The Economic Impact of Trade Secret Misappropriation in The United States

Abstract

In this paper, I analyze the economic impact of trade secret misappropriation in the UnitedStates. This is done by looking at the legal framework, the practical mechanics and typologyof misappropriation, plus how harm ends up spreading across sectors, and then the directmicroeconomic and broader macroeconomic consequences. I start from the view that tradesecrets have really become the most commercially weighty category of intellectual propertyfor innovation-intensive firms in the United States. Still, they are also the most structurallyfragile because legal protection basically hangs on secrecy, and any commercial activitytends to compromise that secrecy. Using recent empirical data, insider threat analyses, andfederal case law under the Defend Trade Secrets Act of 2016, I argue that trade secret theftdrains the U.S. economy somewhere between $180 billion and $540 billion every year. At thesame time, this kind of misappropriation makes affected firms see revenue and researchreductions of roughly 40 per cent within five years, and it also feeds into the annual loss ofmore than two million jobs. I then map out four main modes of misappropriation, i.e., insideracquisition, cyber intrusion, breaches of confidential relationships, and state-sponsoredeconomic espionage. I also examine how these modes behave economically acrosstechnology, pharmaceutical, manufacturing, and financial services sectors. Finally, Iconclude that the present legal framework tends to systematically underpricemisappropriation when you compare it to its real social cost. On that basis, I propose targetedreforms. These reforms include recalibrating the damages regime, boosting enforcementcapacity for small enterprises, and dealing with state-sponsored misappropriation throughexecutive branch tools, which is kind of the missing lever