14 - The Spinoff Advantage

Summary

The term entrepreneur comes from the French word entreprendre, which signifies “one who undertakes innovations.” That underlying innovative nature typifies entrepreneurship’s vital role in our economy, contributing to both economic growth and industry progress. Many states affirmatively support entrepreneurship through tax credits, subsidies, and awards, as well as by sponsoring incubators and accelerators. And yet, despite this public policy favoring entrepreneurship, human capital law – which lies at the intersection of intellectual property, employment regulation, and contract law – has developed in ways that often curtail that very same entrepreneurial activity. Post-employment restrictions, both contractual and regulatory, particularly limit the ability of the most experienced professionals to find, or even join, new ventures. This chapter explores the discordant, contradictory nature of state policies favoring both entrepreneurial venture and human capital law, and argues against the counter-productive expansion of restrictions on talent mobility. It first discusses the general disadvantage startups face in litigation brought by incumbents as well as the rise in intellectual property disputes and their effects on entrepreneurship. The chapter then presents the particular cost of human capital legal disputes on entrepreneurial spinoffs, that is, companies founded by former employees of competitors.