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

Stronger trade secrets law affects patenting in conflicting ways. It raises the return to commercialization and increases the exploitation of inventions, and so, increases patenting. However, for each particular invention, businesses may substitute secrecy for patents. Here, I exploit differences in the timing of the Uniform Trade Secrets Act (UTSA) in U.S. states and the impact on manufacturers with different geographic distribution of R&D to study the effect of stronger trade secrets law on patenting. The UTSA was associated with 19.5 percent fewer patents in complex technology industries but no significant effect in discrete technology industries. Further, the UTSA was associated with relatively greater reduction of patenting of larger inventions, among larger companies which are technology laggards, and in less competitive industries.