Keeping valuable ideas under wraps has long been a priority for technology companies, but excessive secrecy may come at a cost. A new study suggests that stronger trade secret laws can encourage businesses to share knowledge more freely within their organisations, helping employees collaborate across departments and develop more influential innovations.
Published in the Strategic Management Journal, the research found that high-tech firms became less compartmentalised after US states strengthened legal protections for trade secrets. By reducing concerns about confidential information leaking to competitors, these safeguards allowed companies to connect inventors who might otherwise have worked in isolated teams.
Businesses have traditionally faced a difficult balancing act. Bringing together employees with different expertise can spark breakthroughs, but wider access to proprietary knowledge also increases the risk of valuable information leaving the company. Separating teams helps contain that risk, although it can prevent promising ideas from being combined.
Researchers Eunkwang Seo and Christopher P. Dinkel of Oklahoma State University examined whether stronger legal protection could ease this tension. Their investigation comes amid growing concerns about employee mobility and trade secret disputes, particularly in rapidly developing industries such as artificial intelligence, where specialised knowledge is highly valuable.
The researchers analysed patent records and organisational collaboration networks from 783 high-tech firms between 1976 and 2017. They examined how companies responded to the staggered adoption of the Uniform Trade Secrets Act across US states, comparing businesses operating under stronger protections with similar firms in states that had not yet adopted the legislation.
The findings revealed that stronger protection reduced the compartmentalisation of inventor networks by 4.2 per cent relative to the sample average. The change generally appeared about two years after legislation took effect, suggesting companies needed time to reorganise their teams. More importantly, the technological impact of their inventions increased by 15.9 per cent, indicating that greater collaboration was associated with more influential innovations.
The benefits were particularly noticeable among companies possessing advanced technologies or operating near numerous competitors, where the consequences of knowledge leakage could be substantial. However, the effects were smaller when businesses already enjoyed protection through patents, complementary resources or advantages gained from reaching the market first.
New employees emerged as important drivers of collaboration. Following stronger legal protection, recently hired inventors increasingly connected previously separated teams, while established employees experienced relatively little change in their collaborative positions. The researchers suggest that legal safeguards helped overcome concerns about trusting newcomers with sensitive information, allowing firms to make better use of their expertise.
The findings offer lessons for business leaders and policymakers alike. Companies may benefit from reconsidering unnecessary barriers between teams, improving cross-departmental onboarding and maintaining clear confidentiality policies. Although separating employees can remain sensible where legal safeguards are weak, the study suggests that protecting intellectual property does more than prevent information theft. It can also create the confidence needed to share knowledge internally, strengthen teamwork and unlock innovation.
More information: Eunkwang Seo et al, Knowledge protection and modularity of innovation activities in firms: Evidence from US trade secrecy law, Strategic Management Journal. DOI: 10.1002/smj.70125
Journal information: Strategic Management Journal Provided by Strategic Management Society