Choosing the Scope of Trade Secret Law when Secrets Complement Patents
Posted: 26 Jan 2010 Last revised: 15 May 2014
Abstract
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 some conditions a broad scope of trade secret law is socially beneficial despite the innovator is over-rewarded.
Keywords: Knowledge Spillovers, Duplication Costs, covenants not to compete, inevitable disclosure
JEL Classification: O31, O32
Suggested Citation: Suggested Citation