That's a bit silly. Presumably you wanted to deny competitors use of these engineers, because they would build something useful. Just have them build that stuff for you instead?

And if competitors were in the same boat, why bother hiring these people at all?

It's about denial of labour leading to denial of broader competition, rather than a true intent to build a competing product. If you were actually to follow through with building the product you would need a lot more than just engineers to roll out a successful product, effectively an entire company is needed, which would spread the company focus out and the lead to investor questions about your focus and commitment. Then if it's an unproven idea there's significant risk in going to market etc etc.

Cheaper to just lock up the talent and burn the wages. Bit of a ding to your books, big ding to your competitor's capability.

In saying that, it's a terrible practice. Massive waste of time, opportunity, talent and money.

>And if competitors were in the same boat, why bother hiring these people at all?

Suppose an established org (N) got disrupted by a startup (N+1) because the startup was able to do things faster and cheaper. Once the startup becomes the established org themselves and slows down a bit, they are exposed to the same risk, unless they hire all the smart people (who would otherwise be hired by N+2 startup) and buy out all the N+2 companies who actually managed to do something despite having less money. Eventually it becomes too expensive and there is a good excuse to fire all those people. I don't think it's 100% of what is happening, but it could be.