A competitive environment yields dirty tactics — that much has always been, and probably always will be, true. We see it in our government and its relationship with foreign powers, evident in the high-profile, top secret spying we're familiar with in the realm of government operations and classified national security information. What you may be less familiar with is the fact that the same espionage tactics used by nation-states are used by companies against each other. As long as corporations have been competing against each other, they've found ways to snoop around, steal from the competition and try to be the first to discover the next big thing.
Here's a compilation of the main points you need to know about surveillance in the private sphere: why it happens, what it is, the risks and benefits and the laws that regulate it.
What does corporate espionage mean?
Corporate espionage is the practice of using spying or surveillance tactics for private financial or commercial gain. We usually think about espionage as a set of tactics used by governments and their intelligence operatives against one another, for purposes of monitoring and discovering information that is pertinent to nations' leaders and policies. But some of the same techniques are also used by corporations, in order to spy on rival companies and get ahead in the industry.
Corporate espionage is a pretty broad umbrella term, and there are many different iterations of it. It can mean anything from hacking into a corporation's files to hiring a former employee of another company who brings with them classified information to your team. It can also occur between corporations and foreign governments. This applies to cases in which an employee or inside operative from a corporation discloses trade secrets or other information to another country for personal gain, to help that country compete in the international market.
There are varying levels of legality when it comes to these tactics, with laws holding corporations accountable — and subsequent loopholes that let many cases fly.
Types of corporate espionage.
There are several ways companies can spy on their competitors, some of them more extreme — and more easily prosecuted — than others. Here are some examples of common espionage techniques used by corporations:
• Hacking into computers or wiretapping.
In order to steal intellectual information or trade secrets, companies may hire hackers to break into competitors' online files or wiretap their correspondence channels. Companies in the tech field are particularly vulnerable to this, as code and software are easily transferred electronically, and other tech companies are more likely to have competitive means of accessing restricted files through hacking, sending viruses or tapping into phone lines.
• Trespassing on physical property.
Some companies may send people undercover to spy on rival companies, even trespassing on property without authorization for the purpose of stealing information. This classifies as breaking and entering, as well as theft of intellectual property in some cases, particularly if the stolen information is copyrighted.
• Hiring employees from rival companies.
Some companies choose to hire employees with previous work experience at a rival corporation, who may be encouraged to bring information with them that they shouldn't necessarily share. These may just be employees unhappy with their experience at their former company, or they could face financial incentives or other pressure from their new employer to disclose such information. It's worth noting that the reverse of this situation is also a form of espionage: sending employees to pose as employees of a rival company and work as double agents, so they can get hired, obtain company secrets and report back.
• Hiring undercover operatives.
Sometimes, companies will hire private investigators to visit trade shows and see if they can overhear information that might be useful or "secret shoppers" to go visit rival companies and report back on how they do business there. These are examples of common forms of "competitive information gathering" that, while secretive and misleading in nature, are not usually classified as illegal.
Is corporate espionage illegal?
The short answer: sometimes. As mentioned, there are some forms of intelligence-gathering that are legal, even if they're secretive or deceptive. Sending secret shoppers or investigators to observe companies' business is not against the law, as long as no one is trespassing or breaking into any online system or database without authorization.
Some forms of corporate espionage, on the other hand, are against the law. Obviously, tactics like trespassing, identity theft, computer fraud and stealing intellectual property are illegal. Those things are illegal regardless of whether they are being used to obtain trade secrets and market advantages. However, federal law also protects specifically against corporate spying under the Economic Espionage Act, passed in 1996. This law made it illegal to steal commercial secrets from a company, for personal gain or for the benefit of another corporation or government. Prior to the passage of this law, earlier legislation covered the theft of national defense information and other espionage between governments. The Economic Espionage Act, though, was the first time espionage for commercial gain was addressed by the law (nearly 80 years later).
The law lays out a common definition of what constitutes a trade secret, as well as the penalties for being found guilty of corporate espionage. In general, the penalties for cases in which commercial information was stolen on behalf or relayed to a foreign government or company are harsher. Corporate espionage is prosecuted, under some circumstances, as a felony offense, and one can go to jail for several years and be fined multiple millions of dollars depending on the case. However, the Department of Justice doesn't treat all cases with criminal prosecution, as there are bases for civil action according to state and federal laws as well. They prioritize criminal prosecution in certain cases over others according to several guidelines, including: "The scope of the criminal activity, the degree of economic injury to the trade secret owner, the type of trade secret misappropriated, the effectiveness of available civil remedies and the potential deterrent value of the prosecution."
Some state laws are even stricter than federal laws, and cases that are not prosecuted are often still grounds for a civil lawsuit since they are still illegal offenses. If the parties involved want to settle the case in court, this is often the way it goes, with cases resulting in hefty fines. However, it's believed that a good portion of corporate espionage cases go unreported and do not result in lawsuits because the spied-upon party often perceives the fact that they were able to be spied upon as a blow to their reputation. If their security measures were lax enough to be thwarted by espionage tactics, they would rather keep it under wraps than call attention to the vulnerability with a lawsuit.
Cases of corporate espionage.
That being said, there are several recorded cases of corporate espionage that notably resulted in lawsuits. Some warranted prosecution, while others were settled in civil court. Here are some of the most well-known cases of illegal corporate spying.
1. Razor-sharp sabotage.
In 1997, a disgruntled, recently-demoted Gillette engineer who had helped to developed the company's latest razor designs faxed over confidential information to the company's rivals, including Warner-Lambert, American Safety Razor and Bic (a foreign-owned company). One of the companies immediately reported the breach of information and got the FBI involved. The employee, Steven Louis Davis, was arrested and pled guilty to stealing trade secrets and wire fraud. He was sentenced to 27 months in prison.
2. Kodak moment.
Harold Worden worked for Eastman Kodak Corporation for 30 years, before quitting to form his own consulting firm. In leaving the company, he took with him thousands of confidential documents concerning the new machine for which he had been a project manager at Kodak — the 401 machine, able to produce the plastic part of film inexpensively by using a secret formula for the film. He went on to sell the information to his consulting clients, some of whom were said to be foreign competitors, before he got arrested. He took a plea deal, pleading guilty to a felony count of interstate transportation of stolen property, and served a year in prison, with three months of house arrest and three more years probation. He was also fined $30,000.
3. Hospitality wars.
In 2010, two major hotel chains, Hilton and Starwood, entered a civil lawsuit after Hilton hired two former Starwood executives in an attempt to replicate the successful "lifestyle hotel" brand Starwood had launched. The resulting case resolved in a multi-million dollar deal, with Hilton paying $75 million to Starwood in settlements and another $75 million in hotel management contracts. They also pledged to refrain from opening any more lifestyle hotels for the next two years, and accept regular monitoring from the court to ensure their compliance with the terms of the settlement.
4. HP vs...HP.
In 2006, one of the most high-profile cases of industrial espionage at that point involved the technology company Hewlett-Packard suspecting someone from inside the company of disclosing classified information from board room meetings. The company hired private investigators to monitor its own employees, posing as reporters and company directors to obtain private phone records from employees through illegal methods. They were also instructed to spy on reporters and sift through garbage for private information. The HP executive who had approved the spying was fired as a result, and the company had to pay over $20 million total in settlements.
What is the difference between corporate and industrial espionage?
Corporate espionage and industrial espionage are both used to refer to corporate spying. For the most part, these two terms are often used interchangeably, to refer to the practice of using any of the espionage tactics mentioned earlier for personal or financial gain. However, industrial espionage seems to refer more exclusively to illegal tactics.
Corporate espionage, or corporate spying, can refer to practices that don't break the law. Often described as competitive intelligence, corporate espionage is actually an occupational field you can go into, working for a private company conducting its own intelligence directly or through a larger intelligence network, like SCIP, which connects intelligence professionals with private companies' needs.
Though industrial espionage and corporate espionage can refer to the same techniques, there are ways to engage in corporate espionage legally, and it's a field that is certainly not in any danger of going out of demand. As long as companies are competing with each other, they'll be snooping around to find out each other's secrets in the hopes of getting a leg up. If intelligence is a field you're interested in, it's certainly worth checking out. Just make sure you're aware of the legality of your company's practices in order to avoid hefty fines and costly lawsuits or even prison time.