EMC Sues Over Secrets

EMC Corp. (NYSE: EMC) is back in the courtroom suing former employees again, only this time its a chief engineering manager -- and, to top it off, the defector has gone to archrival Network Appliance Inc. (Nasdaq: NTAP). The suit demonstrates how high-tech employers can play hard ball with departed senior employees.

The former EMC employee in question is Joanna Karwowska, who managed a team of engineers at Data General when EMC acquired the firm in August 1999. She left just two months later to join Network Appliance.

EMC has filed a breach of contract suit against her, claiming that once at Network Appliance, she planned to sabotage a secret EMC project designed to take Network Appliance on head-to-head. The project was referred to internally at EMC as “Chameleon” and externally by analysts as the “NetApp Killer,” according to sources at EMC.

“Karwowska, didn’t stop here, though,” says Mark Fredrickson, VP of corporate communications at EMC. “She took nine engineers with her.” The majority of these came from her former team at Data General.

It turns out Chameleon the NetApp Killer had been in development at Data General and was a major part of EMC’s decision to buy the company for $1.1 billion in stock. Chameleon, now called the Clarion IP4700, targets the low end of the NAS market, where Network Appliance is the market leader. Ironically, the Clarion IP4700 outshipped Network Appliance’s NAS device by $100 million in the first quarter of this year, according to Fredrickson. Nonetheless, EMC plans to pursue the case. “This is a matter of principle: We can’t compromise because the competitive battle turns out in our favor,” says Fredrickson. “If we do not protect our intellectual property, these employee contracts have no value, and the message we send out is that people are free to violate them.”

Network Appliance, not named in the suit, declined to comment on it.

J.D Smeallie, of Boston law firm Holland & Knight LLP is the attorney for Kowowska and believes EMC is suing his client for reasons other than her defection.

“EMC is after monetary damages in excess of a million dollars for the cost to retain its engineers by way of bonuses and incentives, since Karwowska has been allegedly trying to poach them,” Smeallie told Byte and Switch

Smeallie goes even further, contending the case has “nothing to do with the EMC product.” Instead, he says, the company is trying to recoup the costs of its staff retention program put in place when it acquired Data General. "They are recouping these costs by blaming my client," he says. “That’s ridiculous. I’m not even going to grace this with a response,” says Fredrickson.

The lawsuit against Kowowska is one of several claims EMC has filed against former employees. Eric Mann and Tom Karrat, formerly senior sales executives at EMC, now at StorageApps, have had similar suits brought against them. These are ongoing matters, and neither Mann nor Karrat were available for comment.

Harald Skardale, a former engineer at EMC, also jumped ship to Network Appliance, and EMC filed suit against him, too. That case, however, was settled out of court. The Karwowska trial is scheduled to resume in November.

Laura Conigliaro, a senior analyst covering this market at Goldman Sachs & Co. says the case “probably won’t have much of an impact on EMC within the marketplace -- these cases never do.” The suit may, however, affect how senior technical people within the industry view non-compete clauses in their employment agreements.

— Jo Maitland, Senior Editor, Byte and Switch http://www.byteandswitch.com