• Tecnologia, Média & Telecomunicações

Startups and the hold-up effect

Korean professor Ha-Joon Chang, even before Silicon Valley gained fame, already decreed in his famous book Kicking away the ladder: development strategy in historical perspective[1], that nations and companies, in a situation of growth, engaged in industrial espionage, obstinately violated trademarks and patents, defended the model of open innovations and shamelessly co-opted specialized labor.

However, as soon as they joined the club of the most developed or conquered the leadership of the market, they started to advocate levels of protection and exclusivity of invention patents, utility models and trademarks, to the point, for example, of taking the lead and becoming signatories of the famous TRIPS[2] agreement. They also assumed the practices of closed innovation, that is, keeping their research and development processes confidential, from end to end, as well as prohibiting the circulation of qualified workers (available know how) among competitors, with the creation, and making famous, the contractual clauses of non-competition or non-solicitation among their employees.

Chang, who became famous for the title Kicking away the ladder, presents several cases, such as the British textile industry, the German chemical industry and the Korean automobile industry, where these sectors took advantage of this type of procedure to achieve leadership in their respective markets.

Ronaldo Lemos quotes the French essayist Paul Vacca and, instead of using the expression kicking away the ladder, prefers the expression hold-up[3]. The term, according to Lemos, describes a recent transformation of capitalism, in which innovation (represented by the idea of destructive creation) gives way to a generalised movement of containment and preservation of positions. The hold-up, therefore, is employed when someone puts himself in a position of power and tries to resist transformations. In other words, someone conquers a position and immediately afterwards changes their way of acting to preserve it at any cost.

Let’s take some examples. According to The Huffington Post[4], Google and Intel have entered into a confidential settlement agreement against a class action lawsuit challenging the companies’ conspiracy to prevent their highly skilled engineers and technology workers from being sought out and recruited with million-dollar job offers from both sides. But back then, even before these companies reached a leadership level, it was common practice for there to be a literal dance of chairs between them. A stampede of Apple employees to Google, for example, resulted in a virulent attack by Steve Jobs against former Google CEO Eric Schmidt, as researcher Walter Isaacson also notes in his authorised biography of Jobs[5] .

The words of Professor Chang and de Lemos still fit perfectly with one of the biggest legal disputes involving design, patents and copyright between Apple and Samsung gadgets. The creative process of the famous Macintosh, iPod, iPad and iPhone, for example, were based on or took advantage of existing creations, ignoring even the intellectual property of others. Now, at the top, the American giant, leader in patent applications in its country, repudiates any similar attempt of what they call parasitic exploitation of its competitors, sparing no effort and vigilant against any attempt to overshadow the brilliance of the famous apple.

Airbnb hasn’t done much differently. Brad Stone, in The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World, cites that the famed space-sharing accommodation platform put in place clever, and somewhat devious, plans to kill Craigslist’s advantage . One was to create a mechanism that automatically sent an email to anyone who had posted a property for rent on Craigslist, even if that person specified that they did not want to receive unsolicited messages. The practice, which aimed to capture clientele based on the competitor’s database, became known as black hat, and it is not hard to imagine that the now giant Airbnb, threatened with similar practice from a competitor, will not give up adopting sophisticated mechanisms to protect its gigantic database or be sympathetic to the advent of the European GDPR.

Kicking away the ladder also has a strong relationship with the defence of free competition and Adam Smith’s invisible hand. According to the economic liberalism theorist, individuals usually make better decisions if left to act on their own, without the oppressive hand of government driving their actions. Soon, participants in the economy are motivated by their own interests and the invisible hand of the market steers these interests in such a way that the general welfare is promoted. But not so in India. According to Business Insider[6], Uber has been accused of dumping in the Indian market, reducing fares in order to harm domestic startups in the same segment, such as Ola and Flipkart. These, in turn, are unable to compete with the might of the American giant.

The case gives rise to an ambiguous situation, as Uber takes advantage of its size to practice local predatory competition, in a typical case of violation of the principle of free competition and of the level playing field, i.e. the minimum market conditions that would allow a fair competition between companies. But, on the other hand, Uber would be acting in free competition, offering better conditions to its consumers. In this interpretation, protectionism will fall in favour of Ola and Flipkart, which relied on innovations of circumvention, i.e., in an environment hitherto of pure freedom to now “kick the ladder” and resort to state intervention as a way to regulate the Indian market and try to curb Uber’s momentum.

The fifth startup to kick the ladder, in fact, was the result of a, classic, acquisition process, by a traditional company, the spin-in movement. Microsoft’s purchase of Skype, for a large sum, revealed that a pirate company would surrender to the establishment. The startup was founded by the same creators of Kazaa, an old decentralised music file sharing programme, post Napster. The technological influence served as the basis for Skype, whose original name was Sky peer-to-peer. The movement is typical in technological innovations, that is, when technology emerges it is considered disruptive and, some time later, it legitimises itself and becomes cultural. It was no wonder that the service, once free, became freemium, and almost disappeared in the various Microsoft products.

The selection of these five startups was merely suggestive. A more accurate research would multiply this number. However, the question that will remain unanswered and, who knows, maybe a topic for a future article: which will be the first lawtech to kick the ladder?


[1] CHANG, Ha-Joon. Chutando a Escada: a estratégia do desenvolvimento em perspectiva histórica (Kicking Away the Ladder: Development Strategy in Historical Perspective). São Paulo: Editora UNESP, 2004.

[2] Agreement on Trade-Related Aspects of Intellectual Property Rights.

[3] LEMOS, Ronaldo. Futuros Possíveis: Mídia, Cultura, Sociedade, Direitos. Porto Alegre: Sulina, 2012.

[4] http://www.huffingtonpost.com/huff-wires/20140424/us–tech-jobs-settlement/

[5] ISAACSON, Walter. Steve Jobs: a biografia. São Paulo: Companhia das Letras. 2011.

[6] https://www.businessinsider.in/BI-Investigation-Is-Capital-Dumping-killing-IndianStartups/articleshow/57126105.cms

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