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Most managers know that employees are legally bound not to disclose their employers' secrets. But once a company shares information with a business partner, those secrets are no longer protected; the partner and its employees are free to use the information unless they're bound by a nondisclosure agreement, explains Chicago intellectual-property attorney R. Mark Halligan. (LynkUs and Medical Manager signed such an agreement, which will probably be a focus of the trial, set for November.)

Software engineers are struggling to keep up with security challenges through password protection and encryption as well as programs that limit who can read, print, forward, save or cut and paste a digital document and for how long. Daniel Schreiber, the CEO of Dallas-based digital-security firm Alchemedia Technologies, says, "The only option left is to take a picture of the screen with a camera." But some people will do just that. In 1996 Guillermo Gaede, who worked for chipmaker Intel, pleaded guilty to videotaping from his computer screen information — worth more than $10 million — which he planned to sell to an Intel competitor.

Some firms respond by tightly restricting access to sensitive information. But that approach can impose unexpected costs. Tom Baker, who manages a website used by employees, customers and suppliers of Quaker Chemical of Conshohocken, Pa., at first strictly controlled access to the site — and as a result nobody used it. Says Baker: "Once you start to limit folks, their willingness to contribute goes away."

But businesses don't have to abandon all secrecy in the information age, says Tom Halbouty, chief information officer of Pioneer Natural Resources, based in Irving, Texas. The company often collaborates with its competitors. To protect secrets about oil-field discoveries and drilling-platform designs, Pioneer purchased software from Infraworks of Austin, Texas, that limits the reproduction of sensitive digital documents. The company encrypts its Internet communication with partners and insists that contractors working on site use Pioneer's e-mail system so the company can track what information they send to whom. Pioneer is also careful to obtain nondisclosure agreements early in each negotiation.

Digital networking certainly poses a risk to trade secrets, Halbouty says, "but if you're practical and prudent, you can use these tools to your advantage." Pioneer's secrets, he says, are as leakproof as its oil pipes.