GM / VOLKSWAGEN: A CASE OF INDUSTRIAL ESPIONAGE

1
GM / VOLKSWAGEN A CASE OF INDUSTRIAL ESPIONAGE

Youjung Byon Edward Urban Tim Nguyen
2
Jose Ignacio Lopez

• The Grand Inquisitor
• 1969-1980 Firestone in Bilbao, Spain
• 1980-1986 GM Europes offices in Spain
• 1987 GM Head of Purchasing for Europe
• April 1992 GM Vice President for Worldwide
  Purchasing
• March 1993 VW Chief of Production Organization
  and Purchasing warriors
• Warriors
• Plant X

3
INDUSTRIAL ESPIONAGE

• Employee Discontent ? Industrial Espionage
• Information Brokers
• Anti-Espionage Services

4
FRAUD

• GM claim 4 sets of materials taken by Lopez
• (1) 3,350-page listing of the 60,000 parts,
  their suppliers, their cost,
• and their delivery schedules for GM-Europe
• (2) GMs future product line details
• (3) Detailed manufacturing and cost study of
  Plant X
• (4) Portfolio of presentation materials used by
  Lopez in cutting
• supplier costs
• German police discover 4 boxes of internal GM
  documents in the home of Lopez warriors

5
GENERAL MOTORS

• General Motors Corp. (NYSE GM), the world's
  largest vehicle manufacturer, employs about
  325,000 people globally.
• GM has manufacturing operations in 32 countries
  and its vehicles are sold in 192 countries.
• In 2003, GM sold nearly 8.6 million cars and
  trucks, about 15 percent of the global vehicle
  market.
• GM parts and accessories are sold under the GM,
  GM Goodwrench and ACDelco brands.

6
(No Transcript)
7
FINANCIALS

8
INDICTMENT

• The Justice Department investigated Lopez and
  indicted him in U.S. district court in Detroit on
  charges of wire fraud and transportation of
  stolen property.
• Reasoning E-mailing documents often will fail to
  count as wire fraud because the theft does not
  defraud the owner within the meaning of the
  statute as it has been construed by the courts.
  (See 18 U.S.C. 1343 (2000), amended by Pub. L.
  No. 107-204, 116 Stat. 805 (2002). (Also see
  James H.A. Pooley et al., Understanding the
  Economic Espionage Act of 1996, 5Tex. Intell.
  Prop. L.J. 177, 186 1997).
• The government, however, was not able to charge
  him directly with trade secret theft because it
  was not a federal crime at that time.

9
POLITICAL ECONOMIC DIMENSIONS OF THE FRAUDULENT
SCHEME

• Regulatory dimension Trade Secrets vs. Patents
• Issues of International Competition
• Status Quo (before 1996)
• The law of trade secrets fell within the scope of
  common law at the state level.
• Uniform Trade Secrets Act (UTSA) vaguely
  defined trade secret.

10
AFTERMATH

• VW settled with GM in 01/97.
• German court fined his warriors who left GM Jose
  Manuel Gutierrez (100,000DM), Jorge Alvarez
  (50,000 DM), Rosario Piazza (40,000 DM).
  Security experts claim penalties are nominal.
• By the time the US had indicted Lopez, he was
  already in Spain, his
• native county.
• US petitioned for Lopezs extradition, but
  Spanish court denied
• request.
• To date, Lopez runs and operates an elite
  consulting company in Spain.
• Penalties
• VW to pay GM 100 million in damages
• VW to purchase over 1 billion in in parts from
  GM over the next seven years (1997 through 2004)
• Lopez barred from working for VW in any capacity
  through the 2000

11
ECONOMIC ESPIONAGE ACT OF 1996 (EEA)

• In response, Congress passed the Economic
  Espionage Act of 1996
• (EEA), criminalizing the theft of trade
  secrets.
• The EEA significantly expands the ability of
  American firms to pursue trade
• secret protection
• 1) The EEA broadens the definition of trade
  secret beyond the traditional common law
  definition.
• 2) The EEA gives the United States wide
  extraterritorial authority to enforce this
  law.

12
TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY
RIGHTS (TRIPS)

• This effort resulted in an agreement under the
  World Trade Organization
• (WTO), the Trade-Related Aspects of
  Intellectual Property Rights
• (TRIPS) Agreement, establishing uniform
  minimum standards of
• intellectual property protection for all
  member nations.
• Though the agreement requires all member
  nations to adopt laws
• ensuring enforcement of the minimum
  standards, TRIPS acts merely as
• a floor, and indicates that, beyond meeting
  the minimum standard,
• nations are free to establish individual
  levels of intellectual property
• protections and mechanisms of Enforcement.

13
PREVENTION COUNTER-ESPIONAGE IDEOLOGY

• A new wave of counter-surveillance companies are
  hired by many companies to monitor internal
  company behavior and conduct (GM, BMW, Toyota)
• They will visit your offices, most often in the
  evening or at weekends and carry out a thorough
  sweep of the premises, including telephone and
  fax systems and computer terminals. Even an
  electrical socket can be used to transmit
  information to your competitors!
• Following this sweep, teams will remove any alien
  devices and immediately inform superior
  management if company is losing material through
  electronic surveillance.
• This will be followed up with a full report
  enabling a possible trace of the leak and
  identification of the perpetrators.