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

40 Pages Posted: 31 Jul 2018

See all articles by Iwan Barankay

Iwan Barankay

University of Pennsylvania - Management Department; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Andrea Contigiani

Fisher College of Business, Ohio State University

David H. Hsu

University of Pennsylvania - Management Department

Date Written: July 2018

Abstract

Does heightened employer-friendly trade secrecy protection help or hinder innovation? By examining U.S. state-level legal adoption of a doctrine allowing employers to curtail inventor mobility if the employee would "inevitably disclose" trade secrets, we investigate the impact of a shifting trade secrecy regime on individual-level patenting outcomes. Using a difference-in-differences design taking un-affected U.S. inventors as the comparison group, we find strengthening employer-friendly trade secrecy adversely affects innovation. We then investigate why. We do not find empirical support for diminished idea recombination from suppressed inventor mobility as the operative mechanism. While shifting intellectual property protection away from patenting into trade secrecy has some explanatory power, our results are consistent with reduced individual-level incentives to signaling quality to the external labor market.

Keywords: Innovation, inter-firm mobility, knowledge workers, labor markets, signalling, trade secrets

JEL Classification: J08, O31, O34

Suggested Citation

Barankay, Iwan and Contigiani, Andrea and Hsu, David H., Trade Secrets and Innovation: Evidence from the 'Inevitable Disclosure' Doctrine (July 2018). CEPR Discussion Paper No. DP13077, Available at SSRN: https://ssrn.com/abstract=3222590

Iwan Barankay (Contact Author)

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Andrea Contigiani

Fisher College of Business, Ohio State University ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.andreacontigiani.info

David H. Hsu

University of Pennsylvania - Management Department ( email )

The Wharton School
Philadelphia, PA 19104-6370
United States
215-746-0125 (Phone)
215-898-0401 (Fax)

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