The relative effectiveness of patents and secrecy for appropriation

Changes in patent law, global competition, and the rise of several new technologies suggest that patents could be of greater value than secrecy for many innovative firms, particularly small firms that are unable to use market power or other factors to appropriate their investments in innovation. Data from the 1993 European Community Innovation Survey (CIS) for up to 2849 R&D-performing firms is analysed to determine the relative importance of secrecy vs. patents. This particular combination of appropriation methods is interesting because secrecy can act as a mutually-exclusive alternative to patents. The results show that a higher percentage of firms in all size classes rate secrecy as more valuable than patents. However, ordered logit regressions show that the probability that a firm rates secrecy as more valuable than patents declines with an increase in firm size for product innovations, while there is no relationship for process innovations. The firm's R&D intensity has no effect on the relative value of secrecy vs, patents. There is weak evidence to show that participation in cooperative R&D increases the value of patents over secrecy for product innovations. The results are relevant to ongoing debates over changes to the patent system and the need for policies to encourage small firms to patent more. (C) 2001 Elsevier Science B.V. All rights reserved.