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Storage giant sues former executive

Storage systems company EMC files a lawsuit against a former executive who allegedly violated a non-compete agreement when he switched employers.

    Storage systems company EMC filed a lawsuit Tuesday against a former executive who allegedly violated a non-compete agreement when he switched employers.

    According to a lawsuit EMC filed in Boston, Doron Kempel breached a contract with the data-storage giant when he began working at a nearby start-up as the new chief executive. Kempel spent three years at EMC before resigning Aug. 31 as vice president and general manager of the media solutions group.

    Kempel's case--the newest in a growing collection of non-compete lawsuits against technology executives--hinges on whether the cross-town companies are truly rivals.

    Hopkinton, Mass.-based EMC builds storage systems--computerized vaults that companies use to hold electronic data such as customer credit card information or detailed pricing charts. With 23,600 employees worldwide and 34.6 percent of the storage-system market, EMC is by far the largest independent provider of storage systems. It also sells software, networks and services needed to maintain large amounts of corporate data.

    Southboro, Mass.-based SANgate, which was founded in January 2000 and has 76 employees, is scheduled to launch a storage-related software and hardware bundle in the second quarter of 2002. The package sits between its client's own servers and the storage subsystem. SANgate representatives say their product is built to operate with--not compete against--systems from EMC, IBM and Sun Microsystems.

    "Bottom line: We don't see SANgate being in competition with EMC. We view it as complementary, but not competitive," said Tom Gallitano, an attorney representing Kempel. "We have no knowledge...that EMC makes an appliance that is anything like SANgate's enterprise storage application. To our knowledge, they have no plans to do so."

    EMC spokeswoman Anne Pace confirmed that EMC sued Kempel for breach of contract in the Business Litigation Department of Massachusetts' Suffolk County Superior Court. But she said company attorneys could not comment on any pending litigation.

    The case is the most recent lawsuit filed over a potential breach of a non-compete agreement in the hotly competitive storage industry. Many storage companies are facing stock slumps and revenue slowdowns, and executives are scrutinizing defectors who could spill details on their former employers' products and business strategies.

    In July, StorageTek filed a lawsuit against Advanced Digital Information Corp. (ADIC) and Lynn Jacobs, the company's vice president of engineering. Jacobs, something of a luminary in the specialized data-storage niche, joined ADIC in May after working for StorageTek for a decade and attaining the title of vice president of tape drive engineering.

    EMC has been particularly aggressive about non-compete lawsuits.

    Several months ago, EMC attorneys filed a lawsuit against former software engineer Joanna Karwowska after she resigned and resurfaced at fierce rival Network Appliance.

    Included in that lawsuit was a U.S. federal court order that permitted EMC-hired detectives to inspect the hard drives on laptop computers Karwowska received at Network Appliance. In the federal lawsuit, EMC accused her of conspiring with Network Appliance to foil an EMC project nicknamed "NetApp Killer."

    EMC also filed a suit recently against Eric Mann, a former EMC salesman. EMC paid Mann $132,852 after he quit, apparently as part of the terms of his deal to refrain from defecting to a rival. (Companies often give resignation payouts as a way of discouraging workers from immediately bolting to a competitor.) EMC withdrew the check and filed suit after Mann became an officer at rival StorageApps.

    While the number of non-compete lawsuits has been mushrooming in the storage niche, it's also growing throughout the wider technology industry. That's because non-compete agreements became standard among tech executives in the late 1990s, and many of those executives are just beginning to test their legality.

    A sustained economic downturn could dramatically increase the number of non-compete suits filed, said Carl Khalil, the attorney and founder of Virginia Beach, Va.-based BreakYourNonCompete.com, a company that provides information on how to get out of such deals. He says the torrent of layoffs among tech executives ratchets up the stakes for jobless employees.

    "Even if they get an offer from a company that violates the non-compete clause, they're going to be forced to consider the offer--if only to have some kind of income," Khalil said.

    Earlier this month, Amazon.com sued eBay over the attempted defection of a relatively obscure Amazon.com executive. The lawsuit caps a long-simmering battle between the e-commerce archrivals, whose business strategies increasingly overlap.

    Khalil said employees typically win the cases about 50 percent of the time, and the employer wins the other half. Other experts in non-compete agreements say judges will dismiss cases where former employees have signed clauses that are severely restrictive.

    "I've seen them company-specific: 'If you go to this company, the non-compete is six months. If you go to this other company, it's one year,'" said Rich Miller of workplace consulting firm Drake Beam Morin. "The general rule is that the longer in length and broader in scope, the less enforceable it is."