Hiding in the Patent’s Shadow: Firms’ Uses of Secrecy to Capture Value from New Discoveries

This paper examines firms’ uses of secrecy and patenting in order to explore three elementary questions of firm intellectual property strategy: First, are there complementarities between patenting and secrecy that firms exploit when crafting their technology market strategies? Second, what drives the firm’s choice of a patent-secret mix when developing a strategy to sustain to itself competitive advantage? And third, what are the consequences for the firm of one or another choice or mix? I argue that the use of the U.S. "continuation" procedure affords patent applicants a strategic opportunity. Because continuation practice allows pre-issue application delay, pursuing a continuation patenting strategy may allow the firm to better control the technology development and appropriation process, in terms of the timing of disclosures and managing technological change, preserving an early patent priority date for the invention while protecting an extended period of secrecy against competitors’ discovery. A strategic opportunity arises from the added term of secrecy that the continuation procedure affords to patent applicants. I argue that this period of secrecy may be a complement to the act of patenting itself. This paper employs data on the use by firms of continuation applications in the United States from 1975-1995 in order to empirically test the uses by firms of these secrecy strategies, and to compare these uses against other proposed motivations for patentees’ uses of the continuation application. Results support complementary uses by firms of patents and secrecy in their appropriability strategies.