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In recent years, scholars and policymakers have rediscovered the concept of industrial districts–spatial concentrations of firms in the same industry or related industries. In this Article, Professor Gilson examines the relationship between high-technology industrial districts and legal infrastructure by comparing the legal regimes of California’s Silicon Valley and Massachusetts’s Route 128. He contends that legal rules governing employee mobility influence the dynamics of high technology industrial districts by either encouraging rapid employee movement between employers and to startups, as in Silicon Valley, or discouraging such movement, as in Route 128. Because California does not enforce post-employment covenants not to compete, high technology firms in Silicon Valley gain from knowledge spillovers between firms. These knowledge spillovers have allowed Silicon Valley firms to thrive while Route 128 firms have deteriorated. Professor Gilson concludes with three cautionary notes. First, the success of Silicon Valley firms suggests that per capita firm value will be greater where intellectual property protection is somewhat diluted, in contrast to tie traditional law and economics prescription that emphasizes full protection of intellectual property. Second, the doctrine of inevitable disclosure, as developed in recent trade secret cases, threatens to undermine the advantages conferred by California’s legal regime and should be considered with caution. Third, other regions may not be able to emulate California’s success simply by replicating its legal rules. Rather, policymakers in other states should consider the characteristics of local industries, weighing the advantages to those industries of knowledge spillovers against the reduced incentives for initial innovation that result from decreased employer intellectual property rights.

In developing a contractual response to changes in the economic environment, parties choose the method by which their innovation will be adapted to the particulars of their context. These choices are driven centrally by the thickness of the relevant market—the number of actors who see themselves as facing similar circumstances— and the uncertainty related to that market. In turn, the parties’ choice of method will shape how generalist courts can best support the parties’ innovation and the novel regimes they envision. In this Article, we argue that contractual innovation does not come to courts incrementally, but instead reaches courts later in the innovation’s evolution and more fully developed than the standard picture contemplates. Highly stylized, the trajectory of innovation in contract we find is this: Private actors respond to exogenous shocks in their economic environments by changing existing structures or procedures to make them efficient under the new circumstances. The innovating parties stabilize their newly emergent practices through a variety of regimes—both bilateral and multilateral—with the goal of establishing the context through which the innovation is implemented. It is only at this point, and when a dispute is presented to them, that courts step in. If contract innovation does indeed reach generalist courts through the mediating institution of these contextualizing regimes, then our argument follows directly: Because a central goal of contract adjudication is to enforce the agreement in the context the parties intended, the courts’ willingness to defer to the context provided by the parties will put the law more directly in the service of innovation.