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The message is clear: It’s far easier for malicious actors to rip off valuable intellectual property (IP) and make a profit than it is for US corporations to seek reliable recourse or restitution in the event of industrial espionage.

A number of contributing factors have made it increasingly easy, more lucrative, and less risky, for a spectrum of nefarious actors to perpetrate industrial espionage. The IP of companies ranging from Fortune 100 multinationals to “Mom and Pop” operations has never been so at risk. Larger corporations are logical targets for industrial espionage, and industrial spies seek to hide in a sea of activity and people. However, larger companies generally have dedicated security personnel and budgets to attempt to prevent threats. Smaller companies are no less at risk, and require the same vigilance, but often lack the personnel, training, and budget to adequately safeguard their IP.

What IP is at Risk?

The sensitive information that provides a company with its competitive advantage, or intellectual property, can include: 

  • Client lists 
  • Trade Secrets 
  • Expansion plans 
  • Marketing plans 
  • Personnel records 
  • Production processes and techniques 
  • Confidential financial data 
  • Customer billing information 
  • R&D blueprints for new technologies

Who Poses a Threat?

  • Foreign governments 
  • Criminal organizations/individuals 
  • Competitors 
  • Customers 
  • Partners 
  • Insiders

Why Has Risk Increased?

Increased Financial Incentive

For industries ranging from pharmaceuticals, clothing, cosmetics, mechanical parts, and IT hardware to hybrid seeds for agriculture, successful research and development (R&D) requires facilities, expensive staff having specialized knowledge and skill, money, and time. Given the endless pressure on companies to develop new or improved products or processes, the search for short-cuts to this lengthy and expensive process can extend to simply pilfering a competitor’s IP. While more than 90 nations have targeted US corporate trade secrets, 50% to 80% of American IP theft ties back to China. US companies estimate Chinese industrial espionage cost $48.2bn in 2009.

Three representative examples illustrate both the magnitude of the problem and the severity of the consequences for victim firms:

Cisco In 2004, after Huawei pledged to modify certain aspects of its product line, Cisco dropped a lawsuit against Chinese telecom equipment giant Huawei Technologies alleging “wholesale infringement of Cisco’s copyrights and misappropriation of Cisco’s trade secrets.”

Motorola In July 2010, the American telecommunications firm Motorola filed suit against Huawei, alleging Huawei’s senior management had engaged in a multi-year effort to steal Motorola’s trade secrets. That lawsuit alleged that multiple ethnic Chinese Motorola employees had colluded with senior Huawei managers, to include Huawei’s founder, to steal Motorola’s proprietary technology and provide it to Huawei.

AMSC The Chinese wind turbine manufacturer Sinovel recruited a software developer working for its American supplier, American Superconductor Corp. (AMSC), to reverse engineer AMSC turbine software. Sinovel – which had accounted for 70% of AMSC sales – abruptly refused delivery of $700mm in AMSC equipment on order and began producing its own knock-off version of the AMSC product.

Increased Opportunities for Espionage Due to Globalization

A number of aspects of globalization have increased the opportunities for industrial espionage. Increased business travel means more opportunities for spies to approach and gain access to key company personnel and the IP they possess on laptops, cell phones, briefcases – and in their heads. Outsourcing, overseas facilities, and foreign workers, vendors, and partners means non-vetted or partially-vetted individuals gain access to a company’s physical, capital and technological investments. Another hazard to U.S. firms posed by globalization is that foreign courts have demonstrated they are often unsympathetic to U.S. corporate plaintiffs.

Increased Accessibility of Sensitive Data

In the past, a company’s sensitive documents could be kept in a single location, locked away in a steel safe inside a locked room. Today, most companies’ sensitive IP exists in digital form and is accessible in multiple locations within the company – whether on a computer network, stand-alone computers, or removable media. Espionage is Easier than Ever to Conceal and Misattribute If a nefarious actor gains access to a company’s digital data, there are many ways the thief can cover his/her tracks, or even misattribute the activity to a third party. This makes catching and identifying a perpetrator very challenging. If a nefarious actor gains physical or remote access to company data, that data can be surreptitiously copied, clandestinely transported, and secretly exfiltrated out of the company via removable media, by uploading it to the cloud, or sending it to a third party via email.

Risk versus Gain Equation

As the case of AMSC vs. Sinovel Wind Group demonstrates, one company may go to extreme, blatantly-illegal lengths to steal the IP from another firm. More often than not, the potential payoff for successfully committing industrial espionage far outweighs the low risk of detection and prosecution. Prevention and awareness are keys to defending valuable IP.