In Industrial Spy Cases, It’s Those Americans That You Have to Watch
To hear officials at America’s newest spy organization tell it, companies in the United States should be very concerned about foreign nationals stealing their trade secrets.
“Foreign targeting of U.S. technology and economic and proprietary information is a growing concern,” said Mike Waguestack, director of the National Counterintelligence Center. “Industrial espionage against the United States by foreign entities, both government-sponsored and private, threatens U.S. competitiveness.”
Among the advisories posted at the center’s Web site (https://www.nacic.gov) is one warning that: “Japanese employees of local subsidiaries seek personal relationships with specialists at nearby U.S. companies who are in a position to provide technical information.”
The NACIC, which consists of counterintelligence experts from 13 U.S. agencies, also warns of Chinese efforts to encourage its overseas students and scientists to pass trade secrets to their motherland, the creation of South Korean espionage outposts in high-tech regions abroad and Seoul’s efforts to conduct “technology exchange activities” in Silicon Valley.
Recent cases substantiating the NACIC’s warnings include the April conviction of two Taiwanese executives on charges of pilfering trade secrets worth $60 million from Pasadena-based label maker Avery Dennison Corp., and the guilty plea in April of a Taiwanese businessman charged with conspiring to steal the formula for Taxol, an anti-cancer drug that generates $1 billion in annual sales for Bristol-Myers Squibb.
Despite the threat of foreigners stealing trade secrets, FBI agents warn that Americans pose a much greater threat. “We used to be fearful of the Russians and the Chinese and the like,” said veteran FBI Special Agent Mary Marsh, who helps oversee the agency’s San Jose and Palo Alto offices. “One thing that we’ve found . . . [is that] insiders are responsible for a much greater percentage of theft than foreigners. And the insiders’ motives are often money or revenge or ego.”
Typical of these cases is U.S. vs. Worthing, Marsh said. In that 1996 case, Patrick Worthing admitted to stealing documents and product samples from Pittsburgh Plate Glass and offering to sell them to Owens-Corning, a PPG competitor based in Toledo, Ohio. Worthing, who was arrested by FBI agents and ultimately convicted, solicited Owens-Corning’s chief executive under an assumed name in a letter that began: “Would it be of any profit to Owens-Corning to have the inside track on PPG?”
To help combat trade-secret theft, the FBI offers free consultations to U.S. companies on protecting their proprietary information. The program, called Awareness of National Security Issues and Response, or ANSIR, is a declassified version of the kind of briefings the FBI once gave defense contractors.
Executives can also turn to private investigative firms that specialize in high-tech crime and trade-secret theft. These firms are particularly helpful if contacting the FBI could further compromise a company’s proprietary information. That’s a possibility if prosecutors sense there’s been a violation of the Economic Espionage Act. The act, signed into law by President Clinton in 1996, treats trade-secret thefts as criminal offenses. A person convicted of an EEA violation faces up to 10 years in prison and/or a maximum fine of $250,000. Guilty companies face a maximum fine of $5 million--double that if it stole or destroyed another company’s trade secret with the intent to benefit a foreign power.
Private firms often are called if a company wants something investigated but doesn’t want it brought to the attention of federal prosecutors, who may divulge proprietary information during a trial.
Noesis, an investigative firm in San Francisco and Los Angeles, got such a call in 1994. Security personnel at Applied Materials Inc. in Santa Clara began receiving anonymous letters alleging that Martin Calara, a senior planner at Applied Materials, was sending proprietary information to rival Semiconductor Spares Inc., based in San Carlos. Applied hired Noesis, and former FBI Special Agent David C. Cook--who heads Noesis’ San Francisco office--was brought in to investigate.
In one of Silicon Valley’s most celebrated trade-secret cases, Cook literally rifled the dumpster behind SSI to uncover evidence. Among the many damaging documents he found was a discarded fax that read: “Martin, please provide prints, vendor source and/or building of materials for the following numbers.”
The numbers referred to 38 component parts for machines that Applied manufactured.
At that point, Cook and Applied Materials notified the FBI--and a spy ring involving six people and four companies was ultimately exposed. By May 1999, Semiconductor Spares had gone belly up, its president was in prison and Calara and four other defendants had pleaded guilty to various charges.
Cook, who directed FBI counterintelligence operations against the KGB during the 1980s, said the major reason for trade-secret thefts in the U.S. today is the income disparity between low-paid product designers and top managers. Bosses are often paid enormous salaries and granted lucrative stock options. “Oftentimes, the engineers see the company’s stock take off. They see people higher up and in different divisions of the company being compensated at astronomical rates, and there’s a frustration that they’re not sharing in that,” Cook said.
The link in most trade-secret cases is greed. “It’s much the same motive as in the old spy days,” Marsh said. “In the days of the old espionage cases, more often than not, money was involved.”
Russ Atkinson, a former FBI special agent and legal advisor who was second in command of the FBI’s high-tech task force in San Jose, agrees that disgruntled employees pose a major threat.
Atkinson cited a $3.5-million civil judgment last month against a Northern California engineer who stole proprietary information from Palo Alto-based Varian Associates Inc., which had fired him the previous year. Atkinson said the man might never have been charged if he hadn’t bragged of his deed to associates, who notified Varian. The engineer is awaiting criminal trial in what would be the first prosecution under the Economic Espionage Act in California.
“People don’t stay with companies until they get a pension anymore,” said Atkinson, who was with the FBI for 25 years. “A Silicon Valley engineer can walk out of one company and walk into a half a dozen [others with] no problem, and he knows that. They don’t develop any loyalty. It makes it much easier in their minds to justify taking something when they walk out the door.”
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