Choosing the Scope of Trade Secret Law when Secrets Complement Patents
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 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 not too restrictive conditions a broad scope of trade secret law is socially beneficial either the patent length is adjusted in order to grant the innovator the right reward or it is fixed and the innovator is overrewarded
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