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

Abstract

Innovation depends on the incentives to create new ideas as well as the visibility of and access to existing ones. Using exogenous variation from the Uniform Trade Secrets Act, we show that stronger trade secrets protection has a disproportionately negative effect on patenting of less visible inventions (processes). We develop a framework of initial and follow-on innovation to determine the welfare effects of such shifts in disclosure. Stronger trade secrets may have negative effects on overall welfare by reducing opportunities for follow-on innovation, and optimal trade secrets policy depends on visibility, costs of R&D, and the value of cumulative innovation.

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

JEL Classification: D80, O31, O34