Trade Secrets Law and Mobility: Evidence from 'Inevitable Disclosure'

Abstract

Professional mobility has profound importance for firm strategy, innovation, and productivity. Prior work on legal constraints on mobility has focused on non-compete covenants and patents. Here, we investigate the impact of the doctrine of inevitable disclosure in U.S. state-level trade secrets law on mobility. We find that state court rulings against inevitable disclosure are associated with mobility of university-educated workers being 9.7 percent higher and mobility of less educated workers being 3.6 percent lower. On the other hand, rulings in favor of inevitable disclosure are associated with 6.9 percent less mobility for university-educated workers and 8.8 percent less mobility for other workers. The disparity in the effects on mobility is consistent with degree-qualified workers having relatively more bargaining power vis-à-vis employers than less-educated workers. We further find that the results are stronger in states that enforce non-compete covenants weakly and among employees in managerial and sales positions. Our results have implications for the degree of knowledge spillovers between firms, and thus firm strategy and ultimately, the overall economy-wide rate of innovation and economic growth.

Keywords: trade secrets, inevitable dislosure, covenant not to compete, professional mobility

JEL Classification: O32, O34