Keeping Invention Confidential

This study investigates use of a prevalent but rarely studied form of intellectual property protection: trade secrets. Building on existing survey evidence of firm-level, cross-sectional use of secrecy, we document the effect of stronger legal trade secret protection on the use of trade secrets, and the rate and nature of secret innovation. Our setting is the US oil and gas hydraulic fracturing (fracking) industry, from 2013 to 2018, in states where firms are required to disclose fracking ingredients to regulators barring 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 trade secret protection. We find substantial increases in the use of secrets, the generation of new secrets, the use of both external and internal secrets, and breadth of secret invention, as well as project complexity. Our results provide rare systematic empirical evidence on actual trade secret use and document how stronger formal appropriability shapes secret innovation.