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From Antitrust Law Daily, November 24, 2015

Microsoft anti-solicitation conspiracy claims rejected as untimely

By Greg Hammond, J.D.

Two former employees who filed a putative class action against Microsoft Corp. have once again failed to state timely claims that Microsoft conspired with other technology companies to suppress employee compensation. The federal district court in San Jose consequently dismissed with prejudice the former employees’ claims under the Sherman Act, and California’s Cartwright Act, Unfair Competition Law, and anti-covenant not to compete law (Ryan v. Microsoft Corp., November 23, 2015, Koh, L.).

The two plaintiffs were formerly a “senior product manager” and “lead systems engineer senior” for Microsoft. They claimed that Microsoft entered into a number of independent anti-solicitation agreements with various companies, adding those companies on an internal “Hands-Off List.” The effect of those agreements was purportedly to restrict competition in the labor market and artificially depress compensation. The court previously dismissed the antitrust claims as time barred. After filing an amended complaint, the plaintiffs claimed that Microsoft’s conspiracy was a continuing violation of antitrust laws until at least 2013 and that Microsoft fraudulently concealed the conspiracy from plaintiffs until 2013. Microsoft moved again to dismiss.

Statutory tolling. The court first noted that 2009 was the last year in which the former employees alleged Microsoft entered into a specific new antitrust agreement. Consequently, in order for the Sherman Act claim to be timely, it would have had to accrue after October 16, 2010, according to the court.

The former employees argued that the Department of Justice’s previous investigation into Microsoft was entitled to statutory tolling. In addition, they asserted that they were entitled to statutory tolling during the pendency of three government-filed lawsuits concerning Adobe, Lucasfilm, and eBay. The court rejected those arguments, finding first that because the Justice Department never filed a complaint against Microsoft, the plaintiffs were not entitled to any tolling based on the Justice Department investigation. In addition, because the conspiracies alleged in the Justice Department’s complaints against Adobe, Lucasfilm, and eBay did not involve Microsoft, the former employees failed to meet their burden of demonstrating a “real relation” between the government-filed lawsuits and the instant action. The plaintiffs were therefore not entitled to statutory tolling.

Continuing violation. The former employees also claimed that Microsoft engaged in continuing violations beyond October 2010 by entering into new non-solicitation agreements and maintaining existing non-solicitation agreements until at least 2013. The court, however, found that the plaintiffs failed to allege that Microsoft took any new and independent act after 2009, because the allegations concerning new non-solicitation agreements were conclusory and maintaining and reaffirming the existing agreements did not qualify as an “overt act.” In addition, allegations that the former employees were not recruited, interviewed, or hired by Microsoft’s alleged co-conspirators after 2010 did not constitute a continuing violation because other companies’ inaction is not an “over act” by Microsoft, as required to show a continuing violation. The plaintiffs consequently did not allege a continuing violation that would restart the statute of limitations.

Fraudulent concealment. The court next determined that the former employees failed to sufficiently allege the first element of fraudulent concealment—whether Microsoft took affirmative acts to mislead the former employees. First, allegations concerning alleged misleading conversations lacked specificity to give Microsoft notice of the particular misconduct alleged to have been fraudulent. The former employees failed to specify the identity of parties who allegedly made false representations and did not specify the time, date, or place of the allegedly misleading conversations. Second, the former employees failed to allege that Microsoft’s redactions of public versions of documents properly produced during government investigations were in any way false, misleading, or beyond the scope of Microsoft’s agreement with the Justice Department to produce documents under seal.

Third, although the former employees quoted multiple emails sent by Microsoft employees about the alleged Hands-Off List, the court found that the former employees failed to identify any email in which a Microsoft employee marked an email as confidential, stated that the recipient should not forward or discuss the contents of the email, or took efforts to discuss the alleged agreements in code, demonstrating that the emails did not amount to affirmative acts to keep the non-solicitation agreements secret. Lastly, the former employees’ remaining allegation that Microsoft represented in public filings that it abides by antitrust laws was deemed inadequate on its own to satisfy the burden that Microsoft took affirmative acts to fraudulently conceal the alleged conspiracy. The Sherman Act claim consequently expired no later than 2013 and the plaintiffs’ 2014 Sherman Act claim was therefore time barred.

The California claims were also deemed time barred because the state’s discovery rule and continuous accrual rule did not apply. The court dismissed the claims with prejudice, finding that an additional opportunity to amend would cause undue delay, unduly prejudice Microsoft, and be futile.

The case number is 14-CV-04634-LHK.

Attorneys: Jeffrey Lee Hogue (Hogue Belong) for Deserae Ryan. Robert J. Maguire (Davis Wright Tremaine LLP) for Microsoft Corp.

Companies: Microsoft Corp.

MainStory: TopStory Antitrust CaliforniaNews

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