Do Innovative Firms Rely on Big Secrets? An Analysis of IP Protection Strategies with the CIS 4 Survey

Abstract

We investigate whether secrecy is used to protect small or large innovations using the French part of the 2004 Community Innovation Survey 4, which contains a large section dedicated to the use of IP protection instruments by the surveyed firms. While the patent system's aim is that firms apply to patent their innovations, especially the most important ones, Anton and Yao (2004) argue that large innovation will rather be protected by secrecy because of the legal uncertainty surrounding IP rights. In line with the predictions of their model, our bivariate probit analysis show that, in the intermediate goods industry, the behavior of patenting is reversed compared to the benchmark, i.e. smaller innovations are patented while secrecy is used to protect large ones. For very innovative small firms, the share of innovative sales in total sales has a negative effect on patent application. Our findings support the view that many innovative firms regard patent-filing as, in fact, no more secure than secrecy, which therefore limits the diffusion of knowledge.

Keywords: Intellectual property, innovation, secrecy and patenting behavior

JEL Classification: D23, K13, O32, O34