Protecting Innovation Through Patents and Trade Secrets: Evidence for Firms with a Single Innovation

Abstract

This paper analyzes the use and effectiveness of patents and trade secrets designed to protect innovation. While previous studies have usually considered patents and trade secrets as substitutes for one another, we investigate to what extent and in what situations the two protection methods are used jointly. We identify protection strategies for single innovation firms and hence overcome the assignment problem of existing empirical studies, that is, whether firms using both protection methods do so for the same innovation or for different innovations. Employing firm panel data from Germany, we find fairly few differences between the determinants for choosing secrecy and patenting. Single innovators that combine both strategies, 39% of the group, tend to aim at a higher level of innovation and act in a more uncertain technological environment. Firms combining both protection methods yield significantly higher sales with new-to-market innovations, providing some evidence for a complementarity of the two protection methods.

Visibility of Technology and Cumulative Innovation: Evidence from Trade Secrets Laws

“…The adoption of the UTSA in just one of these states is then unlikely to have a strong impact on its patenting behavior -in contrast to individuals and small firms. Second, the findings by Crass et al (2019) suggest a stronger degree of substitutability between secrecy and patents for small applicants, which should in turn yield a stronger effect of trade secrets protection, as we show in the data.…”

The Economic and Innovation Impacts of Trade Secrets

“…• Large innovating firms use both trade secrets and patents more than innovating SMEs, as a measure by percentage of firms, in the UK, Germany, Finland and Italy (Wajsman & García-Valero, 2017); this is further confirmed for Germany in (Crass et al, 2019).…”

“…In a study of Japanese firms, the percentage of manufacturing and service sectors holding trade secrets is roughly the same (1/3), with 51% of R&D active service sector firms also holding trades (12% higher than the same type of firm in the manufacturing sector) (M. Morikawa, 2019). Further, service firms use secrecy when their sector has high technological uncertainty (Crass, Garcia Valero, Pitton & Rammer, 2019). Given the breadth of trade secret protection, it is not surprising that the service sector finds them useful.…”

The Dependence of Patents From R&D Outlays and R&D Employees in European Union Countries

“…The average R&D outlays in the EU are an important gauge of achieved innovation as compared to the respective economies within the EU. With a high degree of novelty in an economy and a high R&D investment level, enterprises tend to implement patents in sectors where technological risks are high, and hence the need for a stringent protection standard, which can be satisfied by patents [13]. The application of patents changes in time through the development of industries in the countries concerned.…”