Microsoft Sues over Google's Hire

Redmond aims to stop its researcher from joining the outfit, bringing with him the crown jewels of a plan to trump its search rival

By Jay Greene

Before one of Microsoft's (MSFT ) brightest technical minds, Kai-Fu Lee, walked away from his Redmond (Wash.) office for the last time on July 18, an employee of Microsoft's legal department served him notice that he was about to be sued. A day later, Microsoft, which had employed Lee since 1998, filed that suit, accusing him of violating an agreement not to work for a competitor for a year after leaving.

No matter. Just about the time the suit landed at a Washington State superior court, Lee, 43, was sitting in Google's (GOOG ) Mountain View (Calif.) headquarters for his first day at his new job. Although Lee is just one of a series of execs who have bolted slow-growing Microsoft in the last year for the bright lights of Google, Lee's departure is different.


  During his tenure, he became one of Chairman William H. Gates III's most trusted technical advisers. Lee is among the world's top researchers in speech-recognition technology. Gates counted on his work to help the company leap into a new era in which computer users may someday talk to their PCs instead of typing in commands or clicking with a mouse.

What's more, Lee's work is at the heart of Microsoft's efforts to topple Google as king of the search-engine mountain. While Google's search is fast, it's not always good at delivering the results users want. One problem: Searchers have to guess what the right words might be to produce the best set of results. Lee's work with so-called natural language technology could solve that problem. Users would be able to ask a specific question and get a specific answer.

"He has got all the crown jewels," says Mark Anderson, who publishes the well-regarded Strategic News Service. "That's how Microsoft is planning to trump Google." And while Microsoft has other researchers who are also working on the problem, the loss of one of the sharpest minds in the field to its biggest competitor in Web search is devastating.


  That's why Microsoft turned to its lawyers, accusing Lee of violating his noncompete clause and Google of "intentionally assisting" Lee, even though it knew that he had agreed to the clause. "It's a particularly egregious violation of our noncompete agreement," says Tom Burt, Microsoft's deputy general counsel. "There has been no effort made to observe that agreement." And while Microsoft isn't asking the court to block Lee from joining Google, its suit, if successful, would likely keep him from working at the company for a year.

It's not the first time Microsoft has played hardball with execs who jump to rivals. In 2001 former Microsoft Vice-President Tod Nielsen quit his job as CEO of Web services startup Crossgain, later acquired by BEA Systems (BEAS ), rather than face a suit from Microsoft. He rejoined Crossgain only after his noncompete agreement expired.

Google says Microsoft's claims "are completely without merit" and plans to defend itself "vigorously." Lee declined to comment on the suit or on anything regarding Microsoft.


  He would discuss only his new job -- opening a research and development center in China for Google by the third quarter and serving as president of its Chinese operations. He says he's in the process of figuring out the specific types of research the tech concern will conduct at the new location. "I'm very fortunate to come to a company whose values and culture I very much share," Lee says.

Born in Taiwan, Lee holds a PhD in computer science from Carnegie Mellon University. He had started Microsoft's research center in China as well. Google's, however, will be much more focused on developing products than producing the sort of academic papers for which Microsoft's research efforts are known, he says. He's also excited to be nearer to his 85-year-old mother, who lives in Taiwan.

Lee gave Microsoft little warning, according to Microsoft's suit. Most recently he worked on server software programs used by businesses such as airlines to automate phone calls with voice-recognition software. But he had begun a sabbatical in June. Right after the Fourth of July break, he told his boss, Senior Vice-President Eric Rudder, that he wasn't planning to return. A source says Microsoft tried to persuade Lee to stay, offering him an opportunity to return to China. But he declined.


  Lee is not the first Microsoft exec poached by Google. Last November, Google hired Mark Lucovsky, one of a handful of developers at Microsoft to hold the title of Distinguished Engineer. Indeed, last December, Google even opened an engineering office in Kirkland, Wash., just one town away from Microsoft's headquarters.

Microsoft could live with the other departures. But the loss of a top-notch researcher -- and a close technical confidant of Gates -- may be too tough to swallow.

Greene is BusinessWeek's Seattle bureau chief

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