From: Richard Sampson
From 1992 to 1996, according to one study, the number of cases of industrial espionage at the nation's 1,300 largest companies nearly doubled to about 1,100. The potential commercial value of the stolen information was pegged at $300 billion.
Richard Heffernan, a Branford, Conn., consultant who conducted the study for the American Society of Industrial Security of Alexandria, Va., said New Jersey pharmaceutical companies -- including Merck & Co., Schering-Plough, Warner-Lambert, and Johnson & Johnson -- have all been targeted by corporate spies. The reason: the hundreds of new products in their research and development pipelines -- products that require huge investments in time and money. Those pipelines hold the potential for billions of dollars in profits. "New Jersey is one of the top 10 areas for corporate espionage," said Heffernan, who has advised a number of New Jersey drug companies on ways to protect their secrets. "This is not a new thing for pharmaceutical companies, and it's become progressively worse. There's so much money to be made from the theft of their information. That pipeline is a very deep, rich vein of gold." In addition to illegal intrusions -- which can include anything from hacking into a private computer to buying trade secrets from a company insider -- more companies are targeting competitors' secrets using legal -- but in some cases, unethical, or highly intrusive -- methods. Membership in the Society of Competitive Intelligence Professionals -- an Alexandria, Va., group that advocates the use of legal methods to gather business intelligence on competitors -- has skyrocketed in recent years, more than quadrupling since 1990. For the most part, competitive intelligence professionals analyze data from public sources -- news reports, databases, trade shows, and the like. But they also tap more questionable sources, such as satellite photos. And they have indicated a widespread willingness to step over ethical lines to obtain information on business rivals. In a survey published in April by the competitive intelligence group, participants -- all corporate spies -- were given several scenarios and asked to choose from various options on how to proceed. Nearly half said they were willing to misrepresent the purpose of their research, 30 percent were prepared to read a marketing report left on an adjacent airplane seat, more than 70 percent said it was permissible to pump a new hire for confidential information about her previous employer, and 20 percent were willing to read and use a competitor's proprietary product data. All of those tactics violate the competitive intelligence group's own code of ethics, and the last might step over legal lines as well, according to the survey's authors. "I think there is room for some very legitimate information gathering that's important for companies to do," said Gayle Porter, an authority on business ethics at Rutgers University. "But I think there are probably many, many, many examples of people taking it too far." In New Jersey, there are abundant examples of companies alleging that they have been targets of industrial espionage -- or who have been accused of targeting others. In 1996, Boehringer Mannheim Corp., a German drug company competing against New Brunswick-based Johnson & Johnson in the $1.75 billion market for blood-monitoring devices, sued J&J and its LifeScan subsidiary in federal court. Boehringer alleged that LifeScan offered employees incentives for spying on its archrival, and that LifeScan employees sneaked into Boehringer sales meetings in Indiana, Florida, Turkey, and Germany to obtain proprietary product information. J&J denied the charges and in a countersuit said Boehringer hired detectives to obtain secrets and had workers pose as customers. Boehringer acknowledged some of J&J's charges, including that it had reprimanded an executive for posing as an importer to obtain a demonstration of a product not yet on the market, and that it had maintained a "competitive kill team" targeted at LifeScan. But the two companies reached an out-of-court settlement in 1997, agreeing to keep the terms of the settlement secret. J&J spokesman Jeffrey Leebaw declined to comment. Boehringer did not return calls. Heffernan and others say industrial espionage is on the rise because of tougher competition in domestic markets, the targeting of U.S. trade secrets by foreign economic and industrial interests, and the combination of computer hackers with increasing technical sophistication and companies that are woefully unprepared to stop them. And they say one of the times companies become vulnerable is when high-level employees leave. Executives with knowledge of marketing plans for new products and researchers responsible for developing the next big scientific breakthrough are often exploited by their new employers to obtain a competitive edge. That is what Warner-Lambert of Morris Plains charged in a 1997 lawsuit that was subsequently dropped. The company spent 12 years and $17 million developing Procan SR, a sustained-release drug used to treat heart rhythm irregularities. The product won Food and Drug Administration approval in 1982. Warner-Lambert accused a former employee of giving the top-secret formulas for the drug to Copley Pharmaceutical Inc., a Canton, Mass., generic drug manufacturer she went to work for in 1984. Seven months after she joined the company, Copley asked the FDA to approve a generic version of the drug, which Copley eventually brought to market. Neither company would comment on the settlement that ended the matter, but Jason Ford, a Warner-Lambert spokesman, said the drug -- which was discontinued several years ago by the company -- was never a blockbuster. "It wasn't so much the stealing of the product," Ford said. "The main reason why we filed the lawsuit was to make it clear that we vigorously defend our intellectual property. It sends a loud and clear message that this is something we take very seriously." Another North Jersey company, the Wormser Corp. of Englewood Cliffs, also played a key role in an industrial espionage case involving a former employee -- not as the victim, but as the accused. The case centered on Frederick Marks III, a production manager employed by Powell Products Inc. of Colorado Springs, Colo., until 1993. According to a lawsuit filed by Powell in 1995, Marks took with him top-secret blueprints for a machine developed by Powell to mass-produce foam-tipped swabs more quickly and cheaply than any other machine then available. Powell accused the Wormser Corp. of bankrolling a plan to use the stolen blueprints to create a prototype of the Powell machine, and using the machine to compete against Powell. After two years of litigation, a Denver jury awarded Powell $2.7 million in damages and legal fees, but Powell settled with the Wormser Corp. for $1.7 million. Marks pleaded guilty to misdemeanor theft in February in exchange for his cooperation with the FBI. The Wormsers -- company president Stephen, and his sons, Alan and David -- have not been charged. David Wormser referred questions to Bill Meyer, a Boulder, Colo., lawyer who denied the allegations, saying the Wormsers settled with Powell to avoid "years and years" of legal wrangling. Powell President Stephen Robards said the Wormsers are the true culprits. "There's no question about it," he said. "The blueprints Marks stole would not have damaged us without the Wormsers' money. He didn't have the resources to start a business without them." Since the passage of the 1996 Economic Espionage Act (EEA) making the theft of trade secrets a felony, the FBI has become more involved in industrial espionage cases in which U.S. companies have been targeted by foreign or domestic interests. To date, five cases have been brought under the act, including one in July in which a Piscataway man -- a former scientist for Roche Diagnostics, a Branchburg division of Nutley-based Hoffmann-La Roche -- was charged with attempted theft of trade secrets from the company. According to the complaint, Huang Dao Pei tried to obtain secrets from a current Roche scientist about the company's hepatitis C diagnostic kit, hoping to market a similar kit in China. William Megary, special agent in charge of the FBI's Newark office, said individuals trying to steal American trade secrets are not "street thugs," but high-tech thieves who are "educated, resourceful, and elusive." "Our cases illustrate the complexity of not only how diverse the criminals are, but how diverse the crimes are, as well," he said. "The FBI is committed to enforcing the EEA. Our message is clear -- it is no longer open season on American technology." Even before the act became law, federal stings were not unheard of. In the Bristol-Myers Squibb case, FBI agent John Hartmann established himself as a technology information broker in 1995 and began laying a paper trail of more than 135 faxes, e-mail messages, telephone calls, and letters with the representatives of the Yuen Foong Paper Co., which would eventually lead to the fateful meeting at the Philadelphia hotel. Jane Kramer, a spokeswoman for Bristol-Myers Squibb, said the company uses "the most sophisticated techniques" for safeguarding its trade secrets, but she would not elaborate. When security is breached, she added, it is important for a company to fight the intruder with every weapon in its arsenal. "Taxol is a major advance in cancer treatment," she said, adding that the company's multimillion-dollar investment in research on the drug is more than repaid by its $1 billion in annual sales. "You have a dramatic investment in research and development that's the lifeblood of a company like ours. The ramifications are huge for our present and our future." In what authorities described as the largest industrial espionage case in U.S. history, a 1990 FBI sting led to charges against two men for stealing secrets valued at $1 billion from Merck & Co. in Whitehouse Station and Schering-Plough Corp. in Madison. Biochemist Bernard Mayles, a former employee of the two companies, and a confederate, Mario Miscio, were ultimately convicted of trying to sell the secret formulas for Ivermectin, an anti-parasitic drug marketed by Merck, and Interferon, a cancer and hepatitis treatment sold by Schering-Plough. An FBI agent posing as a Chinese investor who wanted to convert an idle factory for Ivermectin production agreed to pay $1.5 million for the formula and the microorganism used to produce the drug. He promised to arrange the sale of the Interferon formula to a Polish investor for $10 million. Schering-Plough spokesman Ronald Asinari declined to comment, but Merck spokeswoman Maggie Beute said her company has taken additional steps to safeguard secrets in recent years, including beefing up computer security and being more vigilant about getting vendors to sign confidentiality agreements. "There's so much at stake here," she said. "Anything that shortens the life of any of our products is going to have detrimental effects on our ability to recoup our investment in R&D. As an industry, we're very focused on making sure our intellectual property rights aren't violated." Illegal intrusions such as those against Merck, Schering-Plough, and Bristol-Myers Squibb have created a cottage industry for consultants who advise companies on how to keep their secrets safe. Andy Welch, a senior consultant at KPMG Peat Marwick's risk-management practice, said business has increased tenfold in two years. Two out of three companies who come to him for help are taking preventive measures, but the others have already suffered security breaches. Welch examines personnel policies to make sure there are procedures for deactivating computer passwords when employees leave. And he attempts to hack into the company's system from the outside to find its weak links, such as the ability to dial in to a company's computer system without a password. He said many companies are not prepared to deal with the threat of corporate espionage, especially intrusions into their computer systems, where many of their most valuable secrets reside. "The indication is that there is a large degree of unpreparedness out there," Welch said. "It needs to be taken seriously. I can't tell you with a straight face that everything is warm and fuzzy out there." By Louis Lavelle -0- Visit The Record, Hackensack, N.J., on the World Wide Web at http://www.bergen.com (c) 1998, The Record, Hackensack, N.J. Distributed by Knight Ridder/Tribune Business News. BMY, MRK, SGP, WLA, JNJ, CPLY, END!A$9?HK-BIZ-ESPIONAGE News provided by COMTEX. 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