Licensing and secrecy under imperfect intellectual property protection

Abstract

AbstractI consider a technology holder that has to decide whether to file for a patent or rely on secrecy, and a competing firm that can enter the market through technology transfer or imitation. Acknowledging that imitation is uncertain, imperfect, and takes time to materialise, as well as that intellectual property protection is not absolute, I find that technology transfer will always occur if the technological efficiency to imitate is sufficiently low. This will happen regardless of the protection choice of the inventor. Conversely, highly efficient imitation technologies will lead to imitation instead of licensing. I also consider that a trade secret might accidentally leak and thus lose its economic value, thereby rendering secrecy less preferable to patenting. Additionally, the risk of leakage might also lead to more imitation than licensing. Finally, considering that, in practice, the probability of leakage might increase with the number of firms practising a secret, I suggest an increase in the attractiveness of the patent system.