Trade Secrets and Innovation: Evidence from the 'Inevitable Disclosure' Doctrine

Contigiani, Andrea; Hsu, David H.; Barankay, Iwan

doi:10.2139/ssrn.3092880

Cited by 17 publications

(28 citation statements)

References 20 publications

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“…The present study focuses on choice of appropriability mechanism, conditional on the success of R&D. In independent work focusing on the effect of trade secrets law on equity finance and disclosure respectively, Dass et al (2014) and Glaeser et al (2017) find that the UTSA was associated with less patenting. Contigiani et al (2016), Liu (2016), and Huang and Png (2017) also investigate the effect of trade secrets law on patenting. They find that the doctrine of inevitable disclosure is associated with more or less patenting, depending on samples and representation of the law.…”

Section: Png: Theory and Evidence From The Uniform Trade Secrets Actmentioning

confidence: 99%

Secrecy and Patents: Theory and Evidence from the Uniform Trade Secrets Act

Png

2017

Strategy Science

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How should firms use patents and secrecy as appropriability mechanisms? Consider technologies that differ in the likelihood of being invented around or reverse engineered. Here, I develop the profit-maximizing strategy: (i) on the internal margin, the marginal patent balances appropriability relative to cost of patents visa -vis secrecy, and (ii) on the external margin, commercialize products that yield non-negative profit. To test the theory, I exploit staggered enactment of the Uniform Trade Secrets Act (UTSA), using other uniform laws as instruments. The Act was associated with 38.6% fewer patents after one year, and smaller effects in later years. The Act was associated with larger effect on companies that earned higher margins, spent more on R&D, and faced weaker enforcement of covenants not to compete. The empirical findings are consistent with businesses actively choosing between patent and secrecy as appropriability mechanisms, and appropriability affecting the number of products commercialized.

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Section: Png: Theory and Evidence From The Uniform Trade Secrets Actmentioning

confidence: 99%

Secrecy and Patents: Theory and Evidence from the Uniform Trade Secrets Act

Png

2017

Strategy Science

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“…This need not imply that the rejection of the IDD does not affect innovation. In fact, Contigiani, Hsu, and Barankay () show that the (citation‐weighted) patent count decreases following the rejection of the IDD. Taken together, these results suggest that, while companies maintain their R&D budgets, they are less effective in converting their R&D into successful patents.…”

mentioning

confidence: 99%

Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine

Flammer

Kacperczyk

2019

Strategic Management Journal

162

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Research Summary We examine whether companies respond to the threat of knowledge leakage by strategically increasing their engagement in corporate social responsibility (CSR). To obtain exogenous variation in the threat of knowledge leakage, we exploit a natural experiment provided by the rejection of the inevitable disclosure doctrine (IDD) by several U.S. states. Using a difference‐in‐differences methodology we find that, following the rejection of the IDD, companies significantly increase their CSR. Our proposed rationale is that CSR helps mitigate knowledge leakage by (i) reducing employees' propensity to join a rival firm, and (ii) reducing employees' propensity to disclose the firm's valuable knowledge even if they join a rival firm. Evidence from a laboratory experiment, an online experiment, and a survey of knowledge workers is supportive of these arguments. Managerial Summary We study the role of CSR in companies' response to the threat of knowledge leakage—a major managerial challenge that has important implications for firms' innovation and competitiveness. We use three different research designs (an analysis of companies' CSR policies in response to an increased threat of knowledge leakage; a survey of knowledge workers; and an experiment conducted both online and in a laboratory setting). The results show that CSR is perceived to mitigate the threat of knowledge leakage. In particular, (i) CSR reduces knowledge workers' propensity to join rival firms (i.e., they are less likely to “walk”) and, even if they do, (ii) CSR reduces their propensity to disclose the firm's valuable knowledge to their new employer (i.e., they are less likely to “talk”).

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“…Noncompetes are just one of many within‐industry mobility frictions. Others include trade secret protections (Png, ), the inevitable disclosure doctrine (Contigiani, Hsu, & Barankay, ; Png & Samila, ) , patent laws (Ganco, Ziedonis, & Agarwal, ), and restrictive covenants such as nondisclosure and nonsolicitation agreements.…”

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confidence: 99%

Strategic human capital management in the context of cross‐industry and within‐industry mobility frictions

Starr

Ganco

Campbell

2018

Strategic Management Journal

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Research Summary: We develop and test a theory examining how frictions that restrict mobility across industries and frictions constraining mobility within an industry can co‐occur to effectively isolate individual human capital, ultimately changing the firm's make‐versus‐buy decision for human capital. Empirically, we demonstrate that when cross‐industry frictions in the form of limited skill transferability and within‐industry frictions in the form of noncompete enforceability are both present, employees exhibit longer tenures, firms hire workers with less initial experience, firms change the amount and nature of training provided, and wages marginally increase. These findings suggest that sufficiently strong and complementary mobility frictions shift the emphasis of firms’ human capital management practices toward internal development of human capital relative to acquisition on the external market. Managerial Summary: In the face of frictions to employee mobility both within and across industries, which we capture empirically using measures of noncompete enforceability and limited skill transferability across industries, firms tend to hire less experienced workers, such workers exhibit longer tenures, and firms invest more in their training, particularly in the development of new skills. Our findings imply that for firms operating under such complementary frictions, better hiring and internal development capabilities are particularly important for performance, while those firms without such capabilities may benefit from considering ways to circumvent the mobility frictions, including moving out of the focal state or lobbying for different noncompete laws.

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Trade Secrets and Innovation: Evidence from the 'Inevitable Disclosure' Doctrine

Cited by 17 publications

References 20 publications

Secrecy and Patents: Theory and Evidence from the Uniform Trade Secrets Act

Secrecy and Patents: Theory and Evidence from the Uniform Trade Secrets Act

Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine

Strategic human capital management in the context of cross‐industry and within‐industry mobility frictions

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