Smart companies place their inventors into siloed groups; this boosts innovation, there is no consensus so people work on what they think is best. Eventually, the best product wins. It also provides protection if China is paying someone inside the organization to steal technology. They only have access to the group they are in.
It is essential in states like California that punish companies for being innovative. But compartmentalization slows development down and other states show California is wrong. Stronger trade secret protections reduce internal compartmentalization and more sharing internally, because spies will be penalized, lead to greater technological impact.
The results show that the recipe is not either bring in diverse people with a variety of expertise or lose your intellectual property because government won't prosecute theft. Where governments provide stronger protection for their proprietary knowledge, discovery speeds up.
The issue is obviously so-called artificial intelligence (AI). U.S. companies won't scrape your data if you request that but from Poland to China and Southeast Asia, content farms do not care about your request. This has led to increased compartmentalization in all areas. Which is compounded if a foreign government hires away key people.
The new results used data consisting of the Uniform Trade Secrets Act and patent data from 783 high-tech firms between 1976 and 2017 measuring how modular each company's internal collaboration network was. It was possible to compare companies in states that increased protection with states that did not by looking at competitors in other states.
When trade secret protection was increased, silos went down by over four percent, but that is a lot since the old ways rarely change within companies. But technological impact, how many inventions influenced later technology (such as 8-bit microprocessors after commercial computer chips) jumped nearly 16 percent.
With less need for compartmentalization, newly hired people who weren't psychologically stuck in the old system became bridges between internal groups, while the positions of long-tenured inventors did not change significantly. The reason that happened is because of greater legal protection; with no accountability, long-term experts trust new people far less. When protection was increased, both newer and experienced people could take on bridging roles.
If you are not in a state with strong trade secret laws, you should definitely maintain legal and organizational protection, but if walls are to guard against leakage in a state that will prosecute trade secret theft, you can reduce those unless they have a valid operational purpose. You'll still have confidentiality agreements, clear trade secret policies, and access practices. Even the federal government has those.
States that have been in a populist war against companies and have created new restrictions on hiring are losing headquarters to states that have not banned noncompete agreements and have better trade secret laws. More importantly, companies are getting innovation to market faster than competitors hobbled by states that declare employees can steal intellectual property with little recourse.
Citation: Seo, E., & Dinkel, C. P. (2026). Knowledge protection and modularity of innovation activities in firms: Evidence from US trade secrecy law. Strategic Management Journal, 1–26. DOI: 10.1002/smj.70125
