Corporate espionage is defined as stealing proprietary information, trade secrets, or intellectual property from a business and selling it to another. When we think of spies and espionage, we do not immediately think of a disgruntled worker selling the formula for a product to another company. However, this form of espionage is one of the most commonplace incidents of sharing data and information with another entity.
It often receives less attention because it is less glamorous than flying to a far-away country to gather intel on the government or military, it is often more prevalent and insidious than the regular definition of espionage. Knowing what corporate spying is, how it works, and what to do if you encounter it will ensure that you and your business do not fall prey to a corporate espionage scheme.
This article will explore the world of corporate and industrial espionage, outlining the definitions of corporate espionage, economic espionage, trade secrets, and other relevant terms. It will also highlight what forms it takes, its property, and the commonly targeted industries. It will discuss some examples from the real world and illustrative issues before diving into the ways that the United States reacts to corporate espionage from a foreign government or insider transferring trade secrets, particularly through the lens of the Economic Espionage Act.
Finally, it will outline the ways that corporate spying impacts the businesses and people that run them. This article aims to leave the reader with an understanding of industrial espionage to ensure that company trade secrets are kept safe.
Defining Industrial Espionage
Corporate espionage, also called industrial espionage, is the taking and sharing of proprietary or operational information, trade secrets, or other sensitive information from one company and sharing it with another company or a foreign country for commercial gain. Unlike regular espionage, it is conducted for commercial or financial purposes rather than strictly national security.
Importantly, this information must be taken or shared without the consent of the company; however, any consent given only applies to the parameters given, and espionage can still take place if those boundaries are crossed.
Corporate Espionage v. Competitive Intelligence
There is often confusion about the difference between corporate espionage and competitive intelligence, especially because the person on the receiving end may encounter and receive very similar information. However, the major difference between the two is the intent of the parties gathering and receiving the information. With corporate espionage, stealing commercial secrets by force and without consent is the intent.
With competitive intelligence, companies may encounter information while legally accessing information to study and understand their competitors without the intent to access that information or find out a process. Companies may also acquire data by legally purchasing products from a store or marketplace and seeking to discover how the product was made.
The issue with competitive intelligence is that it can be very close to corporate espionage without hitting the intent mark. Company data is often shared publicly or privately with supposedly independent research organizations that end up having links to a competitor, giving that business intelligence data unknowingly. This can often feel very close to espionage and often undercuts the moral values of some companies, so it is often avoided by many, even if it can grant a competitive advantage.
Industrial Espionage v. Economic Espionage
Additionally, it is important to distinguish the definition of economic espionage from corporate espionage, even though they are often used interchangeably, even by government regulations. Economic espionage is trade secret theft or corporate data breaches for foreign companies or foreign governments and is state-sponsored, meaning that hostile foreign governments are on the receiving end of the information.
Economic espionage is a form of corporate espionage, but it does not always have the same definition, so it is important to understand that it is corporate spying that is encouraged or demanded by other states, not by another competitor.
Forms of Corporate Espionage
Most people will think of a spy or employee breaking into a secret vault to steal the company’s data and secrets for another. However, not all corporate espionage is that exciting, nor is it as blatant. Industrial espionage can take on many forms, some of which are listed here.
One of the most common and malicious techniques to gather and retrieve the most valuable data from another company is the use of malware and other software programs to gain access to the corporate secrets that a company is attempting to shield. These programs gain access to data often through a benign-looking email, yet they begin a cyber attack on the company’s data and send it to a competitor or foreign agent without the parent company knowing.
Malware is also responsible for information shared via technological surveillance, where the computer software watches and spies on the technology within the company.
Occasionally, corporate spying may take place through trespassing on company property, although this does not happen as frequently now that computer software has advanced to allow access and cyber espionage even without physically entering the property. Through trespassing, industrial spies will enter company property and gather data or sensitive information to send to another company or government.
The most common threat that many companies are either unaware of or hope to avoid is insider threats. This is anything from a disgruntled employee looking to transfer trade secrets to a poorly secured server or mishandled information. It can even result in an employee leaving the company for a competitor with more information than they should be bringing.
This is a threat from within the company, whether knowing or unknowing, that exposes the company to the risks of others gaining access to data. This is often the most insidious when it is knowingly accomplished by an employee, as it can lead to the disclosure of a large number of trade secrets depending on the security incident.
Property that is Commonly Stolen
We’ve touched on some of the common ways that intellectual property and trade secrets can be stolen. Still, it is also important to understand the information that is at the center of industrial espionage and how the disclosure of it will affect the company.
Intellectual property is one form of proprietary information that a corporate spy steals from private companies. Intellectual property is the result of the creative minds at the company. It is most frequently associated with products or designs for them, but can also include creative ad copy and other writings. Manufacturing methods, if unique, can also be considered intellectual property.
For some private companies, such as publishing houses, the product is the intellectual property that they have created with their authors. Taking this information elsewhere can be a big issue for employees.
A trade secret is information about a process or other workings in the company that generates economic value from not being generally known or discoverable by the public that the private company has taken steps to protect and conceal. Many people will think of the recipe for a popular soft drink or the information that a stock broker uses to make deals; however, many trade secrets include client lists and other information about the inner workings of the company as well.
The element of a trade secret that is often debated is whether the public could have found the information, meaning that it cannot be generally shared public knowledge before it is stolen or leaked.
Other sensitive information can be the target of corporate espionage as well. This can be anything else that keeps the company competitive or gives them an advantage in their work. It could be the rate of success of a trial product or the issues that the company is facing in legal battles. If you have any concerns about something being protected, it is often best not to share the information at all.
Commonly Targeted Industries
Some companies and industries are targeted by corporate espionage more than others. Most often, commercial organizations with room for continued economic development are the ones targeted, such as aerospace companies, technology, and computer science companies, and even the federal government.
Industries with significant trade secrets, such as hardware manufacturing or recipes for food and medicinal products, are also frequently targeted. Because these industries carry the possibility of significant economic growth if other competitors can access and use their secrets, they are the most frequently targeted.
Common Economic and Industrial Espionage Examples
To better understand what corporate espionage looks like, it can be helpful to consider examples of real instances of economic and industrial espionage and outline the impact and effect these examples had on both the spies and the companies that were the target.
British Tea Spies
One of the most notable industrial espionage cases was actually how the British people began producing the tea that they are now known for. In the 1840s, China and the Chinese Government had almost exclusive use of tea production and trade.
However, the British East India Company smuggled tea out of the country. It used British industrial technology to mass produce and market the tea once they studied it and identified how to produce it. This led to Britain gaining access to the tea trade secrets and producing tea on a much grander scale, allowing the tea trade to grow exponentially.
Cold War Espionage
During the Cold War, traditional espionage was not the only threat. In addition to searching for regular spies, an intelligence officer may also need to be on the lookout for Soviet industrial espionage that threatened American trade secrets and other business intelligence. The Soviet government would use this technology and information to compare to their own and get a handle on how the technology they had developed compared to others. This could involve anything from arms manufacturers to NASA to producing goods and services in other countries.
China and Google
In 2010, Google announced that China had hacked into the Google China Operation Center which allowed them to access propriety information, particularly the email addresses of human rights activists as part of a larger mission to gain access to similar information.
Many believe this act was an insider threat where some of the employees at the operations center in China allowed the government to access the information. Google also believed that this access was planned to help the Chinese government gain more information to develop their browsers to compete with Google in the country.
In 1997, a process controls engineer at a subsidiary of Gillette Razors committed corporate espionage when they sent trade secrets about production to several of Gillette’s competitors, giving others an advantage for development. This was another example of insider threats because the employee sent the secrets after being demoted, which he took as an affront to his career trajectory. This was also unique because the spy was not solicited or offered any cash for his secrets, which made the goal to harm his employer rather than realize financial gain.
In a different example of corporate espionage, Hilton and Starwood Hotels were in a legal dispute after Hilton hired two former Starwood executives who took many trade secrets with them to their new positions. This allowed Hilton to gain valuable knowledge about a form of hotels that Starwood was famous for and allowed them to copy the idea. This is an example of using an insider to move secrets when they move away from a job and is the reason that many companies now include noncompete clauses in their contracts with employees.
The Economic Espionage Act
Understanding that economic espionage was a threat to American companies and trade secrets, the federal government decided to make a federal law that outlined industrial and economic espionage as a federal crime in 1996. Many state laws outlined corporate espionage and the consequences of these laws, but this was the first federal law that outlined the crime on a federal level and created the industrial espionage case for criminal prosecution within the government.
There are several important definitions contained within the Act that will help define corporate espionage further.
The Act defines economic espionage as the act of stealing or misappropriating trade secrets or other proprietary information that would give the recipient a competitive advantage within interstate commerce. This can also include taking sensitive information without permission, attempting or planning to steal secrets, and receiving the knowledge that you know has been stolen.
One of the most important definitions in the Act is the definition of a “trade secret” and how it differs from competitive intelligence. According to the Act, which is modeled after the Uniform Trade Secrets Act, a trade secret is any form of economic proprietary information that gives the holder of the information an economic advantage by holding the secrets, and the owner has taken steps to protect data. This knowledge must also not be known to the general public, which is why it gives an economic advantage to the holder.
While the Act has broad definitions, not all corporate espionage will qualify for prosecution under the Act. The enforcement and security team will enforce the Act against corporate espionage that they believe is significant enough to affect business on a wider scale. The United States Department of Justice has outlined a prosecution policy that gives them a set of criteria to evaluate the instance. of corporate espionage to determine which ones to prosecute.
These factors include the scope of the activity, including the involvement of any foreign players, the economic injury to the owner, the type of secret stolen, available civil remedies, and whether prosecution would deter further similar actions by the parties or others.
Consequences of Corporate Espionage
When a person or organization commits corporate espionage, they may face severe criminal prosecution and legal issues. Additionally, both the spy and the one spied upon can face consequences that can cause harm for many years to come.
If a person is found guilty of corporate espionage under the Act, they can face penalties of ten years in prison or hefty fines. If a foreign player is involved, the punishment can go up to fifteen years in prison and a larger fine. These penalties are severe and intended to deter further similar actions by the parties and others who were considering participating in such activities.
In addition to criminal prosecution, there can be civil liabilities, meaning that the owner of the trade secret can sue the spy for the damages that they caused to their business. This can result in very large payouts to the owner of the secret in addition to criminal penalties.
Finally, the owner of the secret can face large consequences as a result of the theft. If the theft involved trade secrets about the production of a product, a competitor may steal the process and create a competing product that cuts into the revenue that the original owner would have. If the theft was of products that have a national security implication, such as military and arms dealers, there could be security implications.
Corporate espionage is rarely a victimless crime, even if it only affects one company. Understanding what it is and how to prevent it can help you avoid suffering the consequences or even think twice before sharing some information that seems harmless. Corporate espionage is a problem that we need to watch out for and should look to avoid.
To learn more about corporate espionage and how to handle other business disputes, contact ADR Times!