The Behavioral Foundations of Trade Secrets: Tangibility, Authorship and Legality

Abstract

This paper examines whether the nature of information protected by trade-secrets law impacts departing employees' normative judgments of obedience to trade-secrets law. This examination is based on a comparison of three manipulated hypothetical scenarios: when the employee memorizes the confidential information, when the employee develops the confidential information herself and when the employee downloads the confidential information to her personal computer. The empirical analysis is based on data collected from a non-random multi-sourced sample of 260 high tech employees in Silicon Valley. These experimental manipulations enable me to examine and compare the contributions of tangibility and authorship to employees' normative evaluations of the sharing of confidential information/trade secrets. I conclude that while tangibility was a far stronger factor in employees' normative evaluations of trade secrets, authorship was strongly related to the morality of trade-secrets disclosure. In addition, based on a path-analysis approach, I examine and compare the ways in which social costs, legal costs, morality and perceived psychological contract contribute to the effects of tangibility and authorship on employees' normative evaluations of the sharing of confidential information/trade secrets. When attempting to explain the effect of tangibility, the expected social approval of the new firm proved to be the most important factor. I conclude with an examination of the behavioral importance of several legal paradigms to Silicon Valley high tech employees' views of trade secrets - general paradigms such as loyalty and ownership are considered in addition to more particular paradigms such as the "labour theory" and the memory rule.

Keywords: Intellectual property, trade secrets, social norms

JEL Classification: K42