Because trade secret protection takes effect immediately, companies often opt for this type of protection when an invention is at risk of becoming obsolete by the time they obtain a patent, or when their competitive advantage depends on being first to market.
At the same time, this wave of tech innovation has emboldened so-called threat actors. Such actors can remove vast amounts of company data in seconds, and the proliferation of internet usage has put companies at greater risk of being hacked by their competitors, foreign governments and hacktivist groups.
State-sponsored economic espionage might be the preserve of spy thrillers, but in a cyber-enabled globalized economy, it’s real and rising. All of this pushes the issue of trade secrets and the importance of protecting them into corporate boardrooms. But is it being tackled the way it should?
“Most of the CEOs we speak to recognize the importance of trade secrets to their businesses, but we still see too many who have their ‘aha!’ moment when their company becomes a victim,” says Mark Elliot, executive vice president of the US Chamber of Commerce’s Global Intellectual Property Center. “Only then do they realize that they should have done more to protect their trade secrets.”
That’s one of the reasons why calculating the global value of trade secrets theft is so difficult, along with the facts that different industries measure this type of theft in different ways, and some companies avoid reporting incidents for fear of reputational and financial damage.

As a result, there are no official global or national statistics on the total value of trade secret theft, which means the exact size of the problem is still unknown, with only estimates to go on. Research published in 2014 by PwC and the Center for Responsible Enterprise and Trade, for example, estimated the value of trade secret theft in the US to be 1% to 3% of its GDP, the equivalent of US$200 billion to $550 billion per year. Extrapolating that estimate to other advanced industrial economies could put the global cost of trade secret theft in the trillions.

What is known is that the number of trade secret court cases has been rising exponentially. In the US, for example, judges in US district and state appellate courts issued rulings in 325 trade secrets cases in 2015 – roughly three times the number of judgments in 2005, according to research by professional services firm Willamette Management Associates.
Willamette’s analysis shows that the highest proportion of these cases involved companies in the ICT and “miscellaneous services” sectors. Other targeted industries include chemicals, consumer products, healthcare and utilities. The study also found that business information such as customer lists, as well as technical knowhow and software, are the most commonly stolen trade secrets, and that company employees and business partners are the biggest culprits.
These findings are in line with our own survey results, as the incidents of trade secret theft continue to rise, driven by the acceleration of innovation across global industry. In turn, this rapid rate of innovation has caused trade secrets to become an increasingly preferred method of protection, particularly when speed is of the essence.
Unlike other types of intellectual property, trade secrets do not require filing applications with the government. To protect them, all companies need to do is take steps to keep the information confidential. Some companies opt to protect some of their intellectual property as trade secrets for that very reason – to avoid having to disclose the confidential information during the patent application process.
Because the onus to keep trade secrets a secret lies solely with the company, it’s important that corporate leaders understand the magnitude of the responsibility. Although our survey results show trade secrets have captured the attention of CEOs and other board-level executives, it also shows a lack of urgency and awareness of the steps they should take to protect them.
“Many times companies are not going to know if they have had trade secrets stolen, particularly if it’s a computer intrusion,” says John Robertson, a supervisory special agent and the intellectual property rights liaison in the FBI’s criminal investigative division. “The more savvy criminals are not going to hack into your system and steal everything in one go. They’re going to break in, lurk, read emails, find out what your crown jewels are, and then extricate them in such a way that you will not know.”
Ask any senior executive at a multinational company about trade secrets and they will likely say they play an important, if not essential, part in their corporate strategy. Such is the growing commercial power of trade secrets, defined as any confidential business information that gives a company a competitive edge, such as manufacturing techniques, computer algorithms, marketing strategies, recipes, supplier lists, and pricing information.
In terms of where trade secrets theft originates from, which of the following are you most fearful of?
Most of the CEOs we speak to recognize the importance of trade secrets to their businesses, but we still see too many who have their ‘aha!’ moment when their company becomes a victim.
To what extent do trade secrets and IP play a part in your brand value and corporate strategy?
As far as you are aware, has your company had valuable information/trade secrets stolen?
© 2019 Baker McKenzie