Negligent action lawsuits
As we have often mentioned in these pages, economic espionage is very costly. The estimates are that economic espionage costs American companies $300 billion a year, with the cost per incident at $50 million in a manufacturing firm, and $500,000 in a non-manufacturing firm. Economic espionage results in lost revenue, lay-off of employees, and even bankruptcy and loss of the business.
If the costs are so high, why does no one pay attention to economic espionage? By no one, we mean that you can probably count on the fingers of one hand – with a few fingers left over – the number of companies with anyone on their executive (or even senior operational) staff responsible for preventing or dealing with espionage (and few active competitors in our area of specialty). There are several possible answers to this question.
One is that while it is easy to see the results of economic espionage – bids lost, market share lost, revenues declining, staff made redundant – it is equally easy to attribute these to causes other than espionage.
Another is that recognizing and dealing with espionage requires specialized skills, training, and experience. As with tax attorneys, the folks who do this sort of thing are simply too specialized to have in-house expertise, even given that a company is aware of this issue, and the normal outside experts to whom you turn for consulting work aren’t likely to be much better off. While LUBRINCO has intelligence and counter-intelligence and OPSEC people on staff – this is, after all, what we do for a living – and wide contacts within the field (having a vice president who is on the board of the OPSEC Professionals Society doesn’t hurt), virtually no accounting, consulting, investigative, or law firms do.
Another is that companies tend not to take protective actions unless they face some liability.
• If the theatre you go to has a fire-retardant curtain, it is because they face liability if there is a fire and they don’t have one, even though gaslights are no longer used.
• If the exit doors in your facility are not chained, it is because of the liability that they face after the 1911Triangle Shirtwaist Company fire.
• If a brokerage firm exercises due diligence as part of a stock offer, it is because they face liability for not doing so.
• If you go through any sort of security check at an airport or going into a building, it is because someone faces liability if something bad happens and nothing was being done to give at least the impression of taking preventative action.
• If your local police department brings their officers in from time to time to practice night shooting, it is because they face liability if they don’t, and someone is shot at night.
Until now companies have faced no liability if they were the victims of economic espionage. Rumor has it that this might be changing. We have, of late, heard talk from a group of shareholder class-action attorneys that economic espionage has reached a level where companies and their board members should know of these risks and take active preventive measures. If these rumors are true, we might expect that in the future, when companies are the victims of economic espionage, the officers and board are likely to be on the receiving end of a negligent action suit on behalf of the shareholders. Once case law is established, economic espionage will be taken seriously.
