Thursday, February 22, 2018

Contigiani, Barankay & Hsu on the Innovation Costs of Inevitable Disclosure Doctrine

For those looking on more trade secret empirics after Michael's post on Tuesday: Researchers at the Wharton School—Andrea Contigiani, Iwan Barankay, and David Hsu—have an interesting empirical study of the inevitable disclosure doctrine in trade secret law: Trade Secrets and Innovation: Evidence from the 'Inevitable Disclosure' Doctrine. This controversial doctrine allows employers to prevent former employees from taking a new job that will "inevitably" require them to use trade secrets. The doctrine has been rejected in California and many other states, and the federal Defend Trade Secrets Act of 2016 allows states to make this public policy choice. This new paper from Contigiani et al. provides some support for the California approach. Here is the abstract:
Does heightened employer-friendly trade secrecy protection help or hinder innovation? By examining U.S. state-level legal adoption of a doctrine allowing employers to curtail inventor mobility if the employee would "inevitably disclose" trade secrets, we investigate the impact of a shifting trade secrecy regime on individual-level patenting outcomes. Using a difference-in-differences design taking unaffected U.S. inventors as the comparison group, we find strengthening employer-friendly trade secrecy adversely affects innovation. We then investigate why. We do not find empirical support for diminished idea recombination from suppressed inventor mobility as the operative mechanism. While shifting intellectual property protection away from patenting into trade secrecy appears to be at work, our results are consistent with reduced individual-level incentives to signaling quality to the external labor market.
By "innovation" they mean citation-weighted patent counts, and this paper should be read with all of the usual caution and caveats for causal empirical studies. But I haven't seen a paper that has attempted this particular empirical approach before, so I thought it was interesting and worth a read by trade secrets scholars.

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