1. The US Department of Justice’s Antitrust Division Filed Lawsuit Against Apple, Adobe, Google, Intel, Intuit, and Pixar
As a result of its investigation launched in June 2009, the Antitrust Division of the US Department of Justice filed a complaint to the Washington D.C. court on September 24, 2010. The complaint alleges that starting from May 2005, executives from Apple, Adobe, Google, Intel, Intuit, and Pixar agreed not to solicit each other’s employees for job offers and instructed their human resources departments accordingly, thereby eliminating competition in attracting talented employees, and that this situation is contrary to competition law (1).
In the same complaint, the Department also stated that if the proposed settlement terms are accepted by the mentioned companies, it will withdraw the complaint if deemed appropriate by the court. These settlement terms – broader in scope than the complaint itself – obligate the mentioned companies, for a period of five years, not to enter into any agreements that would result in not offering jobs to any person or company’s employees, not hiring each other’s employees, refraining from “poaching” each other’s employees, or refraining from competing for employees, not implementing existing agreements to this effect, and taking necessary compliance measures in this regard.
Setting aside the dimension of restricting labor freedom, I will try to evaluate the issue from the perspectives of “competition law” and “science, technology, and innovation policies”:
2. “Non-Solicitation Agreements” within the Context of US Antitrust Law
In the US, agreements among companies not to solicit each other’s employees are evaluated from three different perspectives: (a) antitrust law, (b) restraint of trade doctrine, and (c) non-compete obligations between employees and employers. However, for the purposes of this article, the focus will solely be on antitrust enforcement.
When looking at the issue from the perspective of antitrust law, examining some key cases chronologically provides insight. Cases such as Anderson v. Shipowners’ Association of Pacific Coast (1926) (2), Union Circulation Co. v. FTC (1957) (3), Nichols v. Spencer International Press, Inc. (1967) (4), and Quinonez v. National Association of Securities Dealers, Inc. (1976) (5) have frequently discussed various practices that restrict the transfer of employees and have often been challenged in lower courts but upheld as violations of Section 1 of the Sherman Act upon appeal, generally adopting the rule of reason.
The central focus of these four cases is the restraint of competition in the provision of services (labor). The impact of these practices on employees does not typically form the primary subject of the cases; rather, it is considered mainly during the determination of compensation.
On the other hand, the Cesnik v. Chrysler Corp. (6) case found that non-solicitation/non-rehire agreements were necessary side restrictions to preserve the value of acquired assets. Similarly, in Thomsen v. Western Electric Co., Inc. (7), agreements of this nature made with subsidiary companies were evaluated as part of the internal transactions of the enterprise based on the principle of economic unity, and allegations of Sherman Act violations were dismissed. In Williams v. Nevada (8), it was determined that such agreements among enterprises parties to franchise contracts did not constitute violations.
In the case highlighted in the title of this article, the US Department of Justice filed a lawsuit against six technology companies for their agreements not to solicit each other’s employees. However, in the press release (9), it is emphasized that these agreements restrict employees by eliminating a significant competitive factor of not extending offers to skilled workers, thereby hindering employees’ access to important information for competition and better job opportunities.
Whether this emphasis will create any distinction for the court and antitrust law as a whole, as well as how companies will react, will become clearer in the coming months. Information regarding the progress of the lawsuit and settlement will be provided in these pages. At this point, it’s worth briefly addressing how “non-solicitation agreements” are evaluated in the context of the EU and Turkey.
3. Evaluation of the Matter from the Perspective of EU Competition Law
Looking at the approximately fifty-year journey of European Community competition law, it might initially seem that the EU “missed the mark” regarding non-solicitation agreements. However, when considering the provisions of the Rome (or Amsterdam or Lisbon) Treaty as a whole, it becomes apparent that such an answer would be simplistic:
First and foremost, for an agreement, concerted practice, or decision by an association of undertakings to violate Article 101 of the Lisbon Treaty, the condition of “affecting trade between member states” must be met. While it can be said that this condition has been relatively broadly interpreted based on past practices, the question of whether evaluating an agreement not to solicit employees in this context would be forced remains an important topic of debate.
However, considering that the objective of the EU Agreement is to establish a single EU market based on competition dynamics and structured around the free movement of (a) goods, (b) services, (c) individuals, and (d) capital, it can also be observed that contracts of this nature are evaluated within the scope of the free movement of services and individuals. The Bosman (10) ruling, which concerns restrictions on player transfers by football clubs, sheds light on the EU application regarding this matter:
In this case, AG Lenz noted that such practices violated the (former) Article 48 and – by broadly interpreting the condition of inter-member state trade – (former) Article 85 of the EU Agreement. However, the ECJ held that since the practice was already illegal due to the violation of the (former) Article 48, there was no need for a separate assessment under Article 85 (12).
4. Evaluation of the Matter from the Perspective of Turkish Competition Law
In the context of Turkey, it can be seen that this matter has not been prominently reflected in the decisions of the Competition Authority, but it has been openly debated in at least one decision:
In its decision dated 28.7.2005 and numbered 05-49/710-195, the Competition Authority stated that according to Article 4(a) of Law No. 4054, the determination of purchase or sale prices for goods or services, including factors such as cost, profit, and all types of terms of purchase or sale, is prohibited. In this context, it is clear that if TV series producers determine actor salaries through agreements, this action constitutes determining the purchase prices referred to in the article and that this situation explicitly aims to hinder competition.
However;
1- Since there was no evidence found to support the unilateral statements of Osman YAĞMURDERELİ, which were in support of the proposition that Sinegraf Film Production Management Ltd., Cinema Series Production and Production Music Production and Communication System Trade and Internal and External Trade Co. Inc., Gold Filmcilik and Sinemacılık Ltd. Sti., TMC Film Production Ltd. and BKM Ltd. Sti. reached an agreement to prevent player transfers and fix actor salaries, it was decided that there was no need to initiate an investigation against these enterprises.
2- However, since there was a possibility that these statements might turn into an agreement through the convergence of wills and thus restrict competition by preventing player transfers and fixing actor salaries in the television series production market, a written opinion was sent to the undertakings under preliminary investigation under Article 9/3 of the same Law, in order to avoid such behavior that could lead to a violation of Article 4 of Law No. 4054.
Considering the assessment provided above, it is evident that within the context of Turkey’s practice, agreements, concerted practices, and decisions regarding the restriction of employee transfers would indeed violate Article 4 of Law No. 4054. Moreover, even if it were claimed that Turkey’s practice differs from EU “competition law” in this respect, there is no obstacle to evaluating the matter within the framework of Article 101, and it is understood that there is no need for a decision in this regard due to the invalidity sanctions already imposed on such agreements within the framework of other provisions of the EU Agreement.
5. Prohibition of Employee Poaching from the Perspective of Science, Technology, and Innovation Policies
The announcement made by the US Department of Justice (DOJ) indicates a connection between the poaching of qualified personnel and advanced technology industries. To assess where seemingly unrelated subjects like competition law and science, technology, and innovation policies intersect and to evaluate how competition law can provide benefits in this field, it’s worthwhile to examine the history and dynamics of Silicon Valley.
Saxenian (13), who extensively studied the phenomenon of Silicon Valley, which is significant in terms of clustering and has led to the establishment of technoparks in many countries, stated that the success of the region in the innovation field is based on two key elements: firstly, computer system manufacturers working with numerous independent producers to create new systems rather than shouldering the entire workload themselves and designing products in a modular manner. The second element is the high rate of job changes by employees – which has allowed experience from one company to be transferred to another, contributing to a fresh perspective.
The risk of information transfer along with employees from one company to rival companies, although it may evoke unfair competition, and despite companies attempting to impose non-compete obligations on their employees, a law enacted in California in the 1870s prevented companies from making such contracts and therefore, they were not successful in this regard (14). Hence, it’s important to acknowledge that one of the key elements of Silicon Valley’s success was this historical “accident,” and therefore, achieving similar results in other countries and even in other regions of the US (e.g., Route 128) might be challenging.
In this context, the decision of the DOJ Antitrust Division can lead to several positive developments. It can allow employees to move freely between rival technology companies, increasing employers’ costs while preventing the exploitation of labor and talent. It can also increase the possibility of cross-pollination among “valley” companies, as in the old days, thereby overcoming inertia and business blindness and promoting innovation.
When considering this matter from the perspective of our country, it becomes evident that law and policy fields are intertwined and must be evaluated within a systemic approach. In both a Turkish-style Silicon Valley project and the formation of techno city complexes, merely bringing companies from the same or complementary sectors together – preferably in the “gardens” of universities – and providing financial incentives would not be sufficient. It’s crucial to revise our infrastructure, starting from state procurements and establishing standards to creating potential domestic markets, ensuring that our legal system facilitates employee transfers, enabling academic staff to establish companies, making stock options for small companies entrepreneurs’ most important investment and income tool, and going all the way to reforming capital markets, particularly venture capital, to achieve deepening. There are many areas where further progress needs to be made.
NOTES:
- JUSTICE DEPARTMENT REQUIRES SIX HIGH TECH COMPANIES TO STOP ENTERING INTO ANTICOMPETITIVE EMPLOYEE SOLICITATION AGREEMENTS,http://www.justice.gov/atr/public/press_releases/2010/262648.htm; 24.09.2010.
- Anderson v. Shipowners’ Ass’n of Pac. Coast, 272 U.S. 359, 363 (1926).
- Union Circulation Co. v. FTC, 241 F.2d 652, 654 (2d Cir. 1957).
- Nichols v. Spencer Int’l Press, Inc., 371 F.2d 332, 333 (7th Cir. 1967).
- Quinonez v. Nat’l Ass’n of Sec. Dealers, Inc., 540 F.2d 824, 826 (5th Cir. 1976).
- Cesnik v. Chrysler Corp., 490 F. Supp. 859, 861 (M.D. Tenn. 1980).
- Thomsen v. W. Elec. Co., Inc., 680 F.2d 1263, 1265 (9th Cir. 1982).
- Williams v. Nevada, 794 F. Supp. 1026, 1034 (D. Nev. 1992).
- http://www.justice.gov/atr/public/press_releases/2010/262648.htm; 24.09.2010.
- Case C-415/93; Union royale belge des sociétés de football association ASBL v Jean-Marc Bosman, Royal club liégeois SA v Jean-Marc Bosman and others and Union des associations européennes de football (UEFA) v Jean-Marc Bosman, Judgment of the Court of 15 December 1995.
- Opinion of Mr Advocate General Lenz delivered on 20 September 1995, ECR:I-04921 [1995], para. 254-278.
- Case C-415/93, ECR:I-04921 [1995], para.138.
- Saxenian, Annalee. 1994. Regional Advantage: Culture and Competition in Silicon Valley and Route 128. Cambridge, Mass. and London UK: Harvard University Press.
- Gilson, Ronald. 1999. “The Legal Infrastructure of High Technology Industrial Districts: Silicon Valley, Route 128, and Covenants Not to Compete.” New York University Law Review 74: 575.
