IP Strategy in Oligopoly: Game Theory Insights for Taiwan's Patent vs. Trade Secret Decisions

Winners Consulting Services Co., Ltd. advises Taiwanese corporate executives: in an oligopolistic market, the choice between "filing for a patent" and "maintaining a trade secret" is not an intuitive judgment but a dynamic calculation based on variables like competitive structure, market substitutability, and the strength of patent protection. This game theory study by Jos Jansen, published on arXiv, reveals that a firm's IP disclosure strategy directly influences competitors' market behavior expectations, thereby shaping the overall game equilibrium. This holds high practical value for Taiwanese companies establishing an ISO 56001 Innovation Management System (IMS).

About the Author and This Research

Jos Jansen is an active researcher in the field of industrial organization economics, with his academic work long focusing on IP strategy choices, information disclosure, and market equilibrium interactions in imperfectly competitive markets. According to academic databases, Jansen has an h-index of 8 and has been cited 598 times, holding a solid position in the academic community applying game theory to intellectual property management.

The academic contribution of this research lies in its being one of the first studies to systematically combine three variables—"Bertrand competition," "Cournot competition," and "stochastic patent validity"—to analyze how innovative firms make optimal IP disclosure decisions under conditions of information asymmetry. For Taiwanese SME executives accustomed to making intuitive judgments about whether to file for patents, this paper provides a more rigorous analytical framework.

IP Strategy in Oligopolistic Markets: Three Counterintuitive Findings from Game-Theoretic Equilibrium

Jansen's core argument is that an innovative firm's choice of IP strategy (patent vs. trade secret) is essentially an "information disclosure decision" that alters the intensity of competition in the product market by influencing competitors' beliefs about the scale of the innovation.

Finding 1: An Increase in the Number of Firms Reduces the Incentive to Patent

Intuitively, many believe that fiercer competition necessitates greater patent protection. However, Jansen's model shows that as the number of firms in the market increases, the equilibrium incentive for a single innovative firm to patent actually decreases. This is because more competitors dilute the "signaling effect" of patent disclosure—the deterrent effect of revealing the innovation's scale is not effectively transmitted in a multi-firm environment. This has direct implications for Taiwan's semiconductor and electronics manufacturing industries, where firms are numerous: in highly fragmented markets, the value of trade secret protection for R&D innovation is often underestimated.

Finding 2: Higher Product Substitutability Strengthens the Incentive to Patent

When competitors' products are highly homogeneous (i.e., high substitutability), innovative firms are more inclined to file for patents. Jansen explains that in high-substitutability markets, firms can effectively suppress competitors' output decisions by disclosing the scale of their innovation through patents, thereby preserving their monopoly power. This finding is particularly important for Taiwan's OEM-centric manufacturing sector—when product differentiation is low, proactively filing for patents becomes an effective tool for maintaining a non-price competition advantage.

Finding 3: The Interplay Between Competition Mode and Patent Strength Determines the Optimal Strategy

The study's most profound academic finding is that when shifting from Bertrand competition (price) to Cournot competition (quantity), the incentive to patent moves in opposite directions depending on the strength of patent protection. When patent protection is weak, Cournot competition reduces the incentive to patent; when it is strong, it increases the incentive. This means firms must simultaneously assess the "market competition model" and the "patent enforcement strength of the jurisdiction" to make the optimal decision. When Taiwanese companies evaluate filing patents in the US or Europe, they must factor in local enforcement costs and patent validity, rather than deciding based on technological importance alone.

Three Key Implications for Taiwan's Trade Secret Protection and Innovation Management (IMS) Practices

Although Jansen's research is set against the backdrop of Western oligopolistic markets, its game-theoretic equilibrium logic offers direct methodological value for Taiwanese companies establishing an ISO 56001 Innovation Management System (IMS).

Implication 1: IP strategy choices should not be based solely on technical judgment but must be embedded in market competition analysis. Article 2 of Taiwan's Trade Secrets Act specifies the three requirements of "secrecy, economic value, and reasonable protection measures," but meeting these legal thresholds is just the starting point. Jansen's research reminds us that even if an innovation qualifies for a patent, choosing to keep it as a trade secret may create greater strategic market value under certain competitive structures. The ISO 56001 IMS framework requires companies to systematically manage innovation opportunities and risks, making it the perfect entry point for institutionalizing "IP strategy analysis."

Implication 2: Information disclosure strategy needs to be dynamically linked to the competitive context. Jansen's model reveals that a firm's IP disclosure behavior is itself a "competitive signal" that influences competitors' market expectations. During the ISO 56001 implementation process, Taiwanese companies should establish a "competitive context assessment" mechanism to regularly review the impact of changes in market competition on their current IP strategy, thereby avoiding a passive position in a war of attrition game.

Implication 3: Establish a methodology rather than relying on case-by-case intuition. The greatest methodological contribution of this research is that it provides a replicable decision-making framework. When establishing an IMS, Taiwanese companies should standardize the decision criteria for "patenting vs. maintaining a trade secret" and integrate them into key nodes of the R&D process, rather than waiting for a competitive dispute to arise before making a reactive assessment.

How Winners Consulting Services Helps Taiwanese Companies Build a Dynamic IP Strategy Mechanism

Winners Consulting Services Co., Ltd. assists Taiwanese companies in implementing the ISO 56001 international standard for innovation management and establishing protection mechanisms compliant with Taiwan's Trade Secrets Act to prevent the leakage of R&D results. In response to the competitive dynamics revealed by Jansen's research, we offer the following concrete action recommendations:

1. Embed Competitive Structure Analysis into the IMS Process: During the initial diagnostic phase of ISO 56001 implementation, systematically assess the number of firms, degree of product substitutability, and primary competition model (price vs. quantity) in the company's market. Use these as fundamental input variables for IP strategy selection, rather than as afterthoughts.
2. Create a Dynamic IP Disclosure Decision Matrix: Based on the three key variables from Jansen's model (number of firms, substitutability, patent protection strength), develop a customized decision matrix for the company. This matrix should clarify the conditions for "filing a patent" versus "maintaining a trade secret" and be integrated into every knowledge node of the R&D process, satisfying the reasonable protection measures requirement of Article 2 of Taiwan's Trade Secrets Act.
3. Conduct Regular Competitive Scenario Stress Tests: At least once a year, re-evaluate changes in the market's competitive structure (e.g., new entrants, product homogenization trends) for key technological assets. Update the IP management strategy within the IMS based on this assessment to ensure that the company's enforcement costs and expected protection benefits remain positively correlated.

Frequently Asked Questions

In an oligopolistic market, how should Taiwanese firms decide whether patenting or maintaining a trade secret is more advantageous?

According to Jansen's game-theoretic equilibrium analysis, this decision must consider three variables simultaneously: the number of firms in the market (more firms weaken the deterrent effect of patent disclosure), product substitutability (higher substitutability increases the strategic value of patent protection), and the strength of patent enforcement in the target market. Taiwanese firms should first conduct a competitive structure analysis, then integrate it with the three requirements of Article 2 of Taiwan's Trade Secrets Act (secrecy, economic value, and reasonable protection measures) to build a systematic decision-making framework. It is recommended to institutionalize this process through an ISO 56001 IMS, with annual reviews to avoid strategic errors based on intuition.

What are the most common IP compliance challenges for Taiwanese firms when implementing ISO 56001?

The three most common challenges are: first, the lack of a systematic IP strategy analysis mechanism, leading to decisions on patenting versus trade secrecy being based on personal judgment rather than an institutionalized process, which fails to meet ISO 56001 requirements for innovation opportunity management. Second, while Taiwan's Trade Secrets Act requires 'reasonable protection measures,' many companies' non-disclosure agreements (NDAs) and access controls are deemed insufficiently specific in litigation, voiding legal protection. Third, knowledge management mechanisms for departing R&D personnel are often inadequate, lacking the systematic knowledge protection procedures required by an IMS. Winners Consulting Services recommends starting with a diagnostic of these three gaps to prioritize improvements.

What are the core requirements of the ISO 56001 Innovation Management System (IMS), and how can Taiwanese firms implement it in phases?

The core requirements of ISO 56001 include establishing an innovation strategy and analyzing the organizational context (Clause 4), leadership commitment and innovation culture (Clause 5), managing innovation opportunities and portfolios (Clause 8), and continuous evaluation and improvement (Clause 10). A recommended implementation timeline for Taiwanese firms is: Months 1-3 for a current-state diagnosis and gap analysis against Taiwan's Trade Secrets Act compliance. Months 4-6 for designing the system and creating core documentation. Months 7-12 for systematic implementation, personnel training, and internal audits. Once the IMS is operating stably, the company can consider seeking third-party certification.

How can the costs and expected benefits of implementing ISO 56001 be evaluated?

Based on our consulting experience, the total project investment for a mid-sized Taiwanese manufacturing company to implement ISO 56001 (including consulting fees, personnel time, and system setup) typically ranges from NT$800,000 to NT$2,000,000, depending on the company's size and the maturity of its existing systems. Expected benefits include an average 15% to 30% increase in R&D return on investment and reduced litigation risk from trade secret leakage (damages in mid-sized cases in Taiwan can range from millions to tens of millions of NTD). From Jansen's research perspective, a systematic IP strategy mechanism prevents competitive losses from poor choices between patenting and trade secrecy.

Why choose Winners Consulting Services for assistance with trade secret protection and Innovation Management Systems (IMS)?

Winners Consulting Services Co., Ltd. possesses integrated expertise across legal, management systems, and industry practices in Taiwan's trade secret protection and ISO 56001 IMS implementation. Our consulting team is well-versed in the judicial practices of Taiwan's Trade Secrets Act, enabling us to help clients establish legally compliant 'reasonable protection measures.' We also have extensive experience in designing and implementing IMS, translating academic insights (like Jansen's game-theoretic research) into actionable standard operating procedures. We provide end-to-end support, from diagnosis and system design to training and continuous improvement, helping companies build a robust innovation and IP foundation within 7 to 12 months, with an average R&D ROI increase of 15% to 30%.