Trade Secret Contagion Risk: How Employee Movement Between Competing Supply Chains Creates Unintended IP Transfer

Abstract

Employee mobility between competing firms is a known pathway for trade secret misappropriation. However, in supply chain contexts, the risk is amplified because employees move not only between direct competitors but between competing supply chain networks—carrying knowledge that combines proprietary information from multiple suppliers, customers, and logistics partners. This study introduces and quantifies trade secret contagion risk: the probability that a single employee movement event results in the unintended transfer of protectable trade secrets from one supply chain network to another. Using a network-analytic approach combined with event-study methodology, we analyzed 187 employee movement events between competing supply chain networks in the automotive, electronics, and aerospace sectors (2015–2025). For each event, we modeled the employee's knowledge portfolio (patents authored, internal documents accessed, project team memberships) and the competitive overlap between origin and destination supply chains. Results indicate that 23.4% of lateral employee moves between supply chain networks result in at least one protectable trade secret being transferred. The risk increases with: (a) the employee's network centrality in the origin supply chain (OR = 3.2 per decile increase, p < 0.001), (b) the degree of vertical integration in the origin supply chain (OR = 1.8, p = 0.01), (c) the competitive proximity between supply chains (OR = 2.3, p < 0.001), and (d) the absence of a garden leave provision (OR = 2.4, p < 0.001). We develop a contagion risk score that predicts transfer probability with 81% accuracy and validate it against 32 litigated trade secret cases. We conclude that supply chain network architecture—not just individual employment agreements—determines trade secret vulnerability.

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