Optimal use of patents and trade secrets for complex innovations

Kyoungbo Sim

International Journal of Industrial Organization, 2021, vol. 79, issue C

Abstract: This paper studies how an inventor protects a “complex” innovation that involves multiple complementary components. Each component can be protected through either patent or secrecy protection, so that the entire innovation may be protected through a patent-secret combination. Potential entrants might acquire these components either through costly imitation or licensing. I find that, first, secrecy is optimal when the patent length is relatively short; otherwise, a patent-secret combination is optimal; second, the inventor is over-rewarded compared to an inventor with an innovation that is equivalent except that it involves only a single-component so that the entire innovation can be protected through either patent or secrecy protection; and, third, a policy that precludes the use of a patent-secret combination enhances allocative efficiency ex-post but may stifle R&D incentives ex-ante.

Keywords: Patents; Trade secrets; Intellectual property rights; Patent-secret combination (search for similar items in EconPapers)
JEL-codes: D43 L13 O3 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:79:y:2021:i:c:s0167718721000813

DOI: 10.1016/j.ijindorg.2021.102788

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