Keeping trade secrets secret:counterspies, codes, courts
By Daniel W. Gottlieb -- Purchasing, 5/6/1999
When it comes to spying, nuclear-weapons labs aren't the only targets these days. Pilfering of trade secrets from U.S. businesses, according to the National Counterintelligence Center, continues despite convictions under the Economic Espionage Act of 1996 (PUR: Mar. 20, '97; p. 18).If you think this is just cloak and dagger intrigue occurring outside the realm of purchasing, think again. Posting tenders to bid on the Web, information shared with suppliers about operations, and EDI transactions could all have content that tells a foreign business agent where to spy. The Economic Espionage Act covers both foreign clandestine raids on U.S. companies as well as thefts aimed at transferring trade secrets from one U.S. company to another.
The overall extent or cost of trade-secret theft is hard to measure because much is never reported. A survey by the American Society for Industrial Security (asis) on intellectual property loss among Fortune 1000 plus the 300 fastest growing companies puts the tally at around $44 billion for known and suspected losses during a 17-month period in 1996-1997. And that sum represents responses from only 12% of companies surveyed.
In the past two years only a handful of cases have been prosecuted under the 1996 law, with two convictions. Some are still being tried, however. A recent appellate court ruling "should open the doors for more cases," according to Joe Ricci, spokesman for asis. James Chandler, president of the National Intellectual Property Law Institute, who was involved in drafting the 1996 law, agrees. The ruling in the case (the alleged theft of a formula for a cancer drug from Bristol-Myers Squibb) involved denial of a defense attorney motion to obtain information on the trade secret.
To gain protection from the law, however, companies have to take more protective measures, says Chandler. This means clearly identifying their trade-secret assets, using "due care" with persons who have access to propriety information, and employing codes. "One of the most significant problems in the future for economic espionage is that we're moving more dramatically in the direction of e-commerce," says Chandler.
"The only way to manage effectively is using cryptographic controls," Chandler says. Unfortunately, U.S. controls barring export of strong U.S. encryption software means "U.S. companies are generally unable to employ the cryptography of choice if they are doing business on an international basis."
Ironically, Chandler's point highlights the fact that while the FBI is charged with fighting economic espionage, it has also been fighting export licensing of strong encryption technology, arguing that it cannot be "cracked" as readily for eavesdropping operations. A call to the FBI to answer questions about this was not returned.
As the purchasing function becomes more heavily involved in e-commerce, making it secure becomes a bigger challenge.
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