Modularity is a means of partitioning technical knowledge about a product or process. The impact of modularity on intellectual property protection by formally modeling the threat of expropriation by agents, the principal has three options to address this threat:

  • doing nothing,
  • licensing the focal IP ex ante, and
  • Paying agents to prevent their defection.

The principal can influence the value of these options by modularizing the technical system and by hiring clans of agents, thus exploiting relationships among them. The paper also gives examples of how managers arrive at a strategy in practice. Overall, the study contributes to the theory of profiting from innovation in three ways:

First, it shows how the innovator’s best choice of action against expropriation by agents-doing nothing, licensing, or paying agents-derives from the characteristics of the system, i.e., the share of trustworthy agents, the number of agents, the intensity of competition, the size of clans, the number of modules, and the degree of complementarities.

Second, the innovator can use clans and modularity to increase profits and the paper shows how clans and the modular architecture of the system interact to either reinforce or mitigate each other.

Third, social relationships and norms of fairness affect the normative implications of an analysis based on rational choice theory.

Intellectual Property Protection

Four types of IP Protection for Businesses:

Entrepreneurs and business owners need to understand the basics of intellectual property law to best protect their hard-earned creations and ideas from unfair competition. Here are four main types of intellectual property that you can use to protect your business.


Copyrights protect original works of authorship, such as literature, music, artistic works, and computer software. As the holder of a copyright, you have the exclusive right to reproduce, adapt, and distribute the work. A copyright exists from the moment the work is created, so registration is voluntary.


A patent grants property rights on inventions, allowing the patent holder to exclude others from making, selling or using the invention. You obtain a patent by filing an application with the U.S. Patent and Trademark Office (USPTO).

There are 3 types of patents: utility, design and plant. A utility patent is the most common type, and it covers any process, machine, article of manufacture, or composition of matter, or any new and useful improvements thereof.

To qualify for a utility patent, the invention must be novel, non-obvious, and have some usefulness.

A design patent covers any new, original, and ornamental design for an article of manufacture, while a plant patent covers any new variety of asexually-produced plant. A design patent lasts 14 years, and a utility or plant patent lasts 20 years.


A trademark is a word, phrase, symbol, or design that distinguishes the source of the goods of one business from its competitors.  For example, the Nike “swoosh” design identifies shoes that are made by Nike.

Although rights in trademarks are acquired by use, registration with the USPTO makes it easier to enforce those rights. Before registering your trademark, you should conduct a search of federal and state databases to ensure a similar trademark doesn’t already exist.

To apply, you must have a clear representation of the mark, as well as an identification of the class of goods or services to which the mark will apply. You can submit an online application, and filing fees vary according to several factors, including the form type and the number of classes of goods or services. Filing an application is complicated, so most applicants hire an attorney who specializes in trademarks.

 Trade Secrets

A trade secret is a formula, process, device, or other business information that companies keep secret to give them an advantage over their competitors.

Examples of trade secrets are: soda formulas, customer lists, survey results, and computer algorithms. Unlike the other types of intellectual property, you can’t obtain protection by registering your trade secret. Instead, protection lasts only as long as you take the necessary steps to control disclosure and use of the information.

Businesses use non-disclosure agreements, restricted access to confidential information, post-employment restrictive covenants, and other security practices to maintain trade secrets.


Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property (IP) rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect IP. We investigate the impact of modularity on IP protection by formally modeling the threat of expropriation by agents.