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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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Paper provided by University of Turin in its series Department of Economics and Statistics Cognetti de Martiis. Working Papers with number 200911.

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Length: 16 pages
Date of creation: Nov 2009
Date of revision:
Handle: RePEc:uto:dipeco:200911
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  1. Scotchmer, suzanne, 1998. "The Independent-Invention Defense in Intellectual Property," Berkeley Olin Program in Law & Economics, Working Paper Series qt2s5174q8, Berkeley Olin Program in Law & Economics.
  2. Richard Gilbert and Carl Shapiro., 1989. "Optimal Patent Length and Breadth," Economics Working Papers 89-102, University of California at Berkeley.
  3. Nancy T. Gallini, 1992. "Patent Policy and Costly Imitation," RAND Journal of Economics, The RAND Corporation, vol. 23(1), pages 52-63, Spring.
  4. 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.
  5. David D. Friedman & William M. Landes & Richard A. Posner, 1991. "Some Economics of Trade Secret Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 61-72, Winter.
  6. 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, vol. 37(4), pages 427-35, December.
  7. Elisabetta Ottoz & Franco Cugno, 2008. "Patent--Secret Mix in Complex Product Firms," American Law and Economics Review, Oxford University Press, vol. 10(1), pages 142-158.
  8. Tandon, Pankaj, 1982. "Optimal Patents with Compulsory Licensing," Journal of Political Economy, University of Chicago Press, vol. 90(3), pages 470-86, June.
  9. Tuomas Takalo, 1998. "Innovation and imitation under imperfect patent protection," Journal of Economics, Springer, vol. 67(3), pages 229-241, October.
  10. Cugno Franco & Ottoz Elisabetta, 2006. "Trade Secret vs. Broad Patent: The Role of Licensing," Review of Law & Economics, De Gruyter, vol. 2(2), pages 209-221, September.
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