Antitrust Law Daily Wrap Up, TOP STORY—N.D. Cal.: $324M not reasonable to settle high tech employees’ antitrust action, (Aug 8, 2014)

By Linda O’Brien, J.D., LL.M.

The federal district court in San Jose has refused to give preliminary approval to a $324 million settlement of a class action suit brought against technology companies Google, Apple, and Adobe for their role in an alleged conspiracy to fix and suppress employee compensation (In re High-Tech Employee Antitrust Litigation, August 8, 2014, Koh, L.).

Software engineers and other technical workers who were former employees of several major technology companies filed a class action suit against Google, Apple, Adobe, and other companies, alleging that the companies engaged in a conspiracy to fix and suppress employee compensation and to restrict employee mobility through anti-solicitation agreements among the companies. The plaintiffs settled with defendants Pixar, Lucasfilm, and Intuit, and the final approval of those settlements was granted in May 2014.

Reasonableness. The court found that the total settlement amount fell below the range of reasonableness. The class members would recover proportionally less in the settlement with the remaining defendants than from the earlier settlement of $20 million with Pixar, Lucasfilm, and Intuit, even though the case progressed consistently in favor of the class. Using the initial settlement as a benchmark, the settled defendants employed 8 percent of the class members and paid out 5 percent of the total class compensation. If the remaining defendants were to settle at the same rate, the settlement fund would need to be at least $380 million, since the remaining defendants paid out 95 percent of the class compensation.

In rejecting the defendants’ argument that using the initial settlement as a benchmark was inappropriate, the court noted that the defendants who received 95 percent of the benefit of the anti-solicitation agreements and caused 95 percent of the harm to the class should pay at least 95 percent of the damages. Moreover, the total damages award could have exceeded $9 billion had the plaintiffs prevailed at trial on their $3 billion damages claim, since antitrust laws provide for automatic trebling.

Relative procedural posture. The discount that the remaining defendants have received in the proposed settlement was “particularly troubling” in light of increased bargaining power of the plaintiffs after favorable rulings regarding the grant of class certification and denial of the defendants’ motions to dismiss, according to the court.

Strength of plaintiffs’case. The court determined that there was compelling evidence that company executives extensively discussed and enforced the anti-solicitation agreements. Particularly, executives from Apple and Pixar were central figures in the alleged conspiracy and played key roles in creating and enforcing the anti-solicitation agreements. Also, email evidence revealed Google terminated at least two recruiters for violations of the anti-solicitation agreements and maintained a “Do Not Call” list which was approved to top executives. The defendant companies’ internal records provided support for the plaintiffs’ theory of impact—that rigid wage structures and equity concerns led to compensation changes designed to mitigate the competitive threat that solicitation would have posed.

Weakness of plaintiffs’ case. Finally, while recognizing the substantial risks that the plaintiffs face if they proceed to trial, the court noted that evidence in the record mitigated some of the weaknesses in the plaintiffs’ case. Since there was ample evidence of an overarching conspiracy between the defendants, the court could not conclude that the proposed settlement fell within the range of reasonableness.

The case is No. 5:11-cv-02509-LHK.

Attorneys: Anne Brackett Shaver (Lieff, Cabraser, Heimann & Bernstein LLP) for Siddharth Hariharan. Robert Addy Van Nest (Keker & Van Nest LLP) for Adobe Systems Inc. George A. Riley (O'Melveny & Myers LLP) for Apple Inc. Anne M. Selin (Mayer Brown LLP) for Google Inc..

Companies: Google Inc.; Apple Inc.; Adobe Systems Inc.

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