Lee: Microsoft bungled China

Former Microsoft executive Kai-Fu Lee testified today the company bungled much of its operations in China in recent years, making missteps that included threatening and insulting the Chinese government.

Microsoft had become a joke to the Chinese government, he said, and morale at its China operation was low while employee turnover was high. "Microsoft just wasn't getting it," he said.

Lee testified in King County Superior Court at a hearing over whether he should be blocked from a job at Google that he left Microsoft for in July.

Lee said Microsoft didn't follow his advice for doing business in China, which included making inroads in the country by showing sincerity and contributing on a local level.

His lawyer displayed in court a 2003 e-mail Lee wrote to Chairman Bill Gates and Chief Executive Steve Ballmer saying he was "deeply disappointed at our incompetence in China."

Lee said things got worse when Gates yelled at him, using what Lee said was "the F-word" to say the Chinese people and their government had abused Microsoft.

"It was a statement that my work had been in vain," Lee said. "I didn't know whether I should take it as a statement of ignorance or as an insult.""

Microsoft said outside of court yesterday that Gates denies ever making such a comment.

After the hearing, Microsoft lawyer Tom Burt said the company acknowledges struggling in China in recent years. But it strengthened its Chinese team, including hiring former Motorola executive Tim Chen in 2003, and has made some progress.

Burt said the turnaround was evident in plans for Chinese President Hu Jintao to tour Microsoft's campus and dine at Gates' house on what was to be the first day of his visit to the United States. The visit, which was planned for this week, was canceled at the last minute because of the U.S. government's focus on the Hurricane Katrina disaster.

Microsoft, citing a noncompete agreement Lee had signed in 2000, sued the executive and Google in July after Lee resigned to open Google's Chinese research center.

Superior Court Judge Steven Gonzalez granted Microsoft a temporary restraining order in July. He is hearing arguments this week about extending an injunction until a trial begins in January.

What started out as a contract spat has grown increasingly bitter, highlighting the ruthless competition between Microsoft and an upstart rival that's causing heartburn in Redmond.

Nearly 30 people packed the courtroom for yesterday's hearing in downtown Seattle, and a dozen attorneys filled the tables before the judge. Gonzalez' court reporter had to make a seating chart to keep everyone's names straight.

Each side brought about eight boxes of documents and a technical specialist to help with the electronic displays.

Microsoft lawyer Jeffrey Johnson displayed in court a May 7 e-mail that Lee sent to Google's founders and chief executive touting his accomplishments and suggesting a chat.

"If Google has great ambitions for China, I would be interested in having a discussion with you," the e-mail read.

Johnson also said Lee told Google he needed a $10 million compensation commitment to continue discussing a position.

Lee later testified the $10 million was about what he expected to earn at Microsoft in the next four years, and that he told Google if the figure was "way out of the ballpark," a conversation about his job shouldn't take place.

Lee was previously a vice president in Microsoft's natural-interactive-services division, which develops technologies for interactions between users and their computers and devices. Johnson said Lee's team at Microsoft has been working on technologies related to search, including improving speech recognition for mobile applications. Google also has a group exploring the idea of using spoken words to search on mobile phones, he added. He also described a project at Google called "Geegle," which is developing natural-language processing to extract information from the Internet.

Lee helped found Microsoft's research lab in Beijing before moving to Redmond in 2000. He had planned to hire 50 people to work in Google's Chinese center by the end of this year and 200 people by the end of 2006, Johnson said.

In videotaped depositions shown in court, Gates and Ballmer described Lee as a constant adviser to Microsoft about all of its efforts related to China. In one segment, Gates hinted at the betrayal he felt by Lee's departure.

"When Dr. Lee was an employee at Microsoft, I thought of him as trustworthy," Gates said. "There were a lot of things around his leaving Microsoft that I wouldn't have expected."

The hearing continues tomorrow with Lee still on the stand.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com