Protecting trade secrets: IT security and employee leaks regarded as biggest risks – protective measures need improvement

• Three out of four senior corporate executives believe that more needs to be invested in protecting trade secrets. That is one of the key findings of recent analysis by international law firm CMS in association with The Economist Intelligence Unit.
• While most senior executives are aware of the importance of trade secrets, only half of the companies polled have taken active steps to restrict access to confidential information and reduce the risk of secrets being disclosed.
• A key insight for implementation is that safeguarding trade secrets is an interdisciplinary task and awareness of the importance of confidential information must be embedded in the corporate culture.

Berlin – The protection of trade secrets has moved further up companies’ risk management agenda. This is apparent from the “Open Secrets? Guarding value in the intangible economy” survey, which involved polling 314 corporate executives worldwide across a range of sectors on behalf of international law firm CMS. The three most valuable types of proprietary information identified are customer databases (42%), product technology (40%), and research and development (R&D) information (23%).

The elevated awareness of this issue reflects the increasing economic importance of intangible assets. For many companies, confidentiality of their “crown jewels” is crucial to business success; for some, it is even essential for their survival.

Dr Heike Blank, a partner at CMS Germany specialising in intellectual property, explained: “Fifty years ago, a company’s value was overwhelmingly derived from its physical capital. Today’s most successful firms around the world are based on intangible assets in the form of software algorithms, customer data and product formulas. Our analysis indicates that companies need to start taking a more holistic approach to safeguarding confidential assets – in a worst-case scenario, disclosure of secrets could jeopardise a company’s very existence.”

This probably explains why protection of trade secrets is no longer a niche topic for the legal or compliance department, but receives attention at board and C-suite level. The surveyed executives regard the most significant threats to their organisation’s confidential information as weaknesses in cybersecurity (49%) and employee leaks (48%). Risk is perceived differently between continents and countries, however. While leaks from within the company’s own workforce are the biggest concern in the UK, fear of cybercrime takes top spot in France, China and the US.

In parallel with this assessment of risks to confidentiality, most respondents (75%) believe that more investment is needed to protect their trade secrets. Employees’ awareness of the importance of trade secrets throughout the organisation is also rated as important: 28% of respondents consider a lack of in-house experience around trade secrets as a challenge to their security.

In addition to raising awareness of the value of confidential information, many companies intend to focus on employees as a risk factor over the next two years. The measures involved here range from technical solutions, such as increased monitoring of IT infrastructure, to more collaborative approaches aimed at improving the corporate culture and introducing rewards and incentives for employees who demonstrate an awareness of trade secrets.

The nature and extent of the measures vary considerably both between countries and between sectors. The willingness to adopt technical solutions is most marked in China, Singapore and the United States. It is also a top priority for executives in the technology, media and telecommunications sector, where 36% of respondents plan to introduce surveillance in the next two years. Efforts to improve the work culture are much more noticeable in other sectors. Almost one third (31%) of respondents intend to focus on introducing values that incentivise trade secret protection within the organisation.

Dr Maximilian Koschker, a CMS partner in the Employment Law practice, commented: “The deployment of technical solutions, even for purposes that are completely legitimate from a company viewpoint, raises a number of complex legal issues. The scope of these issues may vary from country to country or region to region, especially where multinational corporate groups are involved. Despite the EU General Data Protection Regulation being largely harmonised, for example, an employer’s power to monitor and control employees is often governed by national employment law. In many countries, including Germany, works councils have an important say, especially with regard to technical measures. Accordingly, an integrated strategy for safeguarding trade secrets within the organisation can only be implemented effectively if the employer gets ‘buy-in’ from both the workforce and the works council, while also raising their awareness of the issue. Ultimately, from an employment law perspective it’s all about striking the right balance. In this respect, it is helpful to use common sense and consider legitimate employee expectations.”

The risk to companies’ confidential information has also increased due to the global IT security situation. Attacks on IT infrastructure have been on the increase for several years now, most recently in the form of ransomware attacks by organised criminals. This trend helps to explain why most (82%) of the executives surveyed agree that leveraging cybersecurity software is key to their organisation’s long-term success in protecting trade secrets. Nonetheless, only half (53%) believe that this is the most effective form of risk management, while roughly the same number report that their firms have already implemented measures to restrict access to confidential information (55%).

“If 55% of those surveyed are limiting access to confidential documents, it means 45% are not. That is worrying. It seems nearly half of businesses don’t have routine procedures in place to safeguard information. These companies urgently need to improve the level of legal protection through measures such as restricting access to information. That is an achievable, inexpensive way of preventing the worst from happening,” explained Dr Nikolas Gregor, a partner at CMS who specialises in intellectual property.

Dr Ulrich Becker, a partner in the Commercial practice at CMS, added: “Companies are not helpless when it comes to safeguarding their most valuable confidential information. The Trade Secrets Act (Geschäftsgeheimnisgesetz), for example, provides companies with various options for protecting sensitive information. This does require, however, that businesses take appropriate protective measures – otherwise they run the risk of not being able to use the legal remedies. The right choice of measures, from non-disclosure agreements and internal policies to IT security measures, will vary from sector to sector, and company to company. What’s needed is a carefully considered protection strategy tailored to the company’s specific requirements. CMS can provide support here via its CMS PROTECT advisory product, which has been tried and tested many times.”

Methodology

“Open secrets? Guarding value in the intangible economy” is a report commissioned by CMS and written by The Economist Intelligence Unit. It explores the extent to which firms identify intangible assets as trade secrets and implement protective measures to safeguard them accordingly. The report is based on a survey of 314 senior corporate executives located in China, France, Germany, Singapore, the United Kingdom and the United States, and across six sectors: consumer goods and retail; finance; energy and natural resources; life sciences; manufacturing; and technology, media and telecommunications. The survey was conducted in January and February 2021.

For details of our CMS PROTECT product, visit: https://cms.law/en/deu/insight/trade-secrets-and-their-protection/cms-protect

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