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CRIEFF Discussion Paper Number 1203

Firm size and trade secret intensity: evidence from the Economic Espionage Act

Nicola C Searle (University of Abertay Dundee) and Gavin C Reid (University of St Andrews)

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This paper considers trade secrecy as an appropriation mechanism in the context of the US Economic Espionage Act (EEA) 1996. We examine the relation between trade secret intensity and firm size, using a cross section of 95 court cases. The paper builds on extant work in three respects. First, we create a unique body of evidence, using EEA prosecutions from 1996 to 2008. Second, we use an econometric approach to measurement, estimation and hypothesis testing. This allows us comprehensively to test the robustness of findings. Third, we focus on objectively measured valuations, instead of the subjective, self-reported values used elsewhere. We find a stable, robust value for the elasticity of trade secret intensity with respect to firm size, which indicates that a 10% reduction in firm size leads to a 7% increase in trade secret intensity. We find that this result is not sensitive to industrial sector, sample trimming, or functional form.

JEL codes: D2, K2, L5, O3

Keywords: Firm size, economic espionage, intellectual property, trade secrets

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