If you were running Microsoft, what would you have done differently in this situation?, law assignment help

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Read the case study on pp. 320-321 of the textbook and answer the following questions:



1. In this case, the parties eventually settled, and Dr. Lee went on to run the Google China initiative. If you were running Microsoft, what would you have done differently in this situation?


2. Considering that this is a common scenario, how do you recommend companies to respond in the future?



Read the case study on pp. 345-346 of the textbook and answer the following questions:

3.

Based on the standards articulated in the case summary, should the state be allowed to impose a use tax on Quill even though it does not have a physical presence in the state?



4. Is this the right decision? Should a state be able to impose income taxes on a company whether or not it has a physical presence, as the state supreme court held? Or was the U.S. Supreme Court correct?


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GOOGLE v. MICROSOFT: 415 F. Supp. 2d 1018 (N.D. Cal. 2005) FACTS In 2000, Dr. Kai-Fu Lee began working as Microsoft’s VP for Research and Development. Lee’s employment agreement with Microsoft contains a limited covenant not to compete: While employed at MICROSOFT and for a period of one year thereafter, I will not (a) accept employment or engage in activities competitive with products, services, or projects (including actual or demonstrably anticipated research or development) on which I worked or about which I learned confidential or proprietary information or trade secrets while employed at MICROSOFT: (b) render services in any capacity to any client or customer of MICROSOFT for which I performed services during the twelve months prior to leaving MICROSOFT’s employ[ment]: (c) induce, attempt to induce, or assist another to … terminate his employment with MICROSOFT or to work for me or for any other person or entity. If during or after my employment with MICROSOFT I seek work elsewhere, I will provide a copy of this Agreement to any persons or entities by whom I am seeking to be hired before accepting employment or engagement by them. The agreement provides (1) that it shall be governed by the laws of the State of Washington and (2) that exclusive venue and exclusive personal jurisdiction for an action … shall lie in state or federal court in Washington. Finally, the agreement contains a non-disclosure agreement in which Lee agreed “not [to] disclose to anyone outside MICROSOFT nor use for any purpose other than my work for MICROSOFT any MICROSOFT confidential or proprietary information or trade secrets. In May 2005, Lee approached Google about leaving Microsoft and coming to work for Google. In July 2005 Lee quit his job at Microsoft, and accepted a job at Google, a California company, but the job title was VP of Engineering at the planned R&D facility in China. Later that day, Microsoft file a complaint against Google and Lee in Washington state court, alleging (1) breach of the agreement not to compete; and (2) breach of the non-disclosure promises and misappropriation of trade secrets, and (3) tortious interference with contractual relations. Three days later, Google and Lee filed their own lawsuit in a California state court, seeking a declaration that the Microsoft agreement/contract not to compete based on Washington state law is invalid and unenforceable under California law. Microsoft petitioned to remove Google’s lawsuit from the California state court in favor of a federal district court in California [this opinion is the federal district court’s decision]. Meanwhile, in the Washington state case, that court issued a Temporary Restraining Order [TRO] against Google and Lee, lasting 10 days until a full hearing could be held on the issues. During that subsequent hearing, the Washington state court issued a preliminary injunction prohibiting Lee from accepting employment with Google involving competitive activities—including but not limited to: computer search technologies, language or speech technologies, or participating in any set-up or budgeting discussion relating to the R&D facility in China. The Declaratory Judgment Act provides that in a case of actual controversy within its jurisdiction, any court of the United States may declare the rights of any interested party. Federal courts therefore enjoy unique and substantial discretion in deciding whether to declare the rights of litigants. Microsoft urges this [federal court in California] to refuse jurisdiction in light of the pending Washington state proceeding. Other courts in this district have declined to issue declarations on the enforceability of covenants not to compete. [For example], in DeFeo v. Procter & Gamble, DeFeo worked for P&G in Ohio. His stock option plan included a covenant not to compete. When DeFeo quit his job and accepted a job with Clorox in California, P&G told DeFeo that it would sue him. DeFeo filed a suit in California state court seeking a declaration that the P&G covenant not to compete was unenforceable. One day later, P&G sought injunctive relief in Ohio state court. P&G removed the California case to federal court and the moved to dismiss it. The California court granted the motion to dismiss, reasoning that there was no need for two courts to address the same issue simultaneously, where the issue involves exclusively questions of state law. Just as [in that case] the court declined to grant declaratory relief because doing so would reward forum shopping, this court elects to stay [stop] this action [in California] by Google and Lee, which they admit they filed to try to secure a California forum. The Washington state court has already held hearings on this case and set a trial date. However, Google and Lee correctly note that in DeFeo and the other cases there is a presumption resting upon the premise that the same issues are pending in both courts. Google and Lee contend that this is not true here. Google and Lee argue that the Washington state court will apply Washington law on all questions, and that that this distinction is crucial—because California and Washington view covenants not to compete differently. While California law considers covenants not to compete to be void, Washington upholds such covenants. Thus Google and Lee contend that the Washington state court forum … is inadequate to protect their rights under California law. The flaw in this argument is that Google and Lee fail to explain why they cannot ask the Washington state court to apply California law. Both states adhere to the [the same rules regarding conflicts of laws] in determining whether forum selection and choiceof-law clauses are valid. As these clauses were generated in arm’s length transactions, they are to be construed as reasonable, and thus valid. Courts are permitted to strike down these clauses when application of the law of the chosen state [here—Washington law] would be contrary to the fundamental policy of a state which has a materially greater interest than the chosen state, and if that state would be the place where the contract is to be performed. Therefore a Washington state court could apply California law, if California has a materially greater interest than Washington in the validity of the covenant not to compete, and California would be the place of performance of the contract. This [federal court in California] court hereby stays the case until completion of the Washington state proceedings. [Note: a copy of the Judge’s Temporary Restraining Order is featured in Appendix 13.] CASE QUESTIONS 1. In this case, the parties eventually settled, and Dr. Lee went on to run the Google China initiative (which he has since left to become a venture capital investor). If you were running Microsoft, what would you have done differently in this situation? 2. Given that there are wide differences in outcomes in this area because contracts law is not federalized, are there any strategies you can identify for businesses to manage these risks? 3. Considering that this is a common scenario, how do you recommend companies to respond in the future? Forfeiture Agreements As a complementary, and perhaps more useful strategy than NCAs for managing key employee attrition, employers write forfeiture clauses into employment agreements. Forfeiture clauses target nonsalary compensation (such as bonuses, stock or stock options, and so forth) paid out during a specified period that will be forfeited upon an employee’s departure to any company in the same industry. Courts generally will not uphold agreements that purport to claim forfeiture of salary compensation as this is considered too harsh a penalty. Forfeiture clauses are widely recognized as valid and therefore hold more promise for enforceability than do NCAs. This next case considers the applicability and validity of a forfeiture clause. VIAD CORP. v. HOUGHTON: 2010 U.S. Dist. LEXIS 17447 (E.D. III. Feb. 26, 2010) FACTS Plaintiff Viad Corp. is incorporated in Delaware and provides services to exhibition organizers and exhibitors for trade and industry shows. Defendant Anne Houghton, an Illinois resident, was hired by Plaintiff in 1997 as a senior designer. Houghton was promoted several times and eventually became Senior Vice President of Design and Creative. She supervised a team of employees had budget responsibilities, and was involved in new client development. She worked primarily in “Exhibit Services,” as opposed to working in “Exposition Management.” She was privy to internal strategic planning and knew Plaintiff’s costs for providing its services. Her base salary was $175,000, and because of her senior position, she was eligible to participate in a voluntary Incentive Plan. (Ferrera 320-321) Ferrera, Gerald R., Margo E. Reder, Stephen Lichtenstein, Robert Bird, Jonathan Darrow, Jeff. CyberLaw: Text and Cases. Cengage Learning, 01/2011. VitalBook file. EXHIBIT 11.1: Sales Tax Rates for the United States The ability of states to impose sales tax on ecommerce transactions is not without limits. The Due Process Clause and the Commerce Clause of the U.S. Constitution regulate the extent to which states may impose sales tax. From a constitutional perspective, there are a number of requirements that must be met for a tax to be valid. The tax must be fairly related to the services provided by the state. The tax cannot discriminate. The tax must be fairly apportioned, and the business at issue must have a substantial nexus with the taxing state. Problems with ecommerce taxation arise due to the fact that sales taxes are generally imposed based upon the physical presence of a business, while online services and products are generally sold from remote locations. The out-of-state ebusiness must have a nexus or physical connection with the taxing state in which the customer is located before it is obliged to collect and remit sales tax to the state taxation authorities. The physical presence requirement usually takes the form of a retail store, warehouse, employees, or sale representatives doing business in the taxing state. The taxing state must prove this nexus before an out-of-state company is required to collect tax from the buyer and remit it to the state. States may not require online companies to collect and remit sales taxes from their customers when those companies do not have a physical presence in the state. In Quill v. North Dakota,22 the U.S. Supreme Court held that the Commerce Clause of the U.S. Constitution requires an out-of state merchant to have a physical presence in a state before it can be obligated to collect its taxes. QUILL CORP. V. NORTH DAKOTA: 504 U.S. 298 (1992) FACTS Plaintiff in this case, the state of North Dakota, filed an action in state court to require Quill Corporation (Quill), an out-of-state mail order house, to collect and pay a use tax on goods purchased for use in the state. The trial court determined that a seller whose only connection with the customers in the state was by common carrier or the mail lacked the requisite minimum contacts with the state. The state supreme court reversed, holding that the Commerce and Due Process Clauses did not any longer require a physical presence in the state in order for the state to exercise its power over a company. Despite the fact that Quill, a Delaware corporation, had no employees living or working in North Dakota, the court held that advancements in technology and the mail order business as a whole rendered obsolete the law that required a physical presence in the state. JUDICIAL OPINION (JUSTICE STEVENS) The Supreme Court of the United States described North Dakota’s tax in the following way: North Dakota imposes a use tax upon property purchased for storage, use, or consumption within the State. North Dakota requires every “retailer maintaining a place of business in” the State to collect the tax from the consumer and remit it to the State.23 The state included in the meaning of a retailer, a person who engages in regular or in systematic solicitation of a consumer market in North Dakota. The Supreme Court analyzed the Due Process Clause and the Commerce Clause separately in evaluating the state supreme court’s decision. “The Due Process Clause ‘requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax.’”24 This standard has been construed in the past to mean that any company that purposefully avails itself of the benefits of an economic market is considered to have a minimum contact with the state. As long as the tax is related to that benefit, the tax would be proper under the Due Process Clause. The Commerce Clause, observed the Court, expressly authorizes Congress to “regulate Commerce with foreign Nations, and among the several States.” It says nothing about the protection of interstate commerce in the absence of any action by Congress. Nevertheless, … the Commerce Clause is more than an affirmative grant of power; it has a negative sweep as well The Clause… “by its own force” prohibits certain state actions that interfere with interstate commerce.25 One of the instances in which the Commerce Clause would prohibit state actions would be when the state taxes someone who does not have a substantial nexus with the taxing state. The state supreme court reasoned that when one has minimum contacts with the state, the substantial nexus test for Commerce Clause purposes would also be fulfilled. But the U.S. Supreme Court ruled that it is possible to have minimum contacts for purposes of the Due Process Clause, and still not have a substantial nexus for purposes of the Commerce Clause. The history of the Commerce Clause dictates that in order to have a substantial nexus with a state, one must have a physical presence there. CASE QUESTIONS 1. Based on the standards articulated in the case sum mary, should the state be allowed to impose a use tax on Quill even though it does not have a physical presence in the state? 2. Is this the right decision? Should a state be able to impose income taxes on a company whether or not it has a physical presence, as the state supreme court held? Or, was the U.S. Supreme Court correct? 3. Ethical Consideration: Is this decision fair? Does the decision have the effect of withholding taxes from states that really rightfully deserve them? Quill was doing business in North Dakota—shouldn’t Quill ethically be obligated to pay taxes to a state that generated it so much revenue? Although the Quill decision explicitly allowed Congress to enact legislation for the states to impose sales and use taxes on products sold by an out-of-state merchant, to date it has failed to do so. This has not, however, stopped states from attempting to collect sales tax for ecommerce transactions from retailers based outside of the state. Businesses often resist and many cases have resulted. Exhibit 11.2 summarizes the positions commonly taken by the parties in these cases. EXHIBIT 11.2: Summary of Positions in Tax Cases PARTY POSITION Plaintiff (always a state) Plaintiff asserts the Defendant business has a sufficient presence in the state to justify imposition of the tax collection burden; because the business takes advantage of the benefits of doing business in this state, it must pay its way. Defendant (always a business) Defendant asserts that the state taxation law violates the Constitution because the federal government regulates interstate commerce and the state tax is unduly burdensome to interstate commerce. In the alternative, the business’s contacts with the state are not sufficient to justify imposition of the tax collection burden. Many states technically require local residents to pay so-called use tax on such purchases, but most taxpayers ignore those rules. This concept may become clearer in context. Imagine you wish to purchase a new book. You have a couple of options for doing so. First, you can go to your local bookstore and purchase the book, in which case you will be charged sales tax on your purchase. Alternatively, you can make your purchase at an online retailer, in which case (unless you reside in one of a handful of states), you will not be required to pay sales tax on your purchase. Given that we are in the Internet age, when state (and even national) boundaries are increasingly less significant, it is not too surprising that the concept of “physical presence” has given rise to a number of interesting disputes. In reviewing the cases, consider how judicial decisions are accomplishing the same goal as ecommerce sales tax legislation would. As the appellate court noted in the Borders case, courts “face with increasing frequency issues at the junction of Internet technology and constitutional principles.”26 (Ferrera 345-347) Ferrera, Gerald R., Margo E. Reder, Stephen Lichtenstein, Robert Bird, Jonathan Darrow, Jeff. CyberLaw: Text and Cases. Cengage Learning, 01/2011. VitalBook file.
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1. In this case, the parties eventually settled, and Dr. Lee went on to run the Google China
initiative. If you were running Microsoft, what would you have done differently in this
situation?
This kind of situation is not as complicated, Dr. Lee discovered that working for Google
was better for him as opposed to working for Microsoft who would like to keep that from taking
place for a year. However, Dr. Lee had signed a limited covenant agreement with Microsoft in
regards to competition. A limited covenant or sometimes what is referred to as a restrictive
covenant is a clause that employers insert within the employment contract, which prohibits the
employee into engaging into competition with the organization in case of his or her departure
from the company. This contract stipulates a specified period that the employee should take
before engaging in competition with the previous firm. The agreement also prohibits the
employee from dealing or engaging into soliciting with the clients of the enterprise by utilizing
knowledge of those clients obtained in the course of the previous employment .my opinion; it is
enforceable in any given court of law. If I were tasked with running the affairs of Microsoft, I
would allow Dr. Lee to depart. However, I would ensure that all the projects that he was
undertaking remain to be Microsoft’s property. Dr. Lee would also have to c...


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