U.S. Companies Exposed to Industrial Espionage. (Point of View)

By Keithly, David M.; Ferris, Stephen P. | National Defense, September 2002 | Go to article overview

U.S. Companies Exposed to Industrial Espionage. (Point of View)


Keithly, David M., Ferris, Stephen P., National Defense


One of the ironies of the post-Cold War world may well be that intelligence operations directed against the United States have expanded.

Just over a decade ago, intelligence collection efforts still focused primarily upon military assets. Now, these have largely shifted to concentrate upon technology, manufacturing processes, and other trade secrets that sometimes have dual use but often only civilian applications.

Recent studies suggest that espionage costs U.S.-based businesses more than $200 billion annually in intellectual property losses, in addition to at least several tens of billions of dollars in related damages. More than 1,000 documented incidents of economic espionage transpired in 2001, and major companies reported at least 500 suspected episodes.

The number of countries actively pursuing economic espionage against the United States is on the rise, regretfully adding political allies to an assortment of long-standing, prying adversaries. The industry magazine Public Administration Review lists France, Germany, Israel, China and South Korea as major offenders.

To be sure, not all economic and financial data collection by competitors or representatives of foreign powers is illegal. Abundant data are available from such open sources as newspapers, the electronic media, books and the Internet. Other legal collection methods include requests under the Freedom of Information Act and the physical copying of patents registered at the U.S. Patent office. Activities involving the acquisition of information by theft, bribery, or coercion are illegal and hence properly termed espionage.

Economic espionage entails the unlawful compilation and use of data with economic consequences, although technological developments can, on occasion, obscure the distinction between economic and military targets.

In addition to foreign intelligence services, other practitioners of economic espionage pose threats to protected information. Among these are foreign corporations, organized crime, extremist ethnic or religious organizations, terrorists, drug syndicates and computer hackers. The September 2001 attacks on the United States underscored the need for companies to safeguard proprietary information that could be of use to terrorists, especially terrorist organizations with global reach. Although the motivation for accumulating data will vary considerably across groups, improper dissemination can have grave consequences for a company and far beyond.

Dual-use technologies impart an important military aspect to economic intelligence, potentially compromising military readiness and capability. Modern warfare, characterized by stunning technological complexity, places ever-greater demands upon the civilian economy. Technology thus forges a closer bond between the state, the military and private enterprise. The dividing line between national security concerns and issues of economic policy continues to blur accordingly. Such developments consign a greater premium to economic espionage.

In a sense, then, state-sponsored economic espionage operates as the handmaiden to a mercantilist revival in national economic policies. The reasoning of the usual suspects is apparent: instead of spending five years and several billion dollars on research and development, bribing a competitor's employees will yield an analogous or even better outcome.

A case this spring in Ohio illustrates the point, while highlighting potential risks to target companies. In May, a Japanese scientist pleaded guilty to stealing biological materials used for studies of Alzheimer's disease from a clinic. The FBI estimated that the purloined items resulted in more than $2 million in direct losses. …

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