Are Your Trade Secrets at Risk?

Jan 6, 2014

Can you keep a secret? The Coca-Cola Company can—for 127 years and counting. The Coca-Cola formula, stored in a vault at the soda maker’s Atlanta headquarters, is one of the most famous examples of trade secret protection, spawning countless urban myths and a fake recipe on eBay that “sold” for $15 million.

But trade secret protection goes far beyond classified soda recipes. Trade secret theft is a global threat every company must confront. Whether the risk comes from cyber-espionage or a former employee leaving with a file, the stakes are high. Protection of intellectual property is critical to a company’s profitability, and even survival.

Yet while trade secret theft costs businesses billions every year, the surreptitious nature of the activity makes it very difficult to put a price tag. Victimized companies are often hesitant to go public, and sometimes don’t even realize they’re been robbed for some time. Estimates of losses range everywhere from $2 billion to $400 billion. In one high-profile case, a Ford Motor Co. product engineer copied 4,000 Ford documents on a hard drive before leaving to work for a Chinese competitor, costing the Dearborn, MI automaker more than $50 million in losses.

But it’s not just Ford and Coca-Cola that have to worry about guarding trade secrets. Thanks in part to Pamela Passman, founder of the Center for Responsible Enterprise and Trade (CREATe.org), awareness of the threat is growing among the private and public sector. The former deputy general counsel for Microsoft has been counseling business executives and government officials on the need to bolster protection of intellectual property.

CREATe has been leading an effort among companies to share best practices on reducing the risk of theft up and down their global supply chains. In addition to a pilot program underway to provide an assessment of companies’ intellectual property protections, her firm is also partnering with PwC to study the economic impact of trade secret theft and help companies assess the value of their own intellectual property.

FreeEnterprise.com spoke with Passman about the multipronged effort to raise awareness about trade secret theft and reduce the risk:

You have been on a crusade to raise awareness about trade secret theft for several years now. Do you see companies taking the necessary steps to protect their intellectual property?

I think there’s a much greater awareness than there was two years ago. The visibility of the issue has dramatically increased. I think companies are still grappling with how to best address this issue in a very distributed, fragmented environment — the global supply chain.

One obstacle to raising awareness has been defining the extent of the problem. Do you hope your work with the PwC will help executives better understand how vulnerable their companies are?

Giving people a sense of the magnitude of the challenge is important as part of the awareness process, as well as galvanizing support among governments to better address the issue through the legal infrastructure. And to get the attention of business decision-makers who need to be more proactive and preventative.

But what we think is most important is providing companies with a methodology and different tools to enable them to better assess and understand what trade secrets they have. Then how best to prioritize and value them.

One interesting thing about the study is that it will look at how threats will evolve in the future. Given the growing risk of cyber-espionage, do you expect companies to be able to keep up with technology?

I think so. Having been in the tech sector for a number of years, the threat actors are always very close behind. So there needs to be continual innovation and improvement with the tools that you have to address the issue and stay very current. It is very much a dynamic process.

How are your other efforts going to help companies protect themselves?

The pilot has turned out to be much larger than we had anticipated. We will probably have over 70 companies to have participated in some phase of the pilot. What has been fascinating is, we really talk about it in terms of a management system. Not that you have to have lots of legal structures in your company, but that you really need to think about this in how you address key issues like quality management, health and safety and really build on your legal approach with a management systems approach — the business process you need to have in place to best protect and manage intellectual property. That is really resonating with business leaders, where they know they have to ingrain this in how the company operates, both from a business process perspective and a cultural perspective.

Do you believe that if enough companies follow your advice and take prudent steps, this problem could be effectively neutralized?

There will always be bad people trying to do bad things. There will always be illicit behavior, but let’s squeeze it out so it’s really just the organized crime. It’s not your competitors, it’s not insiders, it’s not government. All the legislative work is important in that regard. But at the end of the day, companies have to operate in the environment in which they’re aware of the threat, and they’re proactive and preventative. You’re never going to be able to seal your company up. So being able to better educate their employees, their business partners, their customers is critical to manage the issue and reduce the threat.

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