This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: To guard proprietary know-how, many firms separate their inventors into independent groups so that no single employee sees too much of the organization's knowledge. New research published in Strategic Management Journal finds that when U.S. states strengthened trade secret law, high-tech firms relied less on this kind of compartmentalization and connected their inventors more broadly—and the inventions that followed had greater technological impact.
Firms face a persistent tension when organizing innovation. Breakthroughs depend on bringing together people with different expertise, yet the more employees can see across projects, the easier it becomes for proprietary knowledge to walk out the door. Compartmentalization protects that knowledge, but it also makes it harder to recombine.
Eunkwang Seo and Christopher P. Dinkel of Oklahoma State University's Spears School of Business set out to understand what happens to this trade-off when the law offers firms stronger protection for their proprietary knowledge. The question has taken on new urgency amid high-profile trade secret disputes over artificial intelligence talent.
"Such disputes focus on what departing employees take with them; our research examines how legal protection shapes the way firms organize the people who remain," the authors write. To answer it, the researchers drew on state adoption of the Uniform Trade Secrets Act and patent data from 783 high-tech firms between 1976 and 2017, measuring how modular—or compartmentalized—each firm's inventor collaboration network was. Because states adopted the act in different years, the team could compare firms headquartered in states that strengthened protection with same-industry firms in states that had not yet done so.
They found that adoption of the act reduced the modularity of firms' inventor networks by 4.2% relative to the sample mean—a substantial reorganization, given how little modularity typically changes within a firm over time. The effect emerged roughly two years after enactment, as firms adjusted their structures. Innovation quality improved as well: technological impact, a measure of how much inventions influence later technology, rose by 15.9% relative to the sample mean.
The shift was most pronounced among firms with superior technologies or many nearby competitors—those with the most to lose from knowledge spillovers—and weaker where patents, complementary assets or lead time already protected knowledge effectively. New hires played a central role. After protection strengthened, newly hired inventors increasingly became bridges between previously separated innovation communities, while the positions of long-tenured inventors did not change significantly.
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