Microsoft Settles Employee Spying Case

Microsoft has settled a lawsuit with a former employee that it once charged with fraud, misappropriation of trade secrets and breach of contract.

Neither party has admitted to any wrongdoing and they will not reveal the details of the settlement, according to the former employee, Miki Mullor.

The deal closes an unusual case in which Microsoft said that Mullor continued on as CEO of a company called Ancora while working at Microsoft. While Mullor was employed at Microsoft, Ancora accused several computer makers including Dell, Hewlett-Packard and Toshiba of infringing on a patent. The PC makers asked Microsoft to defend them since the technology was provided by Microsoft.

Ancora said that the PC makers infringed on its patent in the way that they allowed customers to bypass the Windows activation process if they had bought computers that came with Windows preloaded.

Mullor said that before he took the job at Microsoft, he had pitched the activation bypass technology to the company during several meetings with a Microsoft lawyer and members of the company's antipiracy team. They said they weren't interested, he said. When he later took the job at Microsoft, Mullor claimed that he told Microsoft in writing about Ancora and the patent.

But Microsoft alleged that Mullor didn't disclose his continued involvement with Ancora and thus breached his contract with the software giant. The company accused him of stealing confidential documents and failing to disclose his intentions about the patent infringement suit. It also said that it was entitled to a royalty-free license for Ancora's patent because Mullor didn't tell Microsoft that he knew about the patent, even though he knew Microsoft was working on similar technology.

The initial patent case filed by Ancora against the PC makers was transferred to Seattle and consolidated with the employment case. The settlement resolves all claims between all parties, Mullor said.

Mullor was chairman and founder of Ancora. A biography for him that was once on the company Web site said that he once served in the Israeli Military Intelligence and has a law degree from an Israeli university. He is not currently listed on the company Web site.

Microsoft said it did not have any comment about the settlement.

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