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Stanford Study Credits Lack of Non-Competes For Silicon Valley's Success
HughPickens.com writes Natalie Kitroeff writes at Bloomberg that a new study says the secret to Silicon Valley's triumph as the global capital of innovation may lie in a quirk of California's employment law that prohibits the legal enforcement of non-compete clauses. Unlike most states, California prohibits enforcement of non-compete clauses that force people who leave jobs to wait for a predetermined period before taking positions at rival companies. That puts California in the ideal position to rob other regions of their most prized inventors, "Policymakers who sanction the use of non-competes could be inadvertently creating regional disadvantage as far as retention of knowledge workers is concerned," wrote the authors of the study "Regional disadvantage? Employee non-compete agreements and brain drain" (PDF). "Regions
that choose to enforce employee non-compete agreements may therefore be subjecting
themselves to a domestic brain drain not unlike that described in the literature on international emigration out of less developed countries."
The study, which looked at the behavior of people who had registered at least two patents from 1975 to 2005, focused on Michigan, which in 1985 reversed its longstanding prohibition of non-compete agreements. The authors found that after Michigan changed the rules, the rate of emigration among inventors was twice as a high as it was in states where non-competes remained illegal. Even worse for Michigan, its most talented inventors were also the most likely to flee. "Firms are going to be willing to relocate someone who is really good, as opposed to someone who is average," says Lee Fleming. For the inventors, it makes sense to take a risk on a place such as California, where they have more freedom. "If the job they relocate for doesn't work out, then they can walk across the street because there are no non-competes."
The study, which looked at the behavior of people who had registered at least two patents from 1975 to 2005, focused on Michigan, which in 1985 reversed its longstanding prohibition of non-compete agreements. The authors found that after Michigan changed the rules, the rate of emigration among inventors was twice as a high as it was in states where non-competes remained illegal. Even worse for Michigan, its most talented inventors were also the most likely to flee. "Firms are going to be willing to relocate someone who is really good, as opposed to someone who is average," says Lee Fleming. For the inventors, it makes sense to take a risk on a place such as California, where they have more freedom. "If the job they relocate for doesn't work out, then they can walk across the street because there are no non-competes."
And then there's those Steve Jobs emails that revealed major players in Silicon Valley created their own de facto non-compete policies with each other. The study is incomplete without examining intra-California career stifling.
"Love heals scars love left." -- Henry Rollins
...it innovates better than almost any place else, and failure is (sometimes) OK.
http://www.scientificamerican....
It has very little to do with employees not being able to go anywhere else...many of the people who work there come in from other countries where this isn't even an issue.
I can't provide any substantial comments on this article for another 4 months.
Banning enforcement of certain aspects of a contract may be useful. But it deprives the parties of the freedom to meaningfully enter into such contracts, and I'm not at all sure, the utility ought to outweigh the liberty.
In fact, I'm quite sure of the opposite...
In Soviet Washington the swamp drains you.
I have refused to sign any contract with a non-compete in it for IT work starting with my first IT job in 2005. I think I saw something on slashdot back then making me weary of them.
My first company was getting everyone to sign them after sales people were leaving and taking clients, but I just refused and they never asked. With every other company, if I saw it in the contract, I'd tell them "I don't sign non-competes." They would always take it out or give me a new contract. Only one company made a big deal about it, a start up, and it wasn't even the company but their horrible lawyer. The principal investor told me to "sign the contract you want." I wasn't about to writing my own contract and they started paying me anyway...so I basically got paid without a contract. Made it easier to open source what I wrote after the company failed. :)
TL;DR NEVER SIGN A NON-COMPETE. They are unethical.
So you are saying that allowing people to gather knowledge and use said knowledge even if they change jobs is beneficial? No surprise there. Copyright, patents, non competes, all are almost always only good for the big corporations and have a detrimental effect on the economy as well as innovation.
We use capitalism because its pretty much the best economic system we have. The biggest component of capitalism is to let people do what they do best. Monopolies in any way will interfere with that. Sometimes a small protection is needed because not having a monopoly would destroy what people are trying to use (for example wireless spectrum is limited in nature and we can't allow everybody to broadcast on everything freely). But other than that competition is the great drive for everybody to make better stuff.
I think the article misses the mark when it focuses on inventors explicitly choosing districts with non-competes. That may be a factor, but I think people tend to choose the job based on the company and the offer. Things like non-competes are typically a secondary motivation.
Far more likely the effect comes from better skill utilization. If you work at a company for 5 years and become an expert at X then you're probably an extremely valuable employee when you do X. If you change jobs you'll be most effective at a new company where you can do X, but if you can't work for rivals the number of companies doing X might be drastically smaller.
Removing the non-compete lets employees use their full range of abilities, probably no one benefits more than startups since they're the ones with the least time and resources with which to mentor and develop a new employee into an expert.
I stole this Sig
But I think that Boston's terrible weather is also a big factor. Here's an analysis of Boston winters that shows the grim reality of 5 or 6 months out of every 12. When sunshine, mild weather, and Silicon Valley jobs beckon on a gloomy February day, it takes a wicked love for the Hub or the Bruins to turn down a good offer. The cost of housing is much higher in the Bay Area, but the bills for heating oil and winter clothing go away, and cars last a lot longer, just to name a few things.
Boston remains one of my favorite American cities to visit (only during baseball season, though), but I no longer [perhaps unfairly] associate it with startups. Maybe the innovative and creative ideas get frozen out.
TFA says:
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
This is where I think the Right Wing and Republicans get it wrong when it comes to business. They look at it as, what is best for business is what will drive business, but in the case of California, it is what is best for employees is what drives business. Who in their right mind would want to work in a state where business can keep you from leaving by creating non-compete contracts? People with talent are going to go where they think it is best for them. In the case of California, weather and not being locked into a company is what is best for them.
On a side note, I left a company in California that was based out of New Mexico and they told me I could not work in IT for three years because of the non-compete I signed with them. I laughed at them and told them to come to California and try to enforce it. Needless to say, I kept working in California.
Linux O Muerte!
Just because a company goes bankrupt doesn't mean its IP is suddenly public domain--the creditors or another company (which either is the sucessor-in-interest or purchased them) will own the copyrights, including in the software you created as a work for-hire if you were employed by them.
If you open-sourced that software without permission, you put copyrighted work in the open source community without authorization. That means the creditors or other successor-in-interest to that failed startup can get an injunction against anyone using the software, for example. (They can also sue for copyright violation, although what they recover will depend on a variety of factors.)
If you want to open source software from a company you worked for that went bankrupt, you have to figure out who owns the software first, and get their permission. It may be a creditor, it may be an investor, it may be a new form of the company, it may be someone who bought the IP. If you make a work *for-hire*, then you don't own it just because you created it.
.... your former employer you are working for them. Or unless you actually misappropriate some ip from your old company, which is protected by laws that can carry criminal penalty for infringement and not just civil penalties anyways, whether you signed a non-compete or not, how would your old company even know what you were doing after you left?
File under 'M' for 'Manic ranting'
How does a document dated 2011 qualify as a new study?
Right to work invalidates noncompetes that prevent a person from earning a living in their field. Only noncompete agreements with explicit and reasonable scope "aka - you can't take our clients for a period of X within range of Y" have any chance of standing up.
No compete != No poaching. No poaching matches your last statement about career stifling, no competes means that companies won't try to produce products that someone else produces. I'm not claiming they are not both issues to discuss, I'm pointing out that you can't mix the two conversations like you did and have a rational discussion.
On one hand, the no-competes are stifle innovation and harm consumers. This is not unconstitutional as some have said, but it is a problem with anti monopoly laws. Further, the garbage patent laws allowing "ideas" to be owned makes it unfortunately easy to perform.
No poaching on the other hand does stifle careers of people working for companies. Good players can't grow into new better if they are currently stagnant by changing employers which these agreements block.
In both cases the benefactor is the company execs (board, owners, etc..), not consumers or employees. In fact the latter two are harmed by these agreements.
TFA's claim is simply deluded and ignores history. No competes are monopoly protection, and a racketeering. To see how this really works, look at who makes money in the DB market space today vs. 15-20 years ago. The only reason consumers have seen benefit from Oracle is by competition from Open Source DBs. Until MySQL (now Maria) and Postgres came along Oracle owned their customers. Products were poor, development was slow, and only big money people could play. Today, it's a different story because of competition which had to come from Open Source products. There are a couple other Silicon Valley companies that could have played in the SQL space but didn't due to these no-competes. You can find out who these are by simply following executives over time and see the other companies they started.
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
Libertarian != Liberal. Libertarian would be concerned with common law, not contracts and unions which are predominantly the turf of Liberals.
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
First "no": I would agree if you had said that the no competes are unprotected by the US Constitution, but they are illegal. Illegal by both the Sherman Act and Racketeering laws.
"so what": Not relevant to the discussion, you are confusing two types of agreements (intentionally?). One where Company owners agree mostly in back rooms not to produce products the other makes. The second, is an employee contract which has no bearing on the former.
The last part is not only a "no", but also not relevant to the discussion in TFA. Employee contract != Apple agreeing to never develop a Database and only using Oracle products, while Oracle agrees not to develop iPods, phones, etc.., etc...
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
Without the major government intervention called "penal law", your loss for violating a contract would amount to whatever the other party of the contract tells their hired thugs to do to you.
I'll assume that "Right to Work" does not include the right to break noncompetes.