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CRIEFF Discussion Paper Number 1204

What’s it worth to keep a secret? IP protection under the Economic Espionage Act

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

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Abstract

Protecting intellectual property by trade secrecy has become an increasingly attractive alternative to more conventional modes of IP protection, like patenting and copyright. This paper provides a statistical, econometric and case study analysis of the protection and valuation of trade secrets under the US Economic Espionage Act of 1996 (which criminalised trade secret theft).

A new data set is created using EEA prosecutions from 1996 to 2008. By statistical and econometric analysis, it is shown: (a) that both high and low valuations of trade secrets follow a log-normal distribution, supporting Gibrat’s Law; and (b) that, while there is no significant difference in estimates of magnitudes of theft using diverse economic valuation methods (e.g. unjust enrichment, reasonable royalty etc), there is a significant difference between both high and low estimates, and the cross reference value which is often used in sentencing.

This suggests, first, that the typical (say, modal) trade secret has quite low value (e.g. $5m.), but some (few) values can be very much larger (e.g. $250m.); and second, that determining sentence values involves other elements than pure economic calculation, like culpability of offenders and proportionality.

JEL codes: D2, K2, L5, O3

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

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