Protecting Trade Secrets Is Beneficial

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Firms develop some technologies that might not be patentable, might not be worth the cost of applying for a patent, or might be more valuable if kept undisclosed. They prefer to keep knowledge of such processes proprietary as trade secrets, or undisclosed information. Trade secrets are protected by legal rules against learning by rivals through dishonest means. Such protection lapses if the technologies are discovered by fair means, such as independent invention or reverse engineering. Protecting trade secrets is beneficial to the extent it encourages the development and commercial use of sub-patentable inventions. Rules protecting trade secrets thus promote adaptive innovation and encourage learning through legal means. Research and…show more content…
R&D creates externalities and is a public good, its sale or use does not preclude others using it and can be consumed by many without lessening its value (indeed we will argue that the greater the use of it, in many cases the higher its value). It is difficult to price ideas to sell since this requires revealing them and avoid the need to pay. Firms with innovations to sell are therefore unable to do so. There are of course some caveats to these problems. Only firms which are already well informed in the relevant R&D are able to understand and exploit such research innovations ie developments in research knowledge, although difficult to exclude others from knowing, are in fact difficult to understand and develop further without the necessary absorptive capacity (Cohen and Levinthal 1990). Only those people with considerable investment already in that area will be able to carry the ideas forward and exploit them. Hence only those firms with substantial existing R&D departments will be in a position to commercialize the new research innovations of another producer. Problems of appropriability are essentially about the low costs of transmitting information and if these costs turn out to be high, then appropriability as a problem diminishes. Another caveat to the seriousness of the appropriability problem is that firms with innovations benefit from being first in the field with information and capture rents
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