The authors analyze how the law determines what information is protected and how that changes innovation organization.
The law provides explicit property rights to some kinds of information but not to others. This leads to some innovation being protected under a property rights model and some innovation being protected by other means that the law still affects. Legal doctrine thus affects organization of innovation.
- What classes of information are worthy of being protected is a central question. The law’s answer to this has a direct effect on the answer to the question, who should own the innovation?
- The organization of innovation depends largely on whether or not the innovation is legally protected. This can occur through patent law, trade secret law, copyright law, and the law of ideas.
- Control of innovation can exist and be allocated even absent property rights through access to the innovation and contractual restrictions on employee mobility, also known as covenants not to compete (CNCs).
- Even without property rights, in some instances, access to the innovation creates enough control that a firm can be profitable even though selling access to the innovation requires disclosure.
- Contractual restrictions on employee mobility are determined by CNCs. A CNC’s maximum strength is determined by law; the strongest CNCs can mimic instances where innovation is protected by property right.
- Reputation is a possible substitute for legal protection in the high-tech industry, but it is not easy to attain because of large amounts of suspicion and mistrust in innovation.
- The law sets the scope of property right protection by choosing either property based innovation organization or CNC based organization. The law has a dual role determining what is the most advantageous form of integration for technology-intensive firms.