Amazon Uses Non-Competes in Ways Its California Rivals Can’t

June 17, 2020, 10:00 AM

When Brian Hall accepted a job at Google early this year, he says his former employer was congratulatory. Amazon.com Inc. cloud-computing boss Andy Jassy said by email that he wished Hall would have stuck around longer, but that he wished him “nothing but the best.”

A human resources executive, informed of Hall’s move in a text message, replied: “Very happy to hear this news.”

A month later, it was clear Amazon had arrived at a different conclusion. The retailer and cloud-computing giant sued Hall, seeking to prevent him from taking his new role as a vice president in Google cloud’s marketing group because of the non-compete clause he had signed upon joining Amazon two years earlier.

The lawsuit is just one of many high-profile cases in which Amazon Web Services has sought to restrict the ability of employees to jump to rivals, and particularly Alphabet Inc.’s Google cloud unit. Hall is at least the fifth senior employee sued by Amazon after departing for Google since 2012, according to court filings and news reports. Last year, Amazon succeeded in getting a federal court to place limits on the role of Philip Moyer, a former AWS sales executive who took a similar job at Google cloud.

Amazon’s industry peers rarely seek to enforce non-compete clauses, employment lawyers say. Exceptions, like the contentious lawsuit between Google and an employee who left for Uber Technologies Inc., often involve allegations of theft of trade secrets. The dearth of cases is partly the result of state law in California, home to the headquarters of Alphabet, Apple Inc. and Facebook Inc., which makes it difficult to enforce such agreements, a legal standard that helped fuel Silicon Valley’s job-hopping culture.

Washington state, home to Amazon’s Seattle headquarters, has no such prohibition, giving companies wide latitude to enforce non-compete clauses even in cases in which there is no evidence that former employees sought to steal trade secrets or make use of confidential information.

‘Product Roadmap’

That’s the case in the lawsuit against Hall, which was filed in King County Superior Court in May. Hall “helped develop and knows the entire confidential Amazon cloud product roadmap for 2020-21,” Amazon said in its complaint. “Virtually every day, Hall worked with Amazon’s most senior cloud executives to create and execute those plans.”

His role at Google, as vice president of product marketing, would have him completing similar work. Both he and Google refused Amazon requests to limit the scope of this work at his new job, Amazon said in its complaint, putting Hall in a position to do “immediate and irreparable harm” to the company.

AWS is by far the biggest company in cloud computing, a market also contested by Microsoft Corp. and Google. The Hall lawsuit shows the extent to which Amazon, which rarely discusses the competition in public, sees Google as a threat in the lucrative and competitive market for rented processing power and software services. Employment lawyers say that despite a regular flow of employees between Amazon and Microsoft, which is headquartered just outside Seattle, the companies generally haven’t sought to enforce non-compete cases against each other.

In a response to the lawsuit filed last week, and first reported by technology news site GeekWire, Hall said that he wouldn’t have joined Amazon in the first place if he thought the non-compete would be enforced. Ariel Kelman, AWS’s marketing chief when Hall came on board, told him he believed the company’s non-compete agreement was unenforceable, and in any case, had never been used as a basis for a lawsuit against an employee in the marketing group, Hall said in a court filing. (Kelman, shielded from most non-compete lawsuits as a resident of California, himself left Amazon in January for rival Oracle Corp.)

“Amazon plays hardball, kind of unapologetically, in many domains,” said Margaret O’Mara, a historian at the University of Washington who focuses on the high-tech industry, and is friends with Hall. “There’s perhaps not as much recognition that this might not be a good look. There’s sort of a very focused, distinctive culture.”

A Washington state law that took effect in January limits the enforcement of non-compete contracts for employees making less than $100,000 a year. Amazon lobbied for that relatively high threshold, which excludes from the protections of the new law the vast majority of employees at the company’s headquarters.

AWS spokesman Scott Beaver declined to comment. Jane Hynes, a spokeswoman for Google cloud, declined to comment, as did Hall.

Trade Secrets

Many technology companies seek to get employees to sign non-compete agreements, regardless of whether they would be viable in court, an effort to protect trade secrets that sometimes refer back to business processes and software plans rather than patent-protected invention. They are controversial among rank-and-file employees, some of whom see them as expressions of corporate rivalry unrelated to their day jobs. Non-competes and no-poaching deals have also become a target for regulators seeking to safeguard workers’ rights.

Amazon stands out for the breadth of the language in its non-compete contracts and how often it seeks to enforce them, employment lawyers say. Dan Johnson, a partner with Breskin Johnson & Townsend PLLC in Seattle, reviewed an Amazon employment contract for a client a few years ago. “It was by far the most aggressive non-compete I’ve ever seen,” he said. “Really almost unbelievable. If taken literally, it could cover anything.”

A federal judge last year criticized Amazon for its open-ended language. U.S. District Court Judge Ricardo Martinez, presiding over Amazon’s lawsuit against Moyer, the sales executive, said Amazon could have tailored its non-compete provision to specific roles, or to cover specific competitors. Instead, Amazon left such decisions to the courts.

“Amazon no doubt relishes its opportunity to exert pressure and control over its departing employees,” Martinez wrote. Still, Martinez enforced the non-compete, ordering Moyer to avoid work of the sort he performed at Amazon and to refrain from contacting Amazon customers. The case was settled earlier this year. Moyer, according to his LinkedIn profile, still works at Google.

‘Jabbing Google’

“Part of it is Amazon jabbing Google,” said Venkat Balasubramani, an attorney with Focal PLLC in Seattle who represented Gene Farrell, sued by Amazon after he left the company for a job at software startup Smartsheet Inc. “I don’t know what comes of these lawsuits. It’s just something where they just remind the other companies that they’re around, and they’re willing to litigate.”

Some former employees say the lawsuits have the effect of discouraging moves to a new company. One former Amazon engineer who recently left says he was reluctant to seek a job with one of Amazon’s big cloud-computing competitors. “I kind of implicitly knew there was a large risk” of a lawsuit, said the employee, who went to a smaller competitor and asked for anonymity because he’s still within the 18-month window governed by his non-compete agreement with Amazon.

One Google employee, who also spoke on the condition of anonymity, said his employer decided to stop pursuing a candidate then working at Amazon because of the risk of a legal entanglement with the Seattle company.

Meanwhile, Hall sits in limbo. His LinkedIn page lists his title as “VP in Purgatory, Google Cloud.” Google sought to have Hall work on executive speechwriting as the lawsuit played out, but Amazon objected, arguing in a court filing that work crafting speeches for a Google cloud conference could have a “real and concrete impact on the business.”

Amazon’s marketing portrays the company’s cloud business as a dominant franchise whose capabilities are unmatched. After Hall’s lawsuit became public, critics, including some at Google, were quick to latch onto the importance that Amazon’s court argument assigned to what is essentially a marketing event.

Urs Hölzle, Google’’s most senior engineer, posted a link on Twitter to a news story about Amazon’s objection to Hall’s temporary speechwriting with a comment. “Clearly,” he said, Amazon’s lead over Google “is hanging on a very thin thread.”

--With assistance from Mark Bergen, Dina Bass and Gerrit De Vynck.

To contact the author of this story:
Matt Day in Seattle at mday63@bloomberg.net

To contact the editor responsible for this story:
Robin Ajello at rajello@bloomberg.net

Jillian Ward

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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