Law and Innovation: Evidence from the Uniform Trade Secrets Act
Topics: Future of Work Governance
Seminars and Conferences
Technology, Innovation, and Learning (TIL)
• Tuck Campus • Hanover, NH • USA
November 16, 2011
Paper Abstract:
Most research and policy on protecting innovation focus on patents. Yet, almost all technology managers report secrecy to be more important than patents. Here, I show theoretically that stronger secrecy laws could increase or reduce R&D. By reducing spillovers, secrecy laws might reduce or raise the return to R&D, depending on whether spillover and own R&D are complements or substitutes. By strengthening appropriability, secrecy laws would raise the return to R&D.
Empirically, I find that, among U.S. manufacturers between 1976 and 2006, the Uniform Trade Secrets Act (UTSA) was associated with an average 5.2% (±2.5%) reduction in R&D. This negative effect suggests that, on average, own and spillover R&D are complements. The impact of the UTSA was quite nuanced, being significant among low-tech companies, but not significant among high-tech companies.
Further, I show theoretically that stronger secrecy laws could increase or reduce patenting depending on their relative impact on the exclusivity of the patentable innovation vis-a-vis complementary know-how. Empirically, the UTSA was associated with reduced patenting in industries where patents are relatively effective in protecting process innovations.
