Why Non-Compete Agreements Suck

Cory Doctorow relates a tale from the early days of Silicon Valley to illustrate just how dysfunctional non-competes are.

California bans non-competes, so when the increasingly erratic and increasingly incompetent William Shockley drove engineers out of his company, and they went on to found Fairchild Semiconductor, where they invented the silicon transistor.  (Shockley stuck with Germanium)

Note that non-competes are separate from trade secrets, and it explains why Silicon Valley is not Germanium Valley:

In 1956, the Nobel prize in physics went to William Shockley, John Bardeen and Walter Brattain for their work on silicon transistors. Shockley, a Bell Labs alum, had already gone to work commercializing this invention, moving from New Jersey to Mountain View, California and founding Shockley Semiconductors, the first “silicon” company in Silicon Valley. In an important sense, Shockley invented Silicon Valley.

He was a terrible person.

After the Nobel, Shockley turned brooding and paranoid. He installed wiretaps to spy on his engineers and family members and administered polygraph tests to employees.

He lost interest in semiconductors and threw himself into eugenics and the extermination of “inferior” people. He offered cash bounties to Black women who underwent sterlizing surgeries. He toured the US, debating biologists to prove that the human race needed to be purified through “race science” to preserve and refine the superior genes of the very best white people.

All of this would have posed a significant barrier to inventing the commercial silicon transistor, of course. But even without the racism and paranoia, Shockley was a genuinely terrible manager. He was prone to starting and then halting projects, switching up the corporate priorities based on his whims without regard to the work that his employees had put into work that he was scrapping or de-emphasizing.

Within a year of the company’s founding, eight of its top engineers had had enough. They quit Shockley Semi and founded their own rival, Fairchild Semiconductor. Less than a year after that, Fairchild launched its first silicon transistor, the 2N696, dooming the germanium transistor to the scrapheap of history. Silicon Valley was finally making silicon.

As you might imagine, Shockley wasn’t pleased about this. He was, in fact, furious. He branded the engineers who started Fairchild “The Traitorous Eight.” He railed against them to his dying day.

But that was all he could do, really. You see, none of Shockley’s employees were bound by a noncompete agreement. In fact, no worker in California was bound by such an agreement, because California prohibits noncompetes. They are unenforceable in the whole state.

Noncompete agreements are all about keeping employees in serfdom, not about protecting trade secrets.