Article Title

Buying Teams


Andres Sawicki


The Sixth Annual Berle Symposium reflects on Margaret Blair and Lynn Stout’s classic article: A Team Production Theory of Corporate Law. Blair and Stout recast the modern law of public corporations through the lens of the team production theory of the firm. Here, I apply Blair and Stout’s insights—emphasizing the value of team production, independent monitors, and intellectual property rights—to a novel corporate transaction structure: the acqui-hire. In an acqui-hire, a publicly owned technology firm wants to add a start-up’s engineers. Instead of simply hiring them, though, it buys the start-up, discards most of its assets, and retains the start-up’s engineers. These transactions are puzzling because, even though the buyer is ostensibly interested only in hiring the start-up’s engineers, some of the compensation is nonetheless diverted to the start-up’s investors. The only existing analysis of acqui-hires in the legal literature argues that cooperative norms in Silicon Valley are the primary driver of these transactions. While that analysis sheds useful light on important aspects of these deals, it underplays the importance of intellectual property, especially patents. Patents can facilitate the organization of team production in several ways, including by increasing the costs to team members of leaving the team. Large technology firms cannot acquire those patent rights by simply hiring the start-up’s engineers; instead, they must buy the start-up itself. Patent law is therefore a partial driver of the choice to pursue an acqui-hire because it enables the buyer to obtain assets useful in team production. A preliminary investigation using a novel dataset of sixty-three acqui-hires during the years 2011 and 2012 supports this proposition. The investigation reveals that, contrary to the pattern for all of the start-up’s other assets, existing and future patent rights typically follow the engineers to the buyer.