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Microsoft Loses Battle With Google

A judge in Seattle has ruled that a former Microsoft executive can go to work for Google Inc. in China -- with limitations.

The judge says a non-compete contract with Microsoft is still valid. That means the executive, Kai-Fu Lee, can't recruit other Microsoft employees or work on products, services or projects on which he worked at Microsoft, such as computer search technology.

The King County Superior Court judge ruled today on Microsoft's request for a temporary restraining order against Google. The case is still headed to trial in January to further define the meaning of Lee's non-compete agreement.

Lee worked for Microsoft for five years but left in July to lead Google's expansion into China.

Former Microsoft Corp. executive Kai-Fu Lee accused the software titan of incompetence in its plans to gain a business footing in China, and testified last Tuesday that being yelled at by Chairman Bill Gates was a low point before he defected to rival Google Inc.

The case has cast light on the growing competition between Microsoft and Google and their plans for business in China.

Google has been raiding other companies, a tactic that sparked the legal battle Microsoft Corp. Last week, Google announced that it had hired Internet pioneer Vinton Cerf, formerly of MCI Inc., to float more ideas and develop new products, adding another weapon to the online search engine leader's rapidly growing arsenal of intellect.

In testimony during a hearing on Microsoft's lawsuit against Lee and Google, Lee said he wrote a memo to another Microsoft executive saying he was "deeply disappointed at our incompetence in China — that we have wasted so many years in China with little to show for it."

Microsoft sued on the grounds that Lee, an expert in computer recognition of language and Internet search technology, signed a non-compete agreement, in which he agreed not to perform similar work for any rival for one year after leaving Microsoft. Lee was hired away by Google this summer; Google and Lee maintain that he has not, and has no intention of, compromising Microsoft's trade secrets.

Lee went on to say in the e-mail that he was embarrassed by Microsoft's business practices and that people in the government joke about Microsoft's internal politics.

The former executive testified that one of the lowest moments of his career with Microsoft was a conversation in which Gates yelled at him and said that the company had been "f-----" by the Chinese people and its government. Lee did not clarify the context of Gates' alleged comments. Microsoft spokeswoman Stacy Drake said Gates did not make such a statement.

"Bill Gates adamantly denies ever making such a comment. This is another attempt to deflect interest from the real issues in this case," she said.

Google spokesman Steve Langdon said he did not know the context or date of Gates' alleged comments, and did not know if he would be able to obtain that information. He said neither Lee nor Lee's attorney was immediately available to comment following the proceedings.

In his testimony, Lee also complained that Microsoft had more than 20 business groups operating virtually autonomously in China, with little cohesion.

Among other problems, Lee said, was a commitment Microsoft Chief Executive Steve Ballmer made in 2002 to outsource $100 million in work to China. Within the last year, after it had become clear that Microsoft wasn't fulfilling this promise, Lee said, he was put in charge of outsourcing jobs to China.

In video testimony, Ballmer defended Microsoft's business plan in China, saying that through a process of trial and error the company had developed what he called a "secret sauce" for successful operations there.

Redmond-based Microsoft contended Lee's duties at Google would violate the terms of the non-compete agreement. Microsoft also accused Lee of using insider information to get his job at Google.

Google denies the allegations and has countersued Microsoft.