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Quantifying Trade Secret Theft: Policy Implications

In the modern data-driven economy, trade secrets are becoming a more important part of firms’ intellectual property strategies. For their part, governments worldwide have been introducing new legislation to broaden and toughen the protection for trade secrets citing estimates of the cost of trade secret theft on the order of 1 to 3% of the GDP of the advanced countries. For the United States alone, this would put the cost of trade secret theft on the order of USD 180 to 540 billion. This note considers the “proxy” approach that has been used to generate these widely cited estimates as well as the extent of evidence that actually supports these claims. It concludes that the value of cross-border trade secret theft is much smaller than is suggested by the proxy methodology and suggests a more appropriate methodology to estimate the value of this illicit flow. The note also advances a number of considerations that temper the concern over cross-border trade secret theft.