In July 2005, Lee left Microsoft to take a position at Google. The search company agreed to compensation worth in excess of $10 million, including a $2.5 million cash 'signing bonus' and another $1.5 million cash payment after one year, a package referred to internally at Google as 'unprecedented'.
On July 19, 2005, Microsoft sued Google and Lee in a Washington state court over Google's hiring of its former Vice President of Interactive Services, claiming that Lee was violating his non-compete agreement by working for Google within one year of leaving the Redmond-based software corporation. Microsoft argued that Lee would inevitably disclose proprietary information to Google if he was allowed to work there.
On July 28, 2005, Washington state Superior Court Judge Steven González granted Microsoft a temporary restraining order, which prohibited Lee from working on Google projects that compete with Microsoft pending a trial scheduled for January 9, 2006. On September 13, following a hearing, Judge González issued a ruling permitting Lee to work for Google, but barring him from starting work on some technical projects until the case went to trial in January 2006. Lee was still allowed to recruit employees for Google in China and to talk to government officials about licensing, but was prohibited from working on technologies such as search or speech recognition. Lee was also prohibited from setting budgets, salaries, and research directions for Google in China until the case was to go to trial in January 2006.
Before the case could go to trial, on December 22, 2005 Google and Microsoft announced that they had reached a settlement whose terms are confidential, ending a five-month dispute between the two companies.