by Lee Gesmer | Dec 6, 2007 | Noncompete Agreements
In a post on TechDirt Mike Masnick argues (with references to supporting studies) that the fact that noncompete agreements are enforceable in Massachusetts but not in California has been a major factor in Silicon Valley’s success. A few excerpts from the article:
Ronald Gilson . . . [found that the success of Silicon Valley] 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.
* * *
. . . [T]he Federal Reserve and the National Bureau of Economic Research, . . . produced some data to back up the[se] findings . . . 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 . . . 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.”
Having been involved in counseling companies on noncompete issues for 20-plus years, I have to admit that I am suprised to read this. While noncompetes are pervasive in Massachusetts, many judges are unwilling to enforce them, or will enforce them only in part (i.e., “you can’t work in this particular area for a period of time”). The sense of lawyers in Massachusetts is that absent theft or trade secret misappropriate of some sort, enforcing a noncompete is an uphill fight, so better to negotiate than attack head-on. Most noncompete disputes are negotiated to a private resolution.
That being said, the pervasive use of noncompetes in Massachusetts is part of the dark matter of the legal landscape in the state. You know it’s there, exerting some gravitational force, but you can’t see it or measure it. You never really know how many employees didn’t move to another job, didn’t start their own companies, and didn’t take the risk of challenging their noncompete agreements in court. So, the studies cited in the TechDirt post may be correct; like most legal/economic analyses involving complex economies with multiple variables it’s almost impossible to prove a hypothesis with certainty. And, there are so many other tangible and intangible factors that have contributed to the relative successes of Route 128 vs. Silicon Valley that to assign too high a degree of causation to the law on noncompete agreements is probably over oversimplistic.
by Lee Gesmer | Dec 6, 2007 | What Were They Thinking
It appears that infamous Chicago patent attorney Ray Niro has offered $5,000 for anyone who will identify the author of the Patent Troll Tracker, which Niro apparently believes has made uncharitable comments about him. The anonymous author of the Patent Troll Tracker blog takes this in good humor, describing the offer as a “bounty” and stating:
I have never had a bounty on my head before (see also blog post here). And I can’t imagine why Ray Niro would pay $5,000 to find out who I am. I emailed him to find out (from the corner internet cafe, heh). He didn’t respond. Ray: if you up it to $50,000, can I collect the reward? . . .
Yes, Ray Niro has decided to offer $5,000 to find out who I am. According to the article, he wants to know “who is saying all those nasty things” about him. . . .
PS To my very few friends, family, and colleagues in the know, if you’re reading this, please don’t call Niro and collect the bounty. That would be tacky. OK, thanks.
Wow, who knew patent law could be so interesting? More on this controversy (huh?) here.
by Lee Gesmer | Nov 29, 2007 | Copyright, Courts
One of the many oddities of the legal profession is that judges have to take truly bizarre allegations seriously, and use detailed legal logic to dismiss them. This is like watching Aristotle being forced to debate John Cleese during a Monty Python revival festival. You see this most often in pro se lawsuits brought by prison inmates who are challenging their convictions or treatment during incarceration. You see it a lot less often in the rarified world of intellectual property litigation. However, a case decided earlier this year is a good example of this in just that context.
Harding Earley (the Harding firm) is a law firm ouside Philadelphia. It defended a client in a case alleging trade secret misapropriation and trademark infringment, brought by Healthcare Advocates, Inc. However, by doing so the Harding firm itself attracted the wrath of Healthcare Advocates, and was sued by Healthcare for copyright infringment and various related claims. This suit garnered some attention at the time it was filed, and I wrote about it here, in a blog entry titled The Wayback Machine and the DMCA. Rather than repeat the basic facts here, I refer you to the original article.
The case has now been decided by the Federal District Court for the Eastern District of Pennsylvania (Healthcare Advocates, Inc. v. Harding, Earley, Follmer & Frailey). The issues presented, and their resolution by the court, were as follows:
First, did the Harding firm infringe the copyrights of Healthcare, by printing screen shots of Healthcare’s website during its investigation of the case? Not surprisingly, the Court held that the law firm fell within the copyright “fair use” exception by printing these documents and using them to defend its client. the Court: “It would be an absurd result if an attorney defending a client against charges of trademark and copyright infringment was not allowed to view and copy publicly available material, especially material that was alleged to have infringed.”
Second, did the Harding firm destroy relevant evidence by not preserving the temporary cache files that presumably were created on its computers when it viewed the web pages? Noting that the temporary files were probably deleted within days of the viewing, and that the Harding firm was not put on notice of a claim until months after the viewing, the Court held that the Harding firm could not be guilty of destroying relevant evidence. To put this in perspective, Healthcare’s argument was that as soon as the law firm viewed these files it should have anticipated legal claims against it, and shut down the computers used to preserve the temporary files. Judge for yourself the merits of this argument.
Third, did the Harding firm violate the Digital Millenium Copyright Act by reviewing old versions of Healthcare’s website on the Wayback Machine? As I explained in the original article, the Wayback Machine (described in detail by Wikipedia here) began archiving web pages in 1996. Since web sites frequently change, the Wayback Machine takes billions of “snapshots” of website pages and preserves them. Needless to say, this is a great resources for lawyers.
However, if you own a web site and you don’t want to be archived by the Wayback Machine, you can opt out. The Wayback Machine permits website administrators to use the voluntary SRE (Standard for Robot Exclusion) to identify files or directories that cannot be “crawled” and indexed. Exclusion is accomplished by inserting a file called robots.txt on a web server. According to Internet.org this not only prospectively excludes a site from being crawled, but will “exclude any historical pages from the Wayback Machine.”
It turns out that this method is not foolproof. On the fateful day that the Harding firm accessed Healthcare’s old web pages on the Wayback Machine, the Wayback servers malfunctioned, and certain pages that carried the robots.txt file were not blocked from access. This, however, was invisible to the Harding firm – they had no hint that they were accessing the pages against the wishes of Healthcare, and due only to a technical malfunction.
These facts didn’t deter Healthcare, however, which accused the lawfirm of violating the Digital Millenium Copyright Act (DMCA). Section 1201(a) of the DMCA states: “No person shall circumvent a technological measure that effectively controls access to a [copyright] work protected under this title.” Healthcare claimed that robots.txt is a technological measure that controls access to the archived copies of its web site, and that the Harding Earley law firm circumvented that measure.
If this argument doesn’t make much sense to you (how could Harding have circumvented a technological measure if it simply accessed the Wayback Machine site, and had no idea that the Wayback Machine site was malfunctioning?), it also didn’t make much sense to the judge, who dismissed this claim.
Fourth, and lastly, did the Harding firm violate the Computer Fraud and Abuse Act (CFAA), a federal law that makes it illegal to access a computer without authorization, or in excess of authorization? Healthcare’s position was that the Harding’s firm exceeded authorized access, despite the fact that it was the Wayback Machine’s servers that malfunctioned and permitted that access. The Court dismissed this claim, noting that the Harding firm did nothing more than view web pages delivered from a public website in the manner the website was designed to deliver the pages.
The extraordinary thing about this decision, to my mind, is the time, effort and expense (the Harding firm spent over $170,000 in fees and expenses) that went into defending against allegations that should (in this writer’s opinion) never have been brought in the first place, or at least dismissed once the facts were clarified for Healthcare. Instead, the case dragged on for two years; the docket sheet has around 80 entries; both sides hired computer experts, and in the end the case was dismissed on summary judgment, in a decision where the judge spent almost 40 pages analyzing each claim made by Healthcare and dismissing it only after rigorous and in-depth analysis which went, in my opinion, far beyond the call of duty.
Oh, I almost forgot to mention – Healthcare has filed an appeal.
by Lee Gesmer | Nov 26, 2007 | Courts
Recently, I wrote an entry describing how ScotusBlog was making available online every brief filed in the Supreme Court (where the Court has accepted cert.). Now, the Massachusetts Supreme Judicial Court is making all briefs filed in its cases availabe on the SJC website. These resources are a windfall to practitioners, who can study the research and arguments made by other attorneys, rather than tackling difficult legal issues cold. These resources (unimaginable in the pre-Internet age) can, if used properly, make practitioners both more efficient and more sophisticated in evaluating effective legal arguments.
by Lee Gesmer | Nov 15, 2007 | Miscellaneous, Patents
Investments by angel groups have become too complicated. As groups get more aggressive in pursuing profits, and seek more protection against downside risk, their deals have become as complex as venture capital deals. This complexity costs time and money, reducing the benefit to both investors and companies. By streamlining the transaction structure, angel groups could simplify negotiations, shorten the time it takes to do a deal, reduce transaction costs, put more money to work building new companies and ultimately improve their own returns.
Click here to continue reading this article, by my partner Bill Contente, which was published in the November 9, 2007 issue of the Boston Business Journal.
And, as long as I’m shamelessly showing off all the brilliant people I’ve been able to surround myself with, here is an article recently published by my partner Andy Updegrove in the October 26, 2007 issue of Mass High Tech:
How often have you heard it said that “patents foster innovation?” That phrase rings true in pharmaceuticals, where investment requirements are enormous and failure common. But does it also apply in areas such as software? Does it really take the promise of a legal monopoly to motivate a typical founder or CTO to innovate? And what about the advantages patents give big companies over emerging ones, simply because the former can credibly threaten expensive patent litigation while the latter cannot?
Click here to continue reading Measuring the Value of Software Patents Versus Innovation.
