Amazon.com is alleging that one of its former high-ranking executives violated a non-compete agreement when he accepted a job at Bellevue-based Smartsheet, GeekWire has learned.
In a lawsuit filed Friday in King County Superior Court, Amazon alleges that Gene Farrell, who served as Vice President of the AWS Enterprise Applications & EC2 Windows team, violated a non-compete agreement when he took the new job as head of product June 1 at the heavily-funded Bellevue online workplace collaboration platform.
UPDATE: Former AWS executive temporarily barred from working at Smartsheet as non-compete lawsuit moves forward
“This move is unthinkable,” Amazon wrote in a motion for a temporary restraining order that would bar Farrell from working at Smartsheet. “…he cannot possibly forget everything he knows about AWS’s products and plans while he is working to develop products for its competitor.”
The suit also notes: “Farrell’s role as “Head of Product” at Smartsheet will necessarily involve development of and strategy regarding competing cloud-based productivity products, including but not limited to those for project management, collaboration, and/or automation, and will therefore breach the Noncompetition Agreement and threaten the disclosure of Amazon’s highly confidential information,” Amazon wrote in its lawsuit.
It asks the court to prohibit Farrell from engaging in “any activities that directly or indirectly support any aspect of Smartsheet’s cloud based project management, collaboration, or automation business” for a period of 18 months.
Smartsheet, for its part, calls the suit “unfortunate” and a form of intimidation. Top executives at the company were left scratching their heads as to why Amazon would view itself as a competitor of Smartsheet.
In an interview with GeekWire, Smartsheet CEO Mark Mader said he was “dumbfounded” when Amazon started raising an issue over Farrell’s employment. That’s because the company’s legal counsel vetted Farrell’s employment agreement with Amazon thoroughly, and did not see any potential issues.
“When we looked at their offerings and what Smartsheet does, it is two totally different worlds,” said Mader. Using Amazon’s logic, Mader said that Smartsheet would be a viewed as a competitor to Amazon Prime because both services make people more productive.
“It’s a very far-reaching statement,” said Mader, who noted that Smartsheet has been a long-time customer of AWS, even penning a white paper on its usage of the cloud service several years ago. It has also spoken at Amazon Web Services events. With the pending lawsuit, Mader said that they are evaluating their cloud providers. In fact, the company is currently looking at options on which cloud provider to pick for its overseas expansion.
“It is not a huge check in the plus column when a supplier takes you to court,” said Mader, noting that the lawsuit is one input they will use when making their decision on which cloud platform to choose.
A spokesman for Amazon declined to comment.
Here’s the full statement that Smartsheet provided to GeekWire on the matter:
“We’re aware of the lawsuit and we think it’s unfortunate that Amazon would resort to legal intimidation as a way to prevent talented executives from leaving their company. We are also surprised by what we see as an enormous overreach in terms of how Amazon is defining productivity software as it relates to their competitive set. Smartsheet partners and integrates, versus competes, with storage, document creation, and communication platforms. Smartsheet’s product focus is on management and automation of front office knowledge workers and in no way competes with Amazon’s software offerings. Gene Farrell is a proven business leader with a track record of being on the cutting edge of technology innovation. We’re confident that he’ll play an important role as we continue to advance Smartsheet’s leading position in collaborative work management.”
The suit is particularly interesting because Smartsheet is one of the rising stars in the portfolio of Madrona Venture Group, the Seattle venture capital firm that’s closely linked to Amazon. Madrona Venture Group co-founder Tom Alberg is a board member at Amazon, and many of the partners at Madrona share close ties to Amazon.
Madrona Venture Group’s Matt McIlwain, who sits on the board of Smartsheet, said he was surprised at what he called Amazon’s uncharacteristic behavior with the lawsuit. “There is clearly nothing in the market today that is close to what Smartsheet does, so it is baffling,” said McIlwain.
“This feels more like a general bullying behavior that you usually see from legacy ‘Day Two’ companies,” said McIlwain, making references to Amazon founder Jeff Bezos’ common refrain that it’s still “Day One” at the entrepreneurial company. McIlwain called the lawsuit against Smartsheet “random” and “inconsistent.”
Hiring between big tech companies and smaller startups is a two-way street, and sometimes people leave big companies for smaller startups, and vice versa. That sort of movement helps foster a vibrant technology ecosystem, he said.
“I don’t think this behavior is productive in the long run,” McIlwain said of the lawsuit.
Non-compete agreements are legal in Washington state, ruffling the feathers of many in the startup ranks who believe they are used as a weapon by larger companies to stifle innovators from leaving their jobs. Last year, an attempt was made to pass legislation that would have banned non-compete agreements in Washington state, but the bill stalled after business groups, including the Washington Technology Industry Association and the Association of Washington Business, opposed the bill.
This is not the first time that Amazon has attempted to enforce a non-compete agreement with a key former executive. In 2014, the company sued a former Amazon Web Services strategic partnerships manager, Zoltan Szabadi, after he took a job at Google Cloud Platform.
In 2012, it also sued former Amazon Web Services vice president, Daniel Powers, who joined Google as the search giant’s director of cloud platform sales. That case was transferred to federal court in Seattle, where a judge declined to enforce the most sweeping provisions of Amazon’s non-compete agreement.
But other key executives have moved on to other employment without issue, as was the case last year when former AWS executive Adam Selipsky was named CEO of Tableau Software.
Smartsheet just raised $52 million in funding, bringing total funding to $120 million. At the time of his hiring earlier this month, Farrell told GeekWire that it was a tough decision to leave Amazon, but he was excited about the opportunities in front of Smartsheet.
“It was really more for me about an opportunity to do something I always wanted to do in my career with a company and a product that is game changing for a lot of companies going forward,” Farrell said
Smartsheet employs more than 560 employees in its Bellevue headquarters and a new office in Boston.
Here’s the full suit:
And here’s the motion for the temporary restraining order that Amazon filed, which is heavily redacted.
Editor’s note: Smartsheet is a GeekWire annual sponsor.