What's It Worth to Keep a Secret?

47 Pages Posted: 17 Feb 2016 Last revised: 23 Oct 2016

See all articles by Gavin C. Reid

Gavin C. Reid

University of St Andrews

Nicola Searle

University of London - Goldsmiths College

Saurabh Vishnubhakat

Texas A&M University School of Law; Duke University School of Law

Date Written: May 29, 2015

Abstract

This article is the first major study of protection and valuation of trade secrets under federal criminal law. Trade secrecy is more important than ever as an economic complement and substitute for other intellectual property protections, particularly patents. Accordingly, U.S. public policy correctly places a growing emphasis on characterizing the scope of trade secrets, creating incentives for their productive use, and imposing penalties for their theft. Yet amid this complex ecosystem of legal doctrine, economic policy, commercial strategy, and enforcement, there is little research or consensus on how to assign value to trade secrets. One reason for this gap is that intangible assets in general are notoriously difficult to value, and trade secrecy by its opaque nature is ill-suited to the market-signaling mechanisms that offer at least some traction in other forms of valuation. Another reason is that criminal trade secret law is relatively young, and the usual corrective approaches to valuation in civil trade secrecy are not synonymous with the greater distributive concerns of criminal law. To begin to fill this gap, we examine over a decade of trade secret protection and valuation under the U.S. Economic Espionage Act of 1996. From original data on EEA prosecutions, we show that trade secret valuations are lognormally distributed as predicted by Gibrat’s Law, with valuations typically low on the order of $5 million but reaching as high as $250 million. There is no notable difference among estimates from various valuation methods, but a difference between high and low estimates on one hand and the sentencing estimates on the other. These findings suggest that the EEA has not been used to its full capacity, a conclusion buttressed by recent Congressional actions to strengthen the EEA.

Keywords: intellectual property, trade secrets, federal, criminal, economic espionage, firm size

JEL Classification: D2, K2, L5, O3

Suggested Citation

Reid, Gavin and Searle, Nicola and Vishnubhakat, Saurabh, What's It Worth to Keep a Secret? (May 29, 2015). Duke Law & Technology Review, Vol. 13, 2015, Texas A&M University School of Law Legal Studies Research Paper No. 16-59, Available at SSRN: https://ssrn.com/abstract=2732801

Gavin Reid

University of St Andrews ( email )

St Salvator's College
St Andrews, Fife, KY16 9AJ
United Kingdom
(+44) (0)1334 462431 (Phone)
(+44) (0)1334 462438 (Fax)

Nicola Searle

University of London - Goldsmiths College ( email )

Lewisham Way
New Cross, SE14 6NW
United Kingdom

Saurabh Vishnubhakat (Contact Author)

Texas A&M University School of Law ( email )

1515 Commerce St.
Fort Worth, TX 76102
United States

Duke University School of Law

Durham, NC

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