Trade Secrets and Innovation: Evidence from the ‘Inevitable Disclosure’ Doctrine

Authors: Andrea Contigiani, Iwan Barankay and David H. Hsu

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 unaffected 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 appears to be at work, our results are consistent with reduced individual-level incentives to signaling quality to the external labor market.

Citation: Contigiani, Andrea and Barankay, Iwan and Hsu, David H., Trade Secrets and Innovation: Evidence from the ‘Inevitable Disclosure’ Doctrine (October 2017).

Full text on SSRN: https://ssrn.com/abstract=3092880