Patents, Secrets, and the First-Inventor Defense
University of Bologna
Luigi A. Franzoni
University of Bologna - Faculty of Economics
Journal of Economics & Management Strategy, Vol. 13, No. 3, pp. 517-538, Fall 2004
We analyze optimal patent design when innovators can rely on secrecy to protect their innovations. Secrecy has no fixed term but does not preclude accidental disclosure nor independent creation by other inventors. We derive the optimal scope of the rights conferred to such second inventors, showing that if the patent life is set optimally, second inventors should be allowed to patent and to exclude first inventors who have relied on secrecy. We then identify conditions under which it is socially desirable to increase patent life as much as is necessary to induce first inventors to patent. The circumstances in which it is preferable that they rely on secrecy seem rather limited.
Keywords: Trade secrets, patents, first-inventor defense
JEL Classification: K11, O34, L00Accepted Paper Series
Date posted: August 10, 2004
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