WEBVTT - Corporate Espionage in the Tech Sector 0:00:04.440 --> 0:00:12.520 Welcome to Tech Stuff, a production from iHeartRadio. Hey thereon 0:00:12.640 --> 0:00:16.160 Welcome to Tech Stuff. I'm your host, Jonathan Strickland. I'm 0:00:16.160 --> 0:00:19.680 an executive producer with iHeart Podcasts and how the tech 0:00:19.720 --> 0:00:23.560 are you? So? In past Tech Stuff episodes, I've talked 0:00:23.640 --> 0:00:27.920 a lot about stuff like intellectual property and patents and 0:00:28.040 --> 0:00:30.440 that kind of thing, and a lot of those episodes 0:00:30.440 --> 0:00:34.080 dip into how companies can end up causing frustration among 0:00:34.560 --> 0:00:39.160 customers and others by being a little too enthusiastic about 0:00:39.200 --> 0:00:42.120 protecting their IP. But how about we look at things 0:00:42.320 --> 0:00:46.120 from a different angle. Why don't we consider some of 0:00:46.159 --> 0:00:50.120 the cases in which a company experienced a hefty loss 0:00:50.200 --> 0:00:54.040 due to someone yoinking IP that wasn't their own. Today, 0:00:54.640 --> 0:00:59.640 I want to talk about industrial espionage, or corporate espionage, 0:00:59.720 --> 0:01:03.840 or economic espionage. So here in the United States you'll 0:01:03.840 --> 0:01:07.560 often hear about the threats of industrial espionage to the 0:01:07.600 --> 0:01:11.120 tech sector as well as to national security, usually with 0:01:11.160 --> 0:01:14.120 the implication that China is behind it all. At least 0:01:14.200 --> 0:01:17.040 in recent years, that's been the narrative. That is a 0:01:17.160 --> 0:01:21.680 driving concern for a lot of legislation and executive orders 0:01:21.680 --> 0:01:24.559 that the US government has issued over the last few years, 0:01:24.840 --> 0:01:29.160 there's this desire to protect US innovations from China, which 0:01:29.200 --> 0:01:32.920 we see manifest in some hefty trade restrictions and that 0:01:33.040 --> 0:01:37.360 kind of thing. But first let's define some terms. So, 0:01:37.920 --> 0:01:43.200 industrial espionage generally covers the situation in which one party 0:01:43.400 --> 0:01:46.720 is spying on the operations of another party, typically a 0:01:46.840 --> 0:01:51.240 company of some sort, in an effort to discover trade secrets. 0:01:51.560 --> 0:01:56.080 The end goal usually is to give some competitor and advantage, 0:01:56.200 --> 0:02:01.120 or to potentially copy the company's work elsewhere, or maybe 0:02:01.480 --> 0:02:04.720 even just to hurt the target company. We're gonna look 0:02:04.720 --> 0:02:10.160 at a whole array of different motivations for corporate espionage 0:02:10.200 --> 0:02:14.480 in this episode. And you know, industrial espionage itself may 0:02:14.639 --> 0:02:18.040 or may not be illegal, depending upon the jurisdiction and 0:02:18.080 --> 0:02:21.400 the nature of the espionage. It could just be considered 0:02:21.520 --> 0:02:25.240 very bad ethics, depending again on the situation. In addition, 0:02:25.320 --> 0:02:29.120 if other factors are involved, matters can clearly escalate. So 0:02:29.240 --> 0:02:32.200 here in the United States we have the Economic Espionage 0:02:32.280 --> 0:02:36.519 Act of nineteen ninety six. This act actually has two provisions. 0:02:36.919 --> 0:02:39.800 The second of the two provisions is your plain old, 0:02:39.840 --> 0:02:44.040 everyday industrial espionage. So essentially, a case where something like 0:02:44.120 --> 0:02:48.280 Company A wants to know how Company B makes its widgets, 0:02:48.600 --> 0:02:52.639 and so Company A sends in a spy to work 0:02:53.080 --> 0:02:56.840 at Company B and then ferret out the secrets and 0:02:56.880 --> 0:02:59.720 then bring it back to Company A so that they 0:02:59.720 --> 0:03:02.400 can capitalize on it and then just claim like, oh, no, 0:03:02.560 --> 0:03:05.960 we reverse engineered the technology, or we came up with 0:03:06.040 --> 0:03:09.200 our own way of doing this. We didn't violate IP 0:03:09.400 --> 0:03:14.120 in any way. The first provision of the Economic Espionage 0:03:14.160 --> 0:03:16.200 Act deals with cases in which the aim of the 0:03:16.320 --> 0:03:21.880 espionage is to benefit a foreign government, instrumentality, or agent. 0:03:22.320 --> 0:03:26.480 So this is international economic espionage baby, and as such 0:03:26.600 --> 0:03:29.480 it is viewed as being a very serious matter. Indeed, 0:03:29.720 --> 0:03:34.079 that'd be fair. Really, all industrial espionage can be serious stuff. 0:03:34.320 --> 0:03:36.640 So we're going to talk about some specific cases of 0:03:36.880 --> 0:03:40.800 espionage in the tech sector and what happened. Now. I'm 0:03:40.840 --> 0:03:43.120 not going to be talking about a few of the 0:03:43.200 --> 0:03:47.040 really big espionage cases because they didn't really happen in tech, 0:03:47.560 --> 0:03:51.760 Like there was one industrial espionage case that involved a 0:03:51.800 --> 0:03:56.160 company that makes adhesives, which admittedly was a sticky situation, 0:03:56.560 --> 0:03:58.880 but it wasn't a tech company. I am going to 0:03:58.880 --> 0:04:02.960 talk about these stories in chronological order, and we'll start 0:04:03.000 --> 0:04:06.440 in the nineteen eighties. So first up, let's talk about 0:04:06.520 --> 0:04:11.560 IBM and the company Hitachi. So our story begins with 0:04:11.920 --> 0:04:16.200 a guy named Raymond Cadet, and Cadet had worked as 0:04:16.240 --> 0:04:19.480 a computer scientist for IBM, but he had left the 0:04:19.480 --> 0:04:22.159 company in nineteen eighty in order to go work for 0:04:22.240 --> 0:04:28.760 another business called National Advanced Systems or NAS. Now, Allegedly, 0:04:29.279 --> 0:04:32.760 upon his departure from IBM, Cadet had a case of 0:04:32.760 --> 0:04:38.160 sticky fingers and he took with him ten three ring 0:04:38.279 --> 0:04:43.279 binder workbooks about the IBM's upcoming THREEH eight X series 0:04:43.320 --> 0:04:47.920 of computers. Now, there were twenty seven of these types 0:04:47.960 --> 0:04:52.039 of workbooks total for these systems, twenty seven totals, so 0:04:52.080 --> 0:04:56.120 he only came away with ten volumes of the twenty seven, 0:04:56.400 --> 0:04:59.680 so he had fewer than half of all the workbooks. 0:05:00.200 --> 0:05:04.520 His boss at NAS, a man named Barry Safe, allegedly 0:05:04.560 --> 0:05:08.320 made photo copies of those ten binders, and in nineteen 0:05:08.360 --> 0:05:12.279 eighty one, Sefei traveled to Japan, and according to the 0:05:12.400 --> 0:05:16.400 US Department of Justice, he then handed those copies of 0:05:16.440 --> 0:05:21.560 these ten workbooks to executives at Hatachi because NAS was 0:05:21.720 --> 0:05:25.800 marketing Hatachi computers back in the United States, so it 0:05:25.880 --> 0:05:29.760 was kind of like saying, hey, here's IBM's information on 0:05:29.839 --> 0:05:33.560 this upcoming system of computers so that you can get 0:05:33.640 --> 0:05:37.280 the jump on creating your own compatible components and thus 0:05:37.640 --> 0:05:41.320 undercut IBM's sales. So word got back to IBM that 0:05:41.440 --> 0:05:45.480 something hinky was going on when a Hatachi computer engineer 0:05:45.520 --> 0:05:50.600 named Kinji Hayashi revealed to a computer consultant named Maxwell 0:05:50.640 --> 0:05:54.240 Paley that Hitachi had ten of these twenty seven volumes 0:05:54.279 --> 0:05:58.960 from IBM and that he, that is, Hayashi, would be 0:05:59.160 --> 0:06:03.280 really interesting did in acquiring any of the other volumes 0:06:03.480 --> 0:06:06.000 that happened to be out there, you know, if Pailey 0:06:06.240 --> 0:06:10.960 happened to have access to the other seventeen volumes. So 0:06:11.920 --> 0:06:15.360 Pale immediately smelled something fishy. He was also a former 0:06:15.440 --> 0:06:19.800 IBM employee before he became an independent consultant, so he 0:06:20.000 --> 0:06:23.520 sussed out that Hitachi must have gained possession of those 0:06:23.600 --> 0:06:27.479 workbooks without IBM's consent, because it wasn't the sort of 0:06:27.520 --> 0:06:30.960 thing that Big Blue would be sharing just in general. 0:06:31.360 --> 0:06:34.960 So Pilee then calls up one of his former colleagues 0:06:34.960 --> 0:06:39.760 who was still at IBM, and Pailey says, hey, I 0:06:40.000 --> 0:06:44.760 was chatting with this computer engineer over at Hitachi, and 0:06:45.080 --> 0:06:49.159 he had access to ten of your twenty seven workbooks 0:06:49.600 --> 0:06:53.200 about the upcoming three H eight X series of computers. 0:06:53.560 --> 0:06:59.719 Is that cool or is something shady happening? So immediately 0:07:00.400 --> 0:07:03.600 IBM recruited Pailey to come on and act as kind 0:07:03.600 --> 0:07:07.800 of a spy for themselves. So they partnered Paley with 0:07:07.880 --> 0:07:12.560 another fellow named Richard Callahan. And before Richard Callahan had 0:07:12.640 --> 0:07:15.080 joined IBM to be like kind of like a head 0:07:15.120 --> 0:07:18.200 of security, he had been a captain in the Marines. 0:07:18.240 --> 0:07:22.960 He also had been an FBI agent, so he meant business. 0:07:23.280 --> 0:07:26.400 So Pialee was able to go back to Hayashi you 0:07:26.440 --> 0:07:30.240 know who again. Hayashi worked for Haitachi, and Paley told 0:07:30.280 --> 0:07:34.520 Hayashi that, you know, I need to see these workbooks 0:07:34.560 --> 0:07:36.720 to know what I'm looking for. Can you bring them 0:07:36.880 --> 0:07:40.000 to a meeting? And Hayashi said, oh, yes, sure, and 0:07:40.040 --> 0:07:43.960 he brought three of the workbooks with him and showed 0:07:43.960 --> 0:07:47.480 them to Paley and to Callahan, and this gave enough 0:07:47.520 --> 0:07:50.600 proof to IBM to take the next steps. They then 0:07:51.120 --> 0:07:55.880 prosecuted Hitachi by actually first going to the Justice Department 0:07:56.000 --> 0:07:58.320 with their problem and saying we have evidence that this 0:07:58.560 --> 0:08:01.960 is happening. This would bring the FBI into the situation, 0:08:02.080 --> 0:08:05.000 so the FBI would have their own investigation. So at 0:08:05.040 --> 0:08:07.480 this point we're up to nineteen eighty one. No legal 0:08:07.520 --> 0:08:12.160 action has happened yet, but obviously you have the case 0:08:12.240 --> 0:08:16.920 of this former IBM manager leaves the company, hands information 0:08:17.160 --> 0:08:20.440 that's proprietary to IBM to his boss. His boss then 0:08:20.520 --> 0:08:24.000 goes and offers the information up to Hitachi Haitachi is 0:08:24.040 --> 0:08:27.840 now seeking the rest of that information. IBM does its 0:08:27.880 --> 0:08:30.360 little sting operation and discovers that this is the case. 0:08:30.400 --> 0:08:32.880 They now go to the FBI, and the FBI then 0:08:32.960 --> 0:08:38.079 launches their honeypot operation. So some FBI agents pose as 0:08:38.160 --> 0:08:41.600 computer consultants who supposedly had high level access to the 0:08:41.640 --> 0:08:46.479 inner workings of IBM, including these other workbooks that Hitachi 0:08:46.520 --> 0:08:51.640 executives wanted. So the FBI agents approach executives from both 0:08:51.679 --> 0:08:55.959 Hitachi and Mitsubishi Electric and they offer to sell trade 0:08:56.120 --> 0:09:01.160 secrets to these Japanese companies. And if they were to 0:09:01.559 --> 0:09:03.959 get hold of these secrets, then they could make computer 0:09:04.000 --> 0:09:09.480 components compatible with upcoming IBM machines. So big big business 0:09:09.520 --> 0:09:14.120 deal here, and Hitachi took the bait. Executives authorized a 0:09:14.200 --> 0:09:17.720 payment of more than half a million dollars for those 0:09:17.760 --> 0:09:20.880 trade secrets, and over the course of seven months, the 0:09:20.920 --> 0:09:24.199 FBI operated this ruse until the US Department of Justice 0:09:24.240 --> 0:09:27.280 was ready to move on the issue. So originally FBI 0:09:27.400 --> 0:09:30.120 agents figured that this operation would take a couple of 0:09:30.160 --> 0:09:34.559 weeks tops, but as they conducted it, they became more 0:09:34.600 --> 0:09:38.360 and more convinced that the issues going on in Tatachi 0:09:38.880 --> 0:09:42.920 weren't just related to a computer engineer right like, they 0:09:42.960 --> 0:09:46.000 went much further up the chain of command. So they 0:09:46.080 --> 0:09:48.760 kept the operation going to try and find out how 0:09:48.840 --> 0:09:51.920 high up does this go. So the FBI alleged that 0:09:51.960 --> 0:09:55.839 more than a dozen Hitachi employees, including high rank executives, 0:09:56.400 --> 0:09:59.840 were responsible for engaging in what was at that point 0:10:00.080 --> 0:10:04.400 the largest industrial espionage case ever in the United States. 0:10:04.760 --> 0:10:08.720 Now in at least one of these situations, Haitachi the 0:10:08.720 --> 0:10:13.720 Company did plead guilty, as did two Hitachi employees. Now. 0:10:14.200 --> 0:10:18.400 Hitachi the Company maintained that the executive leadership was not 0:10:18.520 --> 0:10:22.240 aware that the information was coming in from an illegal source, 0:10:22.640 --> 0:10:25.280 though I don't really know where else it could have 0:10:25.440 --> 0:10:29.280 come from, But the defense was, hey, they thought that 0:10:29.360 --> 0:10:33.119 this was just legitimate information, that nothing was obtained illegally. 0:10:33.360 --> 0:10:37.000 The Hitachi staff who pled guilty received fines of ten 0:10:37.040 --> 0:10:40.760 thousand dollars or less. Hatachi the company settled out of 0:10:40.800 --> 0:10:45.079 court with IBM and submitted to inspections for five years 0:10:45.480 --> 0:10:49.839 so that IBM could actually determine if Hitachi was infringing 0:10:49.880 --> 0:10:53.000 on IBMIP like if they were actually acting on some 0:10:53.040 --> 0:10:56.160 of this information. So while this could have been a 0:10:56.160 --> 0:10:58.280 big case really and you could argue, yeah, it was 0:10:58.320 --> 0:11:01.520 a huge case, the fines were not what you would expect, right, 0:11:01.520 --> 0:11:05.559 We're talking like ten thousand dollars here, five thousand dollars there. 0:11:05.800 --> 0:11:08.600 That's not that much money when you think about the 0:11:08.600 --> 0:11:10.880 things that are going on at the corporate level. But 0:11:10.960 --> 0:11:12.760 we also have to remember this was happening in the 0:11:12.800 --> 0:11:16.679 nineteen eighties. This is before the nineteen ninety six Espionage 0:11:16.720 --> 0:11:19.480 Act was signed into law. IBM, on top of a 0:11:19.520 --> 0:11:24.040 criminal case, pursued a civil case and Hatachi eventually settled 0:11:24.040 --> 0:11:26.440 that one out of court as well for a reported 0:11:26.640 --> 0:11:30.400 three hundred million dollars, which is a big old yaoza. 0:11:30.520 --> 0:11:34.760 Now we are talking as for the National Advanced Systems 0:11:35.160 --> 0:11:37.600 and its parent company of National Semi Conductor. That's the 0:11:37.600 --> 0:11:40.360 company that the former IBM manager had gone to work 0:11:40.400 --> 0:11:44.960 for Well. IBM went after Cadet and Cefe and another 0:11:45.120 --> 0:11:49.679 NAS employee named Tibasuma Yazi, and the case went back 0:11:49.720 --> 0:11:52.559 and forth in the courts. Sometimes a court would find 0:11:53.000 --> 0:11:55.800 for the plaintiffs, sometimes for the defendants, as it would 0:11:55.840 --> 0:12:00.440 get through appeals, and eventually National Semi Conductor ultimately would 0:12:00.440 --> 0:12:03.240 settle out of court in nineteen eighty four for three 0:12:03.320 --> 0:12:08.080 million dollars. So that was the big IBM Haitachi battle. 0:12:08.120 --> 0:12:10.600 Obviously there are a lot more details there, but it 0:12:10.640 --> 0:12:13.440 was already getting pretty complicated just to give the summation. 0:12:13.760 --> 0:12:17.560 So let's move forward a decade to nineteen ninety three. 0:12:17.760 --> 0:12:21.680 That's when the auto manufacturer Volkswagen got into some really 0:12:21.720 --> 0:12:25.920 hot water, which, you know, not that surprising because Volkswagen 0:12:25.960 --> 0:12:28.520 is also the car company that became the center of 0:12:28.600 --> 0:12:31.760 diesel gate. That was when it was discovered that Volkswagen 0:12:31.800 --> 0:12:35.520 had built in a way to fool emissions testing facilities 0:12:35.800 --> 0:12:38.679 with its diesel powered vehicles, so that there was a 0:12:38.720 --> 0:12:42.480 test mode where it wouldn't put out as many emissions, 0:12:42.559 --> 0:12:44.440 but then as soon as it was out of test mode, 0:12:44.520 --> 0:12:47.320 it would go into performance mode and emissions would be 0:12:47.679 --> 0:12:51.319 much worse, they would have failed emissions tests. But as 0:12:51.320 --> 0:12:53.800 it turns out, that's not the only time Volkswagen was 0:12:53.840 --> 0:12:58.280 caught doing something a little bit underhanded. So in nineteen 0:12:58.400 --> 0:13:01.800 ninety three, the company higher to a man named Jose Lopez, 0:13:02.120 --> 0:13:07.240 who previously had worked as a purchasing executive for General Motors, 0:13:07.679 --> 0:13:10.040 and in fact Lopez was in line to become the 0:13:10.080 --> 0:13:13.720 head of North American operations for GM. He was known 0:13:13.840 --> 0:13:20.400 as an incredibly effective purchasing executive, like could just create 0:13:20.440 --> 0:13:24.880 the most killer deals for a company and was absolutely 0:13:24.920 --> 0:13:29.120 cutthroat in his negotiations. Well before he could become North 0:13:29.120 --> 0:13:34.280 American operations lead for GM, Volkswagen swooped in and made 0:13:34.360 --> 0:13:38.880 him an offer he couldn't refuse. Specifically, Volkswagen executives promised 0:13:38.880 --> 0:13:42.160 Lopez that the company would build a manufacturing facility in 0:13:42.200 --> 0:13:46.120 the Basque region of Spain. That was something Lopez had 0:13:46.120 --> 0:13:48.720 wanted for a very long time. He wanted to bring 0:13:48.840 --> 0:13:54.400 manufacturing to his homeland, and so Lopez decided he'd take 0:13:54.440 --> 0:13:56.960 the job. And Volkswagen had been in a bit of 0:13:57.000 --> 0:13:59.880 a struggle before Lopez came on board, but quickly they 0:14:00.200 --> 0:14:02.680 started to turn around for the company and the folks 0:14:02.679 --> 0:14:06.160 back at GM were suspicious, and they accused Volkswagen and 0:14:06.280 --> 0:14:11.520 Lopez of capitalizing on GM trade secrets such as the 0:14:11.520 --> 0:14:15.679 company systems for purchasing parts and also their plans for 0:14:15.800 --> 0:14:20.880 their own manufacturing facility. So these accusations ended up becoming 0:14:20.960 --> 0:14:23.760 a big legal battle that stretched through most of the 0:14:23.840 --> 0:14:27.760 nineteen nineties. It all started in ninety three, and GM 0:14:27.760 --> 0:14:31.040 would subsequently file a civil lawsuit against Volkswagen, and the 0:14:31.040 --> 0:14:33.240 two parties would not come to an out of court 0:14:33.320 --> 0:14:37.280 settlement until nineteen ninety seven. At that point, Volkswagen agreed 0:14:37.280 --> 0:14:40.480 to pay GM a cool one hundred million dollars and 0:14:40.600 --> 0:14:44.080 agreed to purchase one billion dollars worth of GM parts 0:14:44.160 --> 0:14:48.800 over the following seven years. Back in Germany, authorities continued 0:14:48.800 --> 0:14:52.440 to pursue a criminal case against Lopez and three associates 0:14:52.480 --> 0:14:56.280 who followed him over from GM to Volkswagen. Now Eventually, 0:14:56.280 --> 0:14:59.120 in nineteen ninety eight, the police agreed to drop charges 0:14:59.200 --> 0:15:03.840 provided that the four former GM executives donate a substantial 0:15:03.920 --> 0:15:07.200 sum of money to charity. Lopez himself had resigned from 0:15:07.240 --> 0:15:10.200 Volkswagen back in nineteen ninety seven. Then he was in 0:15:10.240 --> 0:15:12.560 a terrible car accident and left him in a coma 0:15:12.600 --> 0:15:15.640 for months in nineteen ninety eight. He did recover, however, 0:15:16.000 --> 0:15:19.160 and is still alive today at the age of eighty three. 0:15:20.000 --> 0:15:22.960 All right, we've got several more cases of espionage to 0:15:22.960 --> 0:15:24.840 talk about, but we need to take a quick break 0:15:24.840 --> 0:15:38.800 to thank our sponsors. Okay, Our next case of industrial 0:15:38.960 --> 0:15:43.160 espionage is arguably on the razor's edge of being a 0:15:43.200 --> 0:15:45.880 text story in the first place. But I think despite 0:15:45.880 --> 0:15:48.960 the fact that it's a close shave, it still counts. 0:15:49.200 --> 0:15:53.120 And this tale isn't about trying to cash in on secrets, 0:15:53.120 --> 0:15:56.800 but rather to make a perceived enemy bleed from one 0:15:56.840 --> 0:16:00.680 thousand cuts. It's the story of Gillette and a guy 0:16:00.800 --> 0:16:04.040 named Stephen Louis Davis. You see what I did there 0:16:04.040 --> 0:16:07.120 with other the razor punds wasn't clear until I got 0:16:07.120 --> 0:16:09.840 to the end of that. Anyway, Steven L. Davis worked 0:16:09.880 --> 0:16:15.200 for a company called Right Industries Incorporated. That's Right Wright, 0:16:15.480 --> 0:16:19.440 like the Wright brothers. That company is an industrial fabrication company. 0:16:19.840 --> 0:16:22.960 This means that Right Industries is a company that other 0:16:23.080 --> 0:16:27.320 companies go to when it comes time to produce specific 0:16:27.360 --> 0:16:31.520 stuff that these other, you know, originating companies aren't equipped 0:16:31.560 --> 0:16:35.480 to make. So Gellette was a customer of Right Industries, 0:16:35.520 --> 0:16:39.560 and Stephen Davis worked for Right. At the time, Gellette 0:16:39.600 --> 0:16:43.720 was working on something that was top secret. Now, it 0:16:43.840 --> 0:16:47.400 turned out this top secret project would be their Mock 0:16:47.560 --> 0:16:51.400 three triple blade razor. I remember when those came out, 0:16:51.720 --> 0:16:55.120 and it obviously would spawn a bunch of imitators among 0:16:55.400 --> 0:16:58.760 the various competitors in the space. You started seeing razors 0:16:58.760 --> 0:17:01.920 with lots more blaze, sometimes a ludicrous amount, to the 0:17:01.960 --> 0:17:04.679 point where I think there were like parody commercials like 0:17:04.720 --> 0:17:07.760 the seventeen bladed raiser. But this was back when the 0:17:07.840 --> 0:17:10.480 double bladed eraser was kind of the standard. No one 0:17:10.480 --> 0:17:13.119 had cracked the code on answering the question why not 0:17:13.280 --> 0:17:18.480 three blades? So Gellette obviously would need to share information 0:17:18.560 --> 0:17:22.199 about this top secret project with their fabrication partners in 0:17:22.280 --> 0:17:26.440 order to manufacture the things. That information was incredibly valuable, 0:17:26.680 --> 0:17:29.959 so reportedly, Gellette had sunk around seven hundred and fifty 0:17:30.160 --> 0:17:34.000 million dollars in research and development to get to a 0:17:34.040 --> 0:17:38.160 design where the Mock III would work. Now, obviously that 0:17:38.280 --> 0:17:41.560 kind of commitment to a project is enormous, and if 0:17:41.640 --> 0:17:44.359 Gellette couldn't realize a profit off of that work, it 0:17:44.359 --> 0:17:48.000 would be in a huge corporate jam. Kind of like 0:17:48.040 --> 0:17:50.800 when you shave a bit too much before you rense 0:17:50.800 --> 0:17:53.120 out your razor and it gets all jammed up. That's 0:17:53.240 --> 0:17:57.960 kind of what Gellette would be in. So enter Steven L. Davis, 0:17:58.080 --> 0:18:01.880 who again worked for Wright. He was mightily cheesed off 0:18:01.960 --> 0:18:05.600 both at his own direct employer and at Gillette itself. 0:18:05.840 --> 0:18:09.600 So Davis had been working in a rather prominent role 0:18:09.760 --> 0:18:13.239 on the project, but then found himself demoted to a 0:18:13.359 --> 0:18:17.080 lesser role, and he was bitter about that. So he 0:18:17.119 --> 0:18:20.920 thought perhaps one way to vent his spleen would be 0:18:21.280 --> 0:18:25.240 he could take this top secret design of this triple 0:18:25.280 --> 0:18:29.840 bladed razor. He could go to Gellette's competitors in the industry, 0:18:30.000 --> 0:18:32.480 and then he could stick it to Gellette as well 0:18:32.480 --> 0:18:35.800 as his own direct employer. And reportedly, he wasn't even 0:18:35.800 --> 0:18:39.040 looking to profit all this. He wasn't looking to sell 0:18:39.080 --> 0:18:41.840 this information off and then make a huge amount of 0:18:41.880 --> 0:18:45.159 money and then you know, retired to Patagonia or something. 0:18:45.200 --> 0:18:51.520 He just wanted revenge. So off Davis goes with information 0:18:51.600 --> 0:18:55.720 about Gellette's top secret innovation to a couple of different 0:18:55.720 --> 0:19:00.640 companies that included Big the American Safety Razor cup and 0:19:00.920 --> 0:19:04.560 Shick as in Shick Wilkinson's Sword, the makers of the 0:19:04.600 --> 0:19:09.120 Shick razor. Now the folks at Shick immediately contacted their 0:19:09.160 --> 0:19:12.399 peers over at Gillette to tattle on Davis because they 0:19:12.400 --> 0:19:16.399 were like, Okay, this is non information we should have. 0:19:16.560 --> 0:19:19.280 It is really illegal for us to have it. This 0:19:19.359 --> 0:19:22.760 isn't cool. Let's get in front of this and let 0:19:22.800 --> 0:19:26.840 Gellette know what's going on. So Gillette, the executive's there. 0:19:26.880 --> 0:19:30.080 When they find out that Davis had leaked their information 0:19:30.200 --> 0:19:33.879 to their competitors, they contacted the FBI, So the FBI 0:19:34.040 --> 0:19:37.560 launched an investigation. The FBI was able to verify that 0:19:37.680 --> 0:19:41.040 Davis had in fact absconded with these trade secrets and 0:19:41.080 --> 0:19:46.159 attempted corporate espionage, and they apprehended Davis. He was tried 0:19:46.200 --> 0:19:49.320 and found guilty of five counts of corporate espionage under 0:19:49.359 --> 0:19:53.520 the then new Espionage Act of nineteen ninety six. Now, 0:19:53.560 --> 0:19:56.880 he could have received a sentence of up to ten 0:19:57.080 --> 0:20:01.080 years for his crimes, but the judge was far less 0:20:01.160 --> 0:20:05.480 vindictive and gave him a twenty seven month sentence instead. 0:20:05.760 --> 0:20:09.440 Still some you know, serious time, but not ten years. Now, 0:20:10.160 --> 0:20:13.160 around the same time that this whole Stephen Davis Gillette 0:20:13.240 --> 0:20:18.399 case was unfolding. There was another industrial espionage trial that 0:20:18.640 --> 0:20:22.680 was coming to prominence, but this one would actually happen 0:20:22.800 --> 0:20:26.680 before the Espionage Act was signed into law, so there 0:20:26.720 --> 0:20:31.520 is like overlap here. Technically, the Gillette case concluded first, 0:20:31.920 --> 0:20:34.440 but when it came time to decide which ones when 0:20:34.480 --> 0:20:36.880 in the order of this particular episode, it was kind 0:20:36.880 --> 0:20:40.560 of a toss up. This other case involved the Eastman 0:20:40.760 --> 0:20:46.159 Kodak Company and a former manager named Harold Warden. So 0:20:46.680 --> 0:20:50.760 remember we're talking about the mid nineteen nineties at this point. 0:20:51.040 --> 0:20:54.440 This is back when film cameras were far more common 0:20:54.800 --> 0:20:59.080 than digital cameras. This is an era before everyone carried 0:20:59.080 --> 0:21:01.720 around a smartphone that had a digital camera in it. 0:21:02.000 --> 0:21:04.520 So if you were taking pictures back in the nineties, 0:21:04.720 --> 0:21:09.280 chances are you were doing so on film, and Kodak 0:21:09.840 --> 0:21:13.280 was the name in film. The company had a long 0:21:13.480 --> 0:21:16.600 history of research and development in the world of film. 0:21:16.880 --> 0:21:21.000 They were responsible for creating all new processes and they 0:21:21.040 --> 0:21:25.200 tested new materials on an effort to gain market dominance. 0:21:25.800 --> 0:21:30.520 So Warden had worked for Kodak for nearly thirty years 0:21:30.960 --> 0:21:34.440 and then he retired from Kodak in nineteen ninety two, 0:21:35.119 --> 0:21:37.520 and one thing that Kodak had worked on during that 0:21:37.640 --> 0:21:42.200 time was a secret method for making film. Their process 0:21:42.880 --> 0:21:46.359 gave the company a real advantage because they could make 0:21:46.680 --> 0:21:50.000 film at a faster pace than their competitors and at 0:21:50.040 --> 0:21:53.359 a higher level of quality than their competitors could do. 0:21:54.040 --> 0:21:56.880 And most folks at Kodak only had a tiny glimpse 0:21:56.960 --> 0:22:00.760 into how it all worked. Because the philosophy Kodak was 0:22:01.080 --> 0:22:06.440 to protect corporate information, they would compartmentalize everyone. You would 0:22:06.520 --> 0:22:09.800 only need to know the stuff that directly pertained to 0:22:09.880 --> 0:22:13.480 your job, and you were ignorant of everything else. But Warden, 0:22:13.880 --> 0:22:17.040 because he was a manager, knew a bit more than 0:22:17.080 --> 0:22:20.160 most people did. He had a larger view of how 0:22:20.200 --> 0:22:23.560 the process worked. So he goes off to retire, and 0:22:23.600 --> 0:22:27.359 when he does, he creates his own independent consulting firms. 0:22:27.359 --> 0:22:30.040 So he retires from Kodak, but he's not done working. 0:22:30.080 --> 0:22:33.600 He's now working for himself. As well as that, he 0:22:33.760 --> 0:22:36.359 ends up keeping up this line of communication open with 0:22:36.440 --> 0:22:39.520 some of his former colleagues who were still at Kodak 0:22:39.640 --> 0:22:43.280 or who had recently left the company, and would occasionally 0:22:43.280 --> 0:22:45.439 be able to convince them to hand over or to 0:22:45.600 --> 0:22:50.280 sell proprietary information from Kodak. Now, using this method, he 0:22:50.440 --> 0:22:55.440 essentially assembled the book on Kodak's processes that was not 0:22:55.640 --> 0:22:58.439 within the company itself, and then he would kind of 0:22:58.520 --> 0:23:01.600 use this information to see if any Kodak's competitors would 0:23:01.640 --> 0:23:05.679 be interested and you know, taking advantage of his wealth 0:23:05.720 --> 0:23:08.479 of information. So he would kind of coach clients on 0:23:08.480 --> 0:23:11.280 how to work the way that Kodak worked. This was 0:23:11.359 --> 0:23:14.399 kind of a clever workaround, like he was trying not 0:23:14.600 --> 0:23:19.800 to sell outright patented information to others. He was trying 0:23:19.840 --> 0:23:25.080 to avoid a crystal clear violation of the law, but 0:23:25.520 --> 0:23:29.720 he was playing in a very gray area himself. So 0:23:29.840 --> 0:23:34.040 Kodak gets wind of something going on when one of 0:23:34.080 --> 0:23:37.720 its competitors said, hey, a former manager who used to 0:23:37.760 --> 0:23:41.679 work for y'all offered to tell us how you do everything. 0:23:42.240 --> 0:23:45.520 So then Kodak conducts a little sting operation of their own. 0:23:45.960 --> 0:23:48.840 A Kodak executive pretended to be a representative of a 0:23:48.960 --> 0:23:52.679 Chinese company that was just getting into film manufacturing. So, 0:23:53.640 --> 0:23:58.879 posing as this supposed Chinese executive, he offered Warden a 0:23:58.920 --> 0:24:03.040 buttload of cash in return for some trade secrets from Kodak, 0:24:03.400 --> 0:24:06.840 and Warden said he would not sell any patented technology, 0:24:06.880 --> 0:24:09.480 but he did offer to bend the rules so that 0:24:09.520 --> 0:24:12.040 pretty much everything else would still be on the table. 0:24:12.480 --> 0:24:16.720 Kodak then contacted the FBI. The FBI investigated Warden and 0:24:16.760 --> 0:24:19.840 they found that he had pretty much all the documentation 0:24:19.960 --> 0:24:24.160 you needed to copy some of Kodak's most important processes 0:24:24.200 --> 0:24:28.800 in manufacturing. So the FBI arrested Warden, and at this point, 0:24:28.840 --> 0:24:31.160 like I said, the Espionage Act of nineteen ninety six 0:24:31.280 --> 0:24:34.480 hadn't been signed into law, so they couldn't charge him 0:24:34.840 --> 0:24:38.000 on that act because it was not yet law. Instead, 0:24:38.520 --> 0:24:41.720 they held him on a charge of transporting stolen property 0:24:41.760 --> 0:24:46.119 across state lines. Now, he ultimately would plead guilty to 0:24:46.200 --> 0:24:48.560 this charge, and he received a sentence of one year 0:24:48.600 --> 0:24:52.080 in prison, three months of house arrest, three years of probation, 0:24:52.320 --> 0:24:56.480 and a fine of thirty thousand dollars. Again, that's a lot, 0:24:56.560 --> 0:24:58.960 I mean thirty grand. That's a lot of money to 0:24:59.000 --> 0:25:01.520 get hit with as a fine. But when you're looking 0:25:01.560 --> 0:25:05.560 at the possible damage that this would do to a 0:25:05.560 --> 0:25:09.240 company like Kodak, where you're talking about countless millions of 0:25:09.280 --> 0:25:13.240 dollars that had been spent on creating the system in 0:25:13.280 --> 0:25:18.480 the first place, and then the weight of that secrecy. 0:25:19.119 --> 0:25:21.639 It was obviously an important thing at Kodak, where they 0:25:21.640 --> 0:25:24.960 were trying to keep it compartmentalized as much as possible. 0:25:25.240 --> 0:25:27.919 Thirty grand is nothing compared to the damage that you 0:25:27.920 --> 0:25:31.600 could do. Now let's talk about a case that was 0:25:31.680 --> 0:25:35.520 total garbage, and by that I mean it involves total garbage. 0:25:35.560 --> 0:25:39.119 I'm talking about Oracle's fight with Microsoft. Now, some of 0:25:39.160 --> 0:25:41.399 y'all might already know where this story is going. You 0:25:41.480 --> 0:25:45.280 might have memories of this, but let's set the stage 0:25:45.280 --> 0:25:49.080