Speaker 1: Welcome to Tech Stuff, a production from iHeartRadio. Hey thereon
Speaker 1: Welcome to Tech Stuff. I'm your host, Jonathan Strickland. I'm
Speaker 1: an executive producer with iHeart Podcasts and how the tech
Speaker 1: are you? So? In past Tech Stuff episodes, I've talked
Speaker 1: a lot about stuff like intellectual property and patents and
Speaker 1: that kind of thing, and a lot of those episodes
Speaker 1: dip into how companies can end up causing frustration among
Speaker 1: customers and others by being a little too enthusiastic about
Speaker 1: protecting their IP. But how about we look at things
Speaker 1: from a different angle. Why don't we consider some of
Speaker 1: the cases in which a company experienced a hefty loss
Speaker 1: due to someone yoinking IP that wasn't their own. Today,
Speaker 1: I want to talk about industrial espionage, or corporate espionage,
Speaker 1: or economic espionage. So here in the United States you'll
Speaker 1: often hear about the threats of industrial espionage to the
Speaker 1: tech sector as well as to national security, usually with
Speaker 1: the implication that China is behind it all. At least
Speaker 1: in recent years, that's been the narrative. That is a
Speaker 1: driving concern for a lot of legislation and executive orders
Speaker 1: that the US government has issued over the last few years,
Speaker 1: there's this desire to protect US innovations from China, which
Speaker 1: we see manifest in some hefty trade restrictions and that
Speaker 1: kind of thing. But first let's define some terms. So,
Speaker 1: industrial espionage generally covers the situation in which one party
Speaker 1: is spying on the operations of another party, typically a
Speaker 1: company of some sort, in an effort to discover trade secrets.
Speaker 1: The end goal usually is to give some competitor and advantage,
Speaker 1: or to potentially copy the company's work elsewhere, or maybe
Speaker 1: even just to hurt the target company. We're gonna look
Speaker 1: at a whole array of different motivations for corporate espionage
Speaker 1: in this episode. And you know, industrial espionage itself may
Speaker 1: or may not be illegal, depending upon the jurisdiction and
Speaker 1: the nature of the espionage. It could just be considered
Speaker 1: very bad ethics, depending again on the situation. In addition,
Speaker 1: if other factors are involved, matters can clearly escalate. So
Speaker 1: here in the United States we have the Economic Espionage
Speaker 1: Act of nineteen ninety six. This act actually has two provisions.
Speaker 1: The second of the two provisions is your plain old,
Speaker 1: everyday industrial espionage. So essentially, a case where something like
Speaker 1: Company A wants to know how Company B makes its widgets,
Speaker 1: and so Company A sends in a spy to work
Speaker 1: at Company B and then ferret out the secrets and
Speaker 1: then bring it back to Company A so that they
Speaker 1: can capitalize on it and then just claim like, oh, no,
Speaker 1: we reverse engineered the technology, or we came up with
Speaker 1: our own way of doing this. We didn't violate IP
Speaker 1: in any way. The first provision of the Economic Espionage
Speaker 1: Act deals with cases in which the aim of the
Speaker 1: espionage is to benefit a foreign government, instrumentality, or agent.
Speaker 1: So this is international economic espionage baby, and as such
Speaker 1: it is viewed as being a very serious matter. Indeed,
Speaker 1: that'd be fair. Really, all industrial espionage can be serious stuff.
Speaker 1: So we're going to talk about some specific cases of
Speaker 1: espionage in the tech sector and what happened. Now. I'm
Speaker 1: not going to be talking about a few of the
Speaker 1: really big espionage cases because they didn't really happen in tech,
Speaker 1: Like there was one industrial espionage case that involved a
Speaker 1: company that makes adhesives, which admittedly was a sticky situation,
Speaker 1: but it wasn't a tech company. I am going to
Speaker 1: talk about these stories in chronological order, and we'll start
Speaker 1: in the nineteen eighties. So first up, let's talk about
Speaker 1: IBM and the company Hitachi. So our story begins with
Speaker 1: a guy named Raymond Cadet, and Cadet had worked as
Speaker 1: a computer scientist for IBM, but he had left the
Speaker 1: company in nineteen eighty in order to go work for
Speaker 1: another business called National Advanced Systems or NAS. Now, Allegedly,
Speaker 1: upon his departure from IBM, Cadet had a case of
Speaker 1: sticky fingers and he took with him ten three ring
Speaker 1: binder workbooks about the IBM's upcoming THREEH eight X series
Speaker 1: of computers. Now, there were twenty seven of these types
Speaker 1: of workbooks total for these systems, twenty seven totals, so
Speaker 1: he only came away with ten volumes of the twenty seven,
Speaker 1: so he had fewer than half of all the workbooks.
Speaker 1: His boss at NAS, a man named Barry Safe, allegedly
Speaker 1: made photo copies of those ten binders, and in nineteen
Speaker 1: eighty one, Sefei traveled to Japan, and according to the
Speaker 1: US Department of Justice, he then handed those copies of
Speaker 1: these ten workbooks to executives at Hatachi because NAS was
Speaker 1: marketing Hatachi computers back in the United States, so it
Speaker 1: was kind of like saying, hey, here's IBM's information on
Speaker 1: this upcoming system of computers so that you can get
Speaker 1: the jump on creating your own compatible components and thus
Speaker 1: undercut IBM's sales. So word got back to IBM that
Speaker 1: something hinky was going on when a Hatachi computer engineer
Speaker 1: named Kinji Hayashi revealed to a computer consultant named Maxwell
Speaker 1: Paley that Hitachi had ten of these twenty seven volumes
Speaker 1: from IBM and that he, that is, Hayashi, would be
Speaker 1: really interesting did in acquiring any of the other volumes
Speaker 1: that happened to be out there, you know, if Pailey
Speaker 1: happened to have access to the other seventeen volumes. So
Speaker 1: Pale immediately smelled something fishy. He was also a former
Speaker 1: IBM employee before he became an independent consultant, so he
Speaker 1: sussed out that Hitachi must have gained possession of those
Speaker 1: workbooks without IBM's consent, because it wasn't the sort of
Speaker 1: thing that Big Blue would be sharing just in general.
Speaker 1: So Pilee then calls up one of his former colleagues
Speaker 1: who was still at IBM, and Pailey says, hey, I
Speaker 1: was chatting with this computer engineer over at Hitachi, and
Speaker 1: he had access to ten of your twenty seven workbooks
Speaker 1: about the upcoming three H eight X series of computers.
Speaker 1: Is that cool or is something shady happening? So immediately
Speaker 1: IBM recruited Pailey to come on and act as kind
Speaker 1: of a spy for themselves. So they partnered Paley with
Speaker 1: another fellow named Richard Callahan. And before Richard Callahan had
Speaker 1: joined IBM to be like kind of like a head
Speaker 1: of security, he had been a captain in the Marines.
Speaker 1: He also had been an FBI agent, so he meant business.
Speaker 1: So Pialee was able to go back to Hayashi you
Speaker 1: know who again. Hayashi worked for Haitachi, and Paley told
Speaker 1: Hayashi that, you know, I need to see these workbooks
Speaker 1: to know what I'm looking for. Can you bring them
Speaker 1: to a meeting? And Hayashi said, oh, yes, sure, and
Speaker 1: he brought three of the workbooks with him and showed
Speaker 1: them to Paley and to Callahan, and this gave enough
Speaker 1: proof to IBM to take the next steps. They then
Speaker 1: prosecuted Hitachi by actually first going to the Justice Department
Speaker 1: with their problem and saying we have evidence that this
Speaker 1: is happening. This would bring the FBI into the situation,
Speaker 1: so the FBI would have their own investigation. So at
Speaker 1: this point we're up to nineteen eighty one. No legal
Speaker 1: action has happened yet, but obviously you have the case
Speaker 1: of this former IBM manager leaves the company, hands information
Speaker 1: that's proprietary to IBM to his boss. His boss then
Speaker 1: goes and offers the information up to Hitachi Haitachi is
Speaker 1: now seeking the rest of that information. IBM does its
Speaker 1: little sting operation and discovers that this is the case.
Speaker 1: They now go to the FBI, and the FBI then
Speaker 1: launches their honeypot operation. So some FBI agents pose as
Speaker 1: computer consultants who supposedly had high level access to the
Speaker 1: inner workings of IBM, including these other workbooks that Hitachi
Speaker 1: executives wanted. So the FBI agents approach executives from both
Speaker 1: Hitachi and Mitsubishi Electric and they offer to sell trade
Speaker 1: secrets to these Japanese companies. And if they were to
Speaker 1: get hold of these secrets, then they could make computer
Speaker 1: components compatible with upcoming IBM machines. So big big business
Speaker 1: deal here, and Hitachi took the bait. Executives authorized a
Speaker 1: payment of more than half a million dollars for those
Speaker 1: trade secrets, and over the course of seven months, the
Speaker 1: FBI operated this ruse until the US Department of Justice
Speaker 1: was ready to move on the issue. So originally FBI
Speaker 1: agents figured that this operation would take a couple of
Speaker 1: weeks tops, but as they conducted it, they became more
Speaker 1: and more convinced that the issues going on in Tatachi
Speaker 1: weren't just related to a computer engineer right like, they
Speaker 1: went much further up the chain of command. So they
Speaker 1: kept the operation going to try and find out how
Speaker 1: high up does this go. So the FBI alleged that
Speaker 1: more than a dozen Hitachi employees, including high rank executives,
Speaker 1: were responsible for engaging in what was at that point
Speaker 1: the largest industrial espionage case ever in the United States.
Speaker 1: Now in at least one of these situations, Haitachi the
Speaker 1: Company did plead guilty, as did two Hitachi employees. Now.
Speaker 1: Hitachi the Company maintained that the executive leadership was not
Speaker 1: aware that the information was coming in from an illegal source,
Speaker 1: though I don't really know where else it could have
Speaker 1: come from, But the defense was, hey, they thought that
Speaker 1: this was just legitimate information, that nothing was obtained illegally.
Speaker 1: The Hitachi staff who pled guilty received fines of ten
Speaker 1: thousand dollars or less. Hatachi the company settled out of
Speaker 1: court with IBM and submitted to inspections for five years
Speaker 1: so that IBM could actually determine if Hitachi was infringing
Speaker 1: on IBMIP like if they were actually acting on some
Speaker 1: of this information. So while this could have been a
Speaker 1: big case really and you could argue, yeah, it was
Speaker 1: a huge case, the fines were not what you would expect, right,
Speaker 1: We're talking like ten thousand dollars here, five thousand dollars there.
Speaker 1: That's not that much money when you think about the
Speaker 1: things that are going on at the corporate level. But
Speaker 1: we also have to remember this was happening in the
Speaker 1: nineteen eighties. This is before the nineteen ninety six Espionage
Speaker 1: Act was signed into law. IBM, on top of a
Speaker 1: criminal case, pursued a civil case and Hatachi eventually settled
Speaker 1: that one out of court as well for a reported
Speaker 1: three hundred million dollars, which is a big old yaoza.
Speaker 1: Now we are talking as for the National Advanced Systems
Speaker 1: and its parent company of National Semi Conductor. That's the
Speaker 1: company that the former IBM manager had gone to work
Speaker 1: for Well. IBM went after Cadet and Cefe and another
Speaker 1: NAS employee named Tibasuma Yazi, and the case went back
Speaker 1: and forth in the courts. Sometimes a court would find
Speaker 1: for the plaintiffs, sometimes for the defendants, as it would
Speaker 1: get through appeals, and eventually National Semi Conductor ultimately would
Speaker 1: settle out of court in nineteen eighty four for three
Speaker 1: million dollars. So that was the big IBM Haitachi battle.
Speaker 1: Obviously there are a lot more details there, but it
Speaker 1: was already getting pretty complicated just to give the summation.
Speaker 1: So let's move forward a decade to nineteen ninety three.
Speaker 1: That's when the auto manufacturer Volkswagen got into some really
Speaker 1: hot water, which, you know, not that surprising because Volkswagen
Speaker 1: is also the car company that became the center of
Speaker 1: diesel gate. That was when it was discovered that Volkswagen
Speaker 1: had built in a way to fool emissions testing facilities
Speaker 1: with its diesel powered vehicles, so that there was a
Speaker 1: test mode where it wouldn't put out as many emissions,
Speaker 1: but then as soon as it was out of test mode,
Speaker 1: it would go into performance mode and emissions would be
Speaker 1: much worse, they would have failed emissions tests. But as
Speaker 1: it turns out, that's not the only time Volkswagen was
Speaker 1: caught doing something a little bit underhanded. So in nineteen
Speaker 1: ninety three, the company higher to a man named Jose Lopez,
Speaker 1: who previously had worked as a purchasing executive for General Motors,
Speaker 1: and in fact Lopez was in line to become the
Speaker 1: head of North American operations for GM. He was known
Speaker 1: as an incredibly effective purchasing executive, like could just create
Speaker 1: the most killer deals for a company and was absolutely
Speaker 1: cutthroat in his negotiations. Well before he could become North
Speaker 1: American operations lead for GM, Volkswagen swooped in and made
Speaker 1: him an offer he couldn't refuse. Specifically, Volkswagen executives promised
Speaker 1: Lopez that the company would build a manufacturing facility in
Speaker 1: the Basque region of Spain. That was something Lopez had
Speaker 1: wanted for a very long time. He wanted to bring
Speaker 1: manufacturing to his homeland, and so Lopez decided he'd take
Speaker 1: the job. And Volkswagen had been in a bit of
Speaker 1: a struggle before Lopez came on board, but quickly they
Speaker 1: started to turn around for the company and the folks
Speaker 1: back at GM were suspicious, and they accused Volkswagen and
Speaker 1: Lopez of capitalizing on GM trade secrets such as the
Speaker 1: company systems for purchasing parts and also their plans for
Speaker 1: their own manufacturing facility. So these accusations ended up becoming
Speaker 1: a big legal battle that stretched through most of the
Speaker 1: nineteen nineties. It all started in ninety three, and GM
Speaker 1: would subsequently file a civil lawsuit against Volkswagen, and the
Speaker 1: two parties would not come to an out of court
Speaker 1: settlement until nineteen ninety seven. At that point, Volkswagen agreed
Speaker 1: to pay GM a cool one hundred million dollars and
Speaker 1: agreed to purchase one billion dollars worth of GM parts
Speaker 1: over the following seven years. Back in Germany, authorities continued
Speaker 1: to pursue a criminal case against Lopez and three associates
Speaker 1: who followed him over from GM to Volkswagen. Now Eventually,
Speaker 1: in nineteen ninety eight, the police agreed to drop charges
Speaker 1: provided that the four former GM executives donate a substantial
Speaker 1: sum of money to charity. Lopez himself had resigned from
Speaker 1: Volkswagen back in nineteen ninety seven. Then he was in
Speaker 1: a terrible car accident and left him in a coma
Speaker 1: for months in nineteen ninety eight. He did recover, however,
Speaker 1: and is still alive today at the age of eighty three.
Speaker 1: All right, we've got several more cases of espionage to
Speaker 1: talk about, but we need to take a quick break
Speaker 1: to thank our sponsors. Okay, Our next case of industrial
Speaker 1: espionage is arguably on the razor's edge of being a
Speaker 1: text story in the first place. But I think despite
Speaker 1: the fact that it's a close shave, it still counts.
Speaker 1: And this tale isn't about trying to cash in on secrets,
Speaker 1: but rather to make a perceived enemy bleed from one
Speaker 1: thousand cuts. It's the story of Gillette and a guy
Speaker 1: named Stephen Louis Davis. You see what I did there
Speaker 1: with other the razor punds wasn't clear until I got
Speaker 1: to the end of that. Anyway, Steven L. Davis worked
Speaker 1: for a company called Right Industries Incorporated. That's Right Wright,
Speaker 1: like the Wright brothers. That company is an industrial fabrication company.
Speaker 1: This means that Right Industries is a company that other
Speaker 1: companies go to when it comes time to produce specific
Speaker 1: stuff that these other, you know, originating companies aren't equipped
Speaker 1: to make. So Gellette was a customer of Right Industries,
Speaker 1: and Stephen Davis worked for Right. At the time, Gellette
Speaker 1: was working on something that was top secret. Now, it
Speaker 1: turned out this top secret project would be their Mock
Speaker 1: three triple blade razor. I remember when those came out,
Speaker 1: and it obviously would spawn a bunch of imitators among
Speaker 1: the various competitors in the space. You started seeing razors
Speaker 1: with lots more blaze, sometimes a ludicrous amount, to the
Speaker 1: point where I think there were like parody commercials like
Speaker 1: the seventeen bladed raiser. But this was back when the
Speaker 1: double bladed eraser was kind of the standard. No one
Speaker 1: had cracked the code on answering the question why not
Speaker 1: three blades? So Gellette obviously would need to share information
Speaker 1: about this top secret project with their fabrication partners in
Speaker 1: order to manufacture the things. That information was incredibly valuable,
Speaker 1: so reportedly, Gellette had sunk around seven hundred and fifty
Speaker 1: million dollars in research and development to get to a
Speaker 1: design where the Mock III would work. Now, obviously that
Speaker 1: kind of commitment to a project is enormous, and if
Speaker 1: Gellette couldn't realize a profit off of that work, it
Speaker 1: would be in a huge corporate jam. Kind of like
Speaker 1: when you shave a bit too much before you rense
Speaker 1: out your razor and it gets all jammed up. That's
Speaker 1: kind of what Gellette would be in. So enter Steven L. Davis,
Speaker 1: who again worked for Wright. He was mightily cheesed off
Speaker 1: both at his own direct employer and at Gillette itself.
Speaker 1: So Davis had been working in a rather prominent role
Speaker 1: on the project, but then found himself demoted to a
Speaker 1: lesser role, and he was bitter about that. So he
Speaker 1: thought perhaps one way to vent his spleen would be
Speaker 1: he could take this top secret design of this triple
Speaker 1: bladed razor. He could go to Gellette's competitors in the industry,
Speaker 1: and then he could stick it to Gellette as well
Speaker 1: as his own direct employer. And reportedly, he wasn't even
Speaker 1: looking to profit all this. He wasn't looking to sell
Speaker 1: this information off and then make a huge amount of
Speaker 1: money and then you know, retired to Patagonia or something.
Speaker 1: He just wanted revenge. So off Davis goes with information
Speaker 1: about Gellette's top secret innovation to a couple of different
Speaker 1: companies that included Big the American Safety Razor cup and
Speaker 1: Shick as in Shick Wilkinson's Sword, the makers of the
Speaker 1: Shick razor. Now the folks at Shick immediately contacted their
Speaker 1: peers over at Gillette to tattle on Davis because they
Speaker 1: were like, Okay, this is non information we should have.
Speaker 1: It is really illegal for us to have it. This
Speaker 1: isn't cool. Let's get in front of this and let
Speaker 1: Gellette know what's going on. So Gillette, the executive's there.
Speaker 1: When they find out that Davis had leaked their information
Speaker 1: to their competitors, they contacted the FBI, So the FBI
Speaker 1: launched an investigation. The FBI was able to verify that
Speaker 1: Davis had in fact absconded with these trade secrets and
Speaker 1: attempted corporate espionage, and they apprehended Davis. He was tried
Speaker 1: and found guilty of five counts of corporate espionage under
Speaker 1: the then new Espionage Act of nineteen ninety six. Now,
Speaker 1: he could have received a sentence of up to ten
Speaker 1: years for his crimes, but the judge was far less
Speaker 1: vindictive and gave him a twenty seven month sentence instead.
Speaker 1: Still some you know, serious time, but not ten years. Now,
Speaker 1: around the same time that this whole Stephen Davis Gillette
Speaker 1: case was unfolding. There was another industrial espionage trial that
Speaker 1: was coming to prominence, but this one would actually happen
Speaker 1: before the Espionage Act was signed into law, so there
Speaker 1: is like overlap here. Technically, the Gillette case concluded first,
Speaker 1: but when it came time to decide which ones when
Speaker 1: in the order of this particular episode, it was kind
Speaker 1: of a toss up. This other case involved the Eastman
Speaker 1: Kodak Company and a former manager named Harold Warden. So
Speaker 1: remember we're talking about the mid nineteen nineties at this point.
Speaker 1: This is back when film cameras were far more common
Speaker 1: than digital cameras. This is an era before everyone carried
Speaker 1: around a smartphone that had a digital camera in it.
Speaker 1: So if you were taking pictures back in the nineties,
Speaker 1: chances are you were doing so on film, and Kodak
Speaker 1: was the name in film. The company had a long
Speaker 1: history of research and development in the world of film.
Speaker 1: They were responsible for creating all new processes and they
Speaker 1: tested new materials on an effort to gain market dominance.
Speaker 1: So Warden had worked for Kodak for nearly thirty years
Speaker 1: and then he retired from Kodak in nineteen ninety two,
Speaker 1: and one thing that Kodak had worked on during that
Speaker 1: time was a secret method for making film. Their process
Speaker 1: gave the company a real advantage because they could make
Speaker 1: film at a faster pace than their competitors and at
Speaker 1: a higher level of quality than their competitors could do.
Speaker 1: And most folks at Kodak only had a tiny glimpse
Speaker 1: into how it all worked. Because the philosophy Kodak was
Speaker 1: to protect corporate information, they would compartmentalize everyone. You would
Speaker 1: only need to know the stuff that directly pertained to
Speaker 1: your job, and you were ignorant of everything else. But Warden,
Speaker 1: because he was a manager, knew a bit more than
Speaker 1: most people did. He had a larger view of how
Speaker 1: the process worked. So he goes off to retire, and
Speaker 1: when he does, he creates his own independent consulting firms.
Speaker 1: So he retires from Kodak, but he's not done working.
Speaker 1: He's now working for himself. As well as that, he
Speaker 1: ends up keeping up this line of communication open with
Speaker 1: some of his former colleagues who were still at Kodak
Speaker 1: or who had recently left the company, and would occasionally
Speaker 1: be able to convince them to hand over or to
Speaker 1: sell proprietary information from Kodak. Now, using this method, he
Speaker 1: essentially assembled the book on Kodak's processes that was not
Speaker 1: within the company itself, and then he would kind of
Speaker 1: use this information to see if any Kodak's competitors would
Speaker 1: be interested and you know, taking advantage of his wealth
Speaker 1: of information. So he would kind of coach clients on
Speaker 1: how to work the way that Kodak worked. This was
Speaker 1: kind of a clever workaround, like he was trying not
Speaker 1: to sell outright patented information to others. He was trying
Speaker 1: to avoid a crystal clear violation of the law, but
Speaker 1: he was playing in a very gray area himself. So
Speaker 1: Kodak gets wind of something going on when one of
Speaker 1: its competitors said, hey, a former manager who used to
Speaker 1: work for y'all offered to tell us how you do everything.
Speaker 1: So then Kodak conducts a little sting operation of their own.
Speaker 1: A Kodak executive pretended to be a representative of a
Speaker 1: Chinese company that was just getting into film manufacturing. So,
Speaker 1: posing as this supposed Chinese executive, he offered Warden a
Speaker 1: buttload of cash in return for some trade secrets from Kodak,
Speaker 1: and Warden said he would not sell any patented technology,
Speaker 1: but he did offer to bend the rules so that
Speaker 1: pretty much everything else would still be on the table.
Speaker 1: Kodak then contacted the FBI. The FBI investigated Warden and
Speaker 1: they found that he had pretty much all the documentation
Speaker 1: you needed to copy some of Kodak's most important processes
Speaker 1: in manufacturing. So the FBI arrested Warden, and at this point,
Speaker 1: like I said, the Espionage Act of nineteen ninety six
Speaker 1: hadn't been signed into law, so they couldn't charge him
Speaker 1: on that act because it was not yet law. Instead,
Speaker 1: they held him on a charge of transporting stolen property
Speaker 1: across state lines. Now, he ultimately would plead guilty to
Speaker 1: this charge, and he received a sentence of one year
Speaker 1: in prison, three months of house arrest, three years of probation,
Speaker 1: and a fine of thirty thousand dollars. Again, that's a lot,
Speaker 1: I mean thirty grand. That's a lot of money to
Speaker 1: get hit with as a fine. But when you're looking
Speaker 1: at the possible damage that this would do to a
Speaker 1: company like Kodak, where you're talking about countless millions of
Speaker 1: dollars that had been spent on creating the system in
Speaker 1: the first place, and then the weight of that secrecy.
Speaker 1: It was obviously an important thing at Kodak, where they
Speaker 1: were trying to keep it compartmentalized as much as possible.
Speaker 1: Thirty grand is nothing compared to the damage that you
Speaker 1: could do. Now let's talk about a case that was
Speaker 1: total garbage, and by that I mean it involves total garbage.
Speaker 1: I'm talking about Oracle's fight with Microsoft. Now, some of
Speaker 1: y'all might already know where this story is going. You
Speaker 1: might have memories of this, but let's set the stage
Speaker 1: for everybody in case you either are young, maybe you
Speaker 1: weren't all round when this happened, or maybe you've just forgotten.
Speaker 1: But first we have to understand the parties involved. Right,
Speaker 1: you've got Oracle, which is a computer technology company, and
Speaker 1: back in two thousand, when this story was unfolding, it
Speaker 1: was primarily known as a database software company. These days,
Speaker 1: Oracle does tons of stuff. To call it a database
Speaker 1: software company would be reductive. They are a big player
Speaker 1: in things like cloud computing. Oracle is also the company
Speaker 1: that actually houses TikTok's servers, the servers that hold information
Speaker 1: about American citizens. You might remember that was like a
Speaker 1: big deal during President Trump's administration was that TikTok would
Speaker 1: make certain that it would sequester its servers from its
Speaker 1: parent company byte Dance, which is a Chinese company, and
Speaker 1: that Oracle would end up housing the servers that TikTok
Speaker 1: would use for American citizen data. Well, anyway, before all
Speaker 1: that would happen, Oracle was really a software database company,
Speaker 1: and one of their big corporate competitors was obviously Microsoft. Now,
Speaker 1: since the early nineteen nine Microsoft had really been on
Speaker 1: the defensive with the US Department of Justice because the
Speaker 1: government was concerned that Microsoft was essentially operating monopoly because
Speaker 1: spoiler alert, they were kind of operating a monopoly specifically
Speaker 1: in the consumer computer space. You know, things like Windows
Speaker 1: was practically the default operating system for most computers at
Speaker 1: that time. Like Apple did have a presence, but it
Speaker 1: was a sliver of the pie. It was essentially Microsoft's world.
Speaker 1: They could operate like a monopoly since they made the
Speaker 1: operating system and they also made other types of software
Speaker 1: like productivity software think about the Office Suite of programs.
Speaker 1: There was this concern that Microsoft was using the leverage
Speaker 1: of having operating system dominance to also dominate in those
Speaker 1: other areas. And to suppress competition from other software companies
Speaker 1: like Oracle. And Microsoft had essentially agreed to in the
Speaker 1: early nineties that it would keep Windows and its other
Speaker 1: products separate. That yes, you could buy Microsoft Office, but
Speaker 1: that it wouldn't be deeply integrated into Windows, so that customers,
Speaker 1: whether they were you know, end consumers or PC manufacturers
Speaker 1: or whatever, would have the freedom to choose which software
Speaker 1: products they actually wanted to run on their Windows machines
Speaker 1: and not force them to go all in with Microsoft
Speaker 1: branded products. So that way, if you wanted to use
Speaker 1: Word Perfect instead of Microsoft Word, or you want to
Speaker 1: LOADUE one, two three instead of Excel, that would be fine.
Speaker 1: Except Microsoft did package Internet Explorer with Windows, and the
Speaker 1: two were heavily integrated together, and the Department of Justice
Speaker 1: was concerned about that, as were companies like Netscape. Now
Speaker 1: Microsoft was essentially saying, hey, yeah, no, no, no, no, no,
Speaker 1: you don't get it. Internet Explorer isn't a product, It's
Speaker 1: just a feature of Windows. But since the word competing
Speaker 1: internet browsers on the market like Netscape, that argument didn't
Speaker 1: really fly with the government, and so you had this
Speaker 1: massive antitrust lawsuit brought against Microsoft by the United States government.
Speaker 1: But justice does not move swiftly here in the US
Speaker 1: most of the time, and this issue dragged on for
Speaker 1: the full decade. So as two thousand came around, we
Speaker 1: were finally getting to a point where the judge in
Speaker 1: the case was nearing a decision as to whether Microsoft
Speaker 1: had been acting as a monopoly or not. From a
Speaker 1: legal perspective, Oracle clearly had something to gain here with
Speaker 1: that decision, But Oracle also wanted to see Microsoft's hold
Speaker 1: slip a bit so that Microsoft couldn't just throw its
Speaker 1: weight around and dictate terms to everybody else. And then
Speaker 1: an organization called the Independent Institute took out a full
Speaker 1: page of ads and newspapers across the United States, and
Speaker 1: this ad quoted different academics who said that the government
Speaker 1: was unfairly targeting Microsoft and didn't have any justification to
Speaker 1: say that the company was behaving as a monopoly. And
Speaker 1: the folks at Oracle began to wonder just how independent
Speaker 1: that Independent Institute was, and they suspected that, in fact,
Speaker 1: it might be a group that perhaps received some funding
Speaker 1: and direction from Microsoft itself in an effort to shape
Speaker 1: public opinion about the case and to coerce the judge
Speaker 1: into dismissing the whole thing, and then they decided they
Speaker 1: were going to find out. I'll talk about how they
Speaker 1: did that after we come back from this quick break
Speaker 1: from our sponsors. Okay, so Microsoft is under the microscope
Speaker 1: by the US government. It is on the defensive. It's
Speaker 1: trying to claim it's not acting as a monopoly. And
Speaker 1: this supposed independent Institute of Academics publishes these ads, buys ads,
Speaker 1: but all the goodness of their hearts, they purchase ads
Speaker 1: and newspapers across the United States to say, hey, government,
Speaker 1: they're overstepping yourself. This is not a case of monopoly.
Speaker 1: And moreover, you don't really have the jurisdiction or authority
Speaker 1: to do this. This is anti American, it's bad for business,
Speaker 1: et cetera, et cetera. So the folks in the Oracle
Speaker 1: are saying, I think something's up, don't. I don't think
Speaker 1: this is really an independent group at all. So the
Speaker 1: executives at Oracle then hire on a firm, a couple
Speaker 1: of firms actually, but the one we really want to
Speaker 1: talk about. The investigators were from a firm that was
Speaker 1: called IGI to look into the whole thing, and the
Speaker 1: executives told IGI do whatever it takes as long as
Speaker 1: it's within the boundaries of the law, and find out
Speaker 1: if micro Soft is actually funding this supposed independent institute.
Speaker 1: So IGI came back to Oracle with receipts. Like literally,
Speaker 1: IGI found documentation linking a one hundred and fifty three
Speaker 1: thousand dollars payment from Microsoft to the institute, and a
Speaker 1: New York Times journalist was then given access to this
Speaker 1: little nugget of information and published an article about it.
Speaker 1: And when that article showed up and it showed this
Speaker 1: link between Microsoft and the supposed independent institute, well there
Speaker 1: was a lot of egg on Microsoft's face, and there
Speaker 1: was some suspicion that IGI had stolen that information. The
Speaker 1: president of the Independent Institute said as much. But the
Speaker 1: truth appeared to be that IGI didn't steal anything because
Speaker 1: stealing is obviously illegal and they were told to operate
Speaker 1: within the bounds of the law. So what IGI had
Speaker 1: done was they went on a little dive. They literally
Speaker 1: sifted through the trash from the Independent Institute until they
Speaker 1: were able to find a copy of financial statements that
Speaker 1: included the Microsoft payment information. That was not the end
Speaker 1: of it, however, Oracle also directed IGI to investigate another
Speaker 1: organization called the National Taxpayers Union, which, like the Independent Institute,
Speaker 1: had been shaming the US government for having the audacity
Speaker 1: to go after Microsoft, that little scrappy mom and pop
Speaker 1: store that just happened to be run by a massive billionaire.
Speaker 1: Keep in mind that Oracle was also being run by
Speaker 1: a billionaire. But this is two billionaires kind of hating
Speaker 1: on each other. So I'm all for it. If billionaires
Speaker 1: want to rock'em sockem robots for my entertainment, have ad it?
Speaker 1: I say. Anyway, IGI once again took to the garbage
Speaker 1: cans and found evidence that Microsoft had paid this so
Speaker 1: called National tax Payers Union around two hundred thousand dollars.
Speaker 1: So IGI made sure through a different organization that the
Speaker 1: Washington Post got access to this little bit of info,
Speaker 1: and the Washington Post posted an article that once again
Speaker 1: showed Microsoft was kind of astroturfing by paying all these
Speaker 1: different supposed independent organizations to say that Microsoft had done
Speaker 1: nothing wrong and that in fact, the US government was
Speaker 1: harming American commerce through this this whole court case in
Speaker 1: the first case. Now, around the same time, some other
Speaker 1: organizations that were on Microsoft side reported that on occasion
Speaker 1: people were showing up to their various corporate headquarters claiming
Speaker 1: to be someone they were not. That strangers were showing
Speaker 1: up and claiming to be representatives of various organizations or
Speaker 1: you know, high level executives or something, and that sometimes
Speaker 1: stuff would go so missing after these visits, like say
Speaker 1: a laptop with company information on it. Now, nothing solid
Speaker 1: would link these supposed incidents to Oracle or to the
Speaker 1: firms that Oracle was using, like IGI, but the implication
Speaker 1: was that Oracle was not just sifting through garbage or
Speaker 1: not just using investigators to sift through garbage, but we're
Speaker 1: outright stealing stuff in order to show that Microsoft was
Speaker 1: kind of behind all these supposed independent groups and that
Speaker 1: therefore there was you know, law breaking going on. But
Speaker 1: again there was no firm evidence to actually show that
Speaker 1: this was the case. Now, eventually, while this is all
Speaker 1: going on, at least initially, no one knows that Oracle's
Speaker 1: doing this. Right, these these articles are coming out, but
Speaker 1: it's not clear where the information came from that ends
Speaker 1: up being you know, the central point of the article.
Speaker 1: So New York Times and the Washington Post they start
Speaker 1: publishing these articles linking Microsoft to these different groups but
Speaker 1: there was no clear link to where this was all
Speaker 1: coming from. Eventually, Oracle's role became public knowledge, and at
Speaker 1: that point, Lawrence Ellison, the billionaire behind Oracle, was completely unrepentant.
Speaker 1: He did not apologize. He said the stuff that was
Speaker 1: directly linked to his company wasn't technically illegal, like some
Speaker 1: of it might be considered, you know, unsavory that you're
Speaker 1: sifting through garbage or whatever, but it wasn't against the law.
Speaker 1: And further, he was saying Microsoft is the real bad
Speaker 1: guy here. The company is essentially trying to sell the
Speaker 1: story that anything that would be bad for Microsoft would
Speaker 1: also be bad for the United States of America, which
Speaker 1: just isn't the case. And it was a completely disingenuous argument.
Speaker 1: So he's like, I don't feel sorry about this at all.
Speaker 1: I absolutely feel I'm justified in investigating Microsoft's connection to
Speaker 1: these groups that supposedly are saying they're coming forth on
Speaker 1: their own to defend Microsoft. There are a ton more
Speaker 1: examples of things that happen in that case as well.
Speaker 1: You could do just a full episode that really dives
Speaker 1: into that one. It was a juicy one, but we
Speaker 1: should probably conclude this episode with just one more espionage
Speaker 1: case to talk about. There are a lot of other
Speaker 1: ones I could choose from. I mean, there's a Lewandowski
Speaker 1: Waimo Uber story that I feel I need to follow
Speaker 1: up on I've talked about in past episodes many years ago.
Speaker 1: But instead, let's talk about a case of espionage in
Speaker 1: which a company spied on its own boardroom and its
Speaker 1: executives and employees. Shall we. So at this point, chronologically,
Speaker 1: we're up to the mid two thousands, so it's after
Speaker 1: the dot com crash, and the tech industry is kind
Speaker 1: of on the road to recovery, really being shaken by
Speaker 1: the whole dot com bubble bursting. The company we're talking
Speaker 1: about is Hewitt Packard or HP, and it had been
Speaker 1: through some chucha changes, as David Bowie would say. In
Speaker 1: nineteen ninety nine, HP had brought on Carly Fiorina as
Speaker 1: the new CEO for HP. She came in from outside
Speaker 1: the company. She jumped the head of internal candidates who
Speaker 1: were under consideration for CEO, and she took charge of it. Now,
Speaker 1: that was something that some people on the board weren't
Speaker 1: really crazy about. In fact, a lot of people at
Speaker 1: HP weren't crazy about it, and she had never held
Speaker 1: a CEO level position before, and according to some her
Speaker 1: appointment was due to members of the Board of directors
Speaker 1: kind of playing game of thrones against each other that
Speaker 1: it was a really toxic environment at the board level,
Speaker 1: and it sounds like things got really nasty. It sounds
Speaker 1: like there was like this generational gap between two halves
Speaker 1: of the board. Now, HP traditionally had this group of
Speaker 1: principles that its founders had suggested were like the guiding
Speaker 1: light for their managerial style at HP. So these were
Speaker 1: kind of like the commandments from HP. They were considered
Speaker 1: to be like the ethical core of the company. The
Speaker 1: principles included we have trust and respect for individuals. We
Speaker 1: focus on a high level of achievement and contribution. We
Speaker 1: conduct our business with uncompromising integrity. We achieve our common
Speaker 1: objectives through teamwork. We encourage flexibility and innovation in how
Speaker 1: the company is managed. But by this point in HP's history,
Speaker 1: those principles were starting to become what Barbosa in parts
Speaker 1: of the Caribbean would say were more like guidelines than
Speaker 1: actual rules, and Carly Fiorina viewed these princes as being
Speaker 1: outdated and actually holding HP back from taking its place
Speaker 1: in the next century. So she started making some really
Speaker 1: drastic changes at HP that included stuff like asking employees
Speaker 1: to take pay cuts so that they could avoid layoffs,
Speaker 1: and then following that with massive layoffs. And to say
Speaker 1: that she was unpopular among the HP staff is putting
Speaker 1: it lightly. She also had some supporters in the boardroom,
Speaker 1: and then she had some enemies in the boardroom. She
Speaker 1: herself was chair of the board and CEO, so she
Speaker 1: would have these brutal corporate fights with the rest of
Speaker 1: the board in order to see her vision through, including
Speaker 1: a massive merger with Compact, which at the time was
Speaker 1: one of the largest mergers ever. So she fought these
Speaker 1: battles in the boardroom, and some battles she won, but
Speaker 1: she didn't win all of them. In fact, in two
Speaker 1: thousand and four, the rest of the board succeeded in
Speaker 1: forcing Carly Fiorina to resign from HP, and they said
Speaker 1: that she had just done a massive amount of damage
Speaker 1: to the company and that she had forced the company
Speaker 1: to abandon its corporate culture. It was just a really
Speaker 1: nasty situation. Her replacement as chair of the board was
Speaker 1: a woman named Patricia Dunn. Patricia Dunn had been CEO
Speaker 1: of Barclay's Global Investors in the past. She had also
Speaker 1: been a member of HP's board of directors since two
Speaker 1: thousand and one, so she was no stranger to that environment.
Speaker 1: And starting in early two thousand and five, someone began
Speaker 1: leaking information about boardroom activities and discussions and meetings to
Speaker 1: the press. And this obviously was a huge no note.
Speaker 1: It also meant that whoever was doing this was at
Speaker 1: a very high level or who had access to very
Speaker 1: high level information. Now, there was a lot of distrust
Speaker 1: and animosity at the company at the leadership levels, including
Speaker 1: amongst various members of the board who just did not
Speaker 1: like each other. And then here's done as chair of
Speaker 1: the board and she wants to clamp down on all
Speaker 1: of these leaks. They're harming the company. They're hurting her
Speaker 1: ability to help lead the company or at least to
Speaker 1: guide the company as chair of the board. Now, how
Speaker 1: much of what would follow was directly under her guidance
Speaker 1: is a matter of dispute. She would maintain that she
Speaker 1: was unaware of the particulars. She just had sort of
Speaker 1: the big vision kind of view of what was going on.
Speaker 1: Others would argue that she was much more responsible than
Speaker 1: she led on. But what happened was she turned to
Speaker 1: an independent security company to investigate the situation, to find
Speaker 1: out where are these leaks coming from, who is the
Speaker 1: person who's privy to these board proceedings, who has loose lips.
Speaker 1: To do this, the security team would use a method
Speaker 1: called pretexting, like this is what you do before you
Speaker 1: send a text message. No, I'm talking about a pretext
Speaker 1: like an invented situation that gives you the ability to
Speaker 1: put leverage on someone to trick them. It's a kind
Speaker 1: of social engineering. It's what hackers do all the time.
Speaker 1: When a hacker shows up at a company claiming to
Speaker 1: be a representative from it, they are pretexting. So that's
Speaker 1: what the security team was doing to various folks at HP.
Speaker 1: That included members of the board, that included some high
Speaker 1: level executives, included some of their staff. And what the
Speaker 1: security team was trying to do was to get access
Speaker 1: to people's personal phone records. They would include ways of
Speaker 1: contacting the phone companies directly and try to get records.
Speaker 1: Trying to get these phone records, they were posing as
Speaker 1: different people in order to do that. So HP was
Speaker 1: spying on their own, their board members, as well as
Speaker 1: high level executives and other staff. This skullduggery did not
Speaker 1: go unnoticed, however, so word got to the US House
Speaker 1: Committee on Energy and Commerce, a very high level group,
Speaker 1: and the committee launched its own investigation. Its subpoenad done
Speaker 1: as well as some other executives over at HP to
Speaker 1: appear before the committee and give testimony as to what
Speaker 1: the heck was going on. And they were not super
Speaker 1: keen on a company using security professionals with all sorts
Speaker 1: of these underheaded methods used to spy on people, because
Speaker 1: the government doesn't like it if they're not the ones
Speaker 1: doing that kind of thing. Anyway, the use of pretexting
Speaker 1: became really the center point of this whole investigation, as
Speaker 1: well as how much insight Done had into what had
Speaker 1: been going on, as well as the legality of everything,
Speaker 1: because at least some of the actions were not illegal
Speaker 1: as classified under California law at the time, for example,
Speaker 1: but there are other things that were illegal that were
Speaker 1: classified under stuff like wire fraud. The whole scandal got
Speaker 1: really ugly. Board member George Keyworth was identified as the
Speaker 1: source of the leaks, although he continued to deny his involvement.
Speaker 1: He said that he was not the source of the leaks,
Speaker 1: but that was who it got penned on, and he
Speaker 1: was removed from the board. Another board member, a friend
Speaker 1: to George Keyworth named Tom Perkins, quit the board in protest.
Speaker 1: When Keyworth was removed. He said, I said I'm leaving
Speaker 1: as well. And Perkins was a real staunch opponent to
Speaker 1: Patricia Dunn. The two did not like each other at all.
Speaker 1: Perkins then communicated with an attorney named Viet Din. Viet
Speaker 1: Den figured out that there was no way HP could
Speaker 1: have conducted this investigation legally. There just wasn't. Like the
Speaker 1: way that they had to get this information meant that
Speaker 1: they had to engage in illegal activities in order to
Speaker 1: do so. So he was like, this is bad news,
Speaker 1: and Perkins said that Done was responsible for the whole scandal. Done, however,
Speaker 1: said that Perkins was the one who was responsible and
Speaker 1: the whole spying scandal was really just a ploy to
Speaker 1: get Patricia Done removed from HP board in the first place,
Speaker 1: and if that's the case, well it kind of worked.
Speaker 1: But Perkins himself was not on the board either. Both
Speaker 1: Perkins and Don would resign from the board of directors.
Speaker 1: Dunn left the board while she was also under investigation
Speaker 1: for her role in the whole affair. A bunch of
Speaker 1: people were brought up on charges, including Patricia Dunn, but
Speaker 1: a judge would later drop the charges against her, and
Speaker 1: all charges brought against other members of HP board and
Speaker 1: executive staff were dropped as well. No one in HP
Speaker 1: was found guilty of anything or had their charges saw through.
Speaker 1: In fact, the only person who actually saw jail time
Speaker 1: as a result of all of this was one of
Speaker 1: the security investigators from that independent company, Brian Agner is
Speaker 1: his name. He got a three month sentence for his
Speaker 1: part in securing those private phone records, but no one
Speaker 1: at HP served any time at all. Now that doesn't
Speaker 1: mean the company got off lightly. For one thing, the
Speaker 1: board level leadership was in a right state of disarray.
Speaker 1: I mean, it was just undeniable that it was this
Speaker 1: toxic environment of people who did not see eye to eye.
Speaker 1: That situation also prompted the state of California to update
Speaker 1: its laws to make it much more clear that the
Speaker 1: practice of pretexting is absolutely illegal. And on top of
Speaker 1: all that, HP's reputation took a huge hit. It was
Speaker 1: obvious the company had moved far away from the old
Speaker 1: HP way days, you know, back with those five principles.
Speaker 1: So yeah, it was an ugly situation and it did
Speaker 1: not help HP at all during a period that was
Speaker 1: pretty tumultuous for the tech industry as a whole. So
Speaker 1: there you go. There's some examples of industrial espionage. Like
Speaker 1: I said, those are just a few. There were actually
Speaker 1: quite a bunch that made my list that you know,
Speaker 1: it just got too long for me to do all
Speaker 1: of them. But maybe I'll revisit this topic in the future,
Speaker 1: maybe do some deep dives on a couple of other ones,
Speaker 1: because it's fascinating to see the links that companies will
Speaker 1: go to in order to find out information that they
Speaker 1: don't easily have access to. It gets a little James
Speaker 1: BONDI or Mission Impossibly or something. Anyway, I hope all
Speaker 1: of you out there are well and I will talk
Speaker 1: to you again really soon. Tech Stuff is an iHeartRadio production.
Speaker 1: For more podcasts from iHeartRadio, visit the iHeartRadio app, Apple Podcasts,
Speaker 1: or wherever you listen to your favorite shows.