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Industrial Espionage: Prevention, Rapid Legal Response

30.09.2016

Mariia Koval, attorney at Ilyashev & Partners Law Firm
Source: Jurist&Zakon

Industrial (commercial) espionage is a kind of unfair competition, which is quite common in today’s world. Industrial espionage is an activity aimed at illegal ferreting of information constituting commercial value.

According to Article 16 of the Law of Ukraine “On Unfair Competition” illegal commercial information gathering means gathering of commercial information constituting a trade secret if it has inflicted or could inflict harm to business entity using illegal means in accordance with the legislation of Ukraine.

In turn, a trade secret means information of technical, organizational, commercial, industrial and other nature that is unknown and is not easily accessible for people dealing with such kind of information.

In most cases the purpose of industrial espionage is information such as any unique (recent) developments and new technologies that can constitute intellectual property items, know-how, innovative ideas, financial data, and etc.

Industrial espionage has a long history and many “decent” names, including: economic intelligence, competitive intelligence, business intelligence.

However, there is no doubt that industrial espionage is always a secret (illegal) gathering of any information constituting any commercial, professional, trade secret aiming at advancing of competitors, market capturing, strengthening of position in the market and etc.

It should be noted that information about a competitor may be also collected by legal means using open registries and available public information. Speaking about the term “industrial espionage”, we mean gathering of information using illegal means.

Industrial espionage may be carried out in different ways: phone-tapping, computer data interception, hidden photographing and video shooting, bribing an employee, etc.

It is rather difficult to protect oneself against industrial espionage, especially in our country, because Ukrainian companies are often not ready to spend significant money on technical information security systems. However, companies possessing any information that may constitute a trade secret cannot do without industrial espionage prevention.

The ways to prevent industrial espionage are as follows:

– effective human resources policy;

– conclusion of non-disclosure agreement with the employees;

– advance estimation of all possible information leakage risks;

– technical protection of information;

– surveillance and control systems.

No matter how nobly it may sound, effective personnel policy is perhaps the most important way to prevent information leakage. This policy includes employee auditing, interviewing, drafting of internal confidentiality regulations.

Conclusion of non-disclosure (of confidential information) agreements with the employees is also a very important factor in the prevention of information leakage. However, it is highly desirable that such agreements contain provisions specifying the list of confidential information which should not be disclosed.

Identifying the most valuable data gives the possibility to determine whom and for what purpose such information is needed, and it can give understanding of the ways of possible attacks (hacking, bribery of officers in charge).

Moreover, in such agreements it is appropriate to settle employee’s civil liability for information disclosure (if his/her guilt is proved) for the losses incurred by the company.

It is also advisable to specify that the disclosure of trade secrets is a labour discipline violation, thereby setting forth disciplinary liability (admonition, dismissal) in the employment contract.

Advance estimation of all possible information leakage risks will help to foresee possible gaps in economic activity of business entities. For this purpose, a list of information which may constitute a trade secret is usually developed. Identifying the most valuable data, you can determine to whom and for what purpose such information is needed and it can give understanding of the ways of possible attacks (hacking, bribery of officers in charge).

Technical information protection means is a very important factor in the prevention of industrial espionage. It is necessary not only to protect oneself from possible attacks, but also to store valuable information properly, restrict access to it not only for the third parties, but also for the employees; to store particularly valuable information encrypted; not to transmit valuable information by any means of communication.

Today prevention of industrial espionage is very complicated because of the information technologies and Internet accessibility continuous development. Hacker attacks on various information systems have reached really huge volumes. Many companies simply can not afford to resist and defend against new technologies (devices) aimed at information interception.

Prompt legal response

If you suspect the slightest threat of information leakage it is desirable to react very quickly.

Surely, when you suspect any information leakage first and foremost you should determine the source of such leakage, if technically possible. In any case, it is important to understand how such a leakage appeared: through employees or through communications.

If understood or suspected that leakage (theft) of information occurred through the fault of the employee, it is necessary to take measures on temporary suspension of such employee(s) and to conduct an internal investigation.

To detect the employee(s) who may be guilty of the leakage, it is necessary to determine the circle of people to whom such information was available and to whom it was transmitted.

If leakage (theft) of information can threaten the interests of third parties, it is necessary to inform them urgently, preferably in writing. It will allow the people whose interests may be affected by such leakage to develop the protection mechanism and to take measures timely.

Application to the law enforcement agencies is also a possible response to industrial espionage.

Case law on prosecution of those responsible for gathering and disclosure of information constituting a trade secret is rather weak in Ukraine, taking into account that it is often not easy to determine the scope of damage caused by information leakage.

It should be noted that the person will be held criminally liable for illegal gathering and deliberate disclosure of information constituting a trade secret without the owner’s consent only if such gathering and disclosure caused substantial damage to economic activity of the business entity (Articles 231, 232 of the Criminal Code of Ukraine).

However, criminal liability without prerequisite condition of causing damage is envisaged for unauthorized interference in operation of computers, automated systems, computer networks or telecommunication networks and unauthorized transfer or dissemination of restricted information stored in computers, automated systems, computer networks or storage devices.

In case of revealing illegal gathering of information constituting a trade secret it is also possible to turn to the Antimonopoly Committee of Ukraine. In this case, it is necessary to provide the Committee with evidence that such information was gathered using illegal meand. However, as a result of consideration of the case on violation of legislation concerning unfair competition the Committee may impose a fine only, and it is necessary to apply to court for damage compensation.

Regulations governing consideration of cases on unfair competition by the Antimonopoly Committee of Ukraine are as follows: the Law of Ukraine “On Protection from Unfair Competition”, the Law of Ukraine “On Protection of Economic Competition”, Regulations on consideration of applications and cases of violation of legislation on economic competition protection.

The amount of fine that may be imposed by the Antimonopoly Committee after establishing the fact of unfair competition in case of illegal gathering of information constituting a trade secret may reach up to 5% of income from sales of products (goods and services) for the last financial year, preceding the year of fine imposition. If there is no information about income, then in the amount not exceeding UAH 170 thousand. The amount of fine is payable to the state budget.

It should be noted that case law on persecution of those responsible for gathering and disclosure of information constituting a trade secret is very weak in Ukraine, taking into account the fact that it is often not easy to determine the scope of damage caused by such leakage. Moreover, if industrial espionage was carried out by an employee, it turns out almost impossible to prove his guilt.

Legal precedents around the world show that judicial prosecution for industrial espionage can result in favour of the plaintiff. Moreover, many companies prefer not to disclose the fact of industrial espionage towards their activities.

CONCLUSION:

International practice proves that it is impossible to be completely protected against industrial espionage. Industrial espionage has always been and remains a serious threat to success business worldwide, despite development of new technical means of its detection and counteraction. The only thing that is important to remember for all companies is that prevention, i.e. proper protection of information constituting commercial secret is very important in today’s business environment.

 
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