An Industrial Espionage Comeback

Apple seems to believe, and likely with good reason, that competitors are aggressively trying to steal its ideas.Apple is so aggressive about protecting those assets that a rash of suicides has occurred in partner companies apparently connected to these efforts. Apple is so overly concerned with the security of its intellectual property that it apparently fired an engineer for showing Steve Wozniak (Apple co-founder) an iPad 3G at the iPad launch. But what if Apple is right? In other words, is industrial espionage on the upswing? (A few of historic industrial espionage cases can be found here.)

I worked in competitive intelligence for a number of years while at IBM, and that function was created at many firms, in part, to replace what had been a much more aggressive practice of industrial espionage. The reason for this shift was largely self-serving: When a firm was caught stealing intellectual property, the repercussions could be extreme and include both severe civil and criminal charges.

Around the time I joined IBM, two Japanese companies were caught in separate clandestine stings while attempting to steal IBM's mainframe intellectual property. These firms not only had to pay IBM a lot of money as a result, but they also lost a lot of their own intellectual property to IBM. The Society of Competitive Intelligence Professionals was created and a set of self-regulating guidelines were put in place to make sure firms behaved. The organizations, which often had no formal names but were actively engaging in industrial espionage, were migrated to competitive analysis. From then on, most companies have appeared to be largely playing by the rules.

But just as we recently saw the failure of internal audit to prevent the financial market meltdown, competitive analysis has largely fallen on hard times and not had the funding and focus it once had. As a result, both the reason for the guidelines and the guidelines themselves are likely being forgotten, and illicit competitive information is probably being acquired.

It appears that firms may have fallen back on bad practices. For instance, Microsoft was accused of sabotaging Netscape's browser efforts by the DOJ in the '90s, and recently Apple has been accused of sabotaging Amazon's music efforts.

Sabotaging a competitor, particularly if you control a market, can result in successful antitrust litigation, and the end result can be the massive fines Microsoft and others have suffered through, on top of wave after wave of civil litigation.

This litigation, such as the recent Intel vs. AMD battles have highlighted, can suck up millions of dollars, result in sensitive email being released both in and out of context, and translate to hours of time for employees being deposed rather than doing their real jobs. In my opinion, it was the Netscape litigation that convinced Bill Gates that he no longer wanted to run Microsoft. When the most powerful man in tech is impacted this significantly, just think what a mess like this would do to anyone else.

Meanwhile, most victims of industrial espionage likely aren't even aware that they've been had. Years ago, I caught a senior VP of sales in what apparently was an intentional leak of critical information to a competitor -- only to watch him leave the company and go to work for that very competitor. One of the reasons I don't like layoffs is because they are often done badly, and employees walk away with customer lists, plans for future products, and other highly confidential information unchallenged. Because they were laid off, the employees justify what they are doing as a response to their ill treatment. I've watched executives in interviews share confidential information in order to get a job -- even while they are still employed by their current employer -- and wonder why the hiring company believes that these executives won't do the same to them. For several years, we've been tracking an increase in general employee theft, yet we apparently haven't connected this to a similar trend in intellectual property theft. While we have been concerned about new electronic security threats , we may have reduced focus on more traditional methods of intellectual property theft and may need to revisit this.

While Apple likely pushes the line in how it acquires and protects critical assets, its high-priority focus on protecting them is probably right for the times. Firms are increasingly at risk of having key products copied, key efforts sabotaged, and highly sensitive information compromised. While we have focused on many of the electronic methods of compromising our security, the more traditional methods may have been overlooked and, even when identified, firms are often more interested in containing the problem than in making other companies aware of the exposure. We need to make sure our competitors aren't stealing our stuff and assuring our failure. All may be fair in love and war, but it's certainly not all legal, and losing certainly still does suck. And just because you aren't hearing about a crime doesn't mean it isn't being committed. You simply may not be looking hard enough.

-- Rob Enderle is president and founder of Enderle Group. Special to Dark Reading.