Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Shareholders sue Google executives over anti-solicitation agreements, (Mar 24, 2015)

By Linda O’Brien, J.D., LL.M.

The board of directors and executives of Google breached their fiduciary duty to the company’s shareholders by participating or condoning Google’s conspiracy with other technology companies to illegally suppress competition and wages for technology employees, which resulted in damages to the company, according to a shareholder’s derivative complaint filed in the federal district court in San Jose, California (West Palm Beach Fire Pension Fund v. Page, March 23, 2015).

Google, Inc. is a global technology leader. Lawrence Page, Sergey M. Brin, Eric E. Schmidt, John Doerr, Diane B. Greene, John L. Hennessy, Ann Mather, Paul Otellini, K. Ram Shriram, and Shirley M. Tilghman are currently members of Google’s Board of Directors. Michael J. Moritz and Arthur D. Levinson are former members of Google’s Board of Directors. Robert Eustace, Omid R. Kordestani, Jonathan J. Rosenberg, Shona L. Brown, and Arnnon Geshuri are current and former executives of Google. West Palm Beach Fire Pension Fund is a municipal pension fund and a shareholder of Google, Inc.

According to the complaint, Google’s Board of Directors breached its fiduciary duties of loyalty, good faith, and candor to its shareholders through their reckless mismanagement and governing of Google’s business activities. The Board caused or condoned Google’s conspiracy to violate antitrust laws with several technology companies by engaging in a scheme to illegally suppress competition and wages for technology employees in Silicon Valley, thereby effectively undermining innovation in the technology industry. The violations occurred as far back as 2005 and continued for several years.

In 2005, board members Page, Brin, Schmidt, and other Google executives developed and entered into illegal anti-competitive agreements with other technology companies, including Apple, Intel, and Intuit. The agreements were designed to illegally restrain the cartel members from hiring each other’s high-tech employees and to artificially suppress compensation for such employees. The agreements were heavily documented by emails, the complaint states.

The complaint also states that the Antitrust Division of the U.S. Department of Justice (DOJ) investigated Google’s anti-solicitation agreements with several technology companies beginning in 2009 and found the agreements to be “facially anticompetitive.” Google subsequently signed a settlement agreement in September 2010, enjoining the company from making such non-solicitation agreements in the future. In 2011, several technical employees harmed by the anti-solicitation agreements filed class action suits against Google and other companies for conspiring to suppress their wages by agreeing not to recruit each other’s employees. In January 2015, the remaining defendants, including Google, filed a proposed settlement with the court in which the defendants would pay $415 million to the impacted class members. Preliminary approval of the proposed settlement was granted in March 2015 and a final approval hearing is set for July 2015.

The complaint alleges that, in their positions as directors and fiduciaries, the Board members were required to use their utmost ability to control and manage the company in a lawful, fair, and equitable manner. The Board also was required to act in furtherance of the best interests of Google and its shareholders. By signing Google’s 2012, 2013, and 2014 annual reports and proxy statements without disclosing the federal law violations, the defendants breached their fiduciary duties and violated federal securities laws by making false and misleading statements to shareholders and regulatory authorities, the pension fund claimed. As a result of the defendants’ wrongdoing, Google allegedly suffered and will continue to suffer damages to its reputation and expended tens of millions of dollars in defending the DOJ and antitrust class actions. Finally, Google lost the opportunity to hire the best and brightest high-tech employees by entering into the anti-solicitation agreements, the lawsuit charged.

Any applicable statute of limitations does not bar or has been tolled with respect to the plaintiff’s shareholder derivative action. The defendants issued false and misleading proxy statements, including the statement in March 2014, in which the Board specifically stated that they and the company were in compliance with all antitrust laws. The plaintiff did not discover and could not have discovered the liability of the defendants until after the filing of the 2014 proxy, according to the complaint.

The plaintiff asserts claims for breach of fiduciary duty and violations of the Securities and Exchange Act. The action seeks declaratory and injunctive relief, contribution and indemnity, damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:15-cv-01334.

Attorneys: John Jasnoch, Thomas L. Laughlin, IV, and David R. Scott (Scott + Scott, Attorneys at Law, LLP) for West Palm Beach Fire Pension Fund.

Companies: Google, Inc.

News: Antitrust CaliforniaNews