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Corporate Spying and Intellectual Theft

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Corporate Spying and Intellectual Theft

Business secrets have always been the target of competitors snooping. Methods change with the times, but the same intent behind intellectual theft is ageless. Cyber attacks are a prime example of business hazard and national risk. Remember the Google incident with China? "In a January 2010 blog post, Google disclosed that it detected the previous month a highly sophisticated cyber attack originating from China that resulted in the theft of its intellectual property . . . Google said a wide range of companies were also targeted, including those in the finance, technology, media, and chemical industries. "This is a big espionage program aimed at getting high-tech information and politically sensitive information."

The lack of public indignation over such intentional and determined theft may not seem that important when compared with prospects of global war or financial implosion. However, ignoring systematic onslaught on our industrial infrastructure is like closing your eyes to the fact that the future of the domestic economy does not matter.

Spying & Stealing by Communist China adds to this dilemma.

"Stealing industrial secrets is a major part of China’s trade relationship with America. China has a large pool of potential spies among Chinese immigrants to the United States and the unprecedented number of Chinese graduate students attending U.S. universities.

Take, for example, the story of DuPont’s $17 billion-a-year industry selling a product called "Titanium White," which makes dozens of commonplace items white, from toothpaste to plastics to paint. China tried to buy the process from DuPont, but DuPont wouldn’t sell its 70-year-old business.

So the Communist Chinese stole it, using a Chinese immigrant, Tze Chao, working for DuPont as an engineer. After his arrest, he explained that the Chinese, "in asking me to provide DuPont trade secrets to them, overtly appealed to my Chinese ethnicity and asked me to work for the good of the PRC."

The drain on corporate research and development from covert theft is substantial. The countermeasures used to combat stealing can vary from sophisticated technological monitoring to old fashioned private investigations and police work. While a proactive response is certainly prudent, the liability for the company can be substantial if lethargy overtakes the enterprise.

Corporate governance: boardrooms fret over corporate espionage, notes the legal consequences from a lack of an energetic protective policy.

"According to a report from the Office of the National Counterintelligence Executive (ONCE), Foreign Spies Stealing US Economic Secrets in Cyberspace (Report to Congress on Foreign Economic Collection and Industrial Espionage, 2009-2011), a significant problem for companies, and consequently shareholders, is the issue of how losses related to corporate espionage are calculated.

The courts have also stipulated that there is a mandate for boards to ensure that corporate information is secure. The Delaware Court of Chancery ruled in In re Caremark International Inc. Derivative Litigation (698 A.2d 959 (Del.Ch. 1996)) that because of directors’ good faith duty, they must make efforts to ensure that information and reporting systems exist. Absent these efforts, directors could be liable for losses arising from illegal conduct on the part of company employees."

Industrial espionage is not limited to commercial endeavors. Solutions to prevent the loss of innovative data and business secrets should incorporate a coordinated effort with government national security authorities. Regretfully, such agencies have a very poor record of protecting their own clandestine resources. Stealing America’s innovative and creative achievements is a routine practice that also includes military research and development.

Intelligence and security expert,
Philip Giraldi raises significant concern when it comes to foreign spying from a "so called" ally.

"The reality of Israeli spying is indisputable. Israel always features prominently in the annual FBI report called "Foreign Economic Collection and Industrial Espionage." The 2005 report, for example, states:

Israel has an active program to gather proprietary information within the United States. These collection activities are primarily directed at obtaining information on military systems and advanced computing applications that can be used in Israel’s sizable armaments industry.

It adds that Israel recruits spies and carries out computer intrusion to gain this information. The 2005 report concluded that the thefts eroded US military advantage, enabling foreign powers to obtain technologies that had taken years to develop."

Sadly, the bulwark of government signal intelligence stemming from the NSA seems more interested in monitoring traffic on American citizens than focusing on, and preventing, foreign companies and spy agencies, from undermining legitimate domestic interests.

If a government created entity like Google can be easily compromised, what chance does a conventional Fortune 500 company have when assaulted by foreign intelligence services? The lack of a priority effort to secure business and defend military secrets gets little attention. Is this just an unfortunate oversight or is it more sympathetic of allowing, if not encouraging, untold numbers of Tze Chao plants into the country?

Security consultant,
Michael Podszywalow, warns,

"In some places of the world, people have the mind-set that, if you fail to protect your information, it is up for grabs. They view you as an easy target that should have had better protection in place, not as a victim who suffered criminal damage through espionage. Today, there is no universally adopted legal definition of a trade secret, so countries treat theft of intellectual property very differently."

For far too long Americans operate under the false viewpoint that expanding and exporting business ventures overseas benefits the national interest. Frankly, such a naive attitude has fueled foreign companies and governments, in thinking that the United States is an easy mark.

Since the cold war diminished, the international corporate campaigns accelerated. Commerce that benefits both trading parties should be based upon a mutual partnership. Business trust is in short supply, when it comes to the mega conglomerates. Locking your doors is a necessary protection.

James Hall – April 11, 2012

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