Comment: The enemy within

Although industrial espionage is the stuff of Hollywood thrillers, it is also a fairly common phenomenon in everyday life. The reason we seldom know about it is because most employers are unaware it is happening to them and, if they do, it is hardly something they wish to allow into the public domain.

This danger for companies puts HR at centre stage because half of the principal avenues for infiltration to sensitive commercial data involve the strategic hiring of new employees, the restricting of departing employees or the conduct of normal employee relations.

Back in the 1950s and 60s Japan’s struggling economy needed to have some substantial non-military manufacturing enterprises as its backbone. They had to get away from a reputation of post-war cheap copies of western products to build a new reputation based on quality, efficiency and advanced technology. One of the principal ways they did this was through the reverse engineering of established motorcycle and car brands. It was easy thus to see why Italian motorcycles such as MV Agusta had superior products to the UK manufacturers BSA and Norton. But the Japanese did very little to copy these technologies, they improved on them, often by chance. Even the discovery of revolutionary technologies that changed the music market like the Sony Walkman, was discovered by mistake.

But there is a long history of achieving innovation through a very different approach. Way back in the seventeenth century the British had cornered the world market for cotton products by ensuring cotton grown in America was only sent to be processed in English cotton mills. The manufacturers kept up this monopoly by controlling the emigration of those with the manufacturing know-how and preventing shipment of blue-prints for the spinning and weaving machines. But this system failed in 1789 when Samuel Slater took a ship to New York with all the know-how necessary to industrialize the textile sector in America.

Although espionage concerning state secrets has a long and notorious history going back to Chinese strategists like Sun Tzu and British spymasters like Francis Walsingham in the Elizabethan court, the focus for attention has also been on what private industry has been engaged with, especially military technologies produced for their home governments. After the second world war the attention of intelligence agencies widened to assist the development of domestic companies in both manufacturing and services – as they could penetrate walls of secrecy that enterprises could not breach. Such activities have been widely documented in such fascinating accounts as “Friendly Spies” by the US investigative journalist Peter Schweizer – who also charts the more disturbing trend of corporate theft by agents of individual foreign rival firms.

On January 16th 2019 we finally got the opportunity to look into the seedy jungle of corporate espionage. Filed before the grand jury of the US District Court in Seattle was a lengthy indictment against the Chinese Huawei telephone equipment company. This lengthy document – that still awaits substantiation and to be proven in court – gives in great detail how the company allegedly paid operatives to be hired by T-Mobile USA and were paid bonuses for stealing intellectual property. Although this is by no means the first such case of its kind, it does illustrate the lengths companies may now go to spy on rivals.

So, what is the message for HR professionals? There is no company that does not have some secrets that they need to protect. These may not be intellectual property per se (in a legal sense), but customer lists, selling techniques, plans and campaign strategies. These are not going to be easily penetrated if a rival simply utilizes a contractor to gather data – but they do not need to bother with such a device. They can manipulate the company itself to open up all its secrets by ensuring that it hires senior staff whose loyalties lie with their old (or an associated) firm. So, the company that feels they have made a coup by enticing an employee away from a rival (often through an expensive head hunter) may actually just be paying for a spy in its midst.

Once a company has identified a key employee who is a commercial risk they often seek to tie them up with a non-compete clause. Unfortunately, in many jurisdictions these are illegal, not enforceable – or require a hefty ongoing payment from their former employer. In the latter case, the restricted employee will just be sitting at home being paid by their former employer, whilst actually working for their new employer on a teleworking basis. All company confidential data will be being leaked and it will be very difficult to prove culpability.

Finally, and ironically, the EU Directive on the Protection of Trade Secrets contains a wonderful exception clause that exempts from its limitations any data given to employee representatives under statutory information and consultation obligations. Hence, the easiest way to penetrate a company’s privacy shield is simply to find a disgruntled works council member willing to ask some penetrating and sensitive questions in return for the satisfaction that they will be harming the employer they feel has so little appreciated them.

Return to all FedEE Blog stories