Cisco Calls Out HP For Suing Former Employees Who Leave HP To Work For Cisco

from the sullying-the-hp-brand dept

We've written, in great detail, about the research that shows that the ability for employees to switch jobs freely almost certainly contributed massively to the huge success of Silicon Valley. Multiple studies, looking at multiple different factors, have shown that a simple legal issue -- the fact that non-compete agreements are unenforceable in California -- was the key driving factor in Silicon Valley's success. Sure, other things were important: good universities, investors, etc. But other areas had that too. What set Silicon Valley apart was the fact that employees switch jobs much more frequently.

As for why that has such a massive impact on innovation and economic growth, it has to do with the sharing of ideas. While traditional economic theory might suggest companies are better off hoarding information on new products, that's not true in many cases. Take, for example, an emerging market where multiple players are on the verge of key breakthroughs -- but the market won't really emerge until that breakthrough is complete. What studies have found is that the more minds thinking about a problem and cross-pollinating ideas, the faster it is that the necessary breakthrough can happen. Now, companies may not work directly together on solving the challenge, but when employees shift regularly between companies they act to pollinate the ideas from one organization to another, helping those organizations reach the breakthrough point sooner, creating those large new markets. This isn't a bad thing. Speeding up the process of innovation and creating large new markets is a non-zero sum game, so the fact that an employee leaves can actually help spur a huge market that the employee's former company can take advantage of too. At the same time, it allows companies, who might be upset about losing certain employees, to similarly hire people away from other competitors.

So, it always strikes me as a bit strange when companies get so worked up about an employee leaving to join a competitor -- especially in California. However, Cisco General Counsel Mark Chandler is directly calling out HP for a series of lawsuits against employees who left HP (a company clearly in turmoil) to go to Cisco. Chandler highlights the fact that noncompetes are unenforceable in CA, but notes that (even though both companies are headquartered not far from each other in California), HP has used the fact that it has locations elsewhere to file lawsuits against former employees three times. And the stories suggest that HP is really going overboard in these efforts:

In the first of the three cases, HP was so persistent in the litigation and so threatening, that the individual, who had retired from HP months before even talking to Cisco, withdrew. There seemed to be little concern with the stress that a big company turning its legal guns on an individual can cause. In another case, an employee who worked in HP’s financial services group was sued to block her from working in Cisco’s customer finance group, even though there was no argument whatsoever that relevant intellectual property at stake. She persisted and HP relented. In the most recent case, just last week, the employee, who’d given HP over two decades of loyal service, had moved to California before starting work at Cisco. He asked a California court to declare that he was protected by California law and that HP could therefore not enforce its non-compete. A court hearing was scheduled in California, we notified HP and HP retained counsel. Cisco also reached out to senior legal staff at HP to try lay out some voluntary steps to avoid further litigation and to give further reassurance that the employee wouldn’t even inadvertently leverage any HP confidential information.

HP’s reply was to file an action in Texas against the employee and schedule an “emergency” hearing to try to enjoin the employ from working with Cisco, seeking to have a judge issue the injunction with no notice and no opportunity for the employee to be represented. Fortunately, an eagle-eyed Texas lawyer working for the employee saw the filing appear on line and showed up in court. Given that the matter was already in front of a California court, with HP fully represented, in a hearing scheduled for two hours later, the judge in Texas was not impressed by HP’s effort to get her to act without a hearing. She refused to proceed. And the California judge issued an order allowing the employee to begin his new career at Cisco.

There's no way to look at this and not wonder what is going on at HP. The company is flailing. It's been firing CEOs left and right -- and paying them ridiculous sums for failing in the process. Why not just spend some of the money that's being wasted in these silly and damaging lawsuits to actually innovate? In his post, Chandler also notes that HP has been on the other end of similar fights, which makes this even more bizarre. He closes with a pledge that, no matter where they are, Cisco will not use litigation to stop employees from working elsewhere, and challenges HP to do the same:

Cisco’s promise to those looking to work in the networking industry is that no matter which of the fifty states you live in and work for Cisco, if you come to work for us we will apply California’s rule in favor of employee mobility nationwide. We know that employee retention is a matter of fair compensation and career opportunity, not litigation. And we challenge HP, with new leadership deeply steeped in Silicon Valley’s environment of mobility and opportunity, to step up and support employee freedom and stop suing employees just for leaving.

Filed Under: freedom of employment, innovation, lawsuits, noncompetes, working
Companies: cisco, hp

Judge Blocks Former Microsoft General Manager From Working For Salesforce

from the noncompetes dept

A few years ago, we covered some of the research on the impact of noncompete agreements on innovative industries. Basically, noncompetes are effectively a form of DRM on human capital. They diminish the pace of innovation in that they get in the way of idea sharing and the free flow of talent to where it can be most effective. Not surprisingly, California refuses to recognize noncompete agreements as enforceable. So, it's a bit strange to see, as pointed out on Slashdot, that a former Microsoft General Manager, Matthew Miszewski, cannot work for Salesforce.com "in a marketing role in salesforce.com's public or commercial sector anywhere in the world." It's that "anywhere in the world" part that has me scratching my head. If Miszewski moved to California, where Salesforce is based, could the Washington court actually do anything? The Slashdot post also points out Microsoft's hypocrisy on this issue, in that it's happy to restrict the "flow of talent" from its own staff, but on immigration always argues about the importance of the free flow of talent to American innovation...

Filed Under: matthew miszewski, noncompetes, working
Companies: microsoft, salesforce.com

Best Hollywood Set Locations Represent A Trade Secret?

from the yeah,-good-luck-with-that dept

THResq has a post about a lawsuit involving two companies who are focused on the business of finding the right set location for Hollywood films and movies. Apparently, it's a huge business. Universal Locations is upset that two of its employees went to a competitor called Site to Site Locations, and so they're suing, saying that the employees took trade secrets with them. The thing is, it appears that Universal Locations is trying to get past longstanding and well-established California laws barring non-compete agreements, because the state, reasonably, finds it ridiculous that you could ever be barred from making a living because you're too good at your job. Claiming "trade secrets" seems like an attempt to avoid that, but hopefully the court knocks that down pretty quickly by arguing against a ruling that would take away the ability of these two individuals to work in their field of expertise. Of course, it should come as no surprise that it's some movie industry companies making this argument. In a world where IP is highly overrated, no wonder they would think that they could effectively put DRM on former employees to keep them from competing in the same field.

Filed Under: hollywood, locations, noncompetes, sets, trade secrets

Motorola Trying To Block Competitors From Hiring Workers It Laid Off

from the insult-to-injury dept

We already think that noncompete agreements don't make sense for companies, but Motorola may be taking the concept to a new level. Rather than trying to stop employees from leaving Motorola to go to a competitor, it's now trying to stop employees it already laid off from going to work for RIM. Motorola had already sued RIM earlier this year for trying to entice employees to jump ship, and this followed another suit by Motorola against Apple for hiring away an exec. Maybe rather than trying to prevent employees from going elsewhere, Motorola might want to focus on improving its own offerings and its own working conditions so that this isn't even a problem? But if it's laying people off, it seems rather ridiculous to then try to stop them from joining another company.

Filed Under: hiring, laid off, noncompetes
Companies: motorola, rim

Good News For Innovation: California Confirms That Noncompetes Are Unenforceable

from the phew dept

Last year, I outlined a bunch of research from the past few years that show how damaging noncompete agreements are to innovation. In fact, some of the research suggests that the single biggest factor in explaining why Silicon Valley became such a hub for tech innovation is the fact that noncompetes are unenforceable here. Studies comparing Silicon Valley to Boston and Michigan are quite convincing on the importance of allowing greater job mobility in order to promote more innovation. In fact, there's a vocal group in Massachusetts that has put a lot of effort into (finally) getting that state to ban noncompetes.

Of course, it appeared that some were pushing in the opposite direction in California (at least via lawsuit). But the good news is that California's Supreme Court has now reiterated that noncompetes are unenforceable here. This is a huge victory for innovation in the Valley.

Filed Under: california, noncompetes

People In Massachusetts Pushing To Get Rid Of Noncompetes

from the good-for-them dept

Last year, we had a discussion looking through all of the research showing how harmful noncompete agreements can be to entire industries and regions. In fact, the research suggests pretty clearly that Silicon Valley's success compared to Boston's high-tech region is in large part due to the lack of enforceability of noncompete agreements in California. While much of this research had been ignored, it looks like some people in Massachusetts are trying to make more people aware of how much harm noncompete agreements are doing to business in the state.

The problem is most people only think about noncompetes from the perspective of the company offering the noncompetes. That leaves out the perspective of both employees and other companies. With noncompetes, there's a lot less movement of employees around an industry. That means less cross-pollination of ideas -- which is a key element towards faster and better innovation. It also means employees less willing to go work for startups, because if it doesn't work out, it's much more difficult for that employee to leave and go work elsewhere. Finally, when everyone's enforcing noncompetes, it's much harder for companies (even who use noncompetes themselves) to hire the important employees they need from other companies. All in all, noncompetes are a lose-lose initiative hurting all the companies in a space as well as their employees. It's good to see a push in Massachussetts to get rid of them.

Filed Under: massachusetts, noncompetes

When Ideas Are Easy And Execution Is Hard... It Makes Sense To Share Your Ideas

from the be-open,-be-good dept

We've been hitting on the theme that ideas are easy, while execution is hard for a while now -- and a friend pointed me to a worthwhile blog post by Brad Burnham, an experienced venture capitalist, now a partner with Union Square Ventures. Burnham muses that the successful entrepreneurs he's backed tended to be the ones who were the most open about their ideas, not just with him, but with everyone. What it really comes back to is this idea that ideas are easy and execution is difficult. The entrepreneur who is living and breathing the idea (and has probably already tested out a bunch of different related ideas) is likely to gain a lot more from the conversation with an outsider (even a potential competitor) than that other person is going to gain from talking to the entrepreneur. While there is an old-school mentality that you need to keep things secret, history has shown that that tends not to be the best way to grow a successful business. When you do that, you end up making all sorts of mistakes that a few conversations may have helped you avoid.

An interesting parallel to this debate is the discussion we had last year about noncompetes. What the research there has shown is that a big part of the reason for Silicon Valley's success is the fact that noncompete agreements are unenforceable in California. What happened, then, was much more job-hopping, and a much faster dispersion not just of ideas, but of problem solving and innovation across the industry. In AnnaLee Saxenian's book that kicked off this debate, she noted that Silicon Valley culture was such that many engineers here spent plenty of time discussing their biggest challenges with direct competitors, just to get better ideas -- believing that solving the big problems would work out better in the end for everyone, and that holding back ideas didn't solve anything. Amusingly, in that case, Burnham's partner at Union Square Ventures, Fred Wilson, took the other side: favoring noncompetes (though, I get the feeling Wilson's changing his mind as the evidence has been presented).

This also, by the way, goes completely against the theory (chiefly propagated by supporters of a stronger patent system) that without patents, the world would devolve into an innovation-free zone where trade secrecy ruled. That seems unlikely to happen, based on exactly what Burnham and others have noticed. Keeping an idea secret not only is unlikely to be effective, it can often stifle the necessary development. Thus, it will be the companies that are more open and free with their ideas that dominate the market. The key reason why, of course, goes back to what we talked about at the beginning. Ideas are certainly important, but it's execution that's the key to success -- and being more free in sharing your ideas will often help you execute better.

Burnham also asks about whether or not it's possible to "model" this openness -- and I think it is. In fact, in many ways it matches the infinite goods economic model we've been discussing, with the ideas representing the infinite goods, and the execution being the main scarcity. So, in the same way that freeing up music helps expand the opportunities for every other area of the music business, opening up your idea is likely to open up many huge new opportunities for the entrepreneur in how to execute successfully. If you really want to model it mathematically, you could probably build something based on the economic models that made Paul Romer famous (and should eventually net him a Nobel prize), but that might be overkill for what Burnham is looking for. However, if you're familiar with Romer's work, applying it to this scenario should make you see how much more powerful sharing ideas can be vs. keeping them secret. It's not just a small edge -- it can be a huge difference. I've been working on a few simpler models myself that I'm hoping to share (openly and freely!) soon enough, in the hopes that others can improve on them.

Filed Under: brad burnham, economics, execution, ideas, noncompetes, openness, sharing

How Noncompete Agreements Will Make Our Troops Less Safe

from the bad-news-for-everyone dept

Earlier this month, we wrote about the dangers of noncompete agreements and how they tend to slow innovation and hurt regions compared to those, such as California, that do not enforce noncompetes. Most of the research on noncompetes tends to compare Massachusetts, which enforces noncompetes, to California. And, in an unfortunate demonstration of the dangers of noncompetes, iRobot, a Massachusetts company has just forced a competitor completely out of business, and our troops may be less safe because of it. Many people know iRobot for the cute little Roomba vacuum cleaner robot, but the company's main line of business has always been selling robots to the military to help them locate and dispose of explosives. A new company sprang up recently, called Robotic FX, founded by a former iRobot employee. Robotic FX had just scored an army contract to make some similar robots. The competition would have been good for everyone. It would have pushed both companies to continue to innovate and make better, more efficient and more cost effective robots. Instead, iRobot sued and has forced Robotic FX completely out of business and banned its founder from working in the industry for five years. Here's a knowledgeable expert on robotics who can help make useful robots that will help keep our troops safer... and he's not allowed to work in the industry for five years. That doesn't seem like a good outcome for anyone... other than iRobot who can rest on its laurels rather than having to innovate in the face of competition. Update: Wanted to update this following some comments that suggest my summary was inaccurate. I apologize if it was not clear, so let me clarify here. The guy was accused of patent infringement and trade secret violations in what he was doing. That was the central part of the case. The "noncompete" wasn't specifically an agreement he signed, but it's a result of the lawsuit. I should have been clearer about the accusations of infringement, but I don't believe this changes the point of the post at all. It's still a case where a noncompete (created by the court, rather than as part of an employment agreement) is used to stifle competition. That there may have been patent infringement is somewhat meaningless to me, as should be clear from my other discussions on patents. Competition is competition -- and it would have driven better results, even if based on the same patents.

Filed Under: noncompetes, robots
Companies: irobot, robotic fx

Noncompete Agreements Are The DRM Of Human Capital

from the bad-news-all-around dept

Over the weekend, venture capitalist Bijan Sabet kicked off an interesting discussion by saying that he doesn't believe in noncompete agreements and suggesting, anecdotally, why he thinks that they do more harm than good. Venture capitalist Fred Wilson responded by disagreeing and suggesting that noncompetes do more good than harm. This is a topic that I've become deeply familiar with recently, for some research I've been working on. My interest in the specifics of noncompetes was kicked off by a small part of David Levine and Michele Boldrin's book Against Intellectual Monopoly, where they discuss how the lack of noncompetes helped Silicon Valley grow. This lead me to a lot of research on the topic, some of which I thought it would be worth bringing up, as the discussion has become so heated -- with almost all of it focused on anecdotal points, rather than actual research. Some of this research was for a separate project I am working on, but with so much interest in the topic, I thought it would be worth a detailed post.

Much of this discussion kicked off with AnnaLee Saxenian's 1994 book Regional Advantage that tries to understand why Silicon Valley developed into the high tech hub it is today, while Boston's Route 128 failed to follow the same path -- even though both were considered at about the same level in the 1970s. Saxenian finds that the single biggest difference in the two regions was the ability of employees to move from firm to firm in Silicon Valley. That factor, ahead of many others, caused Silicon Valley to take off, while the lack of mobility in Boston caused its tech companies to stagnate and make them unable to compete against more nimble Silicon Valley firms. Saxenian claims that the difference in mobility was simply due to "cultural" differences between the east coast and the west coast. However, the impact was massive. The frequent job changes helped speed up the process of innovation, as ideas flowed more freely, allowing ideas to quickly change and grow and build upon other ideas leading to faster and better innovation. In contrast, employees in Boston stuck with their firms. The firms grew bigger, but slowly, and new ideas didn't flow nearly as easily. There was less direct competition from firm to firm, so firms were able to rest on their laurels rather than increasing their own pace of innovation.

Ronald Gilson found this to be interesting, and followed it up with his own research suggesting that that it had much less to do with cultural reasons and much more to do with the legal differences between the two places, specifically: California does not enforce noncompetes, while Massachusetts does. Gilson looks at a few of the other possible explanations for the difference and shows how they're all lacking, leaving the difference in noncompetes as being the key difference between the two regions in terms of the flow of information and ideas leading to new innovations. He also explains the history of non-enforcement in California, showing that it was mostly an accident of history more than anything done on purpose.

The problem with all of this research was that none of it really showed how much more mobile employees were in California than elsewhere, so that job fell to some researchers from the Federal Reserve and the National Bureau of Economic Research, who produced some data to back up the findings of Saxenian and Gilson in their report Job Hopping in Silicon Valley. Their data showed that, indeed, there was much greater mobility in Silicon Valley than elsewhere. Their research further backed up Gilson's suggestion that it was noncompetes that made the difference by showing that other high tech communities in California outside of Silicon Valley also showed greater job mobility -- suggesting it was a California-wide phenomenon.

Finally, to make the case even more compelling, some researchers from Harvard Business School put out some research earlier this year that not only compared the situation in Silicon Valley to Boston, but added a third natural experiment in Michigan. You see, Michigan used to not enforce noncompetes, but in 1985, Michigan inadvertently began allowing noncompetes to be enforced again. The research showed that immediately following the change, mobility of inventors in Michigan decreased noticeably, slowing the spread of certain ideas. Their research found that "The networks of small companies so crucial to Silicon Valley's growth would be less likely to develop in regions that enforce noncompetes."

Noncompetes Are The DRM Of Human Capital

In order to understand how this makes sense, just think of noncompetes as the "DRM" of human capital. Just as DRM tries to restrict the spread of content, a noncompete seeks to restrict the spread of a human's ideas for a particular industry within the labor arena. Both concepts are based on the faulty assumption that doing so "protects" the original creator or company -- but in both cases this is incorrect. What it actually does is set up an artificial barrier, limiting the overall potential of a market. It may not be easy to see that from the position of the content creator or company management (or investors). It's natural to want to "protect," but it's actually quite damaging.

We're already seeing this in the recording industry, of course. The desire to protect has actually limited the market size of other avenues for the music industry to make money. It's held back the ability to use music as a promotional good to build up the overall market for other tangible goods. In the same way, noncompetes limit the market size of the industry where those noncompetes are enforced. It holds back the ability of firms to innovate. Innovation is an ongoing process -- and the fuel of that process is the continual spread of ideas that allows multiple parties to build on those ideas, try different approaches and seek better solutions. While it may seem scary to a firm that supposedly "risks" losing some of its top employees to direct competitors, that's not necessarily the best way to look at this. What it does is force companies to keep on innovating and keep trying to come up with newer, better solutions to top those competitors. At the same time, that free flow of ideas means that the companies in the space have more fuel with which to attack the problem, rather than quarantining those ideas off in separate bins that can't be connected.

While it may seem easier to "protect" your ideas and your people, what you really end up doing is blocking off your own access to many of the ideas that you need to continue to innovate. You limit the vital mix of ideas to build not just decent products, but great products. Just as DRM has helped to destroy the record labels when competing against more nimble, more open technology -- noncompetes destroy businesses when competing against more nimble, more open technology clusters.

Filed Under: boston, detroit, drm, noncompetes, silicon valley