Judge stays Google suit in Microsoft hiring case

SAN FRANCISCO (Reuters) - A US judge ordered a tentative stay in web search company Google's lawsuit against Microsoft, dealing a blow to Google's fight over the hiring of a former Microsoft official.

But Judge Ronald Whyte of the US District Court for Northern California in San Jose declined to say what his final ruling would be in the suit by Google, which is seeking to override the jurisdiction of a Washington state court in a related case.

The Washington state case, brought by Microsoft, accuses Google and manager Kai-Fu Lee of violating a non-compete agreement that Lee had signed with Microsoft.

During a hearing on the Google suit on Friday, Judge Whyte called the matter a "tough case". "It is one of those where I read one brief, and I say, 'Yep, they're right.' And I read the other and I say, 'Yep, they're right."

The stay order by the federal court, if maintained by Judge Whyte, would set the stage for the Washington state case to go to trial on 9 January 2006, according to attorneys working for Microsoft.

In questioning lawyers representing both sides, Whyte appeared to support Microsoft's position that the case in Washington could proceed. "There is no reason the Washington court cannot consider in its analysis the California public policy interest," Whyte said.

Arguing on behalf of Microsoft, Michael Bettinger, an attorney with Preston Gates Ellis LLP, supported the judge's line of reasoning, saying the Washington state court could give due consideration to California's public policy of upholding its century-old policy discouraging non-compete deals.

"Can the court in Washington decide that? You bet it can."

But Steven Taylor, an attorney with Taylor & Co, arguing on behalf of Google, countered: "The only court in which these California rights ... can be enforced is this court."

Lee, 43, was hired away from Microsoft by Google in order to head up the web search company's research efforts in China.

He had established Microsoft's research and development centre in Beijing before moving to Microsoft's Redmond, Washington, headquarters to work on software that allows computers to process speech using conversational language.

Google has argued that California, a state that generally does not recognise non-compete clauses, is the proper jurisdiction for the legal dispute.

Microsoft's position is that Lee's employment contract was signed in Washington and that the deal contained a provision whereby issues arising from the employment contract would be adjudicated under Washington state law, its attorneys said.

In testimony last month, Lee said that he left Microsoft after becoming frustrated with the company's approach to doing business in China.

A Washington state judge ruled last month that Lee can begin helping Google set up operations in China but placed tough restrictions on him, pending a trial scheduled for January.

Whyte's tentative order did not specify how long the suit would be stayed.

Afterward, outside the courtroom, Microsoft legal counsel Karl Quakenbush said: "We are encouraged by the tentative ruling. I didn't hear anything today that would indicate that the tentative ruling wouldn't be the final order.

"We would have preferred to have a ruling on the merits from a California court," Google attorney Michael Kwun said following the roughly 30-minute court hearing.

Additional reporting by Joseph Giannone.

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