Calculating the True Cost of IP Theft

by Larry Brock on Tuesday September 26, 2023

Third in a Series from Former DuPont CISO on Trade Secret Protection for Manufacturers

The legal bar required to prove a theft of trade secrets is high. The Economic Espionage Act of 1996 established that the victimized party must prove that:

Reasonable protective measures (not all conceivable efforts) have been established to protect the information from both internal and external theft and misappropriation.

This clause further recommends that manufacturers:

Implement technical safeguards tailored to the day-to-day business of the particular enterprise, the confidential information sought to be protected, the community in which the company operates, and the established awareness of the individual participants to whom access to the information may be granted.

One calculation of IP value used in legal cases alleging theft of trade secrets is called Net Present Value of Future Sales. This is a calculation of the potential revenue of products that would have applied the purloined trade secret, if it had not been stolen.

The most alarming court judgments have set that value to ZERO if the manufacturer neglected to take proper action to safeguard its own secrets. This is a common defense tactic by those charged with corporate espionage. Judges have ruled that, absent proper IP stewardship, the potential value of stolen trade secrets doesn’t matter in the eyes of the law. There is no inherent right to damages from a competitor, foreign entity or anybody else. The company risks forfeiture of its trade secret title to any party exposed to the information absent adequate access and usage restrictions (e.g. administrative, technical, physical). Why should the courts protect information that the manufacturer itself has not adequately protected?

There’s no better way to justify greater investment in IP protection.

NPV of future sales is a single hard dollar measure of the consequences of IP theft. Such incidents also lead to material damages that are less tangible but no less adverse, including:

Loss of product/market advantage
Missed business opportunity
Loss of reputation or brand loyalty
Declines in stock price or valuation
Direct loss of profitability
Lawsuits and fines

You might want to download my e-book covering 5 tips that will help your organization take the “reasonable protective measures” necessary to meet the legal bar required of IP threat protection.

Read the full series: