Constellation IP and environmental quality

We consider optimal intellectual property (IP) policy when (1) firms embed ‘constellations’ of IP—patented, secret/non-patentable, and patentable-but-secret innovations—into products such as communication satellites operating in low Earth orbit and (2) an innovation may improve both product performance and ambient environmental quality. For instance, a materials science innovation by SpaceX that is shared via patent licensing could raise the technical performance of all satellites in low Earth orbit and at the same time reduce orbital debris. Traditional IP policy helps innovators monetize spillover technological benefits by combining patent licensing rights with the right of competitors to reverse engineer patentable-but-secret innovations. However, we show that when disclosure of an innovation also creates spillover environmental improvements, licensing policies that address only the technological knowledge spillover are inefficiently weak. We characterize the conditions under which private firms will hold secret more patentable innovations than are socially optimal. We then suggest implementable IP policies for jointly promoting technical innovation and environmental quality improvements.