Freeing the Market in Silicon Valley

Silicon Valley is known for being home to tech giants such as Apple and Google. These companies, and others like them, set the bar for technological innovations which are generated by and depend upon the hard work of thousands of employees. The Valley is vaunted for its respect for the power of an individual’s idea, and these types of success stories have characterized the area for decades. Why then, in this culture of respect for employees, did more than 60,000 of them seek (and receive) a class certification to sue companies including Apple, Google, Intel, and Adobe for antitrust violations?

The class of employees, which originally sought certification in mid-2011, pursues charges against the aforementioned companies for no-poaching agreements that served to prevent increased employee salaries. The allegations and certification have been largely supported by a number of emails between high-level executives at these companies, especially Apple and Google. These emails indicate that the companies, beginning around 2005, had entered into informal, but strongly enforced, agreements which interfered with fair competition.  Recruiters at Google, for example, were apparently given “Do Not Call” lists populated with both current and former employees from Apple. In 2007, Steve Jobs, the late CEO of Apple, emailed Google CEO, Eric Schmidt, indicating that a Google recruiter had violated their agreement; the recruiter was apparently fired within the hour.

The impact of these companies’ actions is not trivial. The alleged agreement places serious limits on the free market as a whole, and more specifically, has a significant impact on Silicon Valley employees. These employees, the people responsible for so much of the region’s technological output, have a severely reduced ability to leverage their ideas and skills for higher pay; this results in a serious disincentive for employees to further technological growth. While it is possible to pursue growth and innovation via the start-up route, this road is a difficult one to travel, and monetary payoff is uncertain. In addition, companies may have feared violating the informal agreement and incurring the wrath of Jobs or other company executives. Because of this, they might have been unwilling to hire an applicant who previously worked at one of the other specified companies, making it harder for employees to switch jobs.

A few of the originally accused companies (Pixar, Lucasfilm, Intuit) reached a settlement after the original suit was filed in 2011. The class was initially denied certification in early 2013, but in October of 2013, U.S. District Court Judge Lucy Koh certified the class. Defendant companies appealed the certification, objecting that the class was too large and varied. Indeed, the class covers employees at seven companies in the Silicon Valley holding thousands of different job titles. Regardless, in January of this year, the U.S. Court of Appeals for the 9th Circuit let Judge Koh’s certification stand. The case is set to be heard on May 27th, but the certification of the class and subsequent denial of defendants’ appeal to decertify may put some settlement pressure on the defendants. The damages in the case could be as significant as $9 billion: tech employees in the Valley are frequently paid in the six figures, and whatever finding of suppression of pay would be multiplied across more than 60,000 employees who are part of the class.

It will be interesting to see what impacts, if any, this case will have on companies such as Apple and Google. On a broader scale, will companies gravitate towards different markets than the Silicon Valley, where this type of collusion may appear to be common practice? Now we must wait to see whether the companies, if they go to trial, will be found guilty of these antitrust violations that directly contradict the core free-market principles that made the Silicon Valley a haven for bright entrepreneurs.

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