Industrial espionage

Industrial espionage, economic espionage and corporate espionage are phrases used to describe espionage conducted for commercial and economic purposes, as opposed to national security purposes. Methods such as bribery, blackmail, theft, technological surveillance, and even occasional violence are used to illegally obtain private information for economic gain.

Industrial Espionage in History

One of the longest lasting attempts at economic espionage in history involved the attempt by Europeans to acquire the closely guarded secret of China's porcelain manufacturing process. Porcelain, which had been manufactured in China since the 7th century, was brought to Europe in the end of the 13th century, and prized by the wealthy and elite. Due to China's monopoly, porcelain was exorbitantly expensive, and Europeans tried in vain to discover the secret of its manufacture. During the 18th century, a Catholic priest named d'Entrecolles was able to gain access to Kin Te-chen, the "secret city" of royal porcelain manufacturing, and sent detailed accounts of his observations to Europe. Despite tight security, he also managed to send a sample of the clay used to make porcelain, and it was not long before China lost its lucrative porcelain monopoly.

During the 1800's, rubber exploded onto the world market. New manufacturing processes and inventions meant that rubber was quickly becoming ubiquitous. At the time, the only exporter of raw rubber was Brazil, who was very protective of their valuable national resource. In 1876, the British managed to smuggle out some rubber-tree seeds, using them to develop more disease-resistant varieties that were used to start rubber plantations in the Asian British Colonies. These man-made plantations were more productive than Brazil's wild-rubber harvesting techniques, and Brazil soon found itself unable to compete for rubber sales.

Types of Information Stolen

Any information that might be of value to a competitor is a target for industrial espionage. This may include client lists, information about future mergers or acquisitions, supplier agreements, research documents, prototype plans, or trade secrets.

A trade secret is defined by the Uniform Trade Secrets Act as:

Information, including a formula, pattern, compilation, program, device, method, technique 
or process that:
(a) Derives independent economic value, actual or potential, from not being generally known to, 
and not being readily ascertainable by proper means by, other persons who can obtain economic 
value from its disclosure or use; and
(b) Is the subject of efforts that are reasonable under the circumstances to maintain its 
secrecy (U.T.S.A. §1). 

One of the most well-known trade secrets is the formula for Coca-Cola. Only two executives know the formula for the famous soda, which is kept in a bank vault. Another famous trade secret is the formula for Kentucky Fried Chicken's "Eleven Herbs and Spices." Efforts to keep this proprietary blend secret include mixing partial blends at separate locations, then combining them at a third location.

Protecting Information

In order to protect trade secrets and other confidential information, companies are required to take internal and external security measures. Often, this involves limiting access to confidential information, as well as having employees sign confidentiality agreements and submit to comprehensive exit interviews.

Technological advancements, such as the increased use of cell phones and computers, have made companies more vulnerable to information theft. Bugging devices and spyware, once installed, can provide an ongoing wealth of information to a corporate spy. Experts claim that bugging devices are found in as many as 5% of British companies that ask for checks. In some cases, these devices may have been in place for years. Companies may contract a small firm to provide a computer upgrade, during which unethical programmers have the opportunity to install a trojan horse file, creating secret back door access to the companies computer system.

In addition to electronic devices, companies must also guard against physical theft. When important information is left accessible, it is possible for competitors to bribe cleaning staff or low level employees to take a picture or copy a document. The most obvious way to prevent such theft is to keep documents in a lockable file.

Until 1996, economic espionage in the United States was primarily governed by state law and the Uniform Trade Secrets Act (UTSA). In 1996, Congress passed the Economic Espionage Act (EEA). Before this, federal prosecutors were limited to using laws like the Interstate Transportation of Stolen Property Act and the Computer Fraud and Abuse Act to prosecute economic espionage. Despite this additional federal legislation, most cases of industrial espionage continue to be prosecuted in civil court under state law. While the EEA is a criminal statute and can impose more potentially severe punishment (including hefty fines, forfeiture of profits, and imprisonment up to 15 years), unlike the UTSA, it requires theft to be proven beyond a reasonable doubt, and is therefore more difficult to prosecute.

Economic Espionage in Government

Economic Espionage is not limited to the corporate world; government agencies are routinely involved with the theft of economic information. Throughout the Cold War, Soviet KGB agents attempted to steal a vast amount of information from the United States. While much of this information pertained to weapons systems, some was purely economical. For example, in the early 1970's, the Soviets used economic espionage to negotiate favorable terms on large wheat purchases. Pierre Marion, former head of the French external intelligence service, has bragged about efforts to spy on American companies, including IBM and Texas Instruments. The Israelis, Japanese, Germans, and South Koreans have also been accused of economic espionage. China has been accused of stealing industrial and technological secrets from Canada and the United States, in an attempt to acquire competitive status in today's technological world. Former head of FBI counterintelligence David Szady claims espionage has helped Beijing acquire a decade's worth of technology in only a couple years.

Further reading

• Barry, Marc and Penenberg, Adam L. Spooked: Espionage in Corporate America. Perseus Books Group, December 5, 2000. ISBN 0-7382-0271-1
• Fink, Steven. Sticky Fingers: Managing the Global Risk of Economic Espionage. Dearborn Trade, January 15, 2002. ISBN 0-7931-4827-8
• Rustmann, F.W. Jr. CIA, INC.: Espionage and the Craft of Business Intelligence. Potomac Books, November 2002. ISBN 1-57488-520-0
• Winker, Ira. Corporate Espionage: What It Is, Why It's Happening in Your Company, What You Must Do About It. Prima Lifestyles, April 9, 1997. ISBN 0-7615-0840-6

External links

• Spyware as Corporate Espionage Threat. NewsFactor Network, July 19, 2005.
• How to protect against industrial espionage
• Recent cases and future of industrial espionage
• Trade Secret Law by Eugene R. Quinn, Jr. (IPWatchdog)

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