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Papermaster Redux? IBM Hits Unisys Exec With $500,000 Fraud Suit

IBM executives mulling a move to the competition better think twice. I've learned that for the second time in recent months, Big Blue has filed suit against a senior employee who jumped ship. This puts a whole new spin on "retention strategy."
IBM executives mulling a move to the competition better think twice. I've learned that for the second time in recent months, Big Blue has filed suit against a senior employee who jumped ship. This puts a whole new spin on "retention strategy."The company last week filed a fraud and breach-of-contract charges against a former executive who cashed in hundreds of thousands of dollars in stock options and other benefits before leaving to join Unisys. In November, IBM filed similar claims against Mark Papermaster, now head of Device Hardware Engineering at Apple.

Sam Khanna, currently general manager for Unisys' North American IT Services unit, violated an agreement to repay benefits if he moved to a competing company within twelve months of exercising those benefits, IBM claims in court documents filed last week in U.S. District Court for Southern New York.

Khanna held a number of high-level posts at IBM from 1996 until May of 2008, when he joined Unisys. IBM is suing him for more than $500,000. It's asking the court to order Khanna to repay the benefits and also pay punitive damages and legal costs.

"Less than twelve months after exercising large quantities of options and accepting hundreds of (restricted stock units), which allowed him to realize $506,935.33 in income--$266,170.19 of which came from options exercised and RSU releases accepted in the last few weeks of his employment with IBM-Khanna left IBM and shortly thereafter began employment with Unisys," IBM states in its court filing.

"Khanna knew that his employment at Unisys was a violation of the non-compete provisions" in his benefit plans, IBM says. "Here thereby intended to defraud IBM with his material false representations," IBM charges.

Khanna has yet to file a formal response to the allegations. Microchip expert Papermaster in January settled a noncompete lawsuit filed against him by IBM and in April joined Apple.

Under the settlement, Papermaster must check in with IBM if he suspects that any innovations he develops at Apple infringe on confidential or proprietary information he picked up during his years of work at Big Blue.

What's more, the settlement dictates that IBM, and only IBM, gets to decide if the techniques in question derive from its intellectual property, and its decisions are not subject to appeal -- even to the court. Papermaster must also submit to IBM, on two occasions prior to Oct. 15, a declaration that, under penalty of perjury, states that he's not using confidential IBM material in his role at Apple.

Maybe it's just better to stay in Armonk--it's certainly cheaper.