Visibility of Technology and Cumulative Innovation: Evidence From Trade Secrets Laws

Innovation depends on the incentives to create new ideas as well as access to existing ones. Access, in turn, depends on the inherent visibility of an initial invention and on the inventor's decision to disclose it, for example, by patenting. Compared to product innovations, process innovations tend to be less visible, making secrecy as an intellectual property strategy relatively more attractive; and stronger trade secrets protection laws could hamper their disclosure even further. Using exogenous variation in the level of trade secrets protection from the Uniform Trade Secrets Act, we show that stronger protection has a disproportionately negative effect on patenting of processes. We further show in simulations that these changes in disclosure can have large implications for follow‐on innovation and welfare.