Thursday 6 July 2017

The Increasing Value of Trade Secrets: Baker & McKenzie and Euromoney Release Trade Secret Report

The law firm of Baker and McKenzie (and Euromoney Institutional Investor Thought Leadership) has released a 22 page report titled, “Protect and Preserve: The Rising Importance of Trade Secrets.”  The authors surveyed 404 senior executives in industries which included Industrials; Financial Services; Consumer Goods/Retails; Information, Communication and Technology; and Chemical, Healthcare, Biotechnology, and Pharmaceuticals.  Over half of those surveyed reported that trade secrets were more valuable than other types of intellectual property for them.  Additionally, 69% of those surveyed believe that trade secrets will be even more important in the future because of the rapid change of technology.  Apparently, short product/service cycles coupled with the time required to obtain some IP rights (patents?) may make them less important.  The key findings of the report, include:

[1] In our survey, 82% of respondents said their trade secrets are an important, if not essential, part of their businesses. Among industries, 46% of financial services executives said they consider their trade secrets to be essential to their corporate strategy, followed by industrials and ICT executives (both 41%), healthcare (35%) and consumer goods and retail (27%).

[2] Among our respondents, 61% said that protecting their company trade secrets and IP is a board-level issue, reflecting the rising value of trade secrets in our digital age. Nearly one-third ranked it a top-five concern.

[3] Among the companies in our survey, 20% said they’ve had trade secrets stolen. Another 11% said they don’t know whether they’ve been the victim of misappropriation, indicating that the incidents of theft are likely higher. The healthcare industry is by far the most targeted, with 33% of those executives in our survey reporting that they’ve suffered trade secret theft, followed by industrials (18%) and ICT (17%).   

[4] When asked to identify the greatest threat to their trade secrets, 32% of our respondents said they most feared having trade secrets stolen by former employees, followed by suppliers, consultants and other third parties (28%), and current employees (20%). Another 15% said they most fear rogue or state-sponsored cybercriminals or hackers.

[5] Despite the heightened awareness of the importance of trade secrets, only 31% of our respondents said they have procedures in place to respond to the threat of or actual theft of trade secrets. Given that trade secrets are no longer protected once they become public, the question is how much more they should be doing to manage this risk.

The report identifies the apparent cause of the disconnect between the importance of trade secrets and the fact that companies have insufficient protection with the belief that many companies do not know which of their trade secrets are the most valuable until they are actually stolen.  One reason for this appears to be a failure to audit and perhaps a lack of clarity in valuing trade secrets.  Executives also seem to want stronger trade secret protection, particularly those based in Asia.  [Hat tip to Corporate Counsel for a lead to the report.]

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