Software War Follows Gulf War -- It's Arab Firm Vs. Microsoft

When Iraqi tanks rolled into Kuwait in 1990, they disrupted one of the Arab world's largest computer software companies, created an opportunity for Microsoft and set in motion a dispute now being heard in federal court.

Fleeing a burning nation, two top employees from Alalamiah Electronics Co. of Kuwait City eventually wound up with jobs at Microsoft, which was seeking to exploit a growing market for Arab-language software.

Alalamiah claims that powerful Microsoft stole its employees.

In a trial that opened yesterday in U.S. District Court here, an attorney for Alalamiah argued that Microsoft took advantage of a weakened Alalamiah and hired away its employees, thereby gaining valuable trade secrets.

The hiring violated a contract between Alalamiah and the employees prohibiting the disclosure for two years of confidential information, argued attorney Vincent Larson, representing Alalamiah. It also violated a nondisclosure agreement that existed between Microsoft and Alalamiah, he said.

In reply, an attorney for Microsoft said the employees approached Microsoft under no valid restrictions by Alalamiah. On the contrary, Alalamiah abandoned the employees and failed to pay them when their employment was disrupted by the war, said attorney James Irwin, representing Microsoft. Microsoft hired the employees only after they first approached Microsoft, Irwin said.

The opening statements by both lawyers gave a fascinating

glimpse of how the Iraqi invasion disrupted life in Kuwait and traumatized a business.

Co-founders Mohamed and Moudhi Al Sharekh and several Alalamiah employees fled to Saudi Arabia by driving across a desert, guided by Bedouins who knew passages unknown to Iraqi sentries. Most people left with little money and few belongings. Later, in Saudi Arabia, an Iraqi Scud missile fell on the school attended by the Sharekhs' son, who was not injured.

Alalamiah, a hardware and software company, eventually moved its headquarters to Cairo, but employees were dispersed throughout several Arab and other countries. Some of Mohamed Al Sharekh's family in Kuwait became active in the resistance and today remain imprisoned in Iraq.

In 1989, the company had sales of $130 million and employed 700 people. The year of the invasion, sales fell to $77 million.

The case in Seattle has made headlines in Saudi Arabia, Egypt and Kuwait, where Alalamiah has resumed operations, but has received little attention in U.S. media.

In the software industry, secrets come in many forms. They can be details of coding that makes software perform in a certain way, plans by a company to release products or research into which products people want to buy. Software employees typically sign agreements promising not to disclose trade secrets learned while working at one company if they take a job with another company.

Alalamiah said that Iskandar Morcos, who was technical manager, and his deputy, Mohammed Rashid, each took that sort of information to Microsoft, where they were put to work designing products in competition with Alalamiah. Microsoft executives were particularly interested in learning from Rashid and Morcos what Alalamiah was developing and how it was solving specific software-development problems, Larson said.

After hiring them, Microsoft had Rashid and Morcos sign nondisclosure agreements that are similar to what they signed with Alalamiah, Larson said.

Alalamiah sells a product that allows a personal-computer user to use Arabic for controlling MS-DOS, the Microsoft disk-operating program that is used in virtually all IBM-compatible computers. Alalamiah is developing a similar product for Windows, the Microsoft product that allows a computer to be controlled by graphics and a pointing device.

Microsoft has developed its own Arabic programs for DOS and Works, a program that does word processing and other tasks, and is working on an Arabic program for Windows.

One of the complexities for jurors in this case is to understand that software competitors often are partners, as well.

Alalamiah and Microsoft had some knowledge of each other's planning for DOS and Windows because the two companies needed each other in the Arab world. The companies discussed joint software projects, and Alalamiah sold Microsoft products through its outlets. Microsoft is such a dominant presence in many lines of software that it is common for one of its groups to be sharing information with a company that is competing with another Microsoft group.

Microsoft says such information is not leaked between groups, although the issue is under investigation by the Federal Trade Commission.

Larson said Microsoft management had been alarmed in the late 1980s that it was falling behind competitors in Arab-language products. But when Iraq invaded Kuwait in August 1990, Microsoft saw a chance to make some gains. Larson read in court a private electronic message sent from one Microsoft executive to another predicting that the invasion might make available some Arabic-speaking software engineers.

Microsoft hired Rashid and Morcos in January. Larson said Microsoft was aware that Rashid and Morcos had signed nondisclosure agreements with Alalamiah. A Microsoft lawyer, Peter Miller, believed the agreements were not enforceable, but a private message among executives said the agreements "could be a problem," Larson said. Miller is expected to testify in the case.

Irwin said Alalamiah's failure to pay salary, bonus or severance to Rashid and Morcos breached the nondisclosure agreement with Alalamiah. Alalamiah sent no money to Rashid and Morcos even when it knew their bank accounts were frozen and they were looking for work, he said. Morcos told Mohamed Al Sharekh in December that he was applying for a job with Microsoft. Sharekh made no mention of the nondisclosure agreement or anything about getting Morcos back at Alalamiah, Irwin said.

Neither employee disclosed any secrets to Microsoft, a fact that would be borne out by examining the coding of products by the two companies, he said.

In a counter claim by Microsoft, Irwin accused Alalamiah of using pirated copies of Microsoft products and of using information learned from Microsoft to develop competing products.

The case in Judge William Dwyer's court is expected to last five weeks. Microsoft Chairman Bill Gates is scheduled to testify because he approved hiring Rashid and Morcos, Alalamiah's lawyers say.

The suit, which names Microsoft, Morcos and Rashid as defendants, asks for damages to be determined in the trial.

Pending the outcome of the trial, a preliminary injunction prohibits Morcos and Rashid from working on Arab-language products.