On November 16, 2012, the Antitrust Division of the Department of Justice (the "DOJ"), along with the California Attorney General, filed suit against eBay, alleging that eBay entered into a per se unlawful "handshake" agreement with Intuit not to poach each other's employees. U.S. v. eBay, Inc., 12-cv-5859 (N.D. Cal. Nov. 16, 2012); and California v. eBay, Inc., 12-cv-5874 (N.D. Cal. Nov. 16, 2012). This lawsuit follows the DOJ's recent challenges to other high tech firms' hiring practices, which involved similar practices.1 The eBay case underscores the DOJ's ongoing commitment to challenge agreements that restrict competition at any level and its particular interest in the high tech area. This matter is notable because it appears to be proceeding toward litigation. Throughout this administration, the Antitrust Division has demonstrated a willingness and commitment to litigate matters that could not be resolved through settlement. Thus, it is possible that the courts will have an opportunity to consider DOJ's position concerning these types of agreements, which eBay has characterized as "an overly aggressive" application of the antitrust laws.
Background
According to the DOJ complaint, from at least 2006 to 2009, high level executives of eBay and Intuit, including then CEO Meg Whitman and Intuit founder Scott Cook (who, incidentally, was also serving on eBay's board of directors at the time), agreed not to solicit each other's employees and, for a period of more than a year, eBay agreed not to hire Intuit employees (including where Intuit employees approached eBay on their own accord rather than through a recruiter) - "a truce in the war for talent' to protect their own interests at the expense of their employees." The DOJ views such conduct as per se unlawful under Section 1 of the Sherman Act, meaning that it is so inherently anticompetitive that it does not require any evidence of actual anticompetitive effects (e.g., reduced wages or benefits). eBay and Intuit are alleged to be direct competitors in the market for hiring specialized computer engineers and scientists, a business input considered to be uniquely critical to the success of high tech firms. Even after the DOJ's prior investigation into the hiring practices of other high tech firms (including Intuit) was made public, eBay and Intuit stuck by their agreement for at least some period of time.
In a statement accompanying the lawsuit, Acting AAG Joseph Wayland explained that "eBay's agreement with Intuit hurt employees by lowering the salaries and benefits they might have received and deprived them of better job opportunities at the other company." The complaint seeks to prevent eBay from enforcing the Intuit agreement and from making similar agreements with other companies. Intuit was not named in the DOJ suit because it is already subject to restrictions contained in the 2010 settlement. California's Attorney General asserts that the agreements violate state laws in addition to federal laws and names Intuit as a co-conspirator.
A spokesman for eBay has accused the DOJ of being "overly aggressive" in their enforcement of the antitrust laws by using the wrong standard to evaluate its hiring practices, and has vowed that eBay will vigorously defend itself. If this matter continues to litigation, it will give a court an opportunity to consider whether such conduct should be treated as per se unlawful. It also presents DOJ an opportunity to demonstrate its commitment to litigating such matters.
Implications
This action reinforces the lessons learned from the Adobe case - that federal and state antitrust authorities will investigate and challenge unlawful agreements among competitors, not only in downstream markets where the competitors are sellers, but also in markets in which they are purchasers (of employment services in the Adobe and eBay cases).
The DOJ, under the Obama administration, has been vocal about its intention to actively enforce the antitrust laws, and particularly to closely examine practices within the high tech industry. This active enforcement agenda, however, is not limited to high tech fields. All companies should exercise caution with respect to any employment practices that could be construed as limiting or restricting their freedom to recruit or hire employees. Given the DOJ's recent track record of challenging restrictive hiring practices as unlawful per se, it is likely to investigate practices that it becomes aware of regardless of whether there is any likelihood of anticompetitive effects (i.e., reduced wages or benefits), at least until the courts weigh in otherwise. While the DOJ has recognized that such agreements may have a legitimate purpose if narrowly tailored, it would be prudent to consult counsel before entering into any agreements that contain restrictive hiring or recruiting provisions. Perhaps this action will provide the courts an opportunity to resolve the controversy between the DOJ and high tech firms on hiring tactics and provide more clarity to firms in this area.
Footnotes
1. In September 2010, the DOJ settled its complaint against Google, Apple, Adobe, Intel, Intuit and Pixar in U.S. v. Adobe Systems, Inc., et al. (the Final Judgment was entered in March 2011). In December 2010, the DOJ settled an action against Lucasfilm Ltd. in U.S. v. Lucasfilm Ltd. (the Final Judgment was entered in June 2011). For further discussion of the Adobe case , see "Antitrust Division Challenges Corporate Employee Non-Solicitation Hiring Practices," Fried Frank Antitrust and Competition Law Alert®, Sept. 30, 2010.
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