IP and innovation

Doug Henwood dhenwood at panix.com
Sat May 29 09:23:55 PDT 1999


[Interesting given the drift towards tighter control of intellectual property, thanks to the increasing privatization of research and U.S. government pressure internationally. And given the underlying philosophical justification of both, the supposedly fruitful link between private rewards and innovation.]

"The Legal Infrastructure of High Technology Industrial

Districts: Silicon Valley, Route 128, and Covenants Not to

Compete"

BY: RONALD J. GILSON

Columbia Law School

Stanford Law School

Document: Available from the SSRN Electronic Paper Collection:

http://papers.ssrn.com/paper.taf?abstract_id=124508

Date: July 1998

Contact: RONALD J. GILSON

Email: Mailto:ronald.gilson at law.columbia.edu

Postal: Columbia Law School

435 West 116th Street

New York, NY 10027 USA

Phone: (212)854-1655

Fax: (212)854-7946

ABSTRACT:

Recent scholarship has argued that the comparative success of

the Silicon Valley high technology industrial district and

failure of Route 128 outside of Boston, resulted from different

patterns of inter-firm employee mobility which, in turn, led to

differing patterns of industrial organization: network

organization as opposed to traditional vertical integration. The

cause of the different patterns of employee mobility is said to

be cultural differences between California and Massachusetts.

This paper offers a different causal analysis. After reviewing

the new economic geography's emphasis on inter-firm knowledge

transfers as an agglomeration economy, I focus on the critical

role of employee mobility -- the vehicle for inter-firm

knowledge transfers -- in facilitating second-stage

agglomeration economies: those that allow the district to

transcend its original product cycle and reinvent itself. In

this account, the legal rules governing employee mobility are a

causal antecedent of the construction of each district's

culture. In fact, California law prohibits the most effective

means of protecting trade secrets embodied in tacit knowledge --

a contractual post-employment covenant not to compete.

Massachusetts law, in contrast, allows their enforcement.

Consistent with the new economic geography's emphasis on path

dependence, the paper shows that California's unusual legal

regime dates back to the early 1870's, a serendipitous result of

the historical coincidence between the codification movement in

the United States and the problems confronting a new state in

developing a coherent legal system. The paper concludes with a

cautionary note concerning the implications of the analysis for

three related subjects: the standard law and economic

prescription to fully protect property rights in intellectual

property; a disturbing recent line of cases concerning claims of

"inevitable disclosure" that threatens to turn trade secret law

into the judicial equivalent of a covenant not to compete; and

the right strategy for policy analysts assessing reform of a

region's legal system to encourage high technology industrial

districts.

JEL Classification: D2, K2, L5, R1



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