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Is Corporate Espionage Illegal?

Legal Assistant Business Law, Criminal Law, International Law

One of the earliest reported cases of industrial espionage dates back to 1712 in Jingdezhen, China. A French priest, François Xavier d’Entrecolles, learned about the Chinese methods of manufacturing porcelain and took this discovery back to Europe.

Fast-forward to the 20th century, and economic espionage cases between the East and the West dominated the world stage. Industrial espionage by the then Soviet Union formed a huge part of their spy-related activities in the United States. Many of their CPUs in the 1980s appeared to be exact replicas of American-made computers.

While one might argue that there’s nothing wrong with a little competitive intelligence, the question becomes: At what point does it cross the threshold and become espionage? Is corporate espionage illegal? This article explores everything you need to know about it.

What Is Corporate Espionage?

Espionage refers to using spies to obtain classified and confidential information from a rival entity using covert means. Governments usually conduct it to obtain military or political information about rival states.

Corporate espionage is a form of espionage carried out for financial or commercial gain. The terms economic espionage, industrial espionage, and corporate espionage all refer to the same practice. That said, industrial and corporate espionage definition applies to organizations, while economic espionage is international and applies to governments.

Foreign governments, particularly those with several state-owned businesses, place a lot of importance on economic development. These governments are often the most common culprits behind corporate espionage.

The trade war between China and the United States stems from the rampant theft of American organizations’ trade secrets by the Chinese, which they then use to create knock-offs of the original.

Types of Industrial and Economic Espionage

Industrial espionage takes two forms:

  1. Blackmail, bribery, theft of organizational trade secrets, and technological surveillance using malware
  2. Acquisition and unauthorized use of intellectual property such as operational and proprietary information. These include research and development reports, pricing information, sales data, customer data, manufacturing techniques and processes, production locations, marketing strategies, and prospective bids.

Modern espionage doesn’t just target commercial organizations; governments can also be targeted. For instance, an organization may conduct espionage on the government to establish the terms of a yet-to-be-awarded government tender contract.

Corporate Espionage Examples

Here are a few scenarios that fall in the realm of corporate or industrial espionage.

  • Posing as an employee of a competing firm to gather confidential or proprietary information
  • Trespassing onto a competing organization’s premises and accessing their confidential files and information
  • Wiretapping a rival organization
  • Hacking into a competitor’s IT systems
  • Infecting a competitor’s website and computers with malware
  • An insider or a disgruntled ex-employee transferring trade secrets from one firm to the other

Competitive Intelligence vs Corporate Espionage

Competitive intelligence and corporate espionage involve the same activities carried out for different objectives. Corporate espionage mainly involves the covert collection of proprietary information between competing organizations. It may involve illegal behavior such as blackmail, bribery, theft, and even the use of covert surveillance techniques.

The goal? To sabotage a competing organization.

You can think of competitive intelligence as a more politically correct way of gathering information on a rival organization. It adopts a more ethical approach. Rather than gathering proprietary information about a particular commercial entity, competitive intelligence makes use of organizational information that’s already in the public domain. The idea is to identify potential loopholes and weaknesses and use that information to formulate a strategic plan.

The goal? To gain a competitive advantage.

Competitive intelligence takes two forms: Marketing intelligence and business intelligence.

Marketing intelligence involves analyzing the industry’s customer base and consumer preferences by taking into account the supply and demand data and market research.

On the other hand, business intelligence is an internal procedure. It involves an organization analyzing its past experiences to determine what changes need to be implemented to give it an edge over its competitors.

The key takeaway is this: Competitive intelligence is legal. Corporate espionage is not.

How to Prevent Corporate Espionage

Below is a list of some simple strategies you can employ in your organization to prevent corporate espionage:

  • Identify what your company’s trade secrets are so that you know what you need to protect
  • Identify the competing firms that pose the biggest threat
  • Beef up the physical security of your premises by setting up a surveillance system and contracting private security professionals to secure your offices
  • Establish policies and procedures that control the flow of information as it pertains to the storage, reproduction, and dissemination of sensitive data
  • Train the workforce on following these policies and procedures
  • Compartmentalize information on a need-to-know basis to make it less accessible to every employee in your firm
  • Establish solid employee exist policies with regard to information security

Cyber Espionage and International Law

Cyber espionage is a cyberattack launched against an organization or government to steal intellectual property, sensitive data, and classified information and use it to gain a competitive advantage. If you take real-world espionage and superimpose it on the digital realm, you get an army of nefarious hackers using the internet and IT infrastructures to launch cyber warfare for military, economic, and political gain.

These cybercriminals possess the technological know-how to shut down public utility systems, financial networks, and entire government infrastructures. They’ve helped organizations crush their rivals and have even swayed public opinion leading up to political elections.

While domestic laws might prohibit cyber espionage activities, they do not violate the provisions of international law. As a result, it is not considered illegal per se. Nonetheless, the methods used to carry it out might make it illegal.

In 2011, the US launched its International Strategy for Cyberspace. It asserted that it would take appropriate steps to identify and mitigate the rampant theft of intellectual property by actors working on behalf of states and foreign organizations as well as criminals and hold them accountable.

In 2015, the G20 countries agreed that no country would conduct or condone the theft of intellectual property to provide a competitive advantage to commercial sectors and public and private firms. The US entered a similar pact with China toward the end of the same year.

While international law fails to address the illegality of cyber espionage, there’s a definite push by states to prohibit such activities on a global scale.

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