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When Did You Become Someone Else’s Intellectual Property?

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By Bijan Sabet, a general partner at Spark Capital who also blogs at

Every day, venture capitalists like me see the chilling effect that employer non-compete agreements have on innovation. In dozens of states, the most brilliant contributors are locked out of joining new opportunities in their field of expertise for a year, sometimes even longer.

Promising startups are dead in the water to investors if there’s a hint of non-compete trouble in the mix. This is not a trivial matter: The vitality of a region’s economy — and ultimately the country — is driven by the ability to bring new ideas to market, faster. Non-competes put the brakes on innovation and job creation, and the effects are felt far beyond the VC community.

Silicon Valley represents America’s model of innovation. Because employee non-compete clauses are not enforceable in California, workers are free to pursue new ideas and opportunities, and the employer’s legitimate intellectual property rights are still protected by non-disclosure agreements (NDAs) and non-solicitation agreements (NSAs).

Yet Massachusetts, New York and Michigan are among dozens of other states that still enforce non-compete clauses. This isn’t just a philosophical debate. We have just to look to Michigan in 1985, when it made non-compete agreements enforceable again after 80 years. The result: Overall job mobility was immediately cut by 20 percent. In specialized technical fields, the damage was even more acute.

Employer non-compete agreements are literally handcuffs. We need to ask whether their impediments to innovation serve a greater good by protecting employers’ legitimate rights.

As a founder of the Alliance for Open Competition, I argue that the answer is no. Employers’ intellectual property rights are protected by NDAs. Critical customer relationships are protected by NSAs. The purpose of the non-compete is nothing other than to insulate the employer from legitimate competition downstream, restraining free market forces.

The non-compete makes the employee the company’s property for the term of the agreement, which typically extends far past the employee’s last day on the job. It essentially makes the claim that “Because you’re highly skilled, you belong to us even after you don’t work for us any more.”

This puts employees who choose to leave in an outrageous situation. They were paid during the term of their employment for work performed. Since they have left the company, they are no longer being paid. Yet the company still asserts a right of ownership of them as workers, simply because they used to pay them.

And as a result, too many bright minds are forced to sit on the sidelines rather than use their skills to bring new ideas to market.

To enhance America’s competitiveness in the global marketplace, we should start by simply making non-compete agreements unenforceable, except in the most limited of situations.

My firm is doing its part by eliminating non-compete agreements among our portfolio companies. You can join the movement at the Alliance for Open Competition. We would love to hear from you.

18 Responses to “When Did You Become Someone Else’s Intellectual Property?”

  1. Pat, if you think the credit card arbitration agreements are so bad, don’t sign them. It’s a simple choice. Many people don’t use credit cards, as indispensable as you may personally find them. As for your argument that companies who don’t use non-competes are at a competitive disadvantage, that is one of the dumbest arguments I’ve ever heard. I could equally well say that employees will tend to avoid the companies who force non-competes, leaving THOSE companies at a competitive disadvantage as the employees try to maximize their future employment flexibility. Ultimately, companies have many competitive advantages and disadvantages- factors like a good location, plenty of financing, a smart team already in place- so asserting that one move like this inevitably leads to a race to the bottom is just nonsense. There is value to openness and there are many companies and employees that realize that.

  2. @Ajay : Do you ‘sign’ the arbitration agreements that come with all the credit card statements?

    Try not doing it … no credit card.

    Also, if most employers are requiring non-competes then the ones that don’t are actually at a competitive disadvantage. Their employees can leave and compete against the employer but the competitor’s employees are locked in. Think about it.

  3. Dave, if the techies knowingly sign non-competes, what’s the problem? If they’re so brilliant and don’t want to do non-competes, they can wait for another offer or start their own company and not use non-competes themselves. Ahh, but what if they then use non-competes themselves? Well, they can’t really complain then, can they? As for sitting on the sidelines, it actually might do some good to have these smart people diversify and forced to do something else, as there’s far too much specialization nowadays. I really don’t like how you would run to the government to enforce a no non-compete law on everyone, it’s the worst kind of nannyism. It would be one thing if the government forced startup employees to sign non-competes but if you’re free to use them or not, let people do what they want.

  4. @Mark-

    actually Section 16600 as told to me by legal experts in the state of CA only allows noncompetes when it comes to an acquisition or merger. at that point the courts feel and i agree that there is an event exchange of value.


  5. “[E]mployee non-compete clauses are not enforceable in California”

    This is an exaggeration. Section 16600 does not prevent contractual limitation on the type of business someone does, as long as the business area is narrowly defined, reasonably limited by time or geography, and the contractual provision was clear and explicitly agreed to by the employee.

    You can’t prevent someone from working at all in his or her profession, but you can mutually agree that the employee will not directly compete in your specific market niche for a bit of time after leaving your company.

  6. Looking at another dimension: non-competes wouldn’t be so bad if they weren’t so damn vague. Today, non-competes could prevent you from going into vaguely-related work simply because your last employer has some interest in expanding into that domain. If contracts were more specific, especially down to naming specific competitors that you can’t work for, it’d make a lot more sense. (Remember that Asian dude who went Microsoft-to-Google? That was not cool)

  7. Ajay suggests that it’s due to lack of research that causes technies to end up signing non-competes. From my limited experience in MA, that’s not how it works; one knows before accepting an offer that a non-compete will be required.

    The difficulty is finding a job (at least, a job in a startup) that doesn’t come with an obligatory non-compete.

    I suppose if we ALL developed some guts and refused the job because of the non-compete, the tide might turn. But as far as I can tell from a very limited sample, the non-compete is unavoidable.

    Hence I’m on the side of declaring these ridiculous documents to be unenforceable.

  8. WhineNBrie

    I disagree with the notion that non competes create ownership of an employee past when she has been paid. Employees use non competes as a bargaining chip for higher salary/start/stay bonuses and therefore consideration has been given by the company to the employee ahead of an employees ending date. No one is getting their rights trampled on.

    Venture investing is such a self serving boondoggle that VC’s are not likely to find any sympathy on this matter. Why not pay your fair share of income taxes before complaining about an unfair world?

  9. While I agree that these non-compete agreements have negative effects, I disagree on the solution. While never stated explicitly, the implication of the article is that more states should stop enforcing these contracts. I don’t see why the government should get involved at all, one way or another. If you simply publicize this practice, that should be good enough. Have your organization spend a little bit of money and create a simple website which lists every company that regularly utilizes these agreements. This would be much simpler and easier than running to the state governments to change their laws, a process that takes years, not to mention the fact that non-compete agreements shouldn’t be a subject of law/regulation anyway. If your “brilliant” techies cannot even google their future employer for information like this before signing a contract, they get what they deserve.