Spill Your (Trade) Secrets: Knowledge Networks as Innovation Drivers

Abstract

Theories of intellectual property take the individual inventor or the firm as the unit of innovation. But studies in economic sociology show that in complex fields where knowledge is rapidly advancing and widely dispersed among different firms, the locus of innovation is neither an individual nor a single firm. Rather, innovative ideas originate in the informal networks of learning and collaboration that cut across firms. Understanding innovation in this subset of industries as emerging out of networks of informal information-sharing across firms challenges traditional utilitarian theories of trade secret law — which assume trade secret protection is needed to prevent excessive private, self-help efforts to preserve secrecy. Doctrinally, knowledge network research suggests that the scope of trade secret protection in these industries should be narrow. In these industries, strong trade secret rights that grant managers tight control over employee-inventors’ informal information-sharing practices are bad innovation policy. Rather, optimizing trade secret law requires tailoring the strength of protection to match industry characteristics, narrowing trade secret scope in those industries where informal information-sharing networks play a prominent role. In turn, because industry types tend to cluster around geographic centers, the importance of tailoring cautions against current trends towards uniformity by federalizing trade secret law and favors state experimentalism in designing trade secret law and policy.