The Economic and Innovation Impacts of Trade Secrets
33 Pages Posted: 22 Oct 2020 Last revised: 5 May 2021
Date Written: April 19, 2021
Trade Secrets are a flexible innovation tool that are used across sectors and types of firms. This report summarises and critiques the publicly available academic and grey economic literature on trade secrets and highlights key innovation aspects. Developed for the UK Intellectual Property Office as a research paper, the report finds that Trade secrets can both enable or hinder innovation. Other key points: Trade secrets are particularly important to UK firms in the R&D services, tech, and across manufacturing and non-manufacturing sectors. Larger firms rely on trade secrets more than smaller firms. Trade secrets can be highly valuable firm assets, although most trade secrets are not. Firms choose trade secrets to maintain a competitive advantage by avoiding the disclosure associated with other types of IPR. However, trade secrets are vulnerable to reverse engineering and misappropriation or theft. Cybertheft and economic espionage are increasing concerns. Trade secrets serve as a substitute or complement to patents. Most trade secrets cover non-patentable innovation such as marketing and organisational innovations. Trade secrets support innovation but also restrict knowledge flows and labour mobility. Stronger policy benefits existing trade secrets holders and encourages investment in R&D, yet reduces future innovation and creates barriers to entry. However, many questions remain and the empirical evidence base for trade secrecy is weak. This report finds that further work is needed to develop an evidence base for trade secrets, and that exploration of key themes such as the interaction of trade secrets with patentability could better inform policy.
Keywords: trade secrets, innovation, intellectual property, industrial espionage
JEL Classification: O31, O34, O38
Suggested Citation: Suggested Citation