How Many Trade Secrets are There Worldwide?

Secrets — How many trade secrets are there worldwide? It’s pretty easy to count the number patents since they have to be registered with a government office, but trade secrets must be kept, well, secret. Our best guess – 140 million trade secrets worldwide. Scroll down to see why.

Trade secrets are an important but invisible component of a company’s intellectual property asset portfolio. They can add tremendous business value, so they need to be well managed as they are somewhat fragile and require special handling.

As I show in the model below, there are millions of trade secrets in existence. Companies cannot and should not ignore this vital form of IP assets. The model below does not give any indication as to what percentage of these millions of trade secrets are indeed properly and professionally managed. My real life experiences with trade secrets suggests that many are likely not well looked after.

But first let’s take a look at trade secret’s IP rival – patents.

Mustang vs Camaro

People tend to like intense rivalries.

The Chevrolet Camaro versus the Ford Mustang is the ultimate American car rivalry.

The Argentina – Brazil rivalry is a highly competitive sports rivalry that exists between the national football teams of the two countries, as well as their respective sets of fans.

The intense cricketing rivalry between England and Australia has raged since 1877.

The Dallas Cowboys versus Washington Redskins rivalry in American Football has been called by Sports Illustrated the top NFL rivalry of all time and one of the greatest in sports.

Rivalry in the Intellectual Property World

A ‘rivalry’ exists to some degree in the world of IP between patents and trade secrets, two of the most important forms of intellectual property protection.

It is most interesting that both forms are undergoing changes at present in terms of their legal treatment, hence their value.

There have been a number of patent reforms in the US in recent years including moving from a first-to-invent to a first-to-file approach, and the development of a post-grant opposition process. We have also witnessed major battles about the issuance of business-method and software patents.

In Europe we have the unitary patent, a new type of European patent in advanced stage of adoption which would be valid in participating member states. In Europe we also have the Unified Patent Court being established.

We are also seeing the emergence of China as major patent jurisdiction.

The treatment of trade secrets has also been changing recently. The European Council have unanimously adopted the EU Trade Secrets Directive. This follows on from the US just recently passing the Defend Trade Secrets Act.

Patents vs Trade Secrets

What qualifies as a trade secret is extremely broad. Trade secrets are essentially of two kinds.

On the one hand, trade secrets may concern inventions or manufacturing processes that do not meet the patentability criteria and therefore can only be protected as trade secrets. This would be the case of client lists or manufacturing processes that are not sufficiently inventive to be granted a patent.

On the other hand, trade secrets may concern inventions that would fulfil the patentability criteria and could therefore be protected by patents.

Trade secret protection has the advantage of not being limited in time whereas patents last in general for up to 20 years from filing. Trade secrets may therefore continue indefinitely as long as the secret is not revealed to the public.

Trade secrets involve no registration costs though there may indeed be costs related to keeping the information confidential.

Trade secrets have immediate effect.

Trade secret protection does not require compliance with formalities such as disclosure of the information to a governmental authority.

There are, however, some major potential disadvantages with protecting confidential business information as a trade secret, especially when the information meets the criteria for patentability.

If the trade secret is embodied in an innovative product, others may be able to inspect it, dissect it, analyse it and even reverse engineer it and discover the secret and be thereafter entitled to use it. For any product that’s publicly released, it’s nearly impossible to keep anything about it secret, although it’s manufacturing process might be a different story.

Trade secret protection for a technical invention does not provide the right to exclude third parties from making commercial use of it, so long as the third party hasn’t stolen the secret. Only patents can provide this type of protection.

Once the secret is made public, anyone may have access to it and use it at will.

In the past, one might have said that a trade secret is more difficult to enforce than a patent. However, given the recent legislative changes, that is now up for argument.

Of course, a trade secret may be patented by someone else who developed the relevant information by legitimate means.

Patent Data

Because of the very nature of patents, and the fact that they are a registered form of IP, we are fortunate to have plenty of data available. According to the WIPO 2015 IP Indicators Report, we know that in 2014:

• The top 5 Patent Offices were: China, United States of America, Japan, Republic of Korea, and the European Patent Office.
• The top 5 technology fields patented were: computer technology, electrical machinery, measurement, digital communication, and medical technology.
• The total number of patent applications were: 2.68 million, a 4.5% increase compared to 2013.
• The total number of granted patents were: 1.18 million, a 0.3% increase compared to 2013.
• The total number of patents in force in the world was: 10.2 million.

Thanks to some very insightful analysis conducted by Aistemos using their ‘big data’ Cipher solution back in 2015, we also know that:

• 77 organizations own approximately 25% of all patents in existence.
• 773 organizations own approximately 50% of all of the patents in existence.

Trade Secret Data

What about trade secret data? How many trade secrets are there? Given the very nature of trade secrets, no data exists.

A trade secret is a formula, practice, process, design, instrument, pattern, commercial method, or compilation of information which is not generally known or reasonably ascertainable by others, and by which a business can obtain an economic advantage over competitors or customers. The scope of trade secrets is virtually unlimited.

A trade secret is therefore defined as any information that is:

• Not generally known to the relevant business circles or to the public. The information should also not be readily accessible.
• Confers some sort of economic benefit on its owner. This benefit must derive specifically from the fact that it is not generally known, and not just from the value of the information itself. It must have commercial value because it is a secret. Commercial value encompasses potential as well as actual value.
• It must have been subject to reasonable steps by the rightful holder of the information to keep it secret. What is reasonable can vary depending on the specific circumstances.

A trade secret continues for as long as the information is maintained as a secret.

Modelling the Number of Trade Secrets Worldwide

If we can’t get the data on how many trade secrets exist, what about modelling to try to calculate this number?

Chawton Innovations Services conducted a modelling exercise to estimate the number of trade secrets in the world today.

The model fallows for the fact that there are different sized companies in existence. There were 49,830 listed companies in the various stock exchanges around the world at the end of 2015, according to the World Federation of Exchanges.

According to a mix of data sets from the World Bank, OECD and International Labour Office, it is estimated that there are 420 to 510 million SMEs worldwide, of which 9 per cent are formal SMEs (excluding micro-enterprises) and 80–95 per cent are in low- and middle income countries. It should be noted that a significant majority of MSMEs are informal as opposed to formal MSMEs, especially in emerging economies.

The model takes into account the fact that trade secrets may exist in any of the key three business disciplines of:

• operational excellence,
• customer intimacy and/or
• product leadership.

By that we mean that trade secrets may relate to the products or services of the company, to the operations or running of the company and/or to the relationship between the company and its clients or customers. We used some survey data to get a sense of where companies tended to have trade secrets. We also leveraged data from Trade Secret Asset Management 2016 by Mark Halligan and Richard Weyand and their comprehensive checklist of potential trade secrets within companies.

The model allows for the fact that not every company is at the same level of IP sophistication and companies may be found at different levels of the IP maturity ladder, and that companies higher up the IP maturity ladder tend to be more aware of IP in general and trade secrets specifically.

The model also takes into account the fact that companies are based in different jurisdictions and that IP thinking is more advanced in some countries compared to others.

Based on our modelling work, we estimate that there are conservatively just under 140 million trade secrets in existence around the world within formal enterprises.

Hazel Helps Companies Identify Rank & Protect Their Trade Secrets

The Hazel Trade Secret Asset Management System may help your company manage its trade secrets and trade secret processes. Hazel can keep track of your corporate trade secrets and help you determine an appropriate level of protection for each trade secret recorded. Hazel can record who in your organization is responsible for a given trade secret, who is responsible for protecting the trade secret, and who has access to the trade secret, among other things. Contact the Hazel Team today to learn more.

For Secrets, I’m Donal O’Connell.

Credits:

Gumball machine by Julie Alexander from U.S. (Vintage Gumball Machine) [CC BY 2.0], via Wikimedia Commons.

Camaro race by Nathan Bittinger – originally posted to Flickr as 70 Camaro, 67 Camaro Z28, 67 Camaro Z28, 67 Camaro, CC BY 2.0, Link

Dallas Cowboys versus Washington Redskins by Keith Allison from Hanover, MD, USA (Dak Prescott) [CC BY-SA 2.0], via Wikimedia Commons