Visibility of Technology and Cumulative Innovation: Evidence from Trade Secrets Laws

66 Pages Posted: 10 Jun 2019

See all articles by Bernhard Ganglmair

Bernhard Ganglmair

ZEW – Leibniz Centre for European Economic Research - Junior Research Group Competition and Innovation; University of Mannheim - Department of Economics; Mannheim Centre for Competition and Innovation (MaCCI)

Imke Reimers

Northeastern University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 24, 2019

Abstract

Patents grant an inventor temporary monopoly rights in exchange for the disclosure of the patented invention. However, if only those inventions that are otherwise already visible are patented (and others kept secret), then the bargain fails. We use exogenous variation in the strength of trade secrets protection from the Uniform Trade Secrets Act to show that a relative weakening of patents (compared to trade secrets) adversely affects the rate of process patents relative to products. By arguing that processes are on average less visible (or self-disclosing) than products, we show that stronger trade secrets have a disproportionately negative effect on the disclosure of inventions that are not otherwise visible to society. We develop a structural model of initial and follow-on innovation to determine the effects of such a shift in disclosure on overall welfare in industries characterized by cumulative innovation. In counterfactual analyses, we find that while stronger trade secrets encourage more investment in R&D, they may have negative effects on overall welfare - the result of a significant decline in follow-on innovation. This is especially the case in industries with relatively profitable R&D.

Keywords: cumulative innovation, disclosure, self-disclosing inventions, Uniform Trade Secrets Act

JEL Classification: D80, O31, O34

Suggested Citation

Ganglmair, Bernhard and Reimers, Imke, Visibility of Technology and Cumulative Innovation: Evidence from Trade Secrets Laws (May 24, 2019). ZEW - Centre for European Economic Research Discussion Paper, Available at SSRN: https://ssrn.com/abstract=3393510 or http://dx.doi.org/10.2139/ssrn.3393510

Bernhard Ganglmair

ZEW – Leibniz Centre for European Economic Research - Junior Research Group Competition and Innovation ( email )

L7,1
Mannheim, 68161
Germany

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Mannheim Centre for Competition and Innovation (MaCCI) ( email )

L 7, 1
Mannheim, 68131
Germany

Imke Reimers (Contact Author)

Northeastern University - Department of Economics ( email )

301 Lake Hall
Boston, MA 02115
United States

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