The Techtopus: How Silicon Valley’s most celebrated CEOs conspired to drive down 100,000 tech engine

[hue]

http://pando.com/2014/01/23/the-techtopus-how-silicon-valleys-most-celebrated-ceos-conspired-to-drive-down-100000-tech-engineers-wages/

techtopus

In early 2005, as demand for Silicon Valley engineers began booming, Apple’s Steve Jobs sealed a secret and illegal pact with Google’s Eric Schmidt to artificially push their workers wages lower by agreeing not to recruit each other’s employees, sharing wage scale information, and punishing violators. On February 27, 2005, Bill Campbell, a member of Apple’s board of directors and senior advisor to Google, emailed Jobs to confirm that Eric Schmidt “got directly involved and firmly stopped all efforts to recruit anyone from Apple.”

Later that year, Schmidt instructed his Sr VP for Business Operation Shona Brown to keep the pact a secret and only share information “verbally, since I don’t want to create a paper trail over which we can be sued later?”

These secret conversations and agreements between some of the biggest names in Silicon Valley were first exposed in a Department of Justice antitrust investigation launched by the Obama Administration in 2010. That DOJ suit became the basis of a class action lawsuit filed on behalf of over 100,000 tech employees whose wages were artificially lowered — an estimated $9 billion effectively stolen by the high-flying companies from their workers to pad company earnings — in the second half of the 2000s. Last week, the 9th Circuit Court of Appeals denied attempts by Apple, Google, Intel, and Adobe to have the lawsuit tossed, and gave final approval for the class action suit to go forward. A jury trial date has been set for May 27 in San Jose, before US District Court judge Lucy Koh, who presided over the Samsung-Apple patent suit.

In a related but separate investigation and ongoing suit, eBay and its former CEO Meg Whitman, now CEO of HP, are being sued by both the federal government and the state of California for arranging a similar, secret wage-theft agreement with Intuit (and possibly Google as well) during the same period.

The secret wage-theft agreements between Apple, Google, Intel, Adobe, Intuit, and Pixar (now owned by Disney) are described in court papers obtained by PandoDaily as “an overarching conspiracy” in violation of the Sherman Antitrust Act and the Clayton Antitrust Act, and at times it reads like something lifted straight out of the robber baron era that produced those laws. Today’s inequality crisis is America’s worst on record since statistics were first recorded a hundred years ago — the only comparison would be to the era of the railroad tycoons in the late 19th century.

[VanillaRhapsody]

1. Shouldn't this be illegal?

[jeff47]

2. ...

In early 2005, as demand for Silicon Valley engineers began booming, Apple’s Steve Jobs sealed a secret and illegal pact

[1StrongBlackMan]

5. Well ...

apparently the DoJ considers it an anti-trust violation ... though I do not see how they will make the case that these groups have broken any law.

But that said, clearly these groups are all about the "free market" ... except when the "free market" cuts into their earnings.

[VanillaRhapsody]

6. Yeah they like Socialism when it benefits their

[Jim Lane]

8. Why do you see a problem making out a case of illegal activity?

The facts alleged in the OP would, if true, constitute an obvious "combination...in restraint of trade" (one of the things prohibited by the Sherman Act).

The most obvious type of combination is one in which companies that are nominally competitors agree not to compete, because they all agree on a common price at which they'll sell their goods to the public. The prohibition is broader than that, though. The idea of the free market includes competition in wages, in which companies will try to attract the best talent by outbidding competitors (i.e., offering higher wages).

In that context, even exchanging information about wages raises antitrust concerns. Here's how one antitrust law firm commented on a decision in a case similar to the one in the OP (allegation that Chicago-area hospitals conspired to depress nurses' wages):

In general, federal antitrust laws prohibit agreements that restrain competition. Agreements among competing businesses, including health care providers, that limit price competition or allocate markets are particularly suspect under the antitrust laws and can create substantial risk to the individuals and organizations engaged in such activities. Sharing current or prospective employee wage and salary information with competing employers, at a minimum, raises a possible inference that the employers intend to coordinate the amounts they will offer employees for these services. (full text here)

Per the OP, the Department of Justice expressly alleges that the tech firms had such an intent to coordinate, and implemented it by express agreement, not just a wink and a nod.

[1StrongBlackMan]

9. Because I am not aware of any case law that ...

supports the idea of the free market includes competition in wages, in which companies will try to attract the best talent by outbidding competitors (i.e., offering higher wages).

Admittedly, I haven't researched it; but I would be surprised if there was any.

[Jim Lane]

10. There are some cases like that.

Outright agreements not to compete, like the one alleged in the OP, are comparatively rare. What comes up more often is that the industry does a salary survey. Then there's an allegation of unspoken collusion using the survey results. Courts have held that in cases like that, a plaintiff who alleges lowered wages states a claim for relief under the Sherman Act.

An example is Todd v. Exxon Corp., 275 F.3d 191 (2nd Cir. 2001) (text here). The court held:

The fact that Exxon increased its salaries each year would not defeat an allegation that those increases were lower than they would have been but for a conspiracy to stabilize prices. We understand the complaint as alleging a market where Exxon's salaries and those of the Six Majors continue to increase, but where the difference grows gradually smaller - a portrait of market stabilization.

Plaintiff further claims that information exchanged at the meetings among defendants and in the "Advancement Guides" created by defendants were used by Exxon "to `slow down' its employee advancement rates, reduce the payments made to the uppermost members of some of its employee classifications, and lower the top classification levels for most of its job families." Compl. ¶ 89. According to the complaint, &quot t)he result has slowed the advancement rate at Exxon by two to eight years." Id. ¶ 79.

In all, plaintiff alleges that with Exxon's total salary budget at $800 million, the conduct described in the complaint had the effect of lowering Exxon's MPT salaries by a total of $20 million per year. Id. ¶ 113. Whether this is so is a question of fact that cannot be resolved on this Rule 12(b)(6) motion. Plaintiff will have to make a substantial presentation of evidence to support her claim that salaries would have been higher without the information exchange. Furthermore, we agree with plaintiff that the economic effects of the arrangement with respect to the other defendants is an appropriate matter for discovery.

On that basis, the Second Circuit vacated the lower court's decision, which had dismissed the complaint.

[1StrongBlackMan]

11. Thanks ...

I will read the case and get back to you. (My coffee hasn't kicked in yet.)

[jeff47]

3. It's a start, but H1B's have been far more devastating. (nt)

[dickthegrouch]

4. They've successfully reduced mine to zero

I have been applying to jobs for 6 months now, and I've had three interviews .
I'm a computer security engineer and I am over 50 .

[GeorgeGist]

7. You don't get $150,000,000,000 cash reserves ...

without being a sociopath at heart.