05 July 2017

Companies at risk over lack of trade secret protection

Companies need to put in place measures to protect trade secrets as innovation drives the economy.

Hackers attacked unnamed U.S. law firm

One in five companies know or believe that their trade secrets have been stolen, with the healthcare industry most likely to be targeted, according to a survey by international law firm Baker McKenzie. The survey, which realed the growing importance of trade secrets, also found, however, that only one-third of companies maintain inventories of their trade secrets and have action plan for responding to trade secret theft.

Race to innovate

The fast pace of technological advancement has spurred on the issue and, as a consequence, trade secrets have become an increasingly preferred method of intellectual property protection, pushing the issue of trade secrets into corporate boardrooms. By industry, 46 per cent of the financial services executives said they consider trade secrets essential to their corporate strategy – the highest of any sector, followed by industrials and ICT (both 41 per cent). This compares with 27 per cent among consumer goods and retail executives. 

Basic measures to protect

'Throughout modern corporate history, some companies have gone to great lengths to safeguard their trade secrets. Colonel Sander’s handwritten original recipe for Kentucky Fried Chicken was famously kept locked in a safe at KFC Corporate headquarters. Today’s trade secrets are more susceptible to the threat of being hacked or downloaded, but they are of no less value to the companies that own them,' says Paul Rawlinson, global chair of Baker McKenzie. 'One of the more concerning survey findings was the fact that less than one-third of companies have taken basic measures to protect their trade secrets.'

Board-level issue

The report, 'The Board Ultimatum: Protect & Preserve,' revealed that four out of five (82 per cent) senior executives saw their trade secrets are an important, if not essential, part of their business, while 60 per cent say protecting trade secrets is a board-level issue. Theft by ex-employees and third-party suppliers are the biggest sources of anxiety among two-thirds of executives. The healthcare industry is by far the most targeted, with 33 per cent of  executives reporting that they have suffered trade secret theft. Notably and somewhat surprisingly in light of recent hacker attacks, corporate leaders most fear theft by former employees and third-party suppliers. 'Given that trade secrets are no longer protected once they become public and companies have no legal recourse unless they can prove the information was both valuable and secret, the question is whether the corporate world should be doing more to manage this risk,' says Kevin O'Brien, chair of Baker McKenzie's North America intellectual property practice.

Protective measures

The survey calls for companies to implement appropriate protective measures — from  securing computer networks and monitoring employee electronic use to providing training, developing corporate policies, and requiring anyone who comes into contact with trade secrets to sign non-disclosure agreements. 'Companies are on the front line of the battle because they are the victims,' says David Lashway, co-chair of Baker McKenzie's global cybersecurity practice. 'They do have an obligation to identify and protect trade secrets. But if a nation state actor has prioritized stealing their trade secrets as part of its national agenda for economic growth, the idea that a company is going to be able to successfully protect itself by itself is challenging to say the least.'

Obligations

New laws came into force last year to protect this type of valuable information — the US Defend Trade Secrets Act and the EU Trade Secrets Directive. Both laws reinforce the fact that corporate executives can no longer ignore their obligation to safeguard their trade secrets. 

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