Economic Espionage

ACCORDING TO THE Federal Bureau of Investigation (FBI), economic espionage refers to the stealing of trade secrets or confidential information by foreign governments or companies against U.S. businesses. Trade secrets are any secretive, private, or proprietary intellectual property including formulas, patents, budget and marketing plans, customer lists, new technology developments, pricing information, or any other type of information that has some potential economic value. These secrets typically account for roughly 70 percent of a company's market value, making them a highly valuable asset and a prime target of many competitors.

The premium placed on such information represents a fundamental shift from an economy based on tangible goods to a system based on intellectual property. Illegally obtaining access to a trade secret gives foreign competitors several advantages. It gives foreign entities the opportunity to introduce the product or service before anyone else, and thus realize a larger profit. In addition, the stealing of trade secrets allows an entity to under-price the original owner or developers since less money is needed for research and development. Finally, economic espionage allows a company to modify and/or improve upon the stolen trade secrets.

Several companies consider economic espionage a more cost efficient means of spending resources. Rather than spend the time and money to conduct actual research and development, companies can spend a fraction of the cost to steal information.

In one of the largest economic espionage cases to date, Avery Dennison spent roughly $200 million on research and development over a four-year span to develop adhesive formulas and tapes. One of its foreign competitors Four Pillars, a Taiwan-based company, paid an Avery Dennison employee, Victor Lee, only $160,000 over eight years to steal proprietary information concerning the development of adhesive formulas. In all, Lee stole approximately 12,000 research and development documents including 71 adhesive formulas and 37 trade secrets concerning specialized adhesive tapes.

Estimates indicate that economic espionage costs U.S. companies tens of billions of dollars each year in lost trade secrets and other proprietary information. According to the American Society for Industrial Security (ASIS) and federal government estimates, U.S. businesses lost approximately $1.2 trillion during the 1980s to economic espionage. More recently, a 1999 ASIS survey indicated that 97 of the top 1000 Fortune companies lost over $45 billion in stolen trade secrets. Approximately half (44) of the companies had more than 1,000 incidents of theft totaling nearly $1 billion. The average[Page 274] estimated loss was approximately $500,000 per incident.

According to the survey, most acts of economic espionage occurred in high technology and service industries, while the manufacturing industry tended to lose the most money, averaging a loss of almost $50 million dollars per incident. Small and medium-sized businesses generally suffered the most significant losses. Many of these companies were unable to recover from the loss of trade secrets which are extremely vital for survival.