COMPANY ESPIONAGE

A TAIWANESE company and two of its former executives were sentenced and fined for stealing trade secrets from adhesives maker Avery Dennison Corp., Pasadena, Calif. It was the first case tried under the 1996 Economic Espionage Act. In another case, a leak of early design information cost a mediumsized producer of consumer electronics goods some $35 million in anticipated sales when a competitor obtained the information and used it to introduce its own version of the product twice as fast as the item's originator expected.

Clearly, manufacturers are vulnerable to proprietary-information loss, and he repercussions can carry a hefty price tag. Results of a survey conducted by the American Society for Industrial Security (ASIS) and PricewaterhouseCoopers between January 1997 and June 1998 showed that Fortune 1000 companies sustained losses of more than $45 billion from proprietary-information thefts. Manufacturing organizations reported a total of nearly $900 million in losses and a per-incident average loss of almost $50 million, making them the hardest-hit group of all those surveyed.

The amount of proprietary information that companies are losing shouldn't be surprising given the approach many manufacturers take toward protecting their intellectual and other assets. Says Dan Swartwood, corporate information security manager with Compaq Computer Corp. (and an ASIS member), "Most companies in the manufacturing area don't even do a good job with just the straight physical and corporate security issues" such as fraud.

"The attitude we frequently see among [manufacturing] organizations is, 'We don't have anything very significant here. We just make stuff,'" adds William C. Boni Jr., a Los Angeles-based director with Pricewaterhouse-Coopers Investigations. Coupled with this attitude is a pattern of taking for granted the security of basic information pertaining to how a company's products are manufactured and marketed. Specifically, the PricewaterhouseCoopers/ASIS survey found that while manufacturers consider the protection of R&D information to be more important than that of manufacturing data, manufacturers actually lost three times as much manufacturing data when measured in dollars.

As Boni explains, "Maybe management has a better sense that R&D information is new, and it's going to make a difference to their future." But when it comes to everyday manufacturing information like customer lists and shopfloor plans, he says, "there's the attitude that 'everybody knows this."' That's often not the case, however. "It may be something as mundane as product, pricing, and promotional information aspects that, if lost, can hurt [a company] badly," Boni states.

To prevent trading partners from making off with your company's crown jewels, experts recommend a variety of tactics, including:

* Being proactive. According to Swartwood, "The reason most companies don't protect their information well is because they don't value it [enough]." Avoiding this problem demands that manufacturers take stock of their informational assets on a routine basis that suits their businesses. An organization that introduces six breakthrough innovations annually should inventory its intellectual assets more frequently than a company whose development efforts are less prolific.

* Making information protection an enterprise-wide affair. If companies are spending anything on information security, Swartwood says, "most of them are spending all their money on trying to protect their information systems from outside intrusion. But in fact, 90% of the issues [faced by] every company I'm familiar with involved internal misuse, either intentional or otherwise," of information resources.

Similarly, "Most of the criminals out there are pretty low tech," states Mike McKenna, a security consultant with the Guidry Group, a Houston-based security consultancy. Since even the slickest cyber-scofflaws often need inside help, McKenna advises digging as deeply as the law and the imagination allows into prospective workers' employment and credit histories for clues regarding their character. Eliminating loopholes from basic legal protections such as nondisclosure agreements also is a must.

With relationships between trading partners growing closer, locking down confidential information demands that companies consider the entire value chain along which information is distributed. If your key components supplier also sells to one of your rivals, for instance, says Boni, "the question is how well is that supplier protecting your information?"

* Keeping up with information technology. Automated intrusiondetection systems have advanced to the point where they can page users the instant an unauthorized access attempt is made upon a network or even a specific computer.

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