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Optimal use of patents and trade secrets for complex innovations

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  • Sim, Kyoungbo

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.

Suggested Citation

  • Sim, Kyoungbo, 2021. "Optimal use of patents and trade secrets for complex innovations," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    • Handle: RePEc:eee:indorg:v:79:y:2021:i:c:s0167718721000813
    DOI: 10.1016/j.ijindorg.2021.102788
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    References listed on IDEAS

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    More about this item

    Keywords

    Patents; Trade secrets; Intellectual property rights; Patent-secret combination;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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