Academic journal article Advances in Competitiveness Research

Trade Secret Piracy and Protection: Corporate Espionage, Corporate Sercurity and the Law

Academic journal article Advances in Competitiveness Research

Trade Secret Piracy and Protection: Corporate Espionage, Corporate Sercurity and the Law

Article excerpt


This paper outlines the legal remedies and constraints within which corporations must operate in order to protect against trade secret piracy arising from their own personnel and those of their business partners. Trade secret protection through the use of nondisclosure/noncompete agreements, employment screening and workplace monitoring are discussed. The legal parameters governing the implementation of these techniques are also delineated.


It has been estimated that approximately 70 percent of the market value of U.S. firms resides in their trade secrets and intellectual properties (ASIS/PriceWaterhouseCoopers, 1999). These critical organizational assets have come under increasing attack during the last decade from former employees, disgruntled workers, competitors and foreign governments (Horan, 2000; Freeh, 1998; Penneberg and Barry, 2000; Fialka, 1997; Fitzpatrick and Burke, 2001). The rate of trade secret theft tripled between 1992 and 1995 (Heffernan and Smartwood, 1996). In a survey of the Fortune 1000, firms reported over $45 billion in yearly losses of trade secrets and proprietary information (ASIS/PriceWaterhouseCoopers, 1999). Trade secret piracy results in the direct erosion of a firm's competitive advantage as well as a hesitancy on the part of business executives to support future innovation through aggressive R & D expenditures (Schweitzer, 1993).

While legislation such as the Economic Espionage Act (EEA) of 1996 may serve to dissuade some individuals and firms from committing thefts of trade secrets (Horan, 2000), many corporate security professionals believe that organizations need to proactively implement programs to deter this type of loss before it occurs. These recommendations rely heavily upon the use of nondisclosure/noncompete agreements, personnel screening and workplace monitoring of employees to contain/eliminate trade secret theft and preserve organizational competitiveness (Boni, 1999; Pitorri, 1998; Winkler, 1997; Fink, 2002). The present paper seeks to clarify the utility of these personnel-focused methodologies for combating corporate espionage and discusses the legal parameters/constraints within which they can be implemented to protect trade secrets.


The law differentiates trade secrets from other forms of intellectual properties such as patents. Patent protection requires organizations and individuals to publicly reveal detailed information about the design/operation of their invention. Protection of these inventions from unauthorized duplication or use is found within the legal parameters of the patent statute (U.S. Patent Law, 2002). Rather than disclosing such information, some businesses may prefer the use of trade secret law in order to protect and exploit the competitive advantages associated with their inventiveness. Trade secrets represent

   information, including a formula, pattern, compilation, program,
   device, method, technique, or process, that: (i) derives
   independent economic value, actual or potential, from not being
   generally known to, and not being readily ascertainable by proper
   means by other persons who can obtain economic value from its
   disclosure or use, and (ii) is the subject of efforts that are
   reasonable under the circumstances to maintain its secrecy
   (Uniform Trade Secrets Act of 1985, Sec. 1 (4)).

To secure legal protection for their trade secrets, organizations must generally meet two criteria. The first of these criteria involves the ability to establish the financial and competitive value of the proposed trade secret. The second criteria corresponds to actions undertaken to reasonably protect the trade secret (Religious Technology Center v. Netcom On-Line Communication Services, 1995). These security precautions include (a) advising employees that certain organizational information, processes and/or technologies have been assigned a trade secret designation; (b) limiting trade secret access to those persons with a legitimate need to know; (c) requiring persons with access to trade secrets to sign confidentiality agreements; (d) installing a variety of electro-mechanical and other physical security devices (e. …

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