How innovating firms manage knowledge leakage: A natural experiment on the threat of worker departure
Strategic Management Journal (https://doi.org/10.1002/smj.3404)
USC Marshall School of Business Research Paper Sponsored by iORB, No. Forthcoming
65 Pages Posted: 2 May 2018 Last revised: 30 Mar 2022
Date Written: March 17, 2022
Abstract
Knowledge protection strategies are crucial to innovating firms facing the risk of knowledge leakage. We examine the threat of worker departure as a key mechanism through which firms choose between patents and secrecy. We exploit a 1998 California court decision that ruled out-of-state noncompetes were not enforceable in California, thereby creating a loophole limiting non-California firms in their enforcement of noncompetes against their workers. When facing a higher threat of worker departure, firms strategically increased patent filings, exchanging legal protection for public disclosure of the invention. These effects were magnified for large-sized firms and for those in complex and fast-growing industries. Further mechanism tests on the possession of trade secrets, inventor migration, saliency of the decision, and independent inventors support our theoretical account.
Keywords: innovation strategy, knowledge management, patents, worker mobility, out-of-state non-competes
JEL Classification: O32, J61, K31, G34
Suggested Citation: Suggested Citation