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The optimal scope of trade secrets law

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  • Franzoni, Luigi Alberto
  • Kaushik, Arun Kumar

Abstract

The paper investigates the optimal scope of trade secrets law. In the model, one innovative firm invests resources first to produce knowledge, and then to protect it from unwanted disclosure. A rival firm invests to ferret out this knowledge. Trade secrets law affects this “secrecy contest” by reducing the probability of unwanted disclosure given the efforts of the parties. We show how optimal trade secrets policy depends on structural market features and cost parameters. In the final section, we consider the limit case in which the innovation lies on the face of the product, and derive the optimal scope of legal provisions preventing copycat imitation of products (unfair competition, passing off).

Suggested Citation

  • Franzoni, Luigi Alberto & Kaushik, Arun Kumar, 2016. "The optimal scope of trade secrets law," International Review of Law and Economics, Elsevier, vol. 45(C), pages 45-53.
    • Handle: RePEc:eee:irlaec:v:45:y:2016:i:c:p:45-53
    DOI: 10.1016/j.irle.2015.11.004
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    1. de Laat, Paul B., 2000. "Patenting mathematical algorithms: What's the harm?: A thought experiment in algebra," International Review of Law and Economics, Elsevier, vol. 20(2), pages 187-204, June.
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    7. Natarajan Balasubramanian & Jagadeesh Sivadasan, 2011. "What Happens When Firms Patent? New Evidence from U.S. Economic Census Data," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 126-146, February.
    8. Bronwyn H. Hall & Christian Helmers & Mark Rogers & Vania Sena, 2013. "The importance (or not) of patents to UK firms," Oxford Economic Papers, Oxford University Press, vol. 65(3), pages 603-629, July.
    9. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    10. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    11. Douglas C. Lippoldt & Mark F. Schultz, 2014. "Uncovering Trade Secrets - An Empirical Assessment of Economic Implications of Protection for Undisclosed Data," OECD Trade Policy Papers 167, OECD Publishing.
    12. Bronwyn Hall & Christian Helmers & Mark Rogers & Vania Sena, 2014. "The Choice between Formal and Informal Intellectual Property: A Review," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 375-423, June.
    13. Vincenzo Denicoliò & Luigi Alberto Franzoni, 2011. "Weak Intellectual Property Rights, Research Spillovers, and the Incentive to Innovate," American Law and Economics Review, American Law and Economics Association, vol. 14(1), pages 111-140.
    14. Vincenzo Denicolo & Luigi A. Franzoni, 2010. "On the Winner-Take-All Principle in Innovation Races," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1133-1158, September.
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    Cited by:

    1. Luigi Alberto Franzoni, 2020. "Trade secrets law," Working Papers wp1150, Dipartimento Scienze Economiche, Universita' di Bologna.
    2. Huatao Peng & Chen Zhou & Yang Liu, 2020. "Entrepreneurial Experience and Performance: From the Aspect of Sustainable Growth of Enterprises," Sustainability, MDPI, vol. 12(18), pages 1-24, September.
    3. Bar Aleksandra, 2020. "Machina Ex Machina Artificially Intelligent Systems as Inventors under Polish Legal Framework," Wroclaw Review of Law, Administration & Economics, Sciendo, vol. 10(1), pages 17-35, December.

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    JEL classification:

    • K1 - Law and Economics - - Basic Areas of Law
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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