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Choosing the scope of trade secret law when secrets complement patents

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  • Ottoz, Elisabetta
  • Cugno, Franco

Abstract

We present a model where an incumbent firm has a proprietary product whose technology consists of at least two components, one of which is patented while the other is kept secret. At the patent expiration date, an entrant firm will enter the market on the same technological footing as the incumbent if it is successful in duplicating, at certain costs, the secret component of the incumbent’s technology. Otherwise, it will enter the market with a production cost disadvantage. We show that under some conditions a broad scope of trade secret law is socially beneficial despite the innovator is over-rewarded.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20672.

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Date of creation: 14 Feb 2010
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Handle: RePEc:pra:mprapa:20672

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Keywords: knowledge spillovers; duplication costs; covenants not to compete; inevitable disclosure;

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  1. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(3), pages 470-86, June.
  2. Elisabetta Ottoz & Franco Cugno, 2008. "Patent--Secret Mix in Complex Product Firms," American Law and Economics Review, Oxford University Press, Oxford University Press, vol. 10(1), pages 142-158.
  3. Maurer, Stephen M & Scotchmer, Suzanne, 2002. "The Independent Invention Defence in Intellectual Property," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 69(276), pages 535-47, November.
  4. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  5. Paul Klemperer, 1990. "How Broad Should the Scope of Patent Protection Be?," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 113-130, Spring.
  6. Cugno Franco & Ottoz Elisabetta, 2006. "Trade Secret vs. Broad Patent: The Role of Licensing," Review of Law & Economics, De Gruyter, De Gruyter, vol. 2(2), pages 209-221, September.
  7. Richard Gilbert & Carl Shapiro, 1990. "Optimal Patent Length and Breadth," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 106-112, Spring.
  8. David D. Friedman & William M. Landes & Richard A. Posner, 1991. "Some Economics of Trade Secret Law," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 5(1), pages 61-72, Winter.
  9. Nisvan Erkal, 2004. "On the Interaction between Patent Policy and Trade Secret Policy," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(4), pages 427-35, December.
  10. Tuomas Takalo, 1998. "Innovation and imitation under imperfect patent protection," Journal of Economics, Springer, Springer, vol. 67(3), pages 229-241, October.
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Cited by:
  1. David Harper, 2014. "Property rights as a complex adaptive system: how entrepreneurship transforms intellectual property structures," Journal of Evolutionary Economics, Springer, Springer, vol. 24(2), pages 335-355, April.
  2. Antonelli Cristiano, 2012. "Compulsory licensing: the foundations of an institutional innovation," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 201207, University of Turin.
  3. Neil M Kay, 2013. "QWERTY and the search for optimality," Working Papers, University of Strathclyde Business School, Department of Economics 1324, University of Strathclyde Business School, Department of Economics.
  4. Mario Coccia, 2012. "Path-breaking innovations for lung cancer: a revolution in clinical practice," CERIS Working Paper, Institute for Economic Research on Firms and Growth - Moncalieri (TO) 201201, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
  5. BELLELFLAMME, Paul & BLOCH , Francis & ,, 2013. "Dynamic protection of innovations through patents and trade secrets," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2013059, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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