Big Ideas in Technology Fall Wi

what’s inside Editor’s Note James Baker thought he was in the right place at the right time when his company introduced its anthrax decontamination technology right after 9/11 (page 4). Fear of anthrax was rampant; the company’s product seemed perfectly timed. But market interest in anthrax was fleeting, and six months later, Baker’s team was busy introducing a treatment for nail fungus. “You can’t live on your precon- ceptions,” says Baker, who didn’t look back when anthrax faded from the public eye. Neither can you be “enamored” with your own vision or technology, adds Rick Sine, who wrote this issue’s cover story on competitive intelligence. The moral, as Baker and a host of 2 risks&rewards other tech heroes who tell their stories in this issue attest, is to watch for what Why Silicon Valley Endures Plus: Why an energy company is pushing CI guru Ben Gilad calls “a strategic for more environmental regulations; the limits of negative advertising; change in the market”—and to be will- the risks of stock options; the rules of war games; an entrepreneur shifts ing to change along with it. his focus from anthrax to nail fungus; and small companies turn to M&A 8 COVER STORY Spy v. Spy What you need to know about your competitors—and what they’re learning about you. Plus: What employees can share when they leave; keeping corporate confidences; and corporate counterintelligence Fall/Winter 2006 A Custom Publication Produced for 14 interview Goodwin Procter LLP ITA Software’s Jeremy Wertheimer “We certainly faced by Leverage Media LLC computational challenges, but nothing in terms of a cri- Dobbs Ferry, NY sis of faith—we were computer scientists; these were math problems to solve” Editor: Michael Winkleman Art Director: Carole Erger-Fass 16 TECH4TECH Production Director: Rosemary P. Sullivan Making Your Own Power Plus: VoIP goes wire- Copy Editor: Betty Pellet less; streamlining the code-base checking process; Cover Photo: Chip Simons treating conferencing like email; collaborating with avatars; designing for success; and five good reads © copyright 2006 by Goodwin Procter LLP. 20 a look back All rights reserved. The Soviet Silicon Valley After passing a host of key U.S. documents to the USSR, two Americans fled to Russia, where they convinced the Soviets to build a secret city dedicated to “microelectronics.” Goodwin Procter Offices Boston Los Angeles New York San Francisco Washington, DC Exchange Place, 53 State Street 10250 Constellation Boulevard, 599 Lexington Avenue 101 California Street 901 New York Avenue NW Boston, MA 02109 21st Floor New York, NY 10022 San Francisco, CA 94111 Washington, DC 20001 617-570-1000 Los Angeles, CA 90067 212-813-8800 415-733-6000 202-346-4000 310-788-5100 This publication may be considered advertising under the ethical rules of certain jurisdictions. risksBY PETER HAAPANIEMI AND& RICHARD SINErewards EAST V. WEST: IMMIGRATION: WHY SILICON VALLEY ENDURES The Price of Security Since 2001, security concerns have complicated staffing for U.S. companies that rely on foreign employees with key technical skills. And things are not likely to get simpler in the near future. For example, the limiting of H1-B work visas, which are granted to foreign nationals with special skills, “has become more of a political issue than a practical issue, largely because of the heightened security concerns post 9/11,” says Joe Piacquad, a partner at Goodwin Procter. “Also, we see that the Department of Homeland Security is enforcing its own immigration rules more closely.” For example, gaps in employment for visa holders have long been against the rules, but they were traditionally over- looked. “That doesn’t really hap- pen any more,” Piacquad says. Maybe it’s facing some competition feel more empowered about spending “We are seeing increased scrutiny these days, but Silicon Valley is main- money because they think it’s easier on things like that.” taining its position as the nation’s high- to raise it,” Schnoor says. Some of the rules are also tech capital. changing. “Congress and the So says Bill Schnoor, who’s spent A critical mass of larger, leading Department of Homeland more than 20 years helping firms on technology companies are based in Security are adding rules incre- both coasts negotiate financing and the Valley, acting as role models as mentally,” says Piacquad. He acquisition deals. Other regions have well as acquirers for smaller firms. notes there are discussions about stolen some of the Valley’s thunder in “The availability of capital and the making a voluntary electronic recent years, notes Schnoor, a partner sense that it’s achievable to go for employee-identification program in Goodwin Procter’s Technology that kind of growth fuels higher tar- mandatory and requiring employ- Companies Group. But he can quickly gets and ambitions,” he says. While ers to use biometric identification tick off why none of them have serious- West Coast outfits still dream of techniques. Overall, he says, “the ly threatened the Valley’s position: going public, East Coast firms are trend is toward putting more of more likely to sell out after hitting the responsibility and cost for val- The biggest sources of venture capi- the $100- to $200-million mark. idating foreign employees onto tal are headquartered in the Valley, the employer.” —P.H. and they still like to fund locally. California has a more fluid labor “Companies in the Valley probably force, thanks to a networked culture, 2 big ideas TREND WATCH: A More Convenient Truth 49.6 44.2 CO2 EMISSIONS 38.3 (in tons) 36.8 proximity—and the fact that non- 35.6 compete agreements aren’t $8.4 $7.9 enforceable in the state. $7.4 $7.2 Then again, East Coast firms TOTAL N O D $6.6 R have their advantages, Schnoor ELECTRIC A E R REVENUE X notes. Firms in the Northeast corri- E L (in billions) A Y dor are well positioned to serve B T R A New York, which is more than just 2001 2002 2003 2004 2005 H C the world’s financial capital—it also hosts the big media firms that are A big energy company comes out in favor of more environmental regula- preparing for convergence. The tions? It’s true. Entergy Corp. has filed a legal brief supporting several Northeast also boasts good schools states that are trying to force the Environmental Protection Agency to and the accompanying intellectual promulgate greenhouse gas controls under the Clean Air Act. Entergy’s ferment. approach could help shift the global warming discussion “from a polarized Other, newer hubs in places like debate between environmentalists and industry to a more substantive and Austin, Boulder, Research Triangle collaborative discussion,” says Elise Zoli, a partner at Goodwin Procter Park and Salt Lake City combine a who represents Entergy. Entergy has pledged to maintain its greenhouse lower cost of living with good quali- gas emissions at a level that is 20 percent below 2000 levels. Meanwhile, ty of life and a strong talent pool. big tech firms are falling in line: HP is auditing energy use at its 53 N N A largest facilities and has pledged to reduce its on-site greenhouse gas K Start-ups in these emerging hubs A I R O can benefit from the relative scarci- emissions by 18 percent in 2006. Advanced Micro Devices, Inc., which has T C I V ty of competitors that might be designed energy-efficient computer chips, plans to reduce emissions by 40 tempted to hire away key talent. percent by 2007, relative to 2002. And Sun Microsystems, which is push- That may be a good strategy, says ing energy-efficient servers, has pledged to reduce emissions 20 percent Schnoor, but companies that locate by 2012. In April, HP, AMD, Sun and IBM formed a coalition, called the in these areas should be prepared Green Grid, which will share best practices on reducing power consump- to spend a lot of time on the road— tion in data centers. —R.S. SOURCE: ENTERGY CORP. and in many cases that road will lead to the Valley. —R.S i S E G A n M I Y T T 4 Lessons from the Front New Markets E 6 G , N Why James Baker moved from anthrax to How your VC can help you navigate the busi- s O I T C E foot fungus ness terrain in China and India L L i O C C I d H P Remote Locations A Section 409A R G O E Getting serious about options The same rules may not apply G e L A N O I T A N 5 Slamming the Competition 7 Small Companies , R I A Is there an acquisition in your future? L Just how negative can your advertising be? B . P Start-ups in new hubs such as Salt Lake S E M A City often lack competitors for talent. J big ideas 3 risks&rewards IF I HAD IT TO DO OVER… Products and Persistence BY JAMES BAKER, JR. So we really ran in that direction. human therapeutics, including a treat- Unfortunately, it didn’t last; six ment for nail fungus. That may not be In addition to heading up the months later, there wasn’t much inter- as high profile as anthrax decontamina- Nanotechnology Institute at the est in anthrax. We wound up going tion, but nail fungus is a problem that University of Michigan, Dr. James back to our original goal of developing affects a lot of people, and there Baker, Jr. is chairman and chief scien- tific officer of NanoBio, an Ann Arbor, Michigan-based pharmaceutical company.

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