The Importance of Trade Secrecy: Evidence from Civil Litigation

Abstract:     
This paper examines the importance of trade secrecy relative to other forms of intellectual property protection for a sample of 530 manufacturing firms. I identify all litigation involving these firms in the federal and state judicial districts encompassing their headquarters over a four-and-a-half year period. I find that trade secret disputes are commonplace, representing 43% of the intellectual property litigation. Cases litigated by smaller firms disproportionately involve trade secrets, suggesting that this source of intellectual property protection is more critical to these companies. This result is consistent with view that less established firms employ trade secrecy because the direct and indirect costs of patenting are too large. The analysis also suggests that previous studies of the relationship between firm size and the number of patents and public announcements of innovations may understate the contribution of small firms.

JEL Classifications: O34

Working Paper Series