Corporate Espionage: Fact and Fiction

Corporate espionage is probably not what you think of when you hear the word “spy.” It’s usually not glamorous or physically dangerous—sometimes, it’s as simple as a man in pajamas sitting in front of a computer with a cell phone, sending screenshots to his employer’s competitors.

Corporate espionage is the act of stealing proprietary information, trade secrets, or intellectual property from a business and giving or selling it to another. Learn more about corporate spying and why some companies might engage in the activity.

Key Takeaways

• Corporate espionage is stealing proprietary information, trade secrets, or intellectual property from a business and giving or selling it to another.
• The primary intent behind corporate espionage is to use the acquired information to gain a competitive advantage.
• Competitive intelligence differs from corporate espionage because it does not involve acquiring information using unethical or illegal methods.
• The Economic Espionage Act of 1996 provides a legal means to prosecute thieves that steal trade secrets (U.S. Code Title 18, Section 1832).

What Is Corporate Espionage?

Corporate espionage occurs when sensitive information like a trade secret is taken from one company and given to another. Most of the time, the people conducting the theft are being paid in some form to take the information. However, that isn’t always the case, as sometimes disgruntled employees or ex-employees can give trade secrets to competitors to “get back” at a company they feel wronged by.

Understanding Corporate Espionage

Theft of trade secrets is defined and prohibited by the Economic Espionage Act (EEA) of 1996, enacted to discourage stealing secrets from companies and making the practice a federal crime.

It seems strange that in a country where the Industrial Revolution started, it wasn’t until 1996 that a federal law was enacted to protect companies from theft of their secrets and intellectual property.

Before the act, the jurisdiction of trade secret theft was at the state level. Most states had adopted the Uniform Trade Secrets Act (UTSA), created by the Uniform Law Commission. However, the UTSA and other laws at the time were not considered adequate by industry leaders in critical technology industries (aviation, computers, and emerging technology). These industries were under attack by agents from dozens of foreign countries, seeking to acquire information and subvert the success of American companies.

Note

Corporate espionage is also known as industrial espionage or corporate spying. Economic espionage (as defined in the EEA) is a version of it, but the main difference is that economic espionage is state-sponsored.

EEA Section 1832 defines corporate espionage as the act of stealing a trade secret “…related to or included in a product that is produced for or placed in interstate or foreign commerce, to the economic benefit of anyone other than the owner thereof, and intending or knowing that the offense will, injure any owner of that trade secret….”

The section also defines theft as taking sensitive information without authorization, receiving secrets with knowledge of a theft, attempting to steal, or conspiring with anyone to steal trade secrets.

Corporate Espionage vs. Competitive Intelligence

Corporate espionage might sometimes be confused with competitive intelligence, especially if one business uncovers trade secrets while legally gathering business intelligence. Competitive intelligence differs from espionage in that it is not a deliberate theft of trade secrets—a company gathers and analyzes available information to assess its competitors rather than forcing its way into a business and stealing information.

Competitive intelligence can also include acquiring products or services legally—like purchasing a product at a store—intending to reverse engineer or analyze a product or service to discover trade secrets. However, many products and services are protected by patent laws, so while it’s legal to acquire information this way, it might not be legal to use it if it’s protected under a patent.

Corporate Espionage

• Deliberately stealing trade secrets

• Intent to distribute must be proven

• Trade secrets must be involved

Competitive Intelligence

• Uses published or unpublished legal sources for information

• An analysis of competitors is conducted

• Competitor disruptors are identified

• Acquiring information through legal means

Example of Corporate Espionage

Corporate espionage can take one of two forms—by federal definitions—economic espionage and theft of trade secrets. Economic espionage is stealing trade secrets to benefit another country. This form of corporate espionage is very prevalent in modern times because of the advantages technological advancements bring to competing or struggling countries.

For example, in March 2022, a General Electric employee was convicted of attempting to steal ground- and aviation-based turbine technology trade secrets from the company to give to the Chinese government and other interested parties. The ex-employee was sentenced to 24 months in prison, one year of supervised post-imprisonment release, and fined $7,500.

Consequences of Corporate Espionage

The legal ramifications for engaging in corporate espionage can be severe—a fine, up to 10 years in prison, or both. An organization found guilty of engaging in the practice faces a fine of up to $5 million. Economic espionage is punishable by up to $500,000 for individuals and 15 years in prison; organizations can be fined up to $10 million.

Aside from the legal consequences, the economic consequences can have a much more lasting effect, depending on what was stolen. For example, the theft and delivery of new and advanced fighter aircraft specifications can hamper a country’s ability to defend itself, especially if the hostile country uses the information to develop technology to counter the fighter’s abilities.

This theft has possible national security ramifications, but it also affects the company developing the technology. Research and development costs companies millions of dollars, and the lost opportunity costs can be even more. A competitor could use the information to steal market share from the original company, take away future revenues, and cause it to go out of business.

Is Corporate Espionage Illegal?

Yes. Corporate espionage was made a federal offense in 1996, although it was punishable earlier under state laws before then.

Does Corporate Espionage Still Happen?

Economic and corporate espionage continue to threaten U.S. businesses and the economy. Assistant Director of the Federal Bureau of Investigation’s (FBI) Counterintelligence Division Alan Kohler stated that the conviction and sentencing of an ex-General Electric employee serve as a reminder that the agency will pursue all those who collaborate with the People’s Republic of China to steal American trade secrets.

Who Investigates Corporate Espionage?

The FBI is the primary agency that investigates corporate espionage. The Department of Homeland Security and the Department of Justice also investigate it.

The Bottom Line

Corporate espionage is a very real threat to businesses. Knowing a competitor’s next product line, product price, or any other sensitive information can give a rival company a competitive advantage.

The practice not only damages businesses and hurts the people they employ, but it circumvents the competitive market that encourages innovation and growth. A market where businesses steal from each other rather than create their own new and more advanced solutions is one that will stagnate and fall behind.

Read the original article on Investopedia.