Eyeing The Competition

(2 of 2)

Last fall Cargill was accused by Pioneer Hi-Bred International, a leading seed developer, of stealing its closely guarded genetic material. Initially, Cargill vehemently denied any wrongdoing, but during settlement talks it acknowledged uncovering "problem areas." Though it won't elaborate much, Cargill says an employee who previously worked for Pioneer and is the target of a lawsuit may have mixed some of Pioneer's breeding material into Cargill's seed corn products without the company's knowledge.

To protect themselves against employees who walk out for the next best offer, corporations have taken a harder line against talent raids, essentially equating them to espionage. That seems to be the case with Wal-Mart's trade-secret suit against

. The nation's largest retailer contends that the Web's leading e-tailer lured 15 of its top techies out to Seattle from Wal-Mart's hometown of Bentonville, Ark., for the express purpose of duplicating its prized information database--a vast system that tracks customer shopping patterns and product flow. "There's a lot of computer talent out in the Valley," notes Wal-Mart spokeswoman Betsy Reithemeyer. "If you're coming to Bentonville, you're looking for something specific." Amazon has filed a countersuit denying the accusations. The company says it was just looking for talented people.

Robert N. Friedman, CEO of discount retailer Loehmann's, has no such defense, at least according to a lawsuit filed by Forty Three Apparel, a New York City-based women's-fashion maker. In mid-1997, the suit contends, Friedman pressured Forty Three Apparel president Mark Singer, who depended on Loehmann's for 80% of his business, into giving Friedman's wife Debbie a high-level job. Within a year, she left the firm, allegedly with clothing patterns and manufacturing processes, and started her own competing outfit. (Loehmann's says the suit has no merit.) It didn't take long, Singer argues, for Forty Three Apparel to lose its Loehmann's business to Debbie Friedman and sink into bankruptcy.

You don't necessarily need James Bond to pilfer corporate secrets. Amateur actors will do fine. Over the past few years, textile manufacturer Milliken & Co. allegedly stole information from a host of rivals without so much as a bug or a mole. Instead, according to a lawsuit filed last October by Johnston Industries, based in Columbus, Ga., one Milliken employee posed as a business-school student researching a paper, and another played a Swiss banker seeking investment opportunities. One alleged target, NRB Industries, has reportedly settled its case against Milliken. The $2 billion-a-year titan has denied the charges, but Johnston, a $330 million-a-year textile firm, claims it lost $30 million to the alleged skullduggery. "It defies logic," says president D. Clark Ogle, "that a company 10 times our size would feel threatened [enough] to do that."

Since passage of the Economic Espionage Act, only 13 criminal cases have gone to indictment. In December two men were sentenced for scheming to sell Intel prototype microchips to rival Cyrix, and most recently a California man, David Kern, was charged with stealing engineering secrets from his former employer, Varian Associates, a leading Silicon Valley maker of radiotherapy systems used to treat cancer. For more than a year, a federal grand jury has reportedly been looking into whether a subsidiary of financial-information giant Reuters was involved in an attempt to steal data from rival Bloomberg (Reuters says it is cooperating and denies any wrongdoing).

Prosecuting such crimes is no easy matter. Many companies shy away from reporting incidents for fear of bad publicity or having to divulge their treasured secrets in court. That may be a small price to pay, though. For now, the underhanded tactics "are classics for one reason," says Alan Brill, of investigative firm Kroll Associates. "They still work."