Why Do Startups Use Trade Secrets?

70 Pages Posted: 25 Apr 2018 Last revised: 10 Feb 2019

See all articles by David S. Levine

David S. Levine

Elon University School of Law; Stanford University - Center for Internet and Society

Ted M. Sichelman

University of San Diego School of Law

Date Written: April 22, 2018


Empirical studies of the use of trade secrecy are scant, and those focusing on startups, non-existent. In this paper, we present the first set of data — drawn from the Berkeley Patent Survey — on the use of trade secrets by U.S. startup companies in the software, biotechnology, medical device, and hardware industries. Specifically, we report on the prevalence of trade secrecy usage among startups. Additionally, we assess the importance of trade secrets in relation to other forms of intellectual property protection and barriers to entry, such as patents, copyrights, first-mover advantage, and complementary assets. We segment these results by a variety of factors, including industry, company business model, overall revenue, patenting propensity, funding sources, innovation types, and licensing. From this segmentation, we implement a basic regression model and report on those factors showing a statistically significant relationship in the use of trade secrets by startups. Our results point to three major findings. First, trade secrecy serves other important aims aside from first-mover advantage. Second, trade secrets may act both as economic complements and substitutes to patenting. Third, trade secrets may serve as important strategic assets, functioning much in the same manner as patents in terms of licensing and setting the boundaries of the firm.

Keywords: trade secrets, startups, innovation, licensing, software, biotechnology, medical device, patents, intellectual property

JEL Classification: K3, L2, O3

Suggested Citation

Levine, David S. and Sichelman, Ted M., Why Do Startups Use Trade Secrets? (April 22, 2018). 94 Notre Dame Law Review 751 (2018), San Diego Legal Studies Paper No. 18-346, Available at SSRN: https://ssrn.com/abstract=3166834 or http://dx.doi.org/10.2139/ssrn.3166834

David S. Levine (Contact Author)

Elon University School of Law ( email )

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Greensboro, NC 27401
United States

HOME PAGE: http://hearsayculture.com

Stanford University - Center for Internet and Society ( email )

Palo Alto, CA 94305-8610
United States

HOME PAGE: http://cyberlaw.stanford.edu/blogs/levine/

Ted M. Sichelman

University of San Diego School of Law ( email )

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San Diego, CA 92110-2492
United States
(619) 260-7512 (Phone)
(619) 260-2748 (Fax)

HOME PAGE: http://https://www.sandiego.edu/law/faculty/profiles/bio.php?ID=795

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