Keeping Invention Confidential

This study investigates the use of a prevalent but rarely studied form of intellectual property protection: trade secrecy. Building on existing survey evidence of firm-level, cross-sectional use of secrecy, we document the effect of stronger legal protections for trade secrets on the project-level use of such secrets. Our setting is the U.S. oil and gas hydraulic fracturing industry, from 2014 to 2018, in states where firms are required to disclose fracturing fluid ingredients to regulators except for substantiated claims of trade secrets. We examine how the enactment of the federal 2016 Defend Trade Secrets Act (DTSA) affects well-level trade secret use across states with varying levels of pre-DTSA protection. We find substantial increases in the use and novelty of trade secrets. Further, wells with trade secret ingredients are, on average, more productive. However, the DTSA exerts limited additional effect on trade secret–related productivity. Supplementary tests address alternative explanations, show no evidence of intellectual property substitution, and provide additional support that we are capturing policy effects. Our results provide rare empirical evidence on actual trade secret use and enhance our understanding of how appropriability shapes use of trade secrets and associated inventive activity. This paper was accepted by Toby Stuart, entrepreneurship and innovation. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2022.01138 .