Innovation, Technology Transfer and the International Regulation of Patents and Trade Secrets

Abstract

We develop a North-South model of endogenous growth to examine the individual economic impact of patent and trade secret protections in developing countries. Firms in the developed North innovate higher-quality products and choose a patent, secrecy mix to protect against imitation by Southern firms. Southern imitators always have access to publicly disclosed patented information, but gain access to secret information only when a Northern firm transfers production to the South. This implies that Southern patent and trade secret reform differently affect the relationship between Southern imitation and the geographical location of production. We identify conditions under which strengthening Southern patent protection reduces global innovation, technology transfer and Southern welfare by decreasing the relative profit associated with producing in the South. Our analysis suggests that treating intellectual property rights (IPRs) as a single entity obscures important differences in the economic implications of international standards in distinct forms of IPRs.

Keywords: Intellectual Property Rights, Patents, Trade Secrets, International Technology Transfer, Innovation