Microsoft today won a preliminary injunction in a Washington state court against Kai-Fu Lee and Google Inc. that prevents the former Microsoft executive from working for Google on products or services related to search and speech technologies.

But the ruling falls short of a complete victory: Judge Steven Gonzalez found that Google's use of Lee to recruit for its operations in China doesn't violate the employment agreement Lee signed when he joined Microsoft.

The preliminary injunction will remain in effect until the case is decided following a trial scheduled for early next year, unless a countersuit Google has pending in California undoes the injunction.

Both Microsoft and Google hailed the decision as victories. So who lost? According to a labor attorney, skilled employees are the losers, as they may find themselves under new legal restrictions that hamper them from getting new jobs.

Lee is further enjoined from participating in budgeting, setting compensation levels, and defining research and development that will be done at Google's planned R&D facility in China.

Microsoft said last week in closing arguments that Lee was the face of Microsoft in China and that he should not play the same role for Google. But given the restrictions placed on his activities by the injunction, being the face of Google in China, primarily as a recruiter, is about all he'll be able to do until he's allowed to undertake more substantive managerial duties.

Perhaps the most significant aspect of the injunction is that it forbids Lee from recruiting employees of Microsoft or its subsidiaries.

Google has been the beneficiary of a recent brain drain, recruiting talent from competitors that includes Internet pioneer Vinton Cerf, hired away from MCI, and research scientist Daniel Russell, formerly with IBM, Apple, and Xerox.

In a blog entry posted shortly after the ruling was issued, Nicole Wong, associate general counsel at Google cast the decision as a win. "[T]he judge decided today in his ruling on Microsoft's request for a preliminary injunction to allow Dr. Lee to work on a much broader range of things for Google. There are some restrictions, but the ruling basically allows Dr. Lee to do what we've wanted him to be able to do. The judge said that Microsoft had 'not sufficiently shown that it has a clear legal or equitable right to enjoin Dr. Lee, pending trial, from Establishing and Staffing a Google Development Facility Center.'"

Microsoft too hailed its win. "We are pleased with our victory in court today," the company said in a statement. "The court entered an injunction that restricts the work Dr. Lee can do for Google, preventing him from working on speech, natural language and search technologies, as well as setting the overall research and development course for Google China. Today's injunction is broader than the Temporary Restraining Order, which was granted to Microsoft in July, and imposes further restrictions on Dr. Lee's activities in China. The injunction restricts Dr. Lee to limited interviewing and site location activities."

So both companies won. But for highly skilled employees, "it's pretty much a lose-lose proposition if they're about to leave," says Stephen Fink, a partner at Dallas law firm Thompson & Knight LLP. "Most employees who go to their employer and tell them I'm thinking about doing this, they're not likely to be met with a very favorable reception. On the other hand, if they don't tell their employer, then they get accused as Lee was, of deception, of hiding his real intentions."

According to Fink, lawsuits aimed to prevent employee competition represent one of the most active areas of employment law at the moment. He attributes this to the nature of today's economy: In an information economy, knowledge is power.

"Now the first thing an employer does when an employee leaves is grab the employee's laptop, take it to the IS department and start looking for evidence that the employee has been communicating with a competitor while still on company time," he says. "Remarkably often, despite the technological savvy of some of these people, the evidence is there."

And it comes out in court. As Judge Gonzalez noted in his findings of fact, "Dr. Lee misled Microsoft about his intention to return to Microsoft following his sabbatical and he continued to have access to Microsoft's proprietary information after he decided to leave Microsoft to join one of its competitors without informing Microsoft. Dr. Lee began assisting Google while he was still employed at Microsoft."

Such findings are sure to be significant as this case and the countersuit progress. But proprietary information, sensitive though it may be, isn't really the issue. Perception is.

"It's the impression that's created when someone like Lee, who was in a senior position at Microsoft and who was, in effect, Microsoft in China, so they say, transfers his allegiance to Google," explains Fink. "It's the implicit message, that he finds Google a more advanced, more attractive, a better company to use his talents than Microsoft. And it's that message in particular, I think, that disturbs companies and leads to actions like Microsoft has taken."

Even if it succeeds in its effort to punish Lee and Google, Microsoft has already lost. It has lost Lee, its face in China. It has lost face and that's something of particular significance in China.

Yet, Google hasn't won, not while Yahoo continues to make inroads in China.