How innovating firms manage knowledge leakage: A natural experiment on the threat of worker departure

Research Summary Knowledge protection strategies are crucial to innovating firms facing the risk of knowledge leakage. We examine threat worker departure as a key mechanism through which choose between patents and secrecy. exploit 1998 California court decision that ruled out-of-state noncompetes were not enforceable in California, thereby creating loophole limiting non-California their enforcement against workers. When higher departure, strategically increased patent filings, exchanging legal for public disclosure invention. These effects magnified large-sized those complex fast-growing industries. Further tests on possession trade secrets, inventor migration, saliency decision, independent inventors support our theoretical account. Managerial Innovating may use or secrecy, among other mechanisms, protect from How do make this important strategic choice? By using natural experiment arising we show can be driver. The significantly workers departing firms. Our findings that, response heightened risk, affected increasingly relied patents, seeking although it meant greater encourage managers consider mobility and, more broadly, environments govern labor market conditions when formulating strategies.