The Hidden Costs of Securing Innovation: The Manifold Impacts of Compulsory Invention Secrecy

Abstract

One of the most commanding powers of the U.S. Patent and Trademark Office (USPTO) is to compel inventions into secrecy, withholding patent rights and prohibiting disclosure, to prevent technology from leaking to foreign competitors. This paper studies the impacts of compulsory secrecy on firm invention and the wider innovation system. In World War II, USPTO issued secrecy orders to more than 11,000 patent applications, which it rescinded en masse at the end of the war. Compulsory secrecy caused implicated firms to shift their patenting away from treated classes, with effects persisting through at least 1960. It also restricted commercialization and impeded follow-on innovation. Yet it appears it was effective at keeping sensitive technology out of public view. The results provide insight into the effectiveness of compulsory secrecy as a regulatory strategy and into the roles, and impacts, of formal intellectual property in the innovation system. This paper was accepted by Toby Stuart, entrepreneurship and innovation. Funding: This work was supported by Harvard Business School (Division of Research and Faculty Development) and the National Bureau of Economic Research (Innovation Policy Grant). This material is based upon work supported by the National Science Foundation [Grant 1951470]. Supplemental Material: Data and the online appendices are available at https://doi.org/10.1287/mnsc.2022.4457 .

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