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Employee poaching spurs spats, lawsuits

SAP is just the latest corporate giant to open its deep pockets and hire an army of lawyers to go after a rival accused of stealing key former executives.

Business software maker SAP is the latest corporate giant to open its deep pockets and hire an army of lawyers to go after a rival accused of stealing a clan of its key former executives.

But SAP's lawsuit, filed recently in Pennsylvania state court, is only one in a long line of litigation over the past several years sparked by angry companies after top executives or technical talent walked out the door--often taking their whole team along for the ride. When the team leaves, it's often the losing company that's left to recoup, call the recruiter for replacements, and worry about what sort of critical information exited along with the departing employees that could later be used as a competitive card.

With its main lawsuit against Siebel, and a string of lawsuits SAP has filed against individual Siebel employees, SAP joins a spate of other companies that have turned to the courts to settle their staffing battles. Wal-Mart recently sued both Amazon.com and Drugstore.com, alleging the online retailers hired Wal-Mart executives to steal trade secrets. The companies settled their dispute with Wal-Mart in April, under a deal that called for Amazon to reassign one employee and restrict the work assignments of eight others.

In another case in May 1997, Borland International sued Microsoft, claiming the software giant hired 34 Borland employees over three years in an attempt to put Borland out of business. Earlier that year, database software company Informix tried to obtain a restraining order against Oracle after 11 of its software engineers left for Oracle.

Now, SAP America, led by chief executive Kevin McKay, is crying foul that 27 of its key executives walked out for rival Siebel Systems.

Intellectual property and competition
Siebel, which has come close to legal battles over its technology with its other main rival Oracle, has said the lawsuit is without merit. Although Siebel released a press statement regarding the lawsuit Monday, it has declined to comment further.

Defending SAP's move, Hasso Plattner, the chief executive of $5 billion SAP, said simply: "This is a war." The suit claims Siebel tried to "injure SAP's business" when the company snagged SAP America head Paul Wahl, who Paul Wahl followed his former colleague Jeremy Coote to high-flying Siebel earlier this year. A host of other executives had already left SAP, or joined Wahl soon after he went to the company. SAP says these executives and business managers took intellectual property with them and that Siebel engaged in "predatory hiring practices directed at SAP designed to injure SAP's business and damage SAP's ability to compete."

"Without the lawsuit, I would have juicy comments [right now]," Plattner said yesterday during an SAP press event. Plattner also stressed the fact that SAP, which is headquartered in Germany, cannot match the stock options that other companies use to lure SAP's American employees.

"In the U.S., it is common practice to offer shares in large amounts to lure people from other companies away," he said. "Being a company that has to report in Europe, I would lose my job [if we offered such an option plan]."

Employees follow respected leaders
But Peter Gregory, a recruiter with Confidential Global Search, said when employees leave in droves, it's often to follow a leader they respect and are comfortable working with or to get a more prestigious job title.

"You'll see whole teams leave for start-ups," he said. "Most employment today is at will, which means there's no protection for the employee who can just get a pink slip with cause or not."

Daniel Weisberg, partner at Brobeck, Phleger & Harrison in New York, said that though an increasing number of terse letter exchanges occur after employees quit to go to the competition, lawsuits are not filed frequently. However Weisberg said that may soon change in such a cutthroat hiring environment.

"Competition is so hot that in order to protect themselves companies will see [that lawsuits] are worth it to stop the hemorrhaging," he said.

While it's hard to prove damages in these cases, Weisberg said SAP could seek an injunction against Siebel asking the court to ban the employees from working at Siebel for a period of time or change their job roles.

SAP's motivation questioned
At the time the SAP employees left the company, SAP was developing its new line of customer relationship management (CRM) software that the company plans to sell in Siebel's core market. SAP has traditionally sold enterprise resource planning (ERP) software for corporate back office financials, human resources, and manufacturing needs, but is expanding its footprint as its core license sales and profits shrink. SAP's third-quarter profit fell 64 percent to $48.6 million, while Siebel's profit for the same period more than doubled to $30.1 million.

Rob Kugel, a financial analyst at FAC equities, called SAP's lawsuit an embarrassing move by a company that's frustrated by repeated delays in releasing its CRM product suite, which the company has promised for many months. Kugel said it's unclear, in this case, how much intellectual property SAP executives took with them when they left.

And that, Weisberg said, could be the heart of the matter.

"You take 27 executives away under those circumstances and there may be big liability for the company," he said. "There's this idea that there's freedom in the marketplace and employees can go wherever they choose, but you can't use confidential information [such as knowledge of salaries[ to recruit your ex-colleagues."

Nonetheless, some analysts questioned the motivation for SAP's suit.

As one long-time enterprise resource planning analyst contended, "Lawsuits are the last refuge of losers."

News.com's Melanie Austria Farmer contributed to this report.