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

Abstract

Innovation depends on the incentives to create new ideas as well as access to existing ones. Access, in turn, depends on an initial invention's inherent visibility as well as the inventor's decision to disclose it, for example, through patenting. Compared to product innovations, process innovations tend to be less visible, making secrecy as an intellectual property strategy relatively more attractive; and stronger trade secrets protection laws could hamper their disclosure even further. Using exogenous variation in the level of trade secrets protection from the Uniform Trade Secrets Act, we show that stronger protection has a disproportionately negative effect on patenting of processes. We show in simulations that these changes in disclosure can have large implications for follow-on innovation and welfare.

Keywords: cumulative innovation, disclosure, Uniform Trade Secrets Act, intellectual property, invention visibility

JEL Classification: D80, O31, O34