What is corporate espionage? Inside the murky world of private spying

Corporate espionage — sometimes also called industrial espionage, economic espionage or corporate spying — is the practice of using espionage techniques for commercial or financial purposes. We usually think of “espionage” in terms of spies working on behalf of one government trying to get information about another. But in fact, many of the same techniques — and even many of the same spies — work in both realms.

Types of industrial espionage

LegalMatch outlines a number of techniques that fall under the umbrella of industrial espionage:

  • Trespassing onto a competitor’s property or accessing their files without permission
  • Posing as a competitor’s employee in order to learn company trade secrets or other confidential information
  • Wiretapping a competitor
  • Hacking into a competitor’s computers
  • Attacking a competitor’s website with malware

But not all corporate espionage is so dramatic. Much of it can take the simple form of an insider transferring trade secrets from one company to another — a disgruntled employee, for instance, or an employee who has been hired away by a competitor and takes information with them that they shouldn’t.

Then there’s competitive intelligence— which is, to put it in infosec terms, the white hat hacking of corporate espionage. Competitive intelligence companies say they’re legal and above board, and gather and analyze information that’s largely public that will affect their clients’ fortunes: mergers and acquisitions, new government regulations, chatter on blogs and social media, and so forth. They might research the background of a rival executive — not to dig up dirt, they say, but to try to understand their motivations and predict their behavior. That’s the theory, anyway, though sometimes, as we’ll see, the line separating these operators from criminality can be thin.

It’s also worth noting here that not all corporate espionage involves private businesses spying on other private businesses. Governments get into the game too — especially in countries where many businesses are state-owned and the regime views economic development as an important national goal. As a result, other governments find themselves drawn in to various degrees as well; one of the main motivations President Trump has given for escalating a trade war with China has been to fight against Chinese theft of American trade secrets. When state actors are involved in the process, the specific term often used is economic espionage.

Is industrial espionage a crime?

Many people are under the impression that spying on a private company isn’t illegal the way that spying on, say, a foreign country is. And it’s true that it’s not illegal to obtain information about competitors via legal means, even if those means are secretive or deceptive. For instance, you can send “secret shoppers” into a rival’s store to see how they do business, or hire a private investigator to lurk around a trade show and see what they can overhear.

But beyond that, things get legally trickier. In general, acquiring trade secrets (commercial secrets that have monetary value to the businesses that owns them) without the consent of their owners is against the law.

The U.S. federal law that governs corporate espionage is the Economic Espionage Act of 1996.  The law made stealing commercial secrets (as opposed to classified or national defense information) a federal crime for the first time, and codifies a detailed definition of what constitutes a trade secret. It also lays out penalties for corporate espionage, which can run into the millions of dollars and years of prison time. Much of the harshest measures of the law are aimed at those who transfer trade secrets to foreign companies or governments, and indeed the first trial conviction under the law involved a Boeing engineer who had sold trade secrets to China.

However, it’s important to note that not every case of corporate espionage merits criminal prosecution, and the U.S. Department of Justice has laid out guidelines for which cases to pursue, The factors include:

  • The scope of the criminal activity, including evidence of involvement by a foreign government, foreign agent, or foreign instrumentality
  • The degree of economic injury to the trade secret owner
  • The type of trade secret misappropriated
  • The effectiveness of available civil remedies
  • The potential deterrent value of the prosecution

But just because an act doesn’t merit prosecution doesn’t make it legal, and violations can serve as the basis for lawsuits in civil court. And finally, many U.S. states have their own laws about corporate espionage that are stricter than federal law; the Hewlett-Packard “pretexting” case (more on which in a moment) involved conduct that wasn’t illegal under U.S. federal law but was in California, and resulted in a $14 million fine.

A corporate espionage case study