The Essential Guide to Trade Secrets and Open Innovation Privacy 

Open innovation privacy, or in some cases the presumed lack of it, is an issue that can hold businesses back from co-creating innovations and solutions with a crowd because they believe it jeopardizes intellectual property protection.

Everyone talks first about patents and copyrights when intellectual property comes up. They're formal, documented, and internationally recognised. You file something, you get protection, you can enforce it in court. It’s clean, understandable, and taught in business school. However, what about trade secrets?

Trade secrets work differently. There's no filing, no registration, no public record. Protection depends entirely on keeping information confidential, and the moment it leaks, your legal position weakens considerably. It's a form of IP that rewards secrecy over disclosure — and that tension sits at the heart of some of the most fascinating, and increasingly urgent, debates in innovation policy.

Could using open innovation platforms and techniques to harness the decentralized collective intelligence of crowds, creators and AI be compromised right from the outset if the intention is to protect resulting intellectual property as trade secrets?

Famous Trade Secrets You May Already Know

Two examples tend to dominate any conversation about trade secrets, and for good reason. They're both genuinely remarkable.

Beyond food and beverages, trade secrets span industries and continents. 

• WD-40's formula, known only to a small group of chemists, has never been patented. 
• The exact algorithm behind Google's search ranking is treated as a trade secret, with only partial public disclosure through documentation. 
• Listerine's mouthwash formula was kept confidential for decades. 

In manufacturing, Germany's "Mittelstand" (the backbone of mid-sized industrial companies that form the backbone of its economy) famously protects proprietary production techniques as trade secrets rather than filing patents, which would expose methods to competitors in countries with weaker enforcement.

Trade Secrets vs. Patents: A Comparison Worth Understanding

Most people assume patents are the gold standard of IP protection. For some inventions, they are. For others, trade secrets are the smarter choice, and understanding why requires grasping the key differences.

A patent gives you a legally enforceable monopoly over an invention for a fixed term, typically 20 years from filing under the international TRIPS Agreement (Trade-Related Aspects of Intellectual Property Rights). In exchange, you must fully disclose how the invention works. Anyone can read your patent application. They are just not allowed to use it. After the term expires, the invention enters the public domain, and anyone can use the information on the patent application. Open innovation privacy is not an issue if a patent application discloses the relevant information.

A trade secret, on the other hand, has no expiry date. It can theoretically last forever, as Coca-Cola has demonstrated across 140 years. You don't have to disclose anything. Protection, however, is entirely contingent on maintaining confidentiality. Unlike a patent, you can't stop someone from independently discovering the same thing through their own research, or from reverse-engineering your product through legitimate means. Open innovation privacy becomes far more critical.

The international picture gets complicated quickly. 

• In the United States, the Defend Trade Secrets Act (2016) created a federal cause of action for trade secret misappropriation. 
• In the European Union, the Trade Secrets Directive (2016) introduced harmonised protections across member states, though implementation has varied. 
• In the UK, the common law doctrine of confidence protects trade secrets, alongside a statutory framework laid out in the Trade Secrets (Enforcement, etc.) Regulations 2018.
• Many countries in Southeast Asia, Latin America, and Africa have weaker or patchier trade secret protections, making a global IP strategy genuinely difficult.

A critical point is that misappropriation of a trade secret (such as by theft, bribery, electronic espionage, breach of confidence) can be pursued legally in most jurisdictions. Independent discovery of something that constitutes a trade secret cannot. This asymmetry shapes how businesses make decisions about what to protect, and how.

What Happens When AI Enters the Picture

AI systems, particularly large language models and multimodal models trained on scientific literature, are becoming increasingly capable of what researchers sometimes call "computational reverse engineering."

By analysing product compositions, manufacturing outputs, or even publicly available technical papers, AI can narrow the field of possible trade secrets significantly, and often faster than any human research team could.

In chemistry and materials science, AI-driven analysis of physical products can identify probable formulations with alarming precision. In software, model inversion attacks can expose the training data or architecture behind proprietary AI systems.

In drug discovery and development, AI tools can now generate candidate molecules that approximate the effect of a patented compound, testing whether a competitor has simply renamed an existing formula.

This doesn't mean AI breaks every trade secret. Complexity still matters, as does deliberate obfuscation. A sufficiently layered manufacturing process may resist AI-assisted reverse engineering for years. 

The concern is the trajectory: capabilities that were difficult or impossible last year are becoming routine. The legal frameworks protecting trade secrets were designed in an era when human-led industrial espionage was the primary threat. They are struggling to keep pace.

A Landmark Study That Changes the Conversation

A significant piece of research published in July 2025 adds academic weight to these concerns. Colleen Cunningham and Aldona Kapacinskaite's study, "Keeping Invention Confidential," published in Management Science, examines what happens to innovation when firms choose trade secrecy over patent protection.

Their findings challenge the conventional wisdom that patents are always better for innovation at the societal level. 

Cunningham and Kapacinskaite found that firms relying on trade secrecy produce fewer citations and downstream innovations compared to patented inventions, largely because secrecy prevents the knowledge spillovers that patents deliberately create. 

At the same time, they find that patent-filing requirements can themselves deter some innovation, particularly in areas where disclosure poses a competitive threat that outweighs the legal protection.

The implication is uncomfortable: the current patent system may be inadvertently pushing innovation underground, into trade secrecy, precisely in the cases where public disclosure would be most valuable. 

Stronger, more reliable trade secret protection might, counterintuitively, accelerate this trend.

Should Trade Secret Protection Be Strengthened?

This is the question policymakers and legal scholars are increasingly wrestling with, and there are compelling arguments on both sides.

The case for stronger protection starts with the investment thesis. Many companies invest significant capital in developing proprietary knowledge through centralized “closed innovation.” 

If that knowledge can be extracted through AI-assisted reverse engineering, cyber theft, or even aggressive talent poaching (where employees carry knowledge in their heads), the incentive to invest diminishes. Stronger legal protections, including clearer international enforcement mechanisms, could prop up that incentive.

There's also a national competitiveness dimension. State-sponsored industrial espionage, particularly targeting AI research and advanced manufacturing, is a documented reality. 

A landmark example is the Hafnium/Microsoft Exchange hack (2021). Chinese state-sponsored group Hafnium exploited Microsoft Exchange Server vulnerabilities to access tens of thousands of organisations globally. Its targets included defence contractors and infectious disease researchers. This action was formally attributed to China by the US, EU, UK, and NATO in a coordinated statement. 

Countries with stronger domestic trade secret protections are arguably better placed to retain the value of their innovation ecosystems.

The case against stronger trade secret protection is equally serious. Strengthening it risks entrenching monopolies without the time limits that patents impose. At least a patent expires after 20 years. 

A trade secret with stronger legal walls could restrict access to vital knowledge indefinitely. In sectors like pharmaceuticals or clean energy, where wide adoption of innovations serves a clear public interest, this could be genuinely harmful.

There's a transparency argument too. Democratic societies have a legitimate interest in knowing what goes into products they consume, from food and drink formulas to algorithmic decision-making systems. Stronger trade secret protection works against that transparency interest.

The Crowdsourcing Perspective

This angle that doesn't get enough attention: trade secrecy and open innovation exist in fundamental opposition and tension. Or at least represent a strategic balancing act.

Crowdsourcing and open innovation models depend on sharing problems, challenges, and partial knowledge with external contributors: customers, independent researchers, online communities, or specialist platforms. 

The more you share, the more likely you are to surface a genuinely useful insight from an unexpected source. The more you protect, the less the crowd can help you.

This isn't a trivial trade-off. Companies like InnoCentive (now Wazoku) have demonstrated that when difficult R&D problems are opened to a global crowd of solvers, they get cracked far more often than internal teams would predict. 

Also, after the Deepwater Horizon oil spill disaster, InnoCentive ran a challenge that attracted a solution from an outsider, who applied a transferable technique from the concrete industry. This specific case appears in multiple published open innovation case studies. 

Those are examples of open innovation benefits. What about the risks? A strategic question for any organisation sitting on proprietary knowledge is this: what's the minimum disclosure required to harness crowd intelligence, without crossing the threshold into trade secret vulnerability?

Some companies have solved this through careful problem framing. You can describe the performance outcome you're seeking without revealing the current formulation. You can post a manufacturing challenge without disclosing your existing process. You can crowdsource the question while protecting the answer you already have.

Open innovation doesn't require open secrets. It requires smart boundary-setting.

What Organisations Should Consider

The practical takeaways from this debate are sharper than they might initially appear.

First, review your IP portfolio through a trade secret lens, not just as patents. Many organisations have valuable knowledge that was never formally identified as a trade secret and therefore never treated with appropriate confidentiality protocols.

Second, take the AI threat seriously in your trade secret risk assessments. Reverse engineering timelines that your legal team estimated five years ago may now be drastically shorter. Updating those assumptions matters.

Third, engage with the open innovation question deliberately. If you're using crowdsourcing or challenge platforms, think carefully about what you disclose, to whom, and under what contractual protections. Non-disclosure agreements are not sufficient on their own; the design of what you share requires strategic thought.

Finally, watch the policy space. The EU's evolving trade secrets framework and ongoing debates in the US, UK, and key Asian jurisdictions are likely to produce significant changes over the next five to ten years. Organisations that engage with these debates, rather than simply reacting to them, are better positioned to shape outcomes that work for them.

Trade secrets have always been a quieter cousin of the more celebrated IP protections. As AI capabilities accelerate and open innovation becomes more embedded in business strategy, they deserve to be considered more often and more seriously.

Have you dealt with trade secret challenges in your own organisation, or navigated the tension between protecting proprietary knowledge and opening up to external innovation? We'd love to hear how you've approached it — share your experience in the comments below.