Courtroom Kung Fu Over Kai-Fu Lee

The courtroom battle is on. Google (Nasdaq: GOOG  ) and Microsoft (Nasdaq: MSFT  ) are cracking their knuckles in anticipation of the legal fisticuffs. At stake? A certain Kai-Fu Lee.

What's that? You don't know Kai-Fu Lee? You may, soon. As Microsoft's former head of research and development in Beijing, Lee helped strategize Mr. Softy's push into the world's most populous nation. That is, until he left the company on a sabbatical and wound up being hired by Google to help run its new center in China.

Microsoft is alleging that Lee is violating a non-compete clause. It's also claiming that Lee knows too much about Microsoft's strategy in the region in general, and its attack strategy on Google in particular. Lee attended an internal briefing back in March titled "The Google Challenge," and Microsoft feels as if trade secrets are at stake.

Yesterday, a judge tried to provide some form of common ground until the case comes to trial in January. He ruled that Lee can work for Google in a limited capacity until then. He will be able to staff the center but not take an active role in formulating strategies in what were his core strength areas for Microsoft -- search engine technology and language recognition.

This will all be irrelevant by next summer because the one-year restriction will have ended. However, Microsoft's insistence in blocking Lee's hire and Google's rich compensation package to attract Lee prove just how vital China is to both companies.

It's easy to see why the country is a priority -- it has 1.3 billion citizens, and just 8% of the country is currently Internet-enabled. The battle will be long and fierce as Web migration continues in China.

That's also why our ultimate growth newsletter service, Motley Fool Rule Breakers, has already singled out a pair of promising Chinese companies. We recommended NetEase (Nasdaq: NTES  ) and Shanda Interactive (Nasdaq: SNDA  ) nine months ago, and each one has continued to grow its bottom line at heady levels as their online gaming platforms continue to catch on.

The enormous potential for growth in China also should make people approach the upcoming court case between Google and Microsoft with some degree of cynicism. Google and Microsoft, after all, aren't the only ones looking to play a role in China's future. Companies like indigenous search engine giant Baidu.com (Nasdaq: BIDU  ) are dominating the region right now. You think Baidu isn't going to put up a fight?

To Baidu and Chinese locals, the fact that Google and Microsoft are carving up their virtual turf may seem almost as amusing as someone thinking stateside about how China's Baidu and Alibaba are going to carve up the search engine and auction space in the United States.

In other words, don't let nationalist pride confuse the corporate reality. This is going to be a good court case come January, but mostly for the entertainment value.

NetEase and Shanda were recommended in the January 2005 issue of Rule Breakers. Want to learn why? Want to learn more? Check out a 30-day free trial.

Longtime Fool contributor Rick Munarriz wonders whether the energy that Google and Microsoft will be exerting in this trial may become an opportunity for another party to come in and beat them both to the punch.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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