Patents vs Trade Secrets: Knowledge Licensing and Spillover

Sudipto Bhattacharya and Sergei Guriev

No w0064, Working Papers from Center for Economic and Financial Research (CEFIR)

Abstract: We develop a model of two-stage cumulative research and development (R&D), in which one Research Unit (RU) with an innovative idea bargains to license her nonverifiable interim knowledge exclusively to one of two competing Development Units (DUs) via one of two alternative modes: an Open sale after patenting this knowledge, or a Closed sale in which precluding further disclosure to a competing DU requires the RU to hold a stake in the licensed DU’s post-invention revenues. Both modes lead to partial leakage of RU’s knowledge from its description, to the licensed DU alone in a closed sale, and to both DUs in an open sale. The open sale is socially optimal; yet the contracting parties choose the closed sale whenever the interim knowledge is more valuable and leakage is sufficiently high. If the extent of leakage is lower, more RUs choose open sales, generating a non-monotonic relationship between the strength of Intellectual Property Rights (IPR) and aggregate R&D expenditures and the overall likelihood of development by either DU.

JEL-codes: D23 O32 O34 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2004-02, Revised 2006-02
New Economics Papers: this item is included in nep-ino and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (43)

Forthcoming in The Journal of European Economic Association

Downloads: (external link)
http://www.cefir.ru/papers/WP64BhattachariaGurievMarch2006.pdf (application/pdf)

Related works:
Journal Article: Patents vs. Trade Secrets: Knowledge Licensing and Spillover (2006)
Working Paper: Patents vs Trade Secrets: Knowledge Licensing and Spillover (2006)
Working Paper: Patents VS Trade Secrets: Knowledge Licensing and Spillover (2006)
Working Paper: Patents VS Trade Secrets: Knowledge Licensing and Spillover (2006)
Working Paper: Patents vs trade secrets: knowledge licensing and spillover (2005)
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