Patent law provides one channel for protecting intangible assets. Kim and Marschke(2001)argue that firms patent to reduce the incidence of employees leaving to start or join rival firms(see also Merges, 1999). But not all intangible assets qualify for patent protection, and some lack the minimal degree of verifiability necessary for patent protection. The law provides alternative channels for controlling the use of intangible assets by employees. Trade secret law is one such channel(Merges et al., 2003). Another channel focuses on direct limitations on employee mobility, through the law governing non-compete clauses. See Aghion and Tirole(1994), Gilson(1999), Baccara and Razin (2002), Hellmann(2002)and Burk(2004) The theory of the firm literature presumes the viability of both the market option and the firm alternative, and proceeds to study the optimal choice between these two options. The viability of both options, however, depends on the law's willingness to Dgnize property rights in intangibles. Sections 2 and 3 argued that without such property rights innovation that should have ideally been mediated by the market would be forced into the confines of a single firm. The present section suggested that even the firm haven relies on some form of legal protection Intellectual property law directly affects the structure and organization of technology-intensive industries by imposing an often binding constraint on the choice between integration and non-integration. This characterization of legally determined appropriability as a constraint on organizational choice provides a simple theoretical link between the growing literature on the organization of innovation and the conventional TCE and Property Rights theories of the firm The predictions of our model sit well with the empirical evidence on the relationship between legal and organizational variations. Recently intellectual property law has made it easier to obtain patent protection for embryonic inventions(see, e. g Mazzoleni and Nelson, 1998). The increasing importance of small specialty r&D firms (see, e.g., Arora and Merges, 2004), the increase in the number of university patents (described, for example, in Arora et al., 2001, sec. 10.4), and the prevalence of non- integration, non-equity research alliances and joint-ventures(see, e.g., Sampson, 2004 can be at least partially explained by the relaxation of the legal patentability requirements. Similarly, the growth of the venture capital industry arguably was stimulated by the law's increasing willingness to grant intellectual property rights to small research start-ups-the archetypal user of venture capital funding. Looking our analysIs y identifying the different channels through which intellectual property law affects the boundaries between firm and market, suggests a range of testable predictions that we hope will motivate future empirical work 6Patent law provides one channel for protecting intangible assets. Kim and Marschke (2001) argue that firms patent to reduce the incidence of employees leaving to start or join rival firms (see also Merges, 1999). But not all intangible assets qualify for patent protection, and some lack the minimal degree of verifiability necessary for patent protection. The law provides alternative channels for controlling the use of intangible assets by employees. Trade secret law is one such channel (Merges et al., 2003). Another channel focuses on direct limitations on employee mobility, through the law governing non-compete clauses. See Aghion and Tirole (1994), Gilson (1999), Baccara and Razin (2002), Hellmann (2002) and Burk (2004). The theory of the firm literature presumes the viability of both the market option and the firm alternative, and proceeds to study the optimal choice between these two options. The viability of both options, however, depends on the law’s willingness to recognize property rights in intangibles. Sections 2 and 3 argued that without such property rights innovation that should have ideally been mediated by the market would be forced into the confines of a single firm. The present section suggested that even the firm haven relies on some form of legal protection. 5. Conclusion Intellectual property law directly affects the structure and organization of technology-intensive industries by imposing an often binding constraint on the choice between integration and non-integration. This characterization of legally determined appropriability as a constraint on organizational choice provides a simple theoretical link between the growing literature on the organization of innovation and the conventional TCE and Property Rights theories of the firm. The predictions of our model sit well with the empirical evidence on the relationship between legal and organizational variations. Recently intellectual property law has made it easier to obtain patent protection for embryonic inventions (see, e.g., Mazzoleni and Nelson, 1998). The increasing importance of small specialty R&D firms (see, e.g., Arora and Merges, 2004), the increase in the number of university patents (described, for example, in Arora et al., 2001, sec. 10.4), and the prevalence of non￾integration, non-equity research alliances and joint-ventures (see, e.g., Sampson, 2004) can be at least partially explained by the relaxation of the legal patentability requirements. Similarly, the growth of the venture capital industry arguably was stimulated by the law’s increasing willingness to grant intellectual property rights to small research start-ups—the archetypal user of venture capital funding. Looking forward, our analysis, by identifying the different channels through which intellectual property law affects the boundaries between firm and market, suggests a range of testable predictions that we hope will motivate future empirical work. 6