Mover Over, James Bond
All might be fair in love and war, but when it comes to doing business, there can be a thin line between fair, unfair and downright illegal. That’s why many companies in competitive business environments look to their lawyers to ensure that competitive intelligence-gathering techniques don’t go too far.
“Lines can be blurry and each situation varies,” says R. Mark Halligan, a trade secrets attorney with Welsh & Katz in Chicago and former chair of the ABA Intellectual Property Section’s Committee on Trade Secrets. That’s largely because companies are gathering competitive intelligence without resorting to James Bond-style tactics like covert entries, wiretapping or computer hacking. More likely, he says, modern-day corporate spies are role-playing at trade shows, reviewing readily available Internet information or scouring government-required documents in an effort to gain the all-important information edge.
Yet some mundane-sounding escapades can still hold risk for employees and their companies in the form of civil liability under common-law torts, as well as statutes like the Uniform Trade Secrets Act, passed in 44 states. Federal laws include the Economic Espionage Act, which carries criminal penalties, and the Computer Fraud and Abuse Act, which provides for both criminal penalties and civil liability.
The computer fraud act eliminates one of the key hurdles in prosecuting cases under the espionage act, which requires proof that the information stolen was a trade secret and that the person taking the information knew it was a trade secret. All that must be proven under the computer act is that an employee entered a computer area and downloaded and stole information. “It doesn’t matter if it is a trade secret,” says Halligan.
One situation where strategies can get sticky is the trade show. If a rival company agent poses as a potential customer or supplier to learn trade secrets, that is a misrepresentation that can be actionable under the Uniform Trade Secrets Act, says Halligan. Yet it can be legal to glean information by sitting in on speeches, reviewing media interviews—even commissioning psychological profiles of a competitor’s top brass. In fact, such methods can be gold mines for predictive information, he says.
Wholesalers can also be hit up for information. In the late 1980s, Fuji and Kodak were battling to be the first to bring the disposable camera to market. Wholesalers may have been asked about the rival product’s release date. Innocent questions? Perhaps, Halligan says, but answers could turn into legal liability if the wholesaler had a duty of confidentiality based on a nondisclosure agreement.
BEWARE FREE INFORMATION
Corporate clients also need help when competitive intelligence turns up unexpectedly. This often happens, says Halligan, because companies and their employees get lazy, forgoing safeguards such as computer passwords or paper shredders, or failing to think about who can see or hear them in public places.
For example, San Diego intellectual property lawyer Michael Rhodes had a client who saw another company’s trade secrets while on a plane. The employee had a laptop open on the tray table, and the screen was visible to anyone who cared to look. His advice? The person had not manifested enough protection of that information to allow it to be a trade secret, so arguably it could be used.
There also can be a tightrope to walk when hiring a rival company’s former employees. It’s clear that confidential information like client lists and trade secrets is verbo- ten, but Rhodes warns that any inevitable disclosure of information could bring the danger of litigation. He advises companies to screen new employees to prevent them from using trade secrets. “You don’t want to expose yourself to a claim that someone else’s blood is circulating in your body,” he says.
Regardless of the perils, Halligan applauds corporate clients who come to him with envelope-pushing issues. “You have a fiduciary responsibility to know why your competitors are making money,” he says. “You have to do anything you legally can do to know why.”