Mata Hari with a tie: Corporate espionage is no longer

Mata Hari with a tie: Corporate espionage is no longer

Corporate espionage has not been the prerogative of some industries considered sensitive for some time, such as pharmaceuticals or the military, but has also reached sectors such as education or agriculture, according to the British magazine The Economist.

It’s hard to get past John le Carré’s or Ian Fleming’s espionage novels, but we shouldn’t be ashamed of corporate espionage either, because it also has a serious dose of drama. The most recent case – the alleged fraud that reached the court stage and involved two American software companies.

In May, the court ruled that Appian, based in Virginia, would receive two billion dollars in compensation after accusing Pegasystems (of Massachusetts) of trying to illegally obtain internal information in order to gain a competitive advantage. According to the indictment, the executives of Pegasystems referred to a contractor hired to obtain information from Appian, calling him in the internal documents “our spy”, and their entire approach was codenamed “Project Crush”. Pegasystems, whose shares collapsed after the sentence, announced that it will challenge the decision, which it considers “unfair”, writes The Economist.

It’s just an episode that illustrates how much interest in business espionage has grown. Theft of information has not been the prerogative of the defense or pharmaceutical industry for some time. It is increasingly used in the case of smaller companies in sectors we would not expect – education or agriculture. In short, it has become a business venture. It is possible that corporate espionage entered an era not very different from the height of the confrontation of espionage services during the Cold War.

And there are two intertwined reasons for this – the unstoppable growth of the so-called intangible economy and the growing sophistication of online hackers. Executives should be afraid when they find out that their companies’ secrets are being hunted on the dark web. A platform called Industrial Spy manipulates all kinds of information and documents to “legitimize” business.

The information is sold in packages – from a few dollars to a few million. Keeping intellectual property (IP) securely locked in a digital safe will be unrealistically difficult. When I hear about IP, most people think of patents. Securing patents has become more difficult, especially in the United States, since two Supreme Court regulations in the last decade have virtually reduced protection for “business methods” and “abstract ideas” (the case of many software-based innovations). . A situation in which companies have been forced to rely on the development and preservation of trade secrets – which can be anything from algorithms or customer databases to chemical processes and marketing plans. Among the most well-known trade secrets are the Coca-Cola recipe and the formula for the WD-40 lubricant.

Patent vs secret

Most of the products concerned are absolutely mundane – recent litigation has involved industrial baking agents or floor resin formulas. Patents offer stronger protections, but trade secrets are forever. Provided they are guarded with holiness.

Christine Streatfeild, of the law firm Baker McKenzie, talks about a radical change in the last five years, as more and more companies in various industries realize that they need to protect their secrets. Among the most careful are companies in the consumer goods, steel and legalized cannabis industries. For example, Baker McKenzie advised legal marijuana producers in the United States on what steps to take to discourage rivals from accessing information on cultivation technologies or recipes for soil consistency.

Digitization makes everything even more difficult. As traditional areas – such as automakers or education – significantly increase their investment in software, they become implicit targets for information theft. The industries in which we meet several start-ups are especially more vulnerable, says Sidhardha Kamaraju, from the law firm Pryor Cashman. The reason – combines a lot of new technology with a high turnover of employees (they pass easily from one employer to another in the same industry).

In 2018, Alphabet’s Waymo autonomous car division (which also owns Google) earned $ 245 million in compensation from Uber, after it was revealed that a former Waymo engineer took trade secrets with him when he gone to Uber.

Legislative framework

At least in the case of trade secrets, legislative protection has increased. A turning point in the US was the law called “Defend Trade Secrets”, adopted in 2016, which significantly expanded the typology and number of secrets covered by federal law. Its adoption has increased the number of litigations by 30%, says Tim Londergan, from Tangibly (an IP firm).

The bad news is that many companies handle these secrets very poorly. It is not enough to make reasonable efforts to keep the information confidential. The secret must be clearly articulated as a secret. For example, Mallet, a bakery manufacturer, could not block a rival from using a special agent that allowed it to detach products more easily after baking. An American court ruled that Mallet did not adequately document and describe the secret formula of that agent.

Such decisions have led managers to request more IP audits and use the results to better guard the secrets of their companies. Another predictable effect – the phenomenon has fueled an entire industry of consultants in the area of ​​trade secrets. The demand for lawyers has also increased, but although there are many patent lawyers, they have little understanding of trade secrets and often tend to focus on litigation once the issue arises, Londergan comments. “Companies need this kind of advice in advance, not when the problem has already arisen,” he adds.

From porcelain to chips

TSMC is a global company that has achieved best practices in managing its trade secrets. And rightly so – the Taiwanese chip maker operates in an extremely sensitive industry, which abounds in information protected by IP and which rivals would pay no matter how much they get. She pays the most attention to China, known globally for information theft (she herself was a victim in the 18th century, when Jesuit missionaries were sent to steal the secret of Chinese porcelain production). According to the Taiwanese authorities, there have been several attempts to recruit TSMC engineers under the cover of illegal start-ups, in fact, which have been registered in Taiwan. In May, the Taiwanese parliament passed a law that anyone who obtains or uses key technologies for the benefit of a foreign entity risks 12 years in prison.

And the United States has taken tougher action, with China in mind. The Ministry of Justice claims that almost four out of five cases of economic espionage that end up in court are suspected of being for the benefit of the Chinese state (the one involving Huawei remains notorious).

No matter how great China’s threat is, it must be said that it is not alone. Allied states are also spying. Israel is stealing information for two key areas – defense and IT.

Likewise, it doesn’t help if you think about the threats posed by the various types of actors – people inside the company, its rivals or governments. Sometimes it acts simultaneously. At other times, the boundaries are unclear – espionage can actually be legal action. Numerous investment funds monitor the activity of some factories in the portfolio.

Employee mobility is at an all-time high. The companies and tactics used become even more desperate in times of recession, such as the current one. The geopolitical context is increasingly tense, which fuels the illicit activity of some states or their allies. After all, what we see in the movie “Casino Royale” is, perhaps, only the specter of economic espionage as it will continue to be. Or it will deepen.

Who, what, how much

Economic espionage can have sources both inside and outside the company.

BEGINNING. In 1789, Samuel Slater became what might be called America’s first corporate spy. Slater left England and brought to America well-kept secrets about cotton manufacturing techniques, through which America was able to revolutionize its textile industry. In the following centuries, corporate espionage became a real scourge, despite legislative regulations – the Law on Economic Espionage and the Law on the Protection of Trade Secrets. Slater went down in history as the “father of the American Industrial Revolution.” CASES. In a single year, 1997, the FBI arrested employees of Bristol-Meyers Squibb, Gillette, Kodak and Avery Dennison for stealing millions of dollars in trade secrets. In 1997, Steven David, from Washington, was caught and accused of stealing information about a new shaving system developed by Gillette. A former Eastman Kodak Company employee (Harold Worden) has been charged and admitted to stealing millions of dollars in trade secrets. Harold Worden had worked for the company for 30 years. When he left her (1992), he took confidential documents with him. IBM won over Hitachi, with two of its employees accused of industrial espionage in favor of the Japanese company.

This article appeared in issue 142 of . magazine.

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