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Thou Shalt Not Steal Thy Competitor's Secrets

by Jane Hodges

Tags: Trade Secret, Password, Wrong, Tools & Techniques, Productivity, Litigation, Marketing Research, Strategy, Management, Business Operations, Marketing, Jane Hodges, competitive strategy, competitive intelligence, researcher, source, Tools &Amp, Techniques, BNET Feature

There's nothing unethical about competitive intelligence. Most of the time, it simply involves gathering together pieces of a puzzle that are available to anyone — if they have the time and the determination to find them. But because the search can be tedious, it's tempting to look for shortcuts to get the information you need, especially when time is tight. When that happens, legal and ethical lines are easily crossed — often with disastrous financial or public-relations consequences. There are also times when ethical ambiguities arise, particularly during face-to-face interviews. So in addition to providing tips on the right way to gather competitive research, we've also compiled this list of practices to avoid.

Pretexting

What It Is:
Approaching a source for sensitive information under a false identity or deceptive pretense.
Why It's Wrong:
It's against the law. It's also lying, and lying is bad.
Potential Consequences:
Criminal conviction, litigation, fines, or prison time.
As part of an effort to clamp down on leaks to the press, in 2006 Hewlett-Packard hired an outside firm that used a false identity to collect phone records of several HP directors and journalists. The discovery that HP had been involved in "pretexting" (i.e., operating under a false pretext) shined a klieg light on one of the most controversial tactics used in corporate investigations. Researchers seeking competitive data — or even data about their own company — should not 1.) make fraudulent claims about why they need data, 2.) use forged information or a forged identity to request the data, or 3.) ask a third party to pull data for them using false information. If you have any doubt about what is and is not acceptable, read the Federal Trade Commission's explanation of the law.

Dumpster Diving

What It Is:
Picking through garbage cans to find key paperwork and documents.
Why It's Wrong:
If you dive on private property, you could be arrested for trespassing. And, well, there's the smell.
Potential Consequences:
Embarrassment for all involved if caught and possible legal consequences depending on the Dumpster's location.
Would a Fortune 500 company's competitive analysis team climb into corporate trash cans to get competitive information? It happens. In 2001, Procter & Gamble staffers were accused of rummaging through rival Unilever's garbage in search of documents containing competitive information. The Dumpsters in this case were not on private property, so the public dive was technically legal. Still, Dumpster diving doesn't pass the "sniff test," according to many in competitive intelligence professionals. The question to ask yourself is: If your techniques were to end up the front page of the Wall Street Journal, would top brass be embarrassed?

NDA-Busting

What It Is:
Encouraging a source to violate terms of a non-compete or non-disclosure agreement (NDA) they signed with their employer.
Why It's Wrong:
It may be their neck, but you shouldn't help them stick it out.
Potential Consequences:
If your source gets fired or sued, they may try to take you down with them.
Some believe that if a source inside a company shares information that violates a nondisclosure or non-compete agreement, then that's the source's decision to make. But Wendy Schmidt, a principal of the Forensic & Dispute Services team at Deloitte, says if an intelligence researcher learns that a source can't talk without violating an NDA, then it's better to find an alternative source whose NDA restrictions are different (or expired) and who can thus speak freely to the topic at hand.

Acquiring Trade Secrets

What It Is:
Finding the proprietary key to a competitor's success, specifically when it's a closely guarded secret.
Why It's Wrong:
It's a federal crime to acquire or share material upon which a company's success depends.
Potential Consequences:
Legal trouble with your employer, the company in question, and possibly the Feds.
You might want to know why your rival's product works so well, what makes it taste so good, or how a key piece of software helps it get the job done. But if your researchers turn up the mother lode — the exact recipe for the soda, or the entire string of software code — don't include it in your report. Different companies define trade secrets differently, and trade secrets differ from patents (which require public disclosure of a process or technique) and trademarks. The Uniform Trade Secrets Act states that it is illegal to "misappropriate" a trade secret, and doing so can be punishable by fines, legal fees, injunctions, and more. The Economic Espionage Act of 1996 makes theft or misappropriation of a trade secret, either for foreign powers' benefit or economic purposes, a federal crime. During summer 2006, Pepsi received a mysterious letter offering to sell the secret recipe for a new drink from Coca-Cola. Rather than take the bait, Pepsi informed Coke and the two soda giants launched investigations into the leak. In the end, the Feds accused a Coke employee and two sidekicks of stealing the formula.

Paying Sources for Information

What It Is:
Giving cash to someone who can tell you what you want to know.
Why It's Wrong:
Unless the source is an expert whose reports or commentary are commonly purchased, it can be illegal. (Plus, paid snitches are often unreliable.)
Potential Consequences:
Lawsuits or criminal charges.
David Carpe, founder of competitive intelligence and HR consulting firm Clew, says this is almost always illegal except in a few industries (such as the medical/pharmaceutical industry, where "key opinion leaders" are routinely paid for their opinions or analysis). Oracle, the California software giant, was the subject of press reports in 2000 about an intelligence operation in which agents offered to pay janitors at a lobbying firm for trash containing Microsoft-related documents. That's a far cry from paying an analyst to develop a report on a new drug's potential.

Appropriating Passwords

What It Is:
Getting customers or former employees to give you passwords to a competitor's protected networks.
Why It's Wrong:
It's a form of information theft, akin to pretexting.
Potential Consequences:
Can be illegal, depending on who uses the passwords.
Former employees or current customers of a rival company may have password-level access to the company's proprietary data networks. Such individuals may provide passwords that enable intelligence researchers to tap into protected sites they couldn't normally enter. In early 2007, Oracle sued SAP, accusing its rival of stealing proprietary product data from an Oracle network by posing as Oracle customers. During a similar incident in 2004, Canadian airlines WestJet and Air Canada got into a dispute over claims that WestJet execs had used a former employee's passwords to tap into an internal Air Canada site and cull sensitive passenger data. Extensive litigation ensued, with WestJet ultimately accepting responsibility for its actions and paying a fine of about C$15.5 million.

Outing a Source

What It Is:
Naming who talked and what they said.
Why It's Wrong:
You could get your source into trouble.
Potential Consequences:
Your source could be fired or face litigation, while executives in your company may be tempted to use unethical techniques to get more information from the source.
Full-time competitive-intelligence researchers generally agree that individuals who provide proprietary data should not be identified, except in general terms (such as "a line manager in the Northeast division," or "a store manager planning holiday inventory"). It's natural to want to know who disclosed red-hot data, but it's essential to protect your sources — both to ensure that the source doesn't get fired and to prevent someone in your company from ending up in a potentially unethical situation. For example, an executive in your company might knowingly or unknowingly try to hire the source, or someone could try to pay the source for more information.
 
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  • 1

    arbusta

    04/05/07 | Report as spam

    Competitor's Secrets

    Very clear explanation on the issue

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  • 2

    Nigelw

    04/17/07 | Report as spam

    How to do it the legal way?

    I really enjoyed this article as it explains in plain English how not to go about getting your competitors info.

    Now what is missing are the right ways to go about it. That would be a perfect follow up to this article.

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  • 3

    sydspoetry

    05/13/07 | Reported as spam

    Message has been deleted.

    •  
  • 4

    kemkem

    07/10/07 | Report as spam

    Interesting

    Couldnt help laughing at just how far company reps go to stay ahead of the competition.Clues about doing things the right way will be much appreciated.

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  • 5

    ArthurW

    08/23/07 | Report as spam

    Excellent article. I just hope that the espionage advocates take note!

    Competitive Intelligence is legal and ethical. Industrial Espionage is not. The trouble is that too many people confuse the two - and too many consultants try and profit from that confusion.

    The HP saga is one story but the P&G trash sifting story is perhaps worse as it involved a leader in the competitive intelligence community. He brought shame on himself and the whole profession ended up looking as dirty as P&G.

    It isn't necessary to go through trash to find what is needed to compete. If you need to resort to such techniques then your methods are as trashy as your ethics.

    In fact, the secret is good analysis. With minimal information and excellent analysis you can gain more at a lower cost than with maximum data but lousy analysis. That is what separates data from intelligence - the analysis. It's not the quantity that counts but the quality, and going for the trash is an approach that says "quantity counts, not quality".

    So keep being ethical. If you can't tell your grandmother or priest /rabbi/iman about it then DON'T DO IT!

    (Shameless plug here. Our approach to CI ethics is at http://www.marketing-intelligence.co.uk/ethics.htm)

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  • 6

    hmann1963

    08/23/07 | Report as spam

    the right way

    There are 4 core principles of CI ethics:
    1. Don't misrepresent yourself - give your right name and the name of the company for whom you work. If you use a vendor, they must give the correct name of their company (not yours).
    2. Don't induce or threaten anyone to get information; i.e. don't pay them, get them drunk, offer them a job, intimate they won't get your business, etc. to get them to tell you what you want to know.
    3. Don't employ any surreptitious means; i.e. no spycraft, no dumpster diving, no photography where not permitted -- basically nothing that would require your competitor to take extraordinary means to protect their information.
    4. Respect the confidential information of others
    a. don't seek the confidential internal documents of others and return any document you receive accidentally without reading or using it.
    b. ask if a human source is covered by an NDA if you have reason to expect that he/she would be or if they begin telling you things that sound like they would normally be confidential. If they are, the conversation's over.

    Keep in mind that at least 80% (sometimes 100%) of what you NEED to know is in the public domain if you think creatively and put in the work. The rest can be inferred from small bits of information from primary sources -- small enough that they don't raise any ethical issues. Learn the art of elicitation. In CI, close enough is good enough to make a better decision. It's about perspective, not precision

    JerryH

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  • 7

    wtyler1188

    07/09/08 | Report as spam

    The REal World

    I think the original article is very good and spot on. However, some of the "holier-than-thou" user responses actually make me laugh. As a consultant in this area, I can tell you that companies push publically all these same ethical responses and rules. Privately, they lean so heavily on outside consultants to get detailed competitor information "at all costs" (especially threatening to terminate your contract and find someone that will do the job) that there has become a "don't ask, don't tell" strategy about how competitive information is obtained. Companies don't want the legal & ethical issues that come with "grey-area" competitor research but, at the same time, push to get detailed information up to the point of threatening to fire you and your company. ANd the comment that 80% of all competitor information is publically available is B.S. That individual obvious has never worked for a Fortune 500 company that demands to understand their competitors' future roadmaps. There is academic discussion and there is the real world people. I have to battle customers everyday to stay on the right side of the law and the ethical line. Unfortunately, this has caused great strife as I have to continual fire clients (and be fired) for not being willing to step over the line to gain that competitive edge that companies demand. THAT is the real world.

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  • 8

    ChanderShekhar

    08/25/07 | Report as spam

    Stealing competitors secret

    The thin line seperating ethical and unethical ways of accessing competitors information can be adhered by following the Golden rule " Do not do unto others what thou shall not have done unto yourself"

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  • 9

    kumardatt

    08/27/07 | Report as spam

    RE: Thou Shalt Not Steal Thy Competitor's Secrets

    it is quite fair.

    Dr Kumardatt
    MBA PhD

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  • 10

    josephmartins

    01/31/08 | Report as spam

    How about a time-tested, simple rule?

    I'm amazed at the number of articles and books that could be condensed into one simple statement: Live your life by the Golden Rule. For those unfamiliar with the Rule, it goes something like this: "do unto others as you would have them do to you". This advice exists in every religion and culture in the world, in different forms.

    Crafting lengthy articles to explain this to business professionals says something about our faith in others and ourselves.

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  • 11

    Abhinav Deep

    01/31/08 | Report as spam

    Then how to access the real situation!

    Now we know one should not follow Unethical Practices to get Competition data.
    But at times it is a requirementr of the organisation to know such things.
    For example how much is my competition paying for the same component that goes goes into making the product.
    And Strategically also a numbers of decisions have to be taken keeping in mind the Competition and the market.
    What should be done then??

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