Does knowledge tradeability make secrecy more attractive than patents? An analysis of IPR strategies and licensing

Despite the considerable protection provided by the patent system, a surprisingly small number of firms use patents, instead favouring the use of secrecy. This suggests that natural market forces protect inventors so that formal protections are not necessary. Using firm-level data, this study provides the first empirical evidence on the relationship between knowledge tradeability and the choice of IPR protection methods. Consistent with recent theoretical results, we find that firms engaged in licensing agreements are more likely to use secrecy than patents and that the largest R&D investors tend to use secrecy more than patents. Also, large firms, or manufacturing firms of any size are more likely to use patents, whilst firms that obtain information from internal and non-market sources are more inclined to use secrecy.