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Patents VS Trade Secrets: Knowledge Licensing and Spillover

Author

Listed:
  • Sudipto Bhattacharya
  • Sergei Guriev

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract
We develop a model of two-stage cumulative research and development (R&D), in which one research unit (RU) with an innovative idea bargains to license its nonverifiable interim knowledge exclusively to one of two competing development units (DUs) via one of two alternative modes: an open sale after patenting this knowledge, or a closed sale in which precluding further disclosure to a competing DU requires the RU to hold a stake in the licensed DU's postinvention revenues. Both modes lead to partial leakage of RU's knowledge from its description, to the licensed DU alone in a closed sale, and to both DUs in an open sale. The open sale is socially optimal; yet the contracting parties choose the closed sale whenever the interim knowledge is more valuable and leakage is sufficiently high. If the extent of leakage is lower, more RUs choose open sales, generating a nonmonotonic relationship between the strength of intellectual property rights and aggregate R&D expenditures and the overall likelihood of development by either DU.

Suggested Citation

  • Sudipto Bhattacharya & Sergei Guriev, 2006. "Patents VS Trade Secrets: Knowledge Licensing and Spillover," Post-Print hal-03595505, HAL.
    • Handle: RePEc:hal:journl:hal-03595505
    DOI: 10.1162/JEEA.2006.4.6.1112
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03595505
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    More about this item

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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