Category: Innovation

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What Sort of Innovation?

Professor Lobel’s book raises many questions. That is a good thing. I like books that connect to ideas that have been pinging about my brain and that spur new ones. Talent Wants to be Free does those things. For now, I will look at something that always lurks in this space for me: What type of innovation are we talking about?

I wonder about most discussions about innovation and disruption that focus on the private sector. Something, which for want of better or less exhausted words, we call innovation or disruption occurs at the firm level. But slowing down, we should parse these ideas. Marianna Mazzucuto has done some great work on the way the state is needed and has contributed to the innovations we all celebrate. Again, there are distinctions, as it may be that the work occurs at the state level (basic research), or that the state funded the core research. The counter-punch is that states may make big bets that pay off and they often make big bets that fail. That they fail seems a silly critic (though the linked Economist article makes it). I wonder whether any large institution struggles with two things. On the one hand, placing big bets at all takes bravery and/or vision. And on the other, what parts of the state or private sector carry forward that work is a big issue.

In other words, how much do market incentives skew focus for any of these outfits? Did Bell Labs or Parc do work that Mazzucuto would say was analogous to the state work? I think so. Today is Google doing some of that work? Microsoft Research? Sure. But in what way? The need for short-term payoffs is a problem for the core work that may then be transferred under Lobel’s ideals. Companies talk of moon shots and at the same time want them to occur within a year. Big leaps on the moon take years, perhaps more than a decade, of work to get to the wow moment.

Now it may be that an overall sector leads to great outcomes and breakthroughs, and thus the talent movement within a sector is needed as part of that process. Still I wonder at whether many of the areas the book considers and the issues about talent mobility relate more to applied innovations rather than bedrock work fueling a shift at a national or global economic scale. Remember Schumpeter drew on work that looked at long cycles and breakthroughs in fields that spawned many companies and sub-industries. So although I think it is wise to let talent be free, I wonder about whether that leads to better small steps (e.g., tweaks to phones, social networking, etc.) more than the sort of innovations that spur massive shifts in industry.

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Individuals & Teams, Carrots & Sticks

I promised Victor Fleisher to return to his reflections on team production. Vic raised the issue of team production and the challenge of monitoring individual performance. In Talent Wants to Be Free I discuss some of these challenges in the connection to my argument that much of what firms try to achieve through restrictive covenants could be achieved through positive incentives:

“Stock options, bonuses, and profit-sharing programs induce loyalty and identification with the company without the negative effects of over-surveillance or over-restriction. Performance-based rewards increase employees’ stake in the company and increase their commitment to the success of the firm. These rewards (and the employee’s personal investment in the firm that is generated by them) can also motivate workers to monitor their co-workers. We now have evidence that companies that use such bonus structures and pay employees stock options outperform comparable companies .”

 But I also warn:

 “[W]hile stock options and bonuses reward hard work, these pay structures also present challenges. Measuring employee performance in innovative settings is a difficult task. One of the risks is that compensation schemes may inadvertently emphasize observable over unobservable outputs. Another risk is that when collaborative efforts are crucial, differential pay based on individual contribution will be counterproductive and impede teamwork, as workers will want to shine individually. Individual compensation incentives might lead employees to hoard information, divert their efforts from the team, and reduce team output. In other words, performance-based pay in some settings risks creating perverse incentives, driving individuals to spend too much time on solo inventions and not enough time collaborating. Even more worrisome is the fear that employees competing for bonus awards will have incentives to actively sabotage one another’s efforts.

A related potential pitfall of providing bonuses for performance and innovative activities is the creation of jealousy and a perception of unfairness among employees. Employees, as all of us do in most aspects of our lives, tend to overestimate their own abilities and efforts. When a select few employees are rewarded unevenly in a large workplace setting, employers risk demoralizing others. Such unintended consequences will vary in corporate and industry cultures across time and place, but they may explain why many companies decide to operate under wage compression structures with relatively narrow variance between their employees’ paychecks. For all of these concerns, the highly innovative software company Atlassian recently replaced individual performance bonuses with higher salaries, an organizational bonus, and stock options, believing that too much of a focus on immediate individual rewards depleted team effort.

Still, despite these risks, for many businesses the carrots of performance-based pay and profit sharing schemes have effectively replaced the sticks of controls. But there is a catch! Cleverly, sticks can be disguised as carrots. The infamous “golden handcuffs”- stock options and deferred compensation with punitive early exit trigger – can operate as de facto restrictive contracts….”

 All this is in line with what Vic is saying about the advantages of organizational forms that encourage longer term attachment. But the fundamental point is that stickiness (or what Vic refers to as soft control) is already quite strong through the firm form itself, along with status quo biases, risk aversion, and search lags. The stickiness has benefits but it also has heavy costs when it is compounded and infused with legal threats.

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The Age of Mass Mobility: Freedom and Insecurity

In Talent Wants to Be Free, Orly Lobel’s masterfully demonstrates the importance to business, employees, and society at large of workers who are free to move and free to innovate. The symposium this week has seen well-deserved praise heaped on the book from many of the nation’s leading scholars in the area. Lobel, a legal academic, explains the law in a way that non-lawyers (and even lawyers seeking a summary of the law of covenants not to compete, confidentiality agreements, and trade secret) will greatly appreciate.

The shift she describes is part of the larger move from status to contract that has marked modernity—a world in which individuals make and remake themselves. I have myself embraced this model in my own way in my book The Electronic Silk Road. I accordingly find myself entirely sympathetic to Lobel’s prescription. In that book, I describe and embrace the ways that production processes are now splintered across the globe, with global supply chains now including services, not just manufactured parts, supplied in disparate locations. There is liberation implicit in this—on the Internet, no one knows what class or caste into which you were born (though cultural markers are never entirely absent, even in cyberspace). Equally important, it allows individuals in developing countries to participate in lucrative markets in developed countries that would deny those individuals visas.

When I moved to Northern California a decade and a half ago, I carried my Midwestern and East Coast sensibilities with me. When a former student told me he was leaving his job after just one year at one of the leading technology law firms, Wilson, Sonsini, I was not entirely sure this was wise. He joined an important Silicon Valley operating company, and worked there for two or three years. He surprised me by then informing me that he was returning to Wilson, Sonsini. I would have thought that his leaving his law firm after such a short time might have made him persona non grata there, but he returned there certainly a lot more knowledgeable about the needs of the firm’s clients. Wilson, Sonsini clearly understood the virtues of freedom of employees—seeing it not as a sign of instability or disloyalty, but a marker of curiosity, dynamism, and ambition. Lobel would certainly approve, both of the employee and of the employer.

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The Hard Questions about Talent, Market Regulation, and the World of Work

Each in his own sharp and perceptive way, Brett Frischmann, Frank Pasquale and Matthew Bodie present what are probably the hardest questions that the field of human capital law must contemplate. Brett asks about a fuller alternative vision for line drawing between freedom and control. He further asks how we should strike the balance between regulatory responses and private efforts in encouraging more openness. Finally, he raises the inevitable question about the tradeoffs between nuanced, contextual standards (what, as Brett points out, I discuss as the Goldilocks problem) versus rigid absolute rules (a challenge that runs throughout IP debates and more broadly throughout law). Frank and Matt push me on the hardest problems for any politically charged debate: the distributive, including inadvertent and co-optive, effects of my vision. I am incredibly grateful to receive these hard questions even though I am sure I am yet to uncover fully satisfying responses. Brett writes that he wanted more when the book ended and yes, there will be more. For one, Brett wanted to hear more about the commons and talent pools. I have been invited to present a new paper, The New Cognitive Property in the Spring at a conference called Innovation Beyond IP at Yale and my plan is to write more about the many forms of knowledge that need to be nurtured, nourished, and set free in our markets.

Matt describes his forthcoming paper where he demonstrates that “employment” is reliant on our theory and idea of the firm: we have firms to facilitate joint production but we need to complicate our vision of what that joint production, including from a governance perspective, looks like. “Employers are people too” Matt reminds us, as he asks, “Do some of the restrictions we are talking about look less onerous if we think of employers as groups of people?” And my answer is yes, of course there is a lot of room for policy and contractual arrangements that prevent opportunism and protect investment: my arguments have never been of the anarchic flavor “let’s do away with all IP, duties of loyalty, and contractual restrictions”. Rather, as section 2 (chapters 3-8) of Talent Wants to Be Free is entitled we need to Choose Our Battles. The argument is nicely aligned with the way Peter Lee frames it: we have lots of forms of control, we have many tools, including positive tool, to create the right incentives, let us now understand how we’ve gotten out of balance, how we’ve developed an over-control mentality that uses legitimate concerns over initial investment and risks of opportunism and hold-up to allow almost any form of information and exchange to be restricted. So yes: we need certain forms of IP – we have patents, we have copyright, we have trademark. Each one of these bodies of law too needs to be examined in its scope and there is certainly some excess out there but in general: we know where we stand. But what about human capital beyond IP? And what about ownership over IP between employees and employers?

So yes, we need joint inventorship doctrines for sure when two inventors work together. But what about firm-employee doctrines? Do we need work-for-hire and hired-to-invent doctrines? Here we arrive to core questions about the differences between employment versus joint ventures or partnerships between people. And even here, the argument is that we continue to need during employment certain firm protections over ownership. But the reality is that so many highly inventive and developed countries, diverse as Finland, Sweden, Korea, Japan, Germany, and China, all have drawn more careful lines about what can fall under “service inventions” or inventions produced within a corporation. These countries have some requirement for fair compensation of the employee, some stake in inventions, rather than a carte blanche to everything produced within the contours of the firm. The key is a continuous notion of sharing, fairness and boundaries that we’ve lost sight of. Intense line-drawing as Brett would have it that is based on context and evidence, not on an outdated version of the meaning of free markets.

What about non-competes and trade secrets? Again, my argument is that these protections alternate, they should be discussed in relation to one another, and we need to understand their logic, goals, and the cost/benefit of each given that they exist in a spectrum. Non-competes is the harshest restriction: an absolute prohibition post-employment to continue in one’s professional path outside the corporation. This is unnecessary. The empirics are there to support their absolute ban rather than the fine dance that of balancing that is needed with some of the other protections. Sure it makes life momentarily easier for those who want to use non-competes, but over time, not only can we all live without that harsh tool, we will actually benefit from ceding that chemical weapon in the battle over brains and instead employ more conventional arms. And yet, even in California, this insight doesn’t and shouldn’t extend to partnerships. The California policy against non-competes is limited to the employment context. If two people, as in Matt’s hypo, are together forming a business, their joint property rights in that business suggest to us that allowing some form of a covenant not to compete will be justified. There will still be a cost to positive externalities but the difference between the two forms of relationships allow for absolute ban in one and a standard of reasonableness for the other. And yes, as Brett alludes to, the world is not black and white and we will have to tread carefully in our distinctions between employees and partners.

I completely agree with Matt and Frank that there are fundamental injustices created by our entire regime of work law. Talent Wants to Be Free takes those deep structures into account in developing the more immediate and positive vision for better innovation regimes and richer talent pools. Matt writes that a more radical alternative lies within Talent but “deserves more exegesis: namely, whether we should eliminate the concept of employment entirely.” What if people will always be independent contractors?, he asks. The reforms promoted in Talent Wants to Be Free, allowing more employees more control over their human capital, indeed bring these two categories – employees and independent contractors – closer together in some respects. But far more would be needed to shift our work relations to be more “democratic and egalitarian: a post-industrial Jeffersonian economy.” As both Frank and Matt show, in their own scholarship and in their provocative comments here, this will require us to rethink so much of the world we live in.

Frank Pasquale’s review is so rich that I hope he extends and publishes it as a full article. Frank says that “for every normative term that animates [Orly’s] analysis (labor mobility, freedom of contract, innovation, creative or constructive destruction) there is a shadow term (precarity, exploitation, disruption, waste) that goes unexplored.” I would agree that the background rules that define our labor market, at will employment, inequality, class and power relations, are not themselves the target of the book. They do however deeply inform my analysis. To me, the symmetry I draw between job insecurity and the need for job opportunity is not what Frank describes as a “comforting symmetry”. It is a call for the partial correction of an outrageous asymmetry. And yes, as I mentioned at the very beginning of the symposium, I hoped in writing the book to shift some of the debates about human capital from the stagnating repetition of arguments framed as business-labor which I view not only as paralyzing and strategically unwise but also as simply incorrect and distorting. There is so much more room for win-win than both businesses and labor seem to believe. On that level, I think Frank and I actually disagree about what we would define as abuse. I do in fact believe that many of us can passionately decide to give monetary gains in return for a job that provides intangible benefits of doing something we love to do. Is that always buying into the corporate fantasy? Is that always exploitation? Don’t all of us do that when we become scholars? Still, of course I agree with many of the concrete examples that Frank raises as exploitation and precarious work – he points to domestic workers, which is a subject I have written about in a few articles (which I just realized I should probably put on ssrn - Family Geographies: Global Care Chains, Transnational Parenthood, and New Legal Challenges in an Era of Labor Globalization, 5 CURRENT LEGAL ISSUES 383 (2002) and  Class and Care, 24 HARVARD WOMENS LAW JOURNAL 89 (2001)]. Frank describes a range of discontent in such celebrated workplaces as Silicon Valley giants, which I too am concerned with and have thought about how new hyped up forms of employment can become highly coercive. Freeing up more of our human capital is huge, but yes, I agree, it doesn’t solve all the problems of our world and by no means should my arguments about the California advantage in the region’s approach to human capital and knowledge flow be read as picturing everything and anything Californian as part of a romantic ideal.

 

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Talent Flow and the Theory of the Firm

Both Vic Fleisher and Shubha Ghosh in their thoughtful commentary about Talent Wants to Be Free invoke the theory of the firm to raise question about the extent of desirable freedom in talent and knowledge flows. In its basic iteration, the theory of the firm suggests that arms-length contracting will not be optimal when one party has the ability to renegotiate and hold the other party up, which is the conventional rational for the desirability of talent controls. This is what I describe in the book as the Orthodox Model of employment intellectual property: firms fear making relational investment in employees and then having the employees renegotiate the contract under a threat of exit. Firms respond through mobility restrictions aimed at eliminating the transaction costs of this kind of opportunism. In the book, I accept, at least for some situations, this aspect of the benefits and confidence that are created for firms in internalizing production and ensuring ongoing loyalty by all players. The orthodox model thus explains post-employment controls as necessary to encourage optimal investment within the corporation. More company controls = more internal R&D and human capital investment. The new model developed in the book doesn’t deny these benefits but argues that the orthodox model is incomplete. The Dynamic-Dyadic Model asks about the costs and benefits when controls are employed.  It suggests that yes, often, protecting human capital and trade secret investments is often in the immediate interest of a company, but that too much control becomes a double-edged sword. This is because of both the demotivating effects on employee performance when lateral markets are reduced and because over-time, although information leakage and job-hopping by talented workers may provide competitors with undue know-how, expertise, and technologies, constraining mobility reduces knowledge spillovers and information sharing that outweigh the occasional losses. The enriched model is supported by a growing body of empirical evidence that finds that regions with less controls and more talent freedom, such as California, have in fact more R&D investment, quicker economic growth and greater innovation.

Vic is of course right that one solution to this problem is to recreate high-powered (market-like) incentives for performance within the firm. This is an aspect that I am greatly interested in and I analyze it in Talent Wants to Be Free as the question of whether controls and restrictions can effectively alternate with the carrots of performance-based compensation, vesting interests, loyalty inducing work environments, employee stock options and so forth. I too like Shubha am a fan of Hirschman’s Exit, Voice, and Loyalty and have found it useful in analyzing employment relations. I view the behavioral research as shedding light on these questions of what these intra-firm incentives need to look like in order to preserve the incentive to innovate. In a later post I will elaborate on the monitoring and motivational tradeoffs that exist in individual and group performance.

More generally, though, the research suggests that at least in certain industries, most paradigmatically fast-paced, high-tech fields, innovation is most likely when the contracting environments have thick networks of innovators that are mobile (i.e. Silicon valley) and firms themselves are horizontally networked. The flow of talent and ideas is important to innovation and rigid boundaries of the firm can stifle that interaction even with the right intra-firm incentives. The benefits in terms of innovation rise in these structures of denser inter-firm connections, but also, the costs of opportunism that drive the conventional wisdom are in fact lower than the traditional theory of the firm would predict. This is because talent mobility is a repeated game and at any given moment, a firm can be on either side of the raiding and poaching.   Policies against talent controls have the effect of reducing the costs of opportunistic renegotiation by ensuring the firm can hire replacement innovators when it loses its people. To push back on Vic’s phrasing, talent wants to be appreciated and free. MIT economist Daron Acemoglu’s analysis of investments and re-investments in workers as a key ingredient of production and growth is helpful in understanding some of this dynamic. People invest in their own human capital without knowing the exact work they will eventually do, just as companies must make investment decisions in technology and capital funds without always knowing who they will end up hiring. Acemoglu describes the positive upward trajectory under these conditions of uncertainty: When workers invest more in their human capital, businesses will invest more because of the prospects of acquiring good talent. In turn, workers will invest more in their human capital as they may end up in one or more of these companies.  The likelihood of finding good employers creates incentives for overall investments in human capital.

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Human Capital Law and Innovation Policy

This is a thrilling week for Talent Wants to Be Free. I am incredibly honored and grateful to all the participants of the symposium and especially to Deven Desai for putting it all together. It’s only Monday morning, the first official day of the symposium, and there are already a half a dozen fantastic posts up, all of which offer so much food for thought and so much to respond to. Wow! Before posting responses to the various themes and comments raised in the reviews, I wanted to write a more general introductory post to describe the path, motivation, and goals of writing the book.

Talent Wants to Be Free: Why We Should Learn to Love Leaks, Raids and Free Riding comes at a moment in time in which important developments in markets and research have coincided, pushing us to rethink innovation policy and our approaches to human capital. First, the talent wars are fiercer than ever and the mindset of talent control is rising. The stats about the rise of restrictions over human capital across industries and professions are dramatic.  Talent poaching is global, acquisition marathons increasingly focus on the people and their skills and potential for innovation as much as they look at the existing intellectual property of the company. And corporate espionage is the subject of heated international debates. Second, as a result of critical mass of new empirical studies coming out of business schools, law, psychology, economics, geography, we know so much more today compared to just a few years ago about what supports and what hinders innovation. The theories and insights I develop in the book attempt to bring together my behavioral research and economic analysis of employment law, including my experimental studies about the effects of non-competes on motivation, my theoretical and collaborative experimental studies about employee loyalty and institutional incentives, and my scholarship about the changing world of work, along with theories about endogenous growth and agglomeration economies by leading economists, such as Paul Romer and Michael Porter, and new empieircal field studies by management scholars such as Mark Garmaise, Olav Sorenson, Sampsa Samila, Matt Marx, and Lee Fleming. Third, as several of the posts point out, these are exciting times because legislatures and courts are actually interested in thinking seriously about innovation policy and have become more receptive to new evidence about the potential for better reforms.

As someone who teaches and writes in the fields of employment law, I wrote the book in the hopes that we can move beyond what I viewed as a stale conversation that framed these issues of non-competes, worker mobility, trade secrets and ownership over ideas  as labor versus business; protectionism versus free markets (as is often the case with other key areas of my research such as whistleblowing and discrimination). A primary goal was to shift the debate to include questions about how human capital law affects competitiveness and growth more generally. Writing about work policy, my first and foremost goal is to understand the nature of work in its many evolving iterations. Often in these debates we get sidetracked. While we have an active ongoing debate about the right scope of intellectual property, under the radar human capital controls have been expanding, largely without serious public conversation. My hope has been to encourage broad and sophisticated exchanges between legal scholars, policymakers, business leaders, investors, and innovators.

And still, there is so much more to do! The participants of the symposium are pushing me forward with next steps. The exchanges this week will certainly help crystalize a lot of the questions that were beyond the scope of the single book and several new projects are already underway. I will mention in closing a couple of other colleagues who have written about the book elsewhere and hope they too will join in the conversation. These include a thoughtful review by Raizel Liebler on The Learned FanGirl, a Q&A with CO’s Dan Solove, and other advance reviews here. Once again, let me say how grateful and appreciative I am to all the participants. Nothing is more rewarding.

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Human Capital, Tacit Knowledge, and the Limits of Intellectual Property

Orly’s ambitious and thought-provoking book covers a significant amount of intellectual ground. She deftly navigates covenants not to compete, nondisclosure agreements, trade secrets, and intellectual property assignments to provide a compelling argument for the free flow of talent in the modern economy. Orly’s work raises a host of questions that space constraints no doubt prevented her from more fully exploring, and I would encourage her to extend her analyses in subsequent work.

One aspect of Orly’s work that I found particularly intriguing is that it reveals a central irony about information. The title of her book is a play on Stewart Brand’s famous phrase “information wants to be free.” While this statement has a contemporary ring, the observation that information is “slippery” and readily appropriable has a long pedigree and has had significant legal and policy ramifications. As Orly notes, Thomas Jefferson invoked the freely appropriable nature of technical information to help justify exclusive rights on inventions. More formally, economists have long characterized technical knowledge as a public good that is nonrival, nonexcludable, and capable of nearly costless transmission. The “slipperiness” of technical information is now largely taken for granted and provides significant theoretical justification for exclusive rights on knowledge assets. Indeed, IP scholars such as Polk Wagner have argued that information’s natural tendency to slip through cracks and build upon itself should alleviate concerns that strict exclusive rights can bottle up knowledge. Information, after all, wants to be free.

Orly’s account of the talent wars, however, reveals that much information does not naturally want to be free. As Orly recognizes, much technical information is tacit and personal to a particular creator or inventor. Such tacit knowledge takes the form of intangible know-how that is difficult and sometimes impossible to codify. Importantly, even when an invention is disclosed in a patent, much valuable technical knowledge related to that invention often remains tacit and is not formally shared. The inadequacy of patent disclosure and the difficulty of transmitting tacit knowledge create a need for companies licensing patents to somehow obtain this information. This is evident, for example, in university patenting and technology transfer, a field that Orly addresses. Empirical accounts of academic technology transfer show that private companies, in parallel to licensing university patents, often seek direct interactions with faculty inventors precisely to obtain their patent-related tacit knowledge.

The tacit, sticky nature of technical information relates to another theme that permeates Orly’s work: agglomeration economies and the importance of place. In theory, patents adequately disclose the inventions they cover, which has the effect of reducing transaction costs in licensing negotiations. Among other implications, such ex ante disclosure should make licensing negotiations less sensitive to geographic proximity; at least with respect to appropriating technical knowledge, a potential licensee should not have a great need to interact directly with an inventor, for the patent itself discloses the technology. However, empirical studies of academic licensing show that licenses tend to cluster around licensor universities. To be sure, a host of factors helps explain such clustering, from universities’ commitment to local economic development to the spatially concentrated nature of professional networks (a theme that Orly also highlights). But the need for faculty inventors to literally sit down with licensee firms to convey patent-related tacit knowledge also contributes to such agglomeration. While some information can be transmitted by reading a patent a thousand miles away, sometimes transferring patent-related technical knowledge requires side-by-side demonstrations of a new technology or that ever-valuable personal conversation over a cup of coffee.

In subtle ways, Orly’s work thus offers a cogent exposition of the limits of patent law and formal technology transfer. In theory, the patent system provides a public repository of technical knowledge from which all can draw in their innovative pursuits. At the very least, licensees themselves should be able to rely on the disclosure of patents to adapt licensed inventions for commercial use. However, much information is not freely appropriable. Even when an invention is disclosed, much information remains tacit and personal to the inventor. Thus, patents are inherently limited as a vehicle for disclosing and transferring technologies, thereby creating a need for much costlier, geographically constrained, tacit knowledge transfer between individuals.

In a broader sense, Orly’s observations highlight an interesting paradox about the “freedom” of information. In the classic economic account, the ease of appropriating technical information represents a problem. This problem is resolved by subjecting technical information to exclusive rights, thus shoring up incentive to invent. However, Orly’s study reveals that much information is subject to a different problem: it is too difficult to appropriate, as it resists formal codification and disclosure. This creates a need for a different type of policy intervention, one that focuses on enhancing the mobility of the underlying sources of information—people—rather than information itself. Paradoxically, the fact that much information is not truly free provides all the more reason that the talent generating that information should be.

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The benefits of being free

I applaud Orly for this excellent contribution.  There is much to praise and much to comment on.  I was particularly attracted to the interdisciplinary perspective of the book and its heavy reliance on and reporting of studies in economics, psychology, and other literatures—including but not limited to Orly’s original research.  The book provides an excellent discussion of various dimensions of innovation studies.  It also provides compelling descriptions of many different real world contexts where the lessons from the academic studies play out on the ground.  The combination is quite amazing.  I also think it is quite important that she focused attention on people, and the human, social and intellectual capital that actually drives innovation across sectors.  Too often, innovation studies lose sight of the actual people involved.  Orly’s book covers so much ground and connects with various topics I’m also interested in.  It is difficult for me to pick a particular topic of theme to comment on in this blog post.  (I’m tempted, for example, to push her to say more about technology transfer offices at universities and how they’ve evolved over time in terms of their approach to control.  I also would like to hear *much* more about the application of commons governance ideas.)  Instead, I’ll say something about the broad ambition of the book.

Orly presents the book as new wisdom – a “dynamic model” — to challenge conventional wisdom – the “orthodox model” – about the necessity of strict control over talented employees, ideas, and various other complementary resources that drive creative and innovative progress and economic growth.  I think the book does a wonderful job of pointing out the many ways in which theoretical and empirical work across many fields of inquiry combine to challenge if not completely undermine the conventional wisdom.  Controls on the flow of ideas and employees often backfire and are costly to the firm and the public.  Orly describes very well the substantial benefits – benefits all too often ignored or assumed away – in sustaining the freedom to operate, to move, to experiment, to tinker, and so on.  She effectively makes the case for a much more nuanced approach to thinking about innovation and the various ways in which freedom (to operate, to move, to think, to experiment, to ride, etc.) impact innovation and social welfare more generally.

That said, I don’t think the book supplies a fully formed alternative vision, theory or model about what degree of control/freedom may be needed to sustain innovation.  The Goldilocks nature of the problem, which Orly describes, surfaces throughout, and it is hard to know where or how to strike the right balances as a matter of public policy (law) and private strategy (corporate practice).  The book at times seems to suggest that it will offer a solution or that the solution might be absolute freedom / no control.  But that is not really what the book ends up saying, as I understand it.  In the end, we remain stuck with the problem of nuance and variety and context- or industry-specific balancing.  Frankly, I don’t think this is a bad result at all; it’s probably where we need to be if we’re basing our judgments in reality.

For some reason, I was surprised when the book ended.  I wanted more.  I expected more.  In a sense, this is a good thing because the book provoked me to think about and look for more.  But I wonder whether the final part of the book could have tied the themes together a bit more tightly and at least proposed a research agenda for developing a more nuanced approach to innovation.  Many of the pieces of the puzzle are in Orly’s book.  But the puzzle remains incomplete.

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Introducing the Talent Wants To Be Free Symposium

Talent Wants to be FreeThis week Concurring Opinions is hosting a symposium on Professor Orly Lobel’s book, Talent Wants to be Free: Why We Should Learn to Love Leaks, Raids, and Free Riding. In simplest terms, Professor Lobel takes on some thorny problems in innovation policy debates including whether to lock down talent and ideas or to embrace the movement of people and knowledge. Though these tensions seem easy to understand, the natural desire to keep what one has means arguments to tie up whatever seems to be giving one an advantage creates larger debates about optimal control and outcomes. Professor Lobel’s work tangles with these core ideas and more.

Professor Lobel is leading thinker on the intersection of employment law, intellectual property law, regulatory and administrative law, torts, behavioral economics, health policy, consumer law and trade secrets as they relate to innovation. She is the Don Weckstein Professor of Labor and Employment Law at University of San Diego School of Law and holds an SJD and LLM fro Harvard as well as an LLB from Tel Aviv University. She is a member of the American Law Institute and the recipient of research grants from the Robert Wood Johnson Foundation, the American Bar Association litigation Fund, the Searle-Kauffman Fellowship, the Southern California Innovation Project, and Netspar, University of Tilburg. We are honored to have her join us for the symposium as our great list of guest authors engage with her book.

Our line-up of authors include Matt Bodie, Anupam Chander, Danielle Citron, Catherine Fisk, Vic Fleischer, Brett Frischmann, Shubha Ghosh, Ron Gilson, Peter Lee, and Frank Pasquale. We look forward to everyone’s contributions.

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Fight the Power?

Orly’s book is terrific. Let’s just get that straight. The book is filled with the kind of creative energy that Orly’s reform proposals seek to release. But the emerging (or worse, entrenched) fud in me had to react to the celebration of freedom that the book exhorts. Throughout the past several centuries of human history, perhaps through all of human history, appeals to freedom have interrupted periods of dominance, control, and centralization.  “Talent Wants to be Free” is another example of the pendulum swinging away from centralized control. Whether that is a rightward or leftward swing, I will leave for others to sort out.  While Orly does not extol “stealing this book,” the arguments against over regulation by government (in the form of strong intellectual property laws) and against overly bureaucraticized mega-corporations have a Hoffmanesque quality. Of course, nothing wrong with that, but the skeptic in me wonders if unalloyed freedom is unquestionably a good thing.

Orly appeals to competition as an engine of innovation, and she points to many examples that limit the liberating force of competition. The proposition that competition fuels innovation is hard for anyone, in my mind, to contest.  Harder still is understanding what competition is.  Spencerian  renditions of Darwin as applied to social dynamics has been a recipe for disaster and elitism, leading to the very concentration that Orly decries. If competition is meant to guide innovation, it cannot be hard core laissez-faire. Is competition then the nicely diagrammed exposition of Econ 101, channeling Alfred Marshall into prices being driven to MC and minimum AC, profits dissipated, surpluses maximized, or perhaps the more elaborate auctioneering process Pareto optimally? Although an elegant formulation, the technical rendition of the dirty world of markets ignores the details of transactions and transacting, the role of legal rules and of technicians like corporate attorneys, accountants, and bankers. Perhaps  Coase has the right take on competition as a form of endless bargaining and negotiation as social costs and benefits are readily transformed, transaction costs willing, into private ones. I have no doubt that competition drives innovation, but the hard question is what kind of competition.  It is easy, however, to translate competition into unfettered freedom. That translation in my mind does not wholly work.

What is lost in translation by rendering competition as “freedom” is recognizing the need for organization to help free individuals reach their potential. Organization writ large here includes the family, the school, the business entity, and, yes, the state. Freedom without organization is anarchy and anarchy leads to either dissipation of energy into entropy (and yes that is a nod to the ideas of Thomas Pynchon, especially Gravity’s Rainbow in which flights of freedom give way Icarus-like to crashing and destruction) or to dominance and concentration by the powerful (another nod).  Neither is conducive to innovation.

Although Orly makes somes reference to Coase, I felt that there was not appreciation of his “A Theory of the Firm,” which  demonstrated that organization within an entity might be preferable to the freedom of exchange that is a hallmark of competition.  But Coase’s notion of the firm was not supplanting competition, Instead, by internalizing exchange, competition of sorts is brought into the organization as individuals vie for position within the hierarchy.  In this way, Coase is not justifying the Soviet state or centralized planning, both of which are ineffective and in opposition to innovation. Instead, consistent with Orly’s vision of freedom, the Coasean firm internalizes competition but also must confront competition that occurs through exit or dissent in order to avoid the exact forms of concentration that Orly correctly finds as antithetical to innovation.

My point here is that freedom is worthless without some form of organization that provides soil for freedom’s fruit. One example of this is the concern over D2P, a new acronym  a colleague recently assaulted on my overly taxed brain.  It stands for “Distribution to Product” and refers to the difficulty of going from labs to markets. Freedom within the university certainly leads to the creation of all sorts of inventions and new works.  The problem is the lack of institutions for facilitating the movement from the creative stage to the commercialization stage.  That movement is not dependent solely on the freedom of inventor, financier, marketer, and corporate attorney.  Instead such movement is impeded by too much freedom and not enough organization. Perhaps I am just raising dull questions about practical details.  But my point is that extolling freedom without organization may be as big a problem as extolling centralized control over freedom,

I will end with an advertisement for myself.  I have been working on a piece on nonprice competition and intellectual property, and I plan to write it after I finish my articles on the Federal Circuit’s contract law jurisprudence and Holmes’ intellectual property jurisprudence at the Mass and US Supreme Courts. The nonprice competition piece draws on Hirshcman’s theory of nonprice competition from his “Exit, Voice, and Loyalty.” Before I expand that piece into 50+ pages, let me try to distill that article-to-be into a few sentences.

Exit and voice serve as ways to promote competition through signals other than price.  Orly’s book provides a vivid and forceful exposition of exit and voice as examples of freedom.  But loyalty is necessary since organizations often act as the incubator for freedom. The problem is that loyalty can quash freedom through acts of provincialism, xenophobia, and blind faith. The difficult balance requires structuring loyalty so as not to supplant exit and voice but to channel those two freedoms into creating dynamic, evolving organizations that promote innovation.  In short, organization without freedom is tyranny, but freedom, without organization, is anarchy, with all its attendant costs.