In an age of rapidly advancing technology and an increased rate of cyberattacks, trade secrets are becoming more susceptible to hacking and other forms of theft. In a recent report by Baker McKenzie – The Board Room Ultimatum: Protect and Preserve – The Rising Importance of Safeguarding Trade Secrets – nearly half of the 404 senior executives interviewed indicated that their trade secrets are more important than their patents and trademarks. Despite the agreement on the importance of trade secret protection, the survey shows that fewer than one-third of companies have taken basic measures to protect their trade secrets.
For this report, Baker McKenzie partnered with Euromoney Institutional Investor Thought Leadership to understand the level of importance placed on trade secrets and the measures companies take to protect them. The survey found that a majority agree that trade secrets are an increasingly board-level concern. Nearly one third of respondents ranked trade secrets among their top five issues. Due to the rapid innovation in the tech industry, 69 percent said they believe trade secret protection is becoming more critical than other types of intellectual property protection. Among the various industries, financial services placed the most importance on trade secrets with 46 percent of financial services executives saying they are essential to their corporate strategy. This is followed by industrials and information communication technology (ICT) executives (both at 41 percent), healthcare (35 percent) and consumer goods and retail (27 percent).
Many companies only learn of their vulnerabilities in regard to their trade secrets when they face a breach. According to the report, 20 percent have had trade secrets stolen. More than 10 percent of respondents indicated they do not know whether they have been the victim of misappropriation, which indicates that there has been a higher likelihood of theft. Once a trade secret is made public, it is public knowledge and no longer protected under law, in contrast to patented information that can be recovered and enforced through injunctions. Despite this, the report found that only one-third of companies maintain inventories of their trade secrets and have action plans for responding to theft. The industry most targeted is healthcare with one third of healthcare executives claiming they have experienced trade secret theft. This is followed by industrials at 18 percent and ICT at 17.
The cost of trade secret theft exemplifies the importance of taking on protective measures. The report quoted research published in 2014 by PwC and the Center for Responsible Enterprise and Trade (CREATe.org) which estimated the value of trade secret theft in the US to be 1% to 3% of its GDP, or at the time, roughly US$200 billion to $550 billion per year. From this information, Baker McKenzie suggests the global cost of trade secret theft could be in the trillions.
The most commonly stolen trade secrets are business information such as customer lists, as well as technical knowhow and software. Furthermore, 32 percent of those surveyed indicated that they felt the greatest threat is having trade secrets stolen by former employees, followed by suppliers, consultants and other third parties (28 percent). This fear is justified because, as stated in the report, company employees and business partners are the biggest culprits.
The European Union and the United States have recently passed legislation that focuses on trade secret protection. However, the strongest approach requires a combination of corporate action and government enforcement. Companies should also be doing more to preserve their trade secrets. Baker McKenzie suggests that companies inventory their trade secrets, limit the number of people who know the information, develop technical controls to protect their trade secrets and train employees on the importance of trade secrets. Additionally, the report suggests companies should test their controls and implement action plans.
Read the full report here.
To learn more on what you can do to protect your organization’s trade secrets, read the CREATe report “Reasonable Steps” to Protect Trade Secrets: Leading Practices in an Evolving Legal Landscape.
Read the CREATe and PwC trade secret report on the Economic Impact of Trade Secret Theft.
Read the CREATe report on The Importance of Cybersecurity for Trade Secret Protection.
More resources on trade secret protection are located at www.CREATe.org/Resources.
CREATe.org’s wholly owned subsidiary – CREATe Compliance – offers cost-effective and practical assessments, independent evaluations and improvement plans as part of the service: CREATe Leading Practices for Trade Secret Protection.