Papermaster settles with IBM, sets Apple start date

Updated at 12:30 p.m. PST with more details.

Apple announced on Tuesday that former IBM executive Mark Papermaster has resolved his dispute with IBM over a noncompete agreement and will start leading Apple's iPhone group on April 24.

IBM had sued Papermaster for allegedly violating the terms of a noncompete agreement in agreeing to join Apple as senior vice president of Devices Hardware Engineering, claiming that Papermaster would be in a position to divulge important IBM trade secrets. The two parties exchanged briefing papers for a few months but apparently found a way to settle their differences.

Bruce Meyer, Papermaster's lead attorney at Weil, Gotshal & Manges, declined to comment on the settlement and referred all inquiries to Apple, which did not immediately return a call seeking comment.

IBM issued a statement concerning the Papermaster suit.

IBM and Mr. Papermaster have now agreed on a resolution of the lawsuit under which Mr. Papermaster may not begin employment with Apple until April 24, 2009, six months after leaving IBM, and will remain subject thereafter to all of his contractual and other legal duties to IBM, including the obligation not to use or disclose IBM's confidential information.

Following commencement of his employment with Apple, Mr. Papermaster will be required to certify, in July 2009 and again in October 2009, that he has complied with his legal obligations not to use or disclose IBM's confidential or proprietary information.

The preliminary injunction will be replaced by a court order (PDF) under which the court will have continuing jurisdiction over this matter, including compliance enforcement powers, until October 24, 2009, one year after Mr. Papermaster's departure from IBM.

The settlement frees Papermaster to replace Tony Fadell, who stepped into a senior adviser role last year, and report directly to CEO Steve Jobs in heading up iPhone and iPod hardware development. The leadership transition has been a bit thornier than Apple would have likely preferred.

After a brief courtship early in 2008 for a different position, Apple identified Papermaster as the right candidate to head up perhaps their most cutting-edge development team in September, and he left IBM a month later to pursue what he called "the opportunity of a lifetime."

But IBM, in what was viewed in part as a message to its employees, sued Papermaster for violating a 2006 noncompete agreement on the basis that Apple and IBM competed in the server and chip markets, even though Papermaster would not have been working in either of those capacities for Apple.

The problem for both IBM, in this case, was that to argue that Papermaster would be in a position to spill its trade secrets, the company would have had to discuss those secrets in front of a judge. And likewise for Apple, in order to prove that Papermaster wouldn't be leading an effort to get the company immersed in chip development for game consoles, it would have had to shed some light on its future plans. Neither company was likely thrilled about that prospect.

A settlement always looked like the most obvious outcome, and that's where Papermaster, IBM, and Apple find themselves Tuesday. As noted above, Papermaster will have to recertify that he will not divulge IBM secrets to Apple as part of the initial agreement, and then do so again in three-month increments until October 24th, the first anniversary of his departure from IBM, when the noncompete agreement expires.

Papermaster will have to get started while Jobs is on medical leave, though Apple has said Jobs, due to return in June, remains involved in "major strategic decisions," and the endgame of this particular dispute probably qualified.

Papermaster's primary background is in chip development, and he spent the last several years involved with IBM's blade server design group. But Apple was most impressed by his leadership skills, noting in a court filing that it "hired Mark Papermaster because he has strong general engineering skills, is an outstanding leader, and because we believe he will be a good cultural match at Apple."