RE: Crossgain Fires a Quarter of Its Employees

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From: Edward Jung (
Date: Wed Jan 17 2001 - 15:27:14 PST

This is really less about individual non-compete agreements and much more
about the liability Crossgain's executives created by being over-aggressive
about hiring entire groups out of Microsoft to work on exactly the same
thing at Crossgain. This creates more IP and non-solicitation issues than
non-compete ones, and would create big question marks to investors
concerning product liabilities.

The issue is corporate behavior (via its officers), not individual behavior.
It is possible that the officers at Crossgain were reckless, not with their
individual behavior, but with their corporate responsibilities (and
indirectly their responsibilities to investors, who are traditionally
conservative about this kind of stuff).

Individual non-compete is essentially unenforcable without the presence of
other egregious behaviors such as IP theft, disclosure of confidential
information, etc. A large diversified company has almost zero chance of
making these stick on an individual without some kind of major corporate
asset theft. And non-competes have no power in California where they are
considered an unreasonable restraint on a person's individual freedom to
find work.

Non-compete is what the media is picking up because of the Crossgain
rehiring plan. The same Microsoft employment agreement covers
non-solicitation and several other issues.

Having said all that, I think this is a poor strategy on Microsoft's part.
They will be roasted in the press over a red herring: the non-compete issue.

I also think this is a very poor showing from Benchmark and Barksdale.
Although they may be looking at Microsoft as a powerful exit strategy for
some of their portfolio and therefore caved to this pressure, it's really
too bad they didn't put up more of a fight for their portfolio company. A
lot of these issues should have been obvious in diligence.

-----Original Message-----
From: Robert S. Thau []
Sent: Tuesday, January 16, 2001 9:27 AM
To: Rohit Khare
Subject: Fwd: Crossgain Fires a Quarter of Its Employees

Rohit Khare writes:
> This is really sad and pathetic on MSFT's part, and an embarrassment
> for all concerned, including Benchmark. This is practically
> Justice-worthy, but probably not in a Bush administration... My best
> wishes to all who were involved, and that they may compete again --
> with all of us! -- on a level playing field... Rohit

To summarize: every employee of Crossgain (yet another software
startup working on web technology they won't talk about) who had
formerly worked at Microsoft was fired, with the possibility of being
rehired after their noncompetes were over. This includes the
cofounders and CEO.

IANAL, and I obviously haven't seen the non-compete agreements in
question, but this doesn't smell right. The general rule concerning
non-competes, as I understand it, is that they have to be narrowly
drawn --- a noncompete broad enough to effectively bar someone from
practicing their profession amounts to an indenture, and is therefore
void. Like most employment law, this is state law, and varies from
jurisdiction to jurisdiction --- but is there anyone in software who
*isn't* competing with Microsoft?


(If these folks were working on a project that had *started* within
Microsoft --- viz. the old rumors about the origin of the DG Nova ---
that would be different; but in that case, you'd expect trade secrets
to be at issue as well. Then again, the reporters simply might not
know about it if they were...).


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