Want Your Innovators to Leave? Make Them Sign a Non-Compete

For inventors, Silicon Valley has a whole lot going for it: Lots of like-minded people, an economic ecosystem that's supportive of entrepreneurs, sunshine, and, of course, non-compete agreements.

In California, as well as in states such as Alaska, Connecticut, Minnesota, Montana, Nevada, North Dakota, Oklahoma, Washington and West Virginia, non-competes are essentially unenforceable. Lee Fleming, of Harvard Business School, Matt Marx, now at MIT Sloan School of Management, Jasjit Singh, of INSEAD, and Deborah Strumsky, of the University of North Carolina-Charlotte, wanted to find out if non-compete agreements were influential in inventors' decisions about where to live. Their conclusion: States that insist on enforcing strict non-compete agreements are shooting themselves in the foot. They're encouraging a brain drain that is already leading their most productive, most collaborative innovators to work elsewhere.

Leaving Michigan
The researchers were able to use the state of Michigan as their laboratory. Since 1905, Michigan had been a state in which non-competes were not allowed. That changed in 1985, with the passage of the Michigan Anti-Trust Reform Act. After the passage of the act:

• Inventors with multiple patents were much more likely to leave Michigan. In the years surrounding the passage of the act, the rate of emigration from Michigan among inventors with multiple patents nearly quintupled, to 1.18% from 0.24%. Those inventors were mostly moving to states that did not enforce noncompetes.
• States that do not enforce non-competes kept more of their inventors. The risk of an inventor leaving Michigan during these years was nearly twice as high as the risk that an inventor in another state would leave.
• It's not just California. The researchers thought it was possible that California's size and reputation would skew the results. So they ran another series of analyses leaving out any information relating to California. This didn't affect the results.
• The most productive inventors are were ones most likely to leave. The tendency of inventors to leave Michigan was most pronounced among those who had lots of patents, lots of high-impact patents, and lots of co-authors. The most productive inventors were 187% more likely to leave, while the least productive ones were only 46% more likely to leave.

Those who approve of non-compete agreements say that companies won't invest in research and development if they can't be assured of keeping their best people. That hasn't stopped any of the research-and-development behemoths located in California. And if states can't hang onto their best inventors, how can companies?

Have you ever signed a non-compete? Fought one? What was the outcome?

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