primarily servers that IBM is concerned about with Papermaster at Apple, not PCs.

IBM cites Apple's acquisition of P.A. Semi, a manufacturer of clone PowerPC processors, earlier this year as evidence of Apple's server intentions. IBM says that, through the P.A. Semi acquisition and the hiring of Papermaster, Apple intends to expand its Xserve business and compete more directly with IBM.

"Mr. Papermaster's employment by Apple is a violation of his agreement with IBM against working for a competitor should he leave IBM. We will vigorously pursue this case in court," says Fred McNeese, director of corporate media relations for IBM.

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