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Patents vs Trade Secrets: Knowledge Licensing and Spillover

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  • Sudipto Bhattacharya

    ()
    (London School of Economics and CEPR)

  • Sergei Guriev

    ()
    (New Economic School/CEFIR and CEPR)

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.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0064.

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Length: 40 pages
Date of creation: Feb 2004
Date of revision: Feb 2006
Publication status: Forthcoming in The Journal of European Economic Association
Handle: RePEc:cfr:cefirw:w0064

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Citations

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Cited by:
  1. Sudipto Bhattacharya & Sergei Guriev, 2008. "Control rights over intellectual property: corporate venturing and bankruptcy regimes," LSE Research Online Documents on Economics 24437, London School of Economics and Political Science, LSE Library.
  2. Heger, Diana & Zaby, Alexandra K., 2012. "Giving away the game? The impact of the disclosure effect on the patenting decision," ZEW Discussion Papers 12-010, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Gerard Llobet & Javier Suarez, 2010. "Entrepreneurial Innovation, Patent Protection And Industry Dynamics," Working Papers wp2010_1001, CEMFI.
  4. Daron Acemoglu & Gino Gancia & Fabrizio Zilibotti, 2010. "Competing engines of growth: innovation and standardization," IEW - Working Papers 483, Institute for Empirical Research in Economics - University of Zurich.
  5. ICHIDA Toshihiro, 2013. "Imitation versus Innovation Costs: Patent policies under common patent length," Discussion papers 13054, Research Institute of Economy, Trade and Industry (RIETI).
  6. Bernstein, Shai, 2012. "Does Going Public Affect Innovation?," Research Papers 2126, Stanford University, Graduate School of Business.
  7. Evans, Shane, 2010. "Innovation contracts with leakage through licensing," Working Papers 10282, University of Tasmania, School of Economics and Finance, revised 05 Oct 2010.
  8. BHATTACHARYA, Sudipto & D’ASPREMONT, Claude & GURIEV, Sergei & SEN, Debapriya, 2012. "Cooperation in R&D: patenting, licensing and contracting," CORE Discussion Papers 2012055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Scott Baker & Pak Yee Lee & Claudio Mezzetti, 2007. "Intellectual Property Disclosure as “Threat”," Discussion Papers in Economics 07/08, Department of Economics, University of Leicester.
  10. Tsai Tsung-Sheng & Kung Sheng-Chiao, 2011. "Sequential Investments, Know-How Transmission, and Optimal Organization," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-24, December.
  11. Javier Suarez & Gerard Llobet, 2008. "Financially Constrained Innovation, Patent Protection, and Industry Dynamics," 2008 Meeting Papers 102, Society for Economic Dynamics.
  12. Marie-Laure Allain & Claire Chambolle & Patrick Rey, 2010. "Vertical Integration, Innovation and Foreclosure," Working Papers hal-00544494, HAL.
  13. Trommetter, M. & Tropéano, J.P., 2009. "Do broad patents deter research cooperation ?," Working Papers 200904, Grenoble Applied Economics Laboratory (GAEL).
  14. Paul Castãneda Dower & Andrei Bremzen, 2012. "Almost Anonymous Implicit Contracting," Working Papers w0187, Center for Economic and Financial Research (CEFIR).
  15. Nicolas JULLIEN & Jean-Benoît Zimmermann, 2011. "FLOSS in an industrial economics perspective," Post-Print hal-00739692, HAL.

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