One thing that has always been on our minds is the question about how much do information leaks actually cost.
Lets take the recent example of the LG employee leaking $1B of secrets to some Chinese manufacturer .. Now while it might be very easy to figure out facts like whether the person actually worked for LG or actually leaked the information, it must be very difficult to figure out what is the value of the information ( $1B in this case )

So how did this $1B come about ?? Is it just a nice round number that sounds good as the value of LG’s plasma TV technology’s value or is there some science to it ??

One mechanism of valuing the damages of information leaks could be cost plus i.e. Look at all the investments made in R&D etc. to generate that information and put a little premium to it and there you get the possible damages. This is obviously flawed because no company would invest money in R&D to generate the Intellectual Property or to protect it if all it would get at the end would be the costs back.

Another mechanism of valuing the damages could be to look at the potential loss if this information is missing. This obviuosly gives rise to subjective numbers like the total market size for that end product as well as the potential loss in case of a leakage. Lets say a pharma company is working on the last ( stage 7 ?? ) of clinical trials for a drug and at that stage the complete research work is leaked to a competitor. Assuming the drug’s potential market size is $10B ( in profits ) till the time it goes off patent and the competitor is as efficient as the principal in this case in launching the drug, it means that the company has potentially lost $5B. That sounds about right but is obviously full of too many subjective parameters like potential market size, efficiency and number of competitors etc which could easily make this $5B either $1B or $10B !!

The third mechanism would be to look at the possible costs of licensing this Intellectual Property from a third party instead of building it on one’s own i.e. What is the price that the company would have to pay to a third party in case it wanted to license this Intellectual Property for its own use ? Again we are thrown into subjective parameters unless there is an actual case.

Overall, it strikes us a complex problem to even make a guess on and that sets us wondering how the folks at LG got around to declaring the $1B number ..

Any thoughts anyone ??

See : Stealing corporate secrets, Valuing R&D projects in a portfolio, Valuing Intellectual Property