Running head: INTELLECTUAL PROPERTY RISK 1

Intellectual Property Risk

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Intellectual Property Risk

Introduction

The intellectual property may constitute one of the most important assets owned by an

organization. However, industrial espionage can be considered one of the major threats to the

protection of intellectual property of the company. With history as old as the history of human

civilization, industrial espionage can be defined as the illegitimate receipt of information of an

organization to gain an unfair advantage over it. This information may be a trade secret or

commercial. Under the threat of industrial espionage, entrepreneurs, the main asset of whom

is information, try to protect their own ideas and latest technologies. If competitors get access

to this kind of information, they will save millions and not only in material terms, but this also

saves the amount of time spent on creating innovations. Through industrial espionage, the

competitors can gain advantage over a large organization without significant investments that

accompany any development of new technologies. With the help of industrial espionage from

large companies, it is possible to leak drawings of the latest developments, product design

samples, logos (trademarks) of the company, as well as documentation on the description and

application of innovative technologies of the company. Such a leak of information can be

detrimental to the company. Based on the world practice, in order to make the company

bankrupt, only 20 percent of the leakage of this kind of information is enough. Losses in the

event of leakage of information relating to the company's latest intellectual developments may

become enormous for it, (Thonnard, Bilge, O’Gorman, Kiernan, & Lee, 2012).

The Essence of Industrial Espionage

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Industrial espionage serves the benefits of the benefits of the competitors of an

organization by collecting confidential information for the purpose of commercial advantages

instead of merely national security goals. Also known as corporate or economic espionage, it is

very common all over the world and various corporations or organizations engage in it. This

practice, although very beneficial in the context of business, is unethical and illegal.

Such a type of espionage focuses on the concealed practice of observing and

investigating the business competitors with the main purpose of gaining a competitive edge

over those competitors. The target of this illegal investigation may be a specific formula,

particular specifications, the business plans, and strategies or any or proprietary object. In most

of the cases of industrial espionage, the industrial spies are in search of any kind and amount of

data that they can effectively utilize for their benefit, (Halbert, 2016).

Methods of Industrial Espionage

This kind of information leakage can occur via the Internet, taken out by company

employees, disclosed orally, posted on various file sharing sites, and printed on paper and sold

to a competing firm. Therefore, in order that industrial espionage does not cause damage, the

company should take care of the safety of its intellectual property in advance. The owner of a

title to an intellectual property object, in case of violation of her rights, has the right to apply

for the protection of her violated right to the authority or administration, as well as to the

court, (Chen, Desmet, & Huygens, 2014).

Summarizing the methods and forms of conducting industrial espionage on the modern

information space, they can be combined according to the following main features:
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 Collection and analysis of published information, including official documents: articles,

bulletins, abstracts, etc. (analytical open method).

 Use of information disclosed by employees of a competing firm or obtained as a result

of actions that do not go beyond the limits of legality (secret method - espionage and

reconnaissance).

 Examination of exchange documents and reports, as well as financial reports of

competing firms and other financial documents available to brokers and consultants of

these firms. Study of exhibits and brochures and extraction and study of reports of

various types, which are submitted by subordinate branches to the central apparatus

through existing communication channels (a combination of analytical open and secret

technical methods), (Aaber, Crowder, Fadhel, & Wills, 2014).

 Study of products (components, technology) of competing firms. Use of data obtained

from interviews (conducted within the framework of the law) with employees of

competing firms (analytical open method).

 "Surviving" information from the staff of a competing firm through specially developed

("disguised") issues at scientific and technical conferences, meetings or symposia

(analytical open method).

 Direct observation, carried out secretly (secret method).

 A conversation when hiring employees of a competing firm - without the intention of

actually hiring them to a vacant position - with the help of specially developed

questionnaires (an analytical open method).

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 The organization of so-called "false" negotiations with a competitor company regarding

the acquisition of a license for the products of interest (an analytical semi-open

method).

 Hiring the staff of a competing firm to obtain potential production information on the

order of manufacturing products or the advanced technology contained in it, and above

all - KNOW-HOW (analytical open method).

 Bribery of an employee of a competing firm or person engaged in the sale of its

products (proper espionage).

 Use of the recruited agents to obtain information on the basis of studying and

comparing the information transferred to them and the available documentation

(analytical and secret methods), (Vashisth & Kumar, 2013).

 Eavesdropping on negotiations conducted in competing firms by interception of

messages and negotiations conducted on technical means of communication through

intelligence (proper espionage), (Taylor, Fritsch, & Liederbach, 2014).

 Theft of product samples, drawings, and documentation on the technology of its

production, etc. (proper espionage).

 Blackmail and extortion (proper espionage).

 Catching the most competent engineering and technical elite from competing firms and

from other countries (dubbed as a process of "brain drain" in the media - espionage

itself).

Threat Posed to Intellectual Property

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Although the concept of industrial espionage is not a new one, the issue has become

more and more serious with the advancement of technology. The methods of conducting

industrial espionage are constantly finding their practical application in the forms of

implementing modern information wars. They, at a new stage in the development of social

relations, represent a specific form of opposition to existing mathematical algorithms and

models, intellectual ideas and thoughts that are realized in information devices or means and

are intended to inflict economic, political, financial, psychological and other damage to the

opponent, the competitor. Above all, industrial espionage poses serious threat to the

competitor’s information and telecommunication systems (networks), information technologies

and resources, (Abomhara & Ien, 2015).

According to experts, only in the United States the annual costs of private firms for

economic intelligence exceed 1.5 billion dollars. Japanese corporations thus receive 40 percent

of information about the technical achievements of Europeans and Americans and this is

understandable. Hunting for others' secrets allows companies to save their own funds for

conducting basic research and design work, to keep aware of the competitor's business, to use

their scientific and technical achievements, focusing on production and marketing. The

spending on exploration accounts for an average of 1.5 percent of the turnover of trade

concerns.

Mitigation of the Threat of Industrial Espionage

Industrial espionage can be carried out in various ways: listening to conversations,

interception of computer information, hidden photo and video, bribing an employee, etc.

Therefore, protecting against industrial espionage is quite difficult. The situation is even worse
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in the United States due to the fact that American organizations (especially the small

companies) lack appropriate preparations in advance to cater for industrial espionage threats.

Also, they generally do not possess enough funds to sufficiently invest in technological systems

to secure important information. Without warning of cases of industrial espionage, perhaps any

enterprise that owns any information that can be a trade secret may not gain sufficient

awareness on the issue, (Thorleuchter & Van den Poel, 2013).

Industrial espionage can be devastating to any organization. Hence it is vital to mitigate

it. Some strategies in this regard are stated below:

 An efficient policy regarding the employees and the personnel;

 Employment contracts that specify the nondisclosure of vital information and business

secrets;

 An effective calculation and assessment of the potential threats of leaking of important

information;

 Protecting the information through technology;

 Effective systems of tracking and control of the information.

An effective personnel policy is a foremost step towards ensuring the protection of vital

business information. Such a policy would prove to be quite effective in mitigating industrial

espionage through inspecting employees, conducting interviews and drafting internal

regulations on the confidentiality regime, (Mendell, 2011).

The conclusion of agreements with the personnel and employees on non-disclosure of

trade secrets also plays a huge role in the prevention of information from leaking. However, in

this context, it is imperative to specify a particular list of information that is confidential and is
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not to be disclosed. By identifying the most valuable data, organizations can determine who

and for what purposes they may need it. It will provide an understanding of the ways of

possible attacks (hacking or bribery of responsible employees).

Moreover, the punitive measures in the case an employee fails to abide by the

nondisclosure agreement should also be explicitly mentioned in the contracts. The civil liability

should be fixed if an employee is proven to be involved in leaking information with respect to

the loss suffered by the organization. In addition, the fact that leaking a trade secret violates

the labor discipline should also be explicitly mentioned in the contracts, thus fixing disciplinary

liability (reprimand or dismissal), (Herr & Romanosky, 2015).

Furthermore, an early calculation of all possible risks of information leakage will allow

for the identification d hence the mitigation of any potential gaps in the security of the

business. In order to achieve it, an exclusive list of all the information that may be classified as a

trade secret should be formulated. Thus, through the effective identification of all the

important information, the organization can identify the potential parties that may need it and

the purpose behind it. On the same note, technical protection of information also plays a vital

role in preventing the occurrence of industrial espionage. In this regard, mere protection of the

valuable information from potential attacks is not enough. The adequate storage of the

valuable information accompanied by adequately restricting the access to it is imperative. This

restriction should not just be limited to the third parties, as it should also include the

employees. It could also be achieved through storing of the information through the utilization

of coding systems. Furthermore, such information should never be transmitted through any

communication channels, (Benny, 2013).

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However, traditionally, industrial espionage has always been quite difficult to effectively

prevent due to the continuous and rapid advancements in the field of technology. The situation

has further worsened with the availability of the Internet. Through the internet, the

information systems have been facing a vast number of hacker attacks over the years,

(Androulidakis, & Kioupakis, 2016). Many companies simply cannot afford the preventive

measures to resist and protect themselves from new technologies (devices) aimed at removing

information.

Legal Response

Industrial espionage poses a serious threat to the intellectual property of any

organization. Hence, if a leakage of information is suspected, the company should respond as

quickly as possible. The foremost step in this context would be to identify the source.

Furthermore, after successful identification of the source, it is crucial to identify the process

through which the leakage happened, either via the communication networks or the personnel,

(Ahmad, Bosua, & Scheepers, 2014).

If an employee is found to be responsible for the theft or leakage of valuable

information, strict action should be taken against her. The first step in this context should be to

immediately suspend her on a temporary basis and move towards an internal investigation. In

order to identify those employees responsible, the people to whom the information was readily

accessible should be determined.

Furthermore, if the interests of any third parties involved are at risk, they should be

urgently notified of the breach. Rapid notification would enable these parties to prepare

against these threats by the formulation of an effective mechanism to protect their interests on
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a timely basis. Another possible way of responding to industrial espionage is the handing of an

application to law enforcement agencies, (van Caenegem, 2014).

However, if an employee is responsible for the leakage of the information, proving her

guilt is second to impossible. In this regard, it should be noted that criminal liability for illegal

collection and deliberate disclosure without the consent of the owner of information

constituting a trade secret comes merely in the case if major damage is incurred by the

organization. Practice shows that prosecution for industrial espionage in the world also rarely

ends in plaintiff’s favor. In addition, a lot of organizations do not prefer to publicize such cases,

(Kitch, 2017).

Conclusion

Industrial espionage has become not only an integral part of the business but also one

of the most profitable forms of conducting a "war" with competitors. For in the context of the

rapid development of information technology, it represents a concrete and very effective type

of struggle for a monopoly. With the open nature of our American society, caused by objective

and subjective reasons, industrial espionage with its "white and black" spots is pouring into the

American economy. And this is not a tribute to fashion, nor to restrain the freedoms and gains

of democracy or to intimidate businessmen and entrepreneurs with imaginary "spy mania," but

the really caused necessity of debunking the myth that industrial espionage is always born

there, where the interests of competition or spheres of influence collide. It serves as a reminder

of the complexities that our state expects on the path to further transition to new market

relations. One cannot just keep silent about it, let alone discard these problems. Because today,

when in the country the ball is ruled by money, and moral and ethical norms go to the
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background, a fertile soil is created for the further prosperity of industrial espionage. To avoid

these negative phenomena, unfortunately, not a single civilized country in the world with a

market economy can succeed, and the United States will not succeed either.
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References

Aaber, Z. S., Crowder, R. M., Fadhel, N. F., & Wills, G. B. (2014). Preventing document leakage

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53–58). https://doi.org/10.1109/WorldCIS.2014.7028166

Abomhara, M. (2015). Cyber security and the internet of things: vulnerabilities, threats,

intruders and attacks. Journal of Cyber Security and Mobility, 4(1), 65-88.

Ahmad, A., Bosua, R., & Scheepers, R. (2014). Protecting organizational competitive advantage:

A knowledge leakage perspective. Computers & Security, 42, 27–39.

https://doi.org/10.1016/j.cose.2014.01.001

Androulidakis, I., & Kioupakis, F. E. (2016). Protection Against Industrial Espionage. In Industrial

Espionage and Technical Surveillance Counter Measurers (pp. 95-126). Springer, Cham.

Benny, D. J. (2013). Industrial Espionage: Developing a Counterespionage Program. CRC Press.

Chen, P., Desmet, L., & Huygens, C. (2014). A Study on Advanced Persistent Threats. In

Communications and Multimedia Security (pp. 63–72). Springer, Berlin, Heidelberg.

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Halbert, D. (2016). Intellectual property theft and national security: Agendas and assumptions.

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Herr, T., & Romanosky, S. (2015). Cyber Crime: Security Under Scarce Resources (SSRN Scholarly

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https://papers.ssrn.com/abstract=2622683
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Kitch, E. W. (2017). The law and economics of rights in valuable information. In Who Owns

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