Chapter 15: What the treatment of covenants not to compete teaches about intellectual property and competition norms
Intellectual property’s place in the skein of competition law and policy has been a source of active scholarly and doctrinal debate. Whether intellectual property rights limit or enhance the application of competition law depends upon the nature of the market, the technology, and the business practices that are at stake. The ongoing IBM, Microsoft, and Google cases provide focal points for comparison between the US and the EU as well as between common law and civil law systems. This Chapter provides an even more compelling example for understanding intellectual property and competition law: the treatment of restrictive covenants not to compete, specifically in the employment context. Restrictive covenants arise in both civil law and common law countries. They are generally understood as being useful in allowing employer firms to control and limit the spread of firm-specific knowledge. Furthermore, restrictive covenants allow an employer to train employees without the fear of employees later misappropriating their employer’s business connections and advantages. Even more critically, restrictive covenants illustrate the role of competition in promoting innovation through the entry of new firms and products in the marketplace.
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