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Information Age globalization creates an abundance of new business opportunity, but the growing industrial espionage threat means complex risks also exist.

Globalization and information technology have fundamentally changed how US companies conduct business. A smaller, more networked world allows US firms to better identify and exploit opportunities in foreign markets, but with possibility comes peril. The same factors facilitating legitimate global business are also making it easier for nefarious private and state-supported actors to target the intellectual property (IP), trade secrets, and other sensitive data that gives US companies an “innovation advantage” in the globalized, knowledge-driven economy.

A $338 Billion Threat

Industrial espionage, also known as economic or corporate espionage, costs an estimated $338 billion annually. Once primarily the concern of defense contractors, it now impacts nearly every US company. By May 2014 the problem had grown so pervasive – a single Chinese team had attacked 140 US companies since 2006 alone – and the threat to economic and national security so great that the FBI identified industrial espionage as a “top priority” for its counterintelligence division.

Targeting Institutional Knowledge

Whether employed by a private company, supported by a state-owned company, or reporting directly to a foreign government, malicious actors seek information from three broad categories, identified below, that collectively support US competitiveness of in the global economy.

An Timeworn Tactic, Updated

Modern industrial espionage is not a new phenomenon, dating back to the late 1980s and early 1990s when Ronald Hoffman, a project manager at Science Applications Inc., pocketed $750,000 selling complex software programs developed under secret contract for the US Strategic Defense Initiative to Japanese multinationals. The goals since then have remained largely the same – to clandestinely gather intelligence from US firms that can then be used for competitive advantage, either at home or abroad. Incentives and risks, however, have changed. Simply put, the incentives encouraging malicious activity have increased while the risks of detection, capture, and conviction have decreased. In the past, organizations engaged in what Foreign Affairs referred to as a tool for states to “try to supplement ... companies’ competitive advantage” incurred a high level of risk. In many cases, the only way to acquire a desired piece of intelligence was to obtain copies of physical documents in a secure location or co-opt an informant; in either case, the risk of detection, capture, and conviction was high. 

Enemies at the Gate

Information Age trends mean those risks are substantially lower today. US companies’ reliance on networked and Internet-based technologies to operate efficiently has been unavoidable, but it has created new vulnerabilities. A full understanding of the individuals, countries, or organizations that could potentially wage an industrial espionage campaign against your company will help ensure your IP protection efforts are as strong as possible, but identification efforts are complicated by the complex nature of the threat itself. The IP threat is not singular or consistent, and multiple actors can and will test corporate defenses at varying times and with varying degrees of strength.

Threats can originate from: 

  • Industry competitors, particularly those facing a threat from a US company entering their market;
  • Organized crime groups who stand to benefit from propriety information; 
  • Disloyal employees who can be lured with financial or non-monetary incentives;
  • “Hacktivists,” such as Anonymous or WikiLeaks, who conduct espionage to further their own social or political goals; and 
  • Foreign government agents, such as those supported by China’s armed forces.

Proactive is the Best Policy

By the time you discover that your IP and proprietary information has been compromised, the damage will already have been done. Legal protections are lax in many emerging markets, assuming you could even identify responsible parties, and the process of litigating patent infringement or IP theft cases is daunting, expensive, and often without a satisfactory result. Prevention and protection are critical to future success. A smaller, more connected world offers exciting new opportunities for growth, but it also expands and intensifies industrial espionage threats. These threats can easily destabilize a firm, and their negative impact on operations should not be underestimated. Take the time to understand your risk profile, and consider partnering with a trusted third-party to ensure your company is prepared to secure, protect, and maintain its innovation advantage.