Tay Partners

InsiderTAPS (28 April 2017)

Corporate Espionage: The Art of Industrial War

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Sir Francis Bacon, and maybe Lord Petry Baelish before him, said: “Knowledge is Power”.

In the current age of business and technology, knowing what your competitors do and having sufficient knowledge on how they work, including possession of information such as industrial manufacture, concepts, ideas, designs, techniques, processes, recipes and formulas, is the key to success or even survival of your corporation. To remain competitive and relevant in the market, some unscrupulous corporations would go to the extreme length and cost to acquire these competitive intelligence clandestinely and sometimes illegally, by way of corporate or industrial espionage.

Essentially, corporate or industrial espionage is the act of obtaining confidential information of your competitor which you are not supposed to have. The sabotage may be achieved through various illicit means – from stealing operational information (client list, pricing, marketing strategies, research and development) to bribing, blackmailing, extorting, harassing employees of competitors into revealing confidential information and technological surveillance involving unlawful installation of recording devices and spyware. Development of high resolution cameras, miniature and portable data storage devices and the internet have made corporate or industrial espionage much easier as confidential information may be copied and transferred with just the ‘click’ of the button.

The danger of corporate or industrial espionage is very real. In 2012, Dyson Technology Limited, having invested £100 million over 15 years in developing high speed brushless motors for its vacuum cleaners and hand dryers, accused Robert Bosch Limited of unlawfully obtaining the secret motor technology from a corporate ‘spy’ working in its advanced digital motor development team, who allegedly has a pre-existing consultancy agreement with Bosch Lawn & Garden Ltd1.

In 1993, Adam Opel AG sued Volkswagen of corporate espionage when 8 key members of its company defected to Volkswagen, alleging that they brought along with them company documents containing trade secrets2. The case was eventually settled out of court at the sum of $100 million3.

In the United States, corporate espionage is a serious offence and penal in nature. The Economic Espionage Act 1996 and the more recent Defend Trade Secrets Act 2016 are two existing legislations in the United States against corporate espionage. Other than civil rights to claim for damages against offenders, corporate espionage is also punishable under criminal law whereby offenders may be fined for $5 million or 3 times the value of the stolen trade secrets including expenses for research and the costs to reproduce the trade secrets. The offenders also face the possibility of jail up to 10 years. Under the Defend Trade Secrets Act 2016, a company may apply to the court for seizure order, injunction and damages against the offenders. The United States’ approach is viewed as a leading example in tackling corporate espionage.

In recent years, European countries have started to pay attention to corporate espionage. Acknowledging that countries within the EU community have different laws when it comes to trade secrets theft which may make it difficult and expensive for companies to bring legal action against the offenders, the European Commission has published a press release proposing for uniform rules to protect trade secrets which differ from the other ‘exclusive’ intellectual property rights4.

While the concept of corporate or industrial espionage is still fairly new to Malaysia, it does not mean we never had a brush with it. In 2013, Malaysia’s leading telecommunications company, Telekom Malaysia Bhd, was alleged to have been involved in a corporate espionage plan when an employee of one of its multinational partners allegedly gained access to a rival’s facility abroad by masquerading as a member of Telekom Malaysia Bhd’s entourage5.

Telekom’s case illustrates that corporate espionage could happen to anyone and it does not matter whether the company is actively or passively involved nor aware of the unlawful activity. Unlike the United States and to a certain extent, the EU, Malaysia does not have a specific legislation to combat corporate or industrial espionage. Corporations would need to take proactive steps to identify and prevent perpetration of corporate or industrial espionage, including having proper code of business ethics, standard operating procedures and policies in place, instilling legal awareness and protection protocols, and keeping their internal security mechanism alert at all times.

1Dyson Technology Limited v. Robert Bosch Limited & Ors, High Court of Justice, Chancery Division, HC12E04131.
2General Motors Corp. v Jose Ignacio Lopez De Arriortua, 948 F. Supp. 656 (1996). See also 948 F. Supp. 670 (1996).
3With ancillary agreement worth $1 billion.
4European Commission, “Commission proposes rules to help protect against the theft of confidential business information”, 28 November 2013. Retrieved from https://europa.eu/rapid/press-release_IP-13-1176_en.htm.
5Zurairi AR, TM’s LTE Rollout Rocked By Corporate Espionage, published in Malay Mail Online on 10 July 2013. Retrieved from https://www.themalaymailonline.com/malaysia/article/tms-lte-rollout-rocked-by-corporate-espionage.

Yeo Yen Hock

Should you have any queries on the above or for more information on Tay & Partners Dispute Resolution Practice, please do not hesitate to get in touch with the following:

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Partner, Head of Dispute Resolution
+603 2050 1973

Cheah Soo Chuan
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