The Wrongologist

What’s
Wrong Today:

It
has been the practice among key players in the tech industry not to poach
employees from competitors, particularly employees with technical knowledge
like software (SW) engineers. Tech firms see the move of a key engineer to a
competitor as a potential risk, since product innovation that uses even a small
piece of knowledge brought by an engineer to a competitor can quickly move the new
company to a better competitive position. The employment market in Silicon
Valley is among the most competitive in the country, and job hopping of SW engineers
and other employees is common.

In
early 2005, as demand in Silicon Valley for SW engineers boomed, Apple’s Steve
Jobs entered into a pact with Google’s Eric Schmidt and a few other firms to agree
not to recruit each other’s employees. Apple in particular threatened to punish
companies that violated the arrangement.

The
NYT reported last week about a class-action
lawsuit
in San Jose Federal Court that will head to trial in the spring. It involves
64,000 programmers and seeks $ Billions in damages. The suit names Adobe,
Apple, Google, Intel, Intuit, Lucasfilm and Pixar as defendants. From the NYT:

Santa
Clara County, in the heart of Silicon Valley, has the highest average wage in
the country, but even though Silicon Valley’s SW engineers make really good
money, the court filings call the SW engineers “victims of a conspiracy” who
were cheated by their bosses. According
to Joseph Saveri, a lawyer for the plaintiffs:  

The
actions described in the lawsuit were first uncovered in an investigation by
the Justice Department, which concluded with an antitrust complaint against a
half-dozen companies. In September, 2010, the companies settled
with the Justice Department. The terms of the settlement are confidential, but
the companies agreed to drop the no-poaching practice.

However,
the settlement did not preclude affected SW engineers from pursuing their own
case against the companies. The class-action lawsuit quotes emails and other
communications from some of Silicon Valley’s biggest names:

• On
  February 27, 2005, Bill Campbell, a member of Apple’s board of directors
  emailed Jobs to confirm that Eric Schmidt “got directly involved and
  firmly stopped all efforts to recruit anyone from Apple”

• When
  Google’s co-founder, Sergey Brin, tried to hire from Apple’s browser team, Jobs
  warned: “If you hire a single one of these people that means war”

• In
  2007, when a Google recruiter slipped up and contacted an Apple engineer, Mr. Jobs
  immediately complained. Google fired the recruiter within an hour

• Eric
  Schmidt said he preferred that the company’s Do Not Call list be shared orally,
  “since I don’t want to create a paper trail over which we can be sued later”

• An
  Intel recruiter asked Paul S. Otellini, then CEO, about a hands-off deal with
  Google. Mr. Otellini responded in an email: “We have nothing signed,”…We have
  a handshake ‘no recruit’ between Eric and myself. I would not like this broadly
  known”

The Times reports that these
“no poaching” deals might have been more widespread. The Justice Department is
currently pursuing a case against eBay, accusing it of having an illegal
no-poaching deal with Intuit. The Times
reports that eBay is in settlement talks with the government.

At
issue in the class-action suit is an offense under antitrust laws called an
“unlawful group boycott,” which is an agreement by two or more direct
competitors not to do business with specified targets.

In
this case, the “targets” were the SW engineers employed by the alleged co-conspirators,
so the case presents a twist on an ordinary group boycott. Usually, the aim of a
group boycott is to hurt a competitor by depriving it of supplies or access to
customers that it needs. Here, the aim of the boycott was to deprive the SW engineers
of a competitive marketplace for their services by the firms that
would be primarily interested in using those services.

“No
poaching” is very different from “no hiring”. The companies agreed to stop
calling employees working at a competing firms and offering them jobs. If an
employee wanted to apply for a job at a competing firm, they might or might not
be turned away, and whether a turn-down was really a part of the side deal
would be extremely difficult to prove.

Another
point: These are the same firms who lament the shortage of American
workers with the technical skills they need. They decry the sorry state of the
American education system that fails them by not producing the kind of workers
they want to hire. Then they hire thousands of H-1B visa indentured servants to
fill positions for which there just
weren’t any qualified American applicants. This serves just one purpose:
to maintain downward pressure on the wages of IT workers.

Never
underestimate the ability of the one-percent to invent ways that strangle the
middle class.

Yes,
these no poaching deals had something to do with protecting the firm’s
intellectual property, but it was primarily about wage suppression. Engineers
work hard to acquire and maintain expert knowledge with important economic value
to prospective employers. The salaries of the top people could only be
suppressed through artificial deals and questionable immigration policies.

Robber Barons
was a term used in the late 1800’s to describe industrialists who used exploitative
practices to amass their wealth. Their practices included exerting control over
natural resources, buying political influence, and paying extremely low wages.

In
the 2000’s, the Tech robber barons tried to corner the market on human capital instead
of the market for natural resources. Like the robber barons of old, the Tech barons
still try to develop all the political influence that they can.

Any
settlement that emerges from these lawsuits will amount to nothing compared to the stock price increases
and the profits made by the companies that colluded in “no poaching”.

Corporate
welfare, collusion, buying off the government − still the face of gangster
capitalism in America.