Visibility of Technology and Cumulative Innovation: Evidence from Trade Secrets Laws

Abstract

We use exogenous variation in the strength of trade secrets protection to show that a relative weakening of patents (compared to trade secrets) has a disproportionately negative effect on the disclosure of processesinventions that are not otherwise visible to society. We develop a structural model of initial and follow-on innovation to determine the effects of such a shift in disclosure on overall welfare in industries characterized by cumulative innovation. We find that while stronger trade secrets encourage investment in R&D, they may have negative effects on overall welfare-the result of a significant decline in follow-on innovation.

Heterogeneous Innovation over the Business Cycle

“…Their approach is similar to Bena, Ortiz-Molina, and Simintzi (2018), Bena and Simintzi, (2019) and Ganglmair and Reimers (2019).…”

Do Patents Enable Disclosure? Evidence from the Invention Secrecy Act

“…Recent legislative changes in the United States, such as the expansion of prior user rights defense to patent infringement with the AIA (Khamin, 2014) and the adoption of the Uniform Trade Secrets Act by an increasing number of U.S. states (Seaman, 2015), have strengthened the incentives to keep inventions secret. Although the present paper is silent on whether the incentives are too (or not enough) skewed towards secrecy, it does highlight one social cost of secrecy (see also Ganglmair and Reimers, 2019). Other costs have been discussed elsewhere, such as the duplication of R&D investments (Lück et al, 2020;Hegde et al, 2020).…”

Labor Supply and Automation Innovation

“…In fact, firms may refrain from patenting process innovations which is intended for internal use and instead decide to avoid misappropriation through secrecy (cf. Levin et al, 1987;Ganglmair and Reimers, 2019). As a consequence, selection into patenting may lead to underestimating the true effect on automation process innovations.…”