The Corporate Preference for Trade Secret

Abstract

Many inventions can be legally protected either by patent or by trade secrecy, and a conventional wisdom exists on how to select between them. This Article adds to that literature by showing that corporations should have an inherent preference for trade secret over patent for reasons relating to their legal form. Among them is the idea that corporations are perpetual entities and therefore perfectly suited to reap the perpetual returns that only a trade secret can offer. The Article also addresses the potential for a conflict between the inherent corporate preference for trade secret and the preferences of corporate managers, who may prefer patent for reasons of their own.

Keywords: Patent, trade secret, corporations, perpetual, signal, secrecy, lock-in, liquidity

JEL Classification: K00, K11, K2, K20, K22, O3, O32, O34