Measuring Consequences of Economic Espionage…

I have been engaged in studying, conducting independent (investigative) research, and consulting on a variety of ‘open source’ matters related to...economic espionage well in advance of the passage of the Economic Espionage Act Pub.L. 104-294, 110 Stat. 3489 (October 11, 1996)

Admittedly, my interest in economic espionage issues, ala theft of proprietary information from U.S. headquartered companies is broad. While serving in academia fulltime (teaching – research capacity) for 20+ years, much of my interest then, as it remains today, is directed toward the targeting, victimization, and losses to (a.) university-based research startups, i.e., RBSU’s, and (b.) corporate-university research alliances.

Each was, and is persistently targeted and probed for potential surreptitious (information-technology) access – acquisition by…not merely a single – one time event by a foreign (global) economic – competitive advantage adversary, but also by growing numbers of (1.) insiders, (2.) businesses serving as competitive intelligence gatherers, (3.) sophisticated data mining, (4.) independent information brokers – ‘legacy free players’ and (5.) most every conceivable concoction of state – corporate sponsored entities.

What I believe to be a distinctive aspect of my work in this arena is my characterization of these entities as…‘economic and competitive advantage adversaries’ which I believe to be a more relevant descriptor for the…

  • variants of economic espionage that exist today
  • range of domestic and international parties engaged.

Admittedly, this descriptor reaches somewhat beyond the precise definitions –  requisites codified in the…Economic Espionage Act (18 U.S.C. § 1831-1839). But, doing otherwise, in my judgment, is limiting, and does not convey the currency, depth, and breadth of this persistent and extraordinarily predatorial risk to business operating sanctity.

Much of my independent research into economic espionage, focused on unraveling the diversity, methodology, and universality of global players…which led me to believe the phrase ‘economic and competitive advantage adversaries’ better characterizes this timeless practice, i.e.,

  • what and why particular assets are targeted.
  • adversary’s motivations, and the 
  • multi-layered methodologies – tradecraft used.

Most all of which remain variously challenging to unravel with respect to distinguishing those…

  • actually engaged in the acquisition initiative, and the
  • ultimate and/or primary (end user) beneficiary of the acquisition.

Again, my intent for applying the term ‘economic – competitive advantage adversary’ is that it…

  • produce more relevance to businesses and companies.
  • elevates their recognition that the theft, misappropriation, infringement of their proprietary information – work product
  • has many more dimensions and facets today compared to when the EEA became Federal law in October, 1996, and
  • brings due attention to the reality that the targets are not exclusively national security and/or defense related firms.

Of course, the increasingly (technologically) sophisticated, globally operating data mining operations…are variously dedicated to…

  • analysis, insight, and forecasts, and acquisition of key – strategic intangible assets. 
  • capable of being delivered to an end user(s) through the application of frequently ‘off the shelf’ data mining tools by economic and competitive advantage adversaries.

                                       …is phenomenal by any standard or metric!

For me, determining who the ultimate-actual end user or primary beneficiary of targeted proprietary intangible assets, is often a challenging exercise…of the countless global entities, independent operators, and legacy free players engaged in some aspect of business, competitive intelligence, and/or information brokering today…

  • whether it be, at some level, legitimate, or wholly illegal,
  • there is seldom a simple, straight line leading to precisely who the real end user (beneficiary) of the misappropriated product will be or actually is.

Absent knowing who the real beneficiary of any misappropriated – stolen intangible assets may be…

  • understanding the various ways – contexts which the targeted – misappropriated assets will (can) be applied, once they have been acquired and delivered,
  • particularly, if there are dual-use features involved, can be useful.
  • still it remains challenging to objectively quantify, in dollar terms, the adverse economic, including competitive advantage, reputation, market share, etc., consequences attributed to any single event or loss.

The characterization; economic and competitive advantage adversaries…I believe, contributes to reframing conventional economic espionage activities…

  • in a contexts which apply – have more relevance to ‘what’s in store for the future’,  increasingly competitive, aggressive, predatorial, and winner-take-all global business transaction, R&D, and new product development and launch environments.

Too, as the global economies’ become increasingly intertwined and overwhelmingly ‘intangible asset intensive and dependent’… particularly forms of intellectual, structural, and relationship capital…

  • achieving most any economic and/or competitive advantage, is all but sure to outweigh,
  • the relatively minimal risk associated with most targeting and intelligence collection-acquisition initiatives.

In other words, it has become obvious to me…and I’m sure others as well, that the significant potential benefits of securing an economic and/or competitive advantage in a specific market or industry sector exceeds, intellectually at least, most costs and/or risks.

To business leadership paying more than passing attention to economic (cyber) espionage today…are obliged to recognize the adverse activities described above, evolve, not solely from targeting defense and national security projects, but also R&D initiatives, i.e., technology, medical, pharmaceutical, and most all STEM (science, technology, engineering, and math) which may provide a pathway to competitive advantage.

To be sure, economic espionage is an unrelenting and, I suggest… inevitable risk for a large percentage of public-private (commercialized) entities…

  • regardless of size or industry sector.
  • in which valuable – competitive intangible assets are being produced and applied in a new – unique way that provides a competitive advantage to the holder,
  • whom – whatever that may become, after all,
  • it is the intellectual, structural, and relationship capital which have become the globally universal forms of currency and competitiveness,
  • often with company and/or country specific application and relevance.

Extrapolating the costs – losses – damages of economic espionage…perpetrated by global economic and competitive advantage adversaries to a…

  • single company, or to a country’s economy as a whole or to a specific industry sector,
  • this necessary – it would be nice to have – analysis comes with a host of challenges to assemble,
  • not the least of which is the often subjective nature of the calculations which, it’s not unrealistic to assume,
  • are embedded with various corporate, government, policy, and political agendas.

Interestingly, in the 25+ years which I and colleagues have been… examining and consulting in the economic espionage arena, there is little that I can readily point to insofar as objective methodologies to measure…

  • the specific damages and/or costs to a targeted/victim company.
  • how to specifically attribute –differentiate the source of those losses to acts of economic espionage, and then
  • extrapolate that data to either the U.S. or other country’s economy as a whole.

….aside, that is, from using the ‘contributory value’ approach I developed.

For example, today’s go fast, go hard, go global mantra…embedded in the development and leadership of large percentages of about-to-be and newly launched STEM-related businesses and entrepreneurships, brings particular challenges to assessing – assigning dollar values to the full range of economic – competitive advantage repercussions…

  • which, not infrequently, are presumed (mistakenly) to be the outcome of a single incident – act of economic espionage.

Again, business leaderships’ desirous go fast, go hard, go global perspective…which many early stage and maturing businesses now routinely function are non-methodic, but, nevertheless, intangible asset intensive and dependent!

However, in my experience, growth and revenue generation… dependent on sustained consistency of go fast, go hard, go global business transactions, many of which are initiated – executed with certain near sightedness insofar as acknowledging, distinguishing, and safeguarding the foundational intangible assets in play

  • will, to be sure, have a substantially higher vulnerability –  susceptibility to materialized – cascading risks, from which recovery is illusive, at best.

Exacerbating this phenomena is the reality that leadership’s – company’s awareness of intangible asset theft or compromise seldom, in my experience, emerges immediately. Thus, its adverse economic – competitive advantage consequences to a victim company can only be objectively calculated if the consequences can be specifically attributable to…

  • an economic – competitive advantage adverse event, and
  • should be done so in both strategic (long term) and near term contexts.

My rationale is that…a single stolen, misappropriated, or compromised intangible asset has frequently undergone multiple iterations and combinations of intellectual and structural capital, parts of which, are likely to have been variously integrated in numerous products and/or services in different industry sectors…

  • this, of course, adversely exacerbates the affects of economic espionage and
  • tracking – calculating the extent of loss to a company’s value, revenue generation, competitiveness, and sustainability, etc.

It’s worth reminding readers again that it is a globally universal economic fact, that today, and for the foreseeable future…

  • 80+% of most company’s value, sources of revenue, and ‘building blocks’ for growth, profitability, competitive advantage, and sustainability lie in – emerge directly from intangible assets.

I am not suggesting that the loss, theft, or compromise of a single trade secret or intangible asset is immeasurable…instead, I am suggesting that measuring the real economic – competitive advantage losses to a company must include…

  • objective near and long term calculations,
  • which can only come, in my view, from recognizing that proprietary intangible assets can readily become embedded with not just one, but numerous products and/or services.

Michael D. Moberly [email protected] St. Louis July 12, 2014 the ‘Business Intangible Asset Blog’ since May 2006, 650+ posts, ‘where intangible assets, business, and solutions converge’.

Please explore other relevant blog posts, video, books, and position papers at https://kpstrat.com/blog

As always, your comments are appreciated.

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