Alcatel, Fired Worker Tangle Over Who Owns Software Idea
By Loren Steffy
Alcatel, Fired Worker Tangle Over Who Owns Software Idea
(Published in the October issue of Bloomberg Markets magazine.)
Farm-to-Market Road 219, outside Fairy, Texas, Sept. 27 (Bloomberg) -- For 14 weeks
starting in June, Evan Brown climbed into his dust-covered Ford pickup and drove 160 miles
from central Texas to Alcatel SA's U.S. headquarters near Dallas, compelled by a state judge's
order to divulge one of his few remaining assets: his thoughts.
DSC Communications Corp., now owned by Paris-based Alcatel, fired Brown in 1997 after he
refused to divulge his idea for software that would modernize DSC's telephone switches,
which route calls over the world's phone networks. Then DSC sued Brown, charging that he'd
breached a contract that required him to turn over inventions to the company.
Out of a job and out of money, Brown, 48, has had little choice but to shed the trappings of
his former success. He sold his Cessna 210 single-engine plane and used the cash to build a
metal barn on 300 hardscrabble acres northwest of Waco, where he weathered months of
100-degree days before installing air- conditioning. He brings in about $2,000 a year by
leasing his land to farmers -- in stark contrast to his $100,000 annual salary at DSC.
Long gone are his single-story brick home on a tree-lined cul-de-sac in the Dallas suburb of
Plano, his Mercedes 300 SD sedan, and his prized gun collection: rifles, shotguns, and pistols
he'd acquired since college.
The Battle for Ideas
While Brown's situation may be extreme, the issue that's driven him into such dire
circumstances has become increasingly important in an economy powered by technology --
and the people who invent it.
Companies such as Alcatel are getting more aggressive in cases involving employee ideas --
officially dubbed ``intellectual property'' -- as they fight to keep knowledge they deem vital
from falling into competitors' hands. Legal experts predict the number of suits against workers
and rival companies will balloon as competition for skilled employees intensifies and turnover
in engineering jobs runs as high as 15 percent.
This year alone, some of the biggest names in the computer world -- including Intel Corp.,
Cisco Systems Inc. and Lucent Technologies Inc. -- are involved in trade-secret suits.
``There's absolutely no question we're seeing more intellectual property disputes and disputes
with departing employees,'' says Michael Epstein, head of the technology and proprietary
rights practice at New York law firm Weil, Gotshal & Manges. ``It's a huge concern among
high-tech companies.''
High Stakes
The cases can involve considerable stakes. Brown estimates he's spent $500,000 on legal
fees. He says he can't find work aside from the occasional consulting agreement because no
employer wants to take on his legal woes. What's worse, the court order forced him to spend
more than three months at his former workplace to develop and test his software idea --
without pay, without a stipend for his expenses, and with little hope of benefiting from what
he estimates is a $1.5 billion market for his idea.
``They're trying to make an example out of me for all their other employees,'' Brown says from
under the brim of his white cowboy hat, his boots lacerated from the limestone rock that dots
his farmland. ``They are not entitled to this. Corporations cannot own parts of people. They
can't own your brain.''
Alcatel doesn't agree. ``We have lots of assets, but there are no assets anywhere near as
valuable as our intellectual property,'' says George Brunt, Alcatel's U.S. general counsel.
``The competition is all based around who can innovate.''
Lawsuits Galore
Europe's second-largest phone equipment maker has suits pending against big companies
such as Cisco and start-ups including optical switch developer Chiaro Networks Ltd. In the
past four years, Alcatel -- and DSC before it -- have won most of them, collecting a judgment
of $140.7 million against Next Level Communications Inc., in 1997.
That's a hefty sum, considering some intellectual property cases are settled for no more than
legal fees and an agreement to keep workers from disclosing secrets at the new job.
Alcatel isn't alone. Fujitsu Ltd. is suing Cisco, claiming the No. 1 maker of networking equipment
hired 27 Fujitsu workers to steal secrets about communications gear. Fujitsu filed the case in
December 1999 in the courthouse where Brown's suit is pending.
Employees as Suspects
In March No. 1 computer-chip maker Intel sued Broadcom Corp., a fast-growing rival in which
Intel was an early investor. The suit claimed Broadcom hired four Intel workers to gain designs
and marketing plans for communications chips.
A state district judge in California, where the case was filed, ruled in May that three of the
employees hadn't revealed Intel secrets. The judge issued an injunction against the fourth,
preventing him from being hired because he had allegedly mentioned confidential Intel
information in his job interview at Broadcom.
Intel fired a new round in August. It sued Broadcom in federal district court in Wilmington,
Delaware, and accused its rival of using a ``carefully crafted plan'' to build its business with
Intel patents for cable and high-speed networking products.
Broadcom responded that Intel is simply trying to discourage its employees from seeking
better jobs.
More Than Tech Companies
Companies outside the computer industry aren't immune. In one of the most publicized cases,
No. 1 retailer Wal-Mart Stores Inc. accused Amazon.com Inc. of raiding 15 top workers in 1998.
The suit, filed in Arkansas state court in October of that year, claimed the biggest Internet
bookseller and Drugstore.com Inc., in which Amazon holds a 23 percent stake, wanted
Wal-Mart's expertise in computerized systems to help Amazon sell more general merchandise.
The companies settled in April 1999 after Amazon agreed to limit the duties of former Wal-Mart
executives and consultants. The companies also agreed not to solicit each other's employees
for a year. No money changed hands.
Legal Muscle
Brunt, the Alcatel general counsel who had the same job at DSC, says his company has an
obligation to protect information that could be ferreted away by workers and used against it.
When Alcatel bought DSC in 1998, it inherited Brunt's legal strategy and his formidable track
record in court. DSC's biggest victory was its $140.7 million judgment against Next Level, now
majority owned by Motorola Inc.
The company claimed two workers had formed Next Level while at DSC and had used DSC
technology to make Next Level's set-top boxes for cable TV service and Internet access.
In December Alcatel squared off in a Dallas courtroom with Samsung Electronics Co., accusing
the Korean company of stealing designs for phone switching systems by hiring Alcatel
workers. The companies settled out of court in January. Terms weren't disclosed.
Brunt rejects any notion that his company is a legal bully. ``We've had some high-profile
cases and some big judgments that have put it a little more in the limelight,'' he says. ``One of
the primary vehicles for companies to protect their intellectual property is to go to court.''
Top Secret
The first line of defense for companies anxious to protect intellectual property is to get
employees to sign confidentiality agreements, says Epstein, the Weil Gotshal attorney.
``The rule is that any confidential information that an employee learns during the employee's
job belongs to the employer,'' he says.
Even so, courts are finding it harder to distinguish between confidential information and general
knowledge. Also, intellectual property is still a relatively young branch of jurisprudence,
meaning, courts must look to different areas of the law -- from contracts to patents -- for
guidance.
In many cases, Alcatel has used an argument termed ``inevitable disclosure.'' The concept
stems from a 1995 federal appeals court ruling in Chicago involving soft drink maker PepsiCo
Inc. and Quaker Oats Co. PepsiCo sued over Quaker's hiring of a key PepsiCo executive,
William Redmond.
The court found that Redmond knew about PepsiCo's marketing plan for its All Sport drink and
that he inevitably would use his knowledge to help Quaker market its rival Gatorade.
``Redmond could not be trusted to avoid that conflict of interest,'' the appeals court said.
The ruling prevented Redmond from doing his job for six months and from ever disclosing
PepsiCo secrets. ``I was at Quaker, but basically on the bench,'' says Redmond, who left in
1996 to join Garden Way, a Troy, New York, maker of tillers, snow blowers, and lawn
mowers.
Sue First, Question Later
For high-tech companies, simply getting a new design to customers first often ensures
success. The process can go into warp speed when new technology is at stake. A
microprocessor, for example, can move from design to production in 12 months compared with
two to three years for a new car.
``As the economy and technology move faster, people do rely on other ways of keeping their
information confidential,'' says Chuck Oslakovic, an attorney specializing in trade-secret law at
Chicago firm Leydig, Voit & Mayer. That may mean suing departing employees as a
preemptive strike against a future competitive threat.
For Brown it's meant spending eight hours a day at Alcatel's offices hunched over a computer
screen. He says that Alcatel forbids him to leave the room to go to a vending machine, and an
employee assigned to watch him notes his rest room breaks.
Billion-Dollar Idea?
The idea that has spawned so much trouble sounds simple: develop software that translates
outdated computer languages into one that today's machines can understand. So far, though,
no one has created a program that can read all the quirks in the older systems.
``This could be extremely valuable if there's anything behind the idea,'' says Brunt, who
believes the concept has merit because Brown is ``an expert in developing software tools.''
Brown claims he began working on the idea as far back as 1976, 11 years before DSC hired
him. When he joined DSC in April 1987, he signed an agreement that he would disclose any
inventions related to his job as a software designer.
In 1996 the solution to the computer code problem he'd been pondering came to him. He filed a
notice with DSC's legal department in April of that year saying he had developed his idea
``from my own personal experience and on my own time.'' He asked the company to issue a
release, stating that his idea wasn't covered by his employment agreement because it
involved ``software reverse engineering'' -- basically taking modern computer code, breaking it
down, and rewriting it in the outdated language.
``DSC is not in the business of software reverse engineering, and my job at DSC does not
involve reverse engineering,'' Brown wrote in his April 19 notice to DSC.
Slippery Slope
DSC disagreed, and the company and Brown spent almost a year trying to reach a
compromise. Brown says he went on vacation to Europe in April 1997 and returned to find
he'd been fired. DSC sued days later, claiming Brown was trying to sell the concept to
competitors. Brown says that wasn't the case.
Few things have gone Brown's way since. In June 1997 State District Judge Curt Henderson
ordered him to disclose the idea to attorneys and DSC engineers. Brown claims he explained
the concept to the DSC team but the team couldn't make it work. DSC argued the disclosure
wasn't complete, and the judge agreed.
In January of this year, Henderson again ordered Brown to disclose the idea. The judge
sanctioned Brown for failing to properly reveal it the first time and awarded DSC 20 percent
ownership should it be patented. In other words, Alcatel will get 20 percent of any revenue if
the idea is successful. So far, neither side has sought a patent.
Brown filed for bankruptcy in late January, delaying the suit even longer, in part because the
bankruptcy court had to determine whether the idea was an asset. Legally, the idea is
worthless because no one's offered to pay for it, the bankruptcy judge decided.
The case began moving forward again in June, when Brown was ordered to report to DSC's
headquarters and begin the disclosure.
No Shower, Lots of Armadillos
Brown now calls home his farm near the hamlet of Cranfills Gap in the Texas Hill Country.
Except for a high-speed phone line, his new residence offers few amenities. Even a shower is
a mile down a dirt road in a farmhouse that his sister is restoring.
The turn of events has left him plenty of time to ruminate as he watches deer congregate near
a cedar brake at dusk and chases armadillos that root around in his garden.
He's determined to implement his invention on Alcatel's computers so the company can't again
claim he's holding back. Only after the judge finds Brown has fully revealed the idea can the
case go to trial, where Brown believes he finally may prevail. ``The only chance I have is, get
before a jury,'' he says.
Brunt says Alcatel is equally determined to fight for valuable intellectual property. One of the
few things he and Brown agree on is that the software could be worth more than $1 billion.
As Brown wraps up the disclosure this week, he says he has seen signs that the idea would
work, which makes his ordeal even tougher because it could mean giving Alcatel what he has
spent years trying to protect.
``That really eats on me, but I'm not going to give up,'' he says. ``My freedom of my thoughts
is worth everything I own or possess.''
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