A King County Superior Court Commissioner sided with Amazon in the opening salvo of a court battle over Smartsheet’s hiring of a former Amazon Web Services executive earlier this month.
Commissioner Carlos Velategui granted a temporary restraining order sought by Amazon as part of its lawsuit against Gene Farrell, former vice president of AWS enterprise applications and EC2 Windows, and now senior vice president of product at Smartsheet. The ruling by the court commissioner marked a temporary blow to Smartsheet, but the big showdown over Farrell’s move to the Bellevue, Wash.-based work management company comes next week.
Amazon claims that Farrell’s move to Smartsheet violated his non-compete agreement with AWS. The commissioner’s ruling only applies for 11 days because another hearing is scheduled for June 23 in front of King County Superior Court Judge Jim Rogers.
Farrell was not present at Monday’s hearing, and attorneys for both sides declined to comment.
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Following Monday’s hearing, Smartsheet CEO Mark Mader told GeekWire that he was disappointed in the decision, but he reiterated that he stands behind Farrell as a member of his team and the decision to bring him on as senior vice president of product.
Despite today’s setback, Mader said he believes the court will eventually favor Smartsheet.
“We are still confident that this is going to be a temporary stutter that Amazon introduced to our business, and we are confident this is going to play out in our favor,” Mader said.
Amazon alleges that Farrell, who had been with AWS for more than five years, violated his non-compete agreement when he took the job with Smartsheet. The company argued that Farrell “was involved in and privy to AWS’s strategy, roadmap, pipeline, customers, strengths and weakness for cloud-based productivity products, including the development of new products not yet publicly launched or announced,” wrote in its complaint, filed last Friday with King County Superior Court.
“This move is unthinkable,” Amazon wrote in the motion for a temporary restraining order that was granted today. “…he cannot possibly forget everything he knows about AWS’s products and plans while he is working to develop products for its competitor.”
Among other requests, Amazon will ask the court for an injunction that bars Farrell “for a period of 18 months after May 26, 2017, from engaging in any activities that directly or indirectly support any aspect of Smartsheet’s cloud-based project management, collaboration, or automation business.”
The suit indicates that Amazon may be starting to see Smartsheet more as a competitor rather than a customer. The suit hints at the possibility that AWS is either on the cusp of releasing a major expansion of its workplace collaboration tools, or is at least far enough down the road with planning for such tools that it decided to take legal action against the former leader of its workplace tools division.
Products were at the center of Monday’s hearing. However, there’s not much to report on that front because all discussions of product were redacted in court documents, and the portion of Monday’s hearing that dealt with products was closed to everyone except lawyers arguing the case.
The kickoff to the high-stakes case — between one of the world’s biggest technology companies in the world and a growing startup that just landed $52 million in funding —occurred in a small courtroom sandwiched between daily court proceedings such as estate issues and divorces.
The attorneys in the case were friendly both inside the court room and out, though occasional scoffs and sighs could be heard in the room as arguments were made. The open portion of the arguments lasted about 30 minutes, with limited back-and-forth between the lawyers and few comments from the commissioner.
Brad Fisher of Davis Wright Tremaine, arguing for Amazon, said Farrell right now is in “flagrant and pretty unapologetic breach of his contractual obligations to Amazon.” He alluded to the fact that Farrell possesses intimate knowledge of AWS’ future plans. Having that information in the hands of someone who might be a competitor could be damaging to the company, he argued.
“We’ve been through this, your honor, this is not a new playbook for people who don’t want to honor their promise to Amazon,” Fisher said.
Venkat Balasubramani of Focal PLLC, arguing for Smartsheet, countered that Washington’s non-compete law is more focused on keeping people from leaving and taking customers with them to a competitor. That is not happening in this case, Balasubramani argued.
What the case may come down to, and a phrase that was mentioned in court today, is whether Smartsheet’s offerings are “substantially the same” as whatever workplace collaboration tools Amazon may be developing.
“The core question is whether the products at issue are competitive,” Balasubramani said. “Amazon’s non-compete actually uses very precise language. It says the products must be ‘substantially the same.'”
For its part, Amazon seems to believe that whatever it might be working on is “substantially the same” as some of Smartsheet’s products. Fisher argued that Amazon officials told Farrell repeatedly that the move to Smartsheet would violate his non-compete agreement with the company.
Court documents show Amazon’s corporate counsel reached out to Balasubramani to air concerns over Farrell’s hiring. The two sides negotiated, and Farrell and Smartsheet agreed to push the start date back to June 1 to let that process play out. Amazon sought additional delays to continue negotiating, and according to court documents, Farrell and Smartsheet refused.
“From the day Mr. Farrell told (Amazon), ‘hey I’m leaving; I want to go to Smartsheet,’ they said, ‘you can’t do that. That doesn’t work; that is a competitive position that violates your non-compete agreement.’ It wasn’t thrown up after the fact,” Fisher said during Monday’s hearing. “That has consistently been Amazon’s position.”
Mader said Smartsheet’s legal counsel vetted Farrell’s employment agreement with Amazon thoroughly, and did not see any potential issues.
This is not the first time 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.
Amazon has led the way in the Seattle area’s recent tech boom, and it has brought thousands of talented employees to the region. Building and growing a strong tech ecosystem requires employees moving between big companies and smaller startups, and vice versa. Lawsuits like this one could discourage smaller companies, with less funding, from recruiting people from big companies, Mader said.
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.
Mader said he is unsure of how this legal battle will impact the Smartsheet’s relationship with Amazon going forward. Smartsheet has been around for 11 years, and it has worked through up-and-down relationships before.
“If it’s only a two-week blip, (the lawsuit) probably won’t play a huge role in decision frameworks,” Mader said. “If it is more than a two-week blip, it will be more of an emphasis probably.”