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Competitive Intelligence The Reuters/Bloomberg case illustrates just how far companies will go to gain access to the secrets of their competitors. However, not all efforts to obtain competitive information are illegal. In fact, many organizations have competitive intelligence units that gather information through legal means. An April 1998 article in Forbes tells how IBM CEO Louis Gerstner, shortly after taking over the top spot at Big Blue, set up a squad of a dozen intelligence teams. The teams are part of an extensive "human intelligence network" that targets competitors' consultants, suppliers, customers and even employees. Information gathered by the teams is placed in a central database, which is accessible to 450 of the firm's top executives, Forbes said. An October 1996 Business Week article reported that brokerage firm Charles Schwab & Co. set up an intelligence program in 1994 to keep tabs on competitors by paying consultants to visit rivals' facilities, hiring competing firms' workers and quizzing customers. In the same article, Robert Flynn, former chairman and CEO of Nutrasweet, estimated that the work of his company's competitive intelligence unit was equivalent to at least $50 million a year. Some firms send their employees to conferences where they learn the tricks of the trade. Forbes tells the story of John Nolan, a former military intelligence officer who now trains corporate spies for the Centre for Operational Business Intelligence. Nolan's students learn that a good spy is a bit of an actor, appearing innocent and friendly and knowing when to act dumb. They are taught to exploit the weaknesses of their targets. Disgruntled factory workers, for example, can be enticed into whining about management and revealing valuable tidbits. Salespeople are especially vulnerable because their success depends on imparting persuasive information. Lawyers and executives may disclose information because they "need you to know how clever they are." Another Nolan tip: By eliciting information in the middle of a conversation, suspicion can be avoided, because people tend to remember mainly the beginning and end of a conversation. Nolan also talks about how to ask leading questions. He tells the story of how he once discovered the profit margin of a particular defense contractor simply by asking the contractor's accountant, "So your profit margin is 40 to 50 percent?" Without a thought, the accountant corrected him, revealing the actual figure. Although much corporate intelligence activity is considered fair and legal game, some deceptive practices--such as assuming a false identity--are regarded as unethical and sometimes illegal. In February 1996, Maxim Integrated Products, a high-tech company in Silicon Valley, sued a competitor, Linear Technology Corp., for allegedly stealing trade secrets through an employee who posed as a customer. The Society of Competitive Intelligence Professionals (SCIP) has adopted a code of ethics that prohibits masquerading in such a manner. Under the code, members agree "To comply with all applicable laws"; "To accurately disclose all relevant information, including one's identity and organization, prior to all interviews"; and "To fully respect all requests for confidentiality of information." Economic Espionage Act Prior to 1996, U.S. federal law did not explicitly address trade secret theft. Prosecutors had to apply laws designed for other purposes, such as wire fraud, mail fraud and interstate transportation or receipt of stolen goods. Alternatively, they could prosecute under state trade secret laws, which emerged in the 1970s. The laws were inadequate, however, and some thieves went free. This happened in the Ellery Systems case mentioned above. Charges against the Chinese national accused of pilfering $1 million worth of software from the company were dropped, and Ellery itself subsequently folded. Three years ago, Congress passed the Economic Espionage Act of 1996 to provide stronger trade secret protection at the federal level. This law made it illegal for anyone to knowingly steal or otherwise fraudulently obtain a trade secret; to copy or distribute a trade secret; to receive or buy a trade secret; or to conspire to commit any of these acts in order to benefit a foreign government, instrumentality or agent, or to convert the trade secret to the economic benefit of anyone other than the owner. For the purposes of the law, "trade secret" means all forms and types of financial, business, scientific, technical, economic or engineering information, provided the owner has taken reasonable measures to keep such information secret and the information derives independent economic value (actual or potential) from not being made public. Penalties can be as high as $10 million and 15 years in prison for acts conducted to benefit a foreign government, instrumentality or agent (economic espionage), and $5 million and 10 years in prison for acts conducted to benefit other parties (commercial espionage). To date, several cases have been successfully prosecuted under the act. The EEA has, however, posed problems for at least one victim, the pharmaceutical firm Bristol-Myers Squibb Co. In 1997, Jessica Chou, an |