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Industrial Espionage Becomes Favorite Way to Achieve Quick Gains

  • Richard Krantz

In today's global economy, not all wars are fought with guns and bombs. Many nations wage economic warfare in an effort to build their economies. And industrial espionage - stealing someone else's business secrets -- has become a favorite means of achieving quick gains.

Thomas Langer, the vice-president for security for BAE Systems of North America, a British company says, "If you have a competitive lead in the marketplace -- and a particular technology you've developed -- once you've lost that it can be copied by anyone who has it, and it can be a country that's looking to get it from you; it can be a criminal entity that's looking to get it from you."

Unfortunately for John Turner, criminals stole from his company, Polycom, which makes equipment used in video conferencing...

Many American high-tech companies suffer losses, says John Turner, of Polycom, which makes video conferencing equipment.

“We've seen identical copies of our technology emerge in other markets globally, where intellectual property rights are not respected, or certainly enforced,” explains John Turner.

Do you have any idea how that technology was stolen?

"Basically reverse engineered by companies who are trying to enter this market… They've even made the products look identical, so to the undiscerning eye it would be hard to tell the difference between the authentic product and our products," explains Mr. Turner.

Industrial espionage is a simple concept. It is the process of uncovering and stealing someone else's business secrets - then using the information for your own gain.

There is the stealing of proprietary information, commonly called trade secrets. And there is the stealing of intellectual property rights, which are ideas that have been patented, trademarked, or copyrighted.

George Washington University business professor Elias Carayannis says the problem doesn't just impact corporations, it affects nations, too. He says, "Espionage is another form of diplomacy, as is war. And in a way it is peaceful warfare -- because it is an activity or an effort to access, and control, and to capture very valuable assets. It doesn't have to be land nowadays. Intangible assets are very important."

The United States, as the world's technology leader, has become the primary target of industrial espionage, says Clayt Lemme, a counterespionage official of the Federal Bureau of Investigation:

"The FBI's current estimate for 2004 is a loss of somewhere between $130 billion and $330 billion. We characterize around 15 or 16 countries as having pretty aggressive programs targeting the United States,” says Clayt Lemme.

And the foremost of these?

“I think probably the best known are the People's Republic of China and Russia," says Mr. Lemme.

U.S. law distinguishes between industrial espionage, and economic espionage. Industrial espionage happens when one company steals secrets from another, strictly for competitive advantage. But the FBI is more concerned about "economic espionage."

"In order for it to be economic espionage, there has to be a sponsorship or a backing by a foreign government. It isn't just enough for a foreign company to try to gain advantage over a U.S. company. There has to be a foreign government behind that effort," says Clayt Lemme.

Such crimes are prosecuted under the Economic Espionage Act of 1996

"A significant percentage of the economic espionage they are engaged in is of a dual use nature, where it has a civilian application but it also has a military or national security application," explains Clayt Lemme.

For security reasons, the U.S. State Department bans the export of sensitive technology to some nations:

"For example, night vision goggles. There is a whole host of countries that we would prefer that 3rd generation night vision goggles not go to. Individuals that engage in that type of activity can be prosecuted under the export control laws," says Mr. Lemme.

As a result, many U.S. companies must walk a fine line. They are openly trying to sell their products, but must protect against espionage.

"We see a whole host of techniques to gain access to information of another company. But in order to gain access to proprietary information -- the keys to the kingdom of the company - you have to have somebody on the inside, somebody who has ready access to it," says Mr. Lemme.

And if recruiting insiders is not possible, there's always the Internet, says Tom Langer.

"It is estimated now that that a computer put out on the internet without firewall protection is hacked and compromised within 40 minutes because of these wide sweeping tools. They just sweep the Internet 24 hours a day, 7 days a week, looking for vulnerabilities, and they will capture all the data they can and sort through it later," explains Tom Langer.

More and more companies, worldwide, are taking steps to improve their security.

"What you need to do is invest in protecting your resources and the information technology, your networks and firewalls and logs and so on. But in addition, what you need to do is educate your workforce. They are the ones who know when something isn't right. They're the ones who have to understand how these losses translate into lost market share, lost jobs and lost productivity for the corporation," says Tom Langer.

Corporations and businesses have had reasons to try to protect their resources for centuries. In 1474, for example, Venice established laws rewarding anyone who brought new machines into the city by giving them exclusive rights to use them. And in the early 1800s, America built a booming textile industry by stealing technology from England for an efficient water-powered loom.

And industrial espionage is unlikely to end anytime soon, says Professor Carayannis.

"Espionage, in general, I think, is part of human nature. We are creatures that have survived and evolved as a species because we are curious. And I think that is inevitable. And the question is how to best manage it," says the professor.

That is an issue of growing importance, one corporate leaders and diplomats will likely be discussing for years to come.