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Judge Favors MicroStrategy in Trade-Secrets Case Against Rival

By Christopher Stern
Washington Post Staff Writer
Thursday, August 12, 2004; Page E05

About four years ago, as MicroStrategy Inc. was reeling from accounting revelations that forced it to restate earnings and sent its stock tumbling, more than a dozen employees in its Chicago office left to join one of its biggest rivals, Business Objects SA.

They took with them some confidential information, according to a judge's ruling. During 2000 and 2001, Business Objects acquired a "significant amount of MicroStrategy's proprietary and confidential information, including internal e-mail, descriptions of software architecture, sales documents, competitive intelligence, and PowerPoint presentations," according to U.S. District Judge Jerome B. Friedman.

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Friedman wrote in his ruling that the decision of the former MicroStrategy employees to convey proprietary information to their new employer "could be considered unethical, improper, and in the breach of their employment agreements."

Friedman's ruling, issued last week, came after an eight-day trial in a Norfolk federal court that concluded in October.

"We are very happy about this decision," said MicroStrategy's general counsel, Jonathan Klein. "We had asked the court to find Business Objects guilty of misappropriating our trade secrets and that is what the court did."

In a press release, Business Objects said that the scope of Friedman's decision was limited to a finding that it had misappropriated only two documents out of hundreds that were entered into evidence.

Business Objects also noted that the court rejected McLean-based MicroStrategy's claim that it had infringed on patents. A spokeswoman for Business Objects, which is based in France, declined to comment yesterday beyond the press release.

Both MicroStrategy and Business Objects sell software that allows large companies to analyze internal data to detect trends and fine-tune pricing and inventory plans. Business Objects is now the largest company in the sector and is about four times the size of MicroStrategy.

At the heart of the case is MicroStrategy's allegation that 17 former employees conveyed trade secrets to the rival firm. Most of the former MicroStrategy employees were based in the same Chicago building where Business Objects had an office.

The migration of MicroStrategy employees to Business Objects began in 2000, about the same time MicroStrategy revealed accounting problems related to its 1999 earnings. Later, MicroStrategy restated its earnings for 1997 and 1998 as well.

MicroStrategy's stock price fell to a low of 43 cents. During the same period in 2000 and 2001, MicroStrategy began a series of layoffs that reduced its workforce by more than 60 percent.

Most of the confidential information was conveyed by former MicroStrategy employees who were hired by Business Objects, Friedman concluded.

In several instances, MicroStrategy employees would begin forwarding confidential information to Business Objects after interviewing for a job, according to Friedman. In one case, a sales executive identified as Tom Papp gave a presentation to Business Objects employees on MicroStrategy's selling techniques while he was still employed by MicroStrategy.

In another case, Alex Brown, a MicroStrategy employee, accepted a job at Business Objects three months before quitting his job at MicroStrategy. Brown worried that if he quit his job at MicroStrategy it would jeopardize his work visa, causing him to be deported from the United States.

Despite numerous examples in which former MicroStrategy employees provided confidential information to Business Objects, Friedman found that in only two instances had MicroStrategy proved that the law had been broken. One instance involved the transfer of a document that outlined the volume discounts MicroStrategy provided key customers. In another case, Business Objects obtained MicroStrategy's "competitive recipe" for competing against Business Objects.

Although Friedman's ruling ends the almost three-year-old case, MicroStrategy still has a patent-infringement case pending against Business Objects.


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