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The effect of trade secret legal protection on venture capital investments: Evidence from the inevitable disclosure doctrine

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  • Castellaneta, Francesco
  • Conti, Raffaele
  • Veloso, Francisco M.
  • Kemeny, Carlos A.

Abstract

This study investigates how the inevitable disclosure doctrine, a form of trade secret legal protection, affects venture capital (VC) investment. Using a data set of VC deals realized in the United States from 1980 to 2012, we find that a rule in favor of inevitable disclosure increases the amount of VC investment. We address mechanisms that can explain these findings by assessing how the inevitable disclosure doctrine (a) displays a different impact on VC investments according to the characteristics of the state and the industry where the start-ups operate and (b) affects the performance of VC-backed firms. We also discuss managerial and policy implications of our findings.

Suggested Citation

  • Castellaneta, Francesco & Conti, Raffaele & Veloso, Francisco M. & Kemeny, Carlos A., 2016. "The effect of trade secret legal protection on venture capital investments: Evidence from the inevitable disclosure doctrine," Journal of Business Venturing, Elsevier, vol. 31(5), pages 524-541.
    • Handle: RePEc:eee:jbvent:v:31:y:2016:i:5:p:524-541
    DOI: 10.1016/j.jbusvent.2016.07.004
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    Cited by:

    1. Barankay, Iwan & Contigiani, Andrea & Hsu, David, 2018. "Trade Secrets and Innovation: Evidence from the “Inevitable Disclosure†Doctrine," CEPR Discussion Papers 13077, C.E.P.R. Discussion Papers.
    2. Andrea Contigiani & David H. Hsu & Iwan Barankay, 2018. "Trade secrets and innovation: Evidence from the “inevitable disclosure” doctrine," Strategic Management Journal, Wiley Blackwell, vol. 39(11), pages 2921-2942, November.
    3. Francesco Castellaneta & Raffaele Conti & Aleksandra Kacperczyk, 2020. "The (Un) intended consequences of institutions lowering barriers to entrepreneurship: The impact on female workers," Strategic Management Journal, Wiley Blackwell, vol. 41(7), pages 1274-1304, July.
    4. Contigiani, Andrea & Testoni, Marco, 2023. "Geographic isolation, trade secrecy, and innovation," Research Policy, Elsevier, vol. 52(8).
    5. Bradley, Daniel & Hu, Dan & Yuan, Xiaojing & Zhang, Chi, 2023. "Trade secret protection and product market dynamics," Journal of Corporate Finance, Elsevier, vol. 83(C).
    6. Sofka, Wolfgang & de Faria, Pedro & Shehu, Edlira, 2018. "Protecting knowledge: How legal requirements to reveal information affect the importance of secrecy," Research Policy, Elsevier, vol. 47(3), pages 558-572.
    7. Fedorenko, Ivan & Berthon, Pierre & Edelman, Linda, 2023. "Top secret: Integrating 20 years of research on secrecy," Technovation, Elsevier, vol. 123(C).
    8. Contigiani, Andrea & Hsu, David H. & Barankay, Iwan, 2018. "Trade secrets and innovation: Evidence from the "inevitable disclosure" doctrine," Discussion Papers, Research Unit: Economics of Change SP II 2018-303, WZB Berlin Social Science Center.
    9. Oz Shy & Rune Stenbacka, 2023. "Noncompete agreements, training, and wage competition," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 32(2), pages 328-347, April.

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    More about this item

    Keywords

    Intellectual property rights protection; Trade secrets; Inevitable disclosure doctrine; Venture capital; Legal environment;
    All these keywords.

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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