When Competitive Research Crosses the Line

By Steven D. Weber Founder, Weber Law, P.A. | November 05, 2017

Competitive intelligence is a powerful tool used to maintain an advantage over competitors. A wealth of competitive intelligence can be obtained through public documents like public filings, earnings reports, and legal documents. Compiling, reviewing, and extrapolating the competitive intelligence from those documents takes time and money. Succumbing to the temptation to shortcut the necessary effort can have costly legal consequences. Hospitality industry companies must thus be wary of engaging in methods that cross legal and ethical boundaries. Companies must also be watchful of any efforts by their competitors to gather intelligence from them.

The great value of competitive intelligence entices parties to go to extraordinary lengths to obtain that information. But in employing the various methods available to gain competitive intelligence, companies must be mindful of the relevant legal and ethical boundaries. It should not be a surprise that spying on a competitor using aircraft and conspiring with law enforcement agencies may go too far. Yet those were the allegations in one case concerning the misappropriation of valuable competitive intelligence.

In Dow Corning Corp. v. Jie Xiao, No. 11-10008-BC, 2011 U.S. Dist. LEXIS 105681 (E.D. Mich. Sep. 19, 2011), Dow Corning Corp. and Hemlock Semiconductor Corp. (collectively, “Dow”) alleged that certain individuals and companies stole their trade secrets in an effort to lure customers from their business. Among other things, Dow alleged that one individual, an amateur pilot, conducted aerial surveillance of Dow’s facilities to explain processes to one of the defendant companies’ prospective customers. After one of the defendant individuals created a new company, which was later the subject of a criminal investigation by the Federal Bureau of Investigation (the “FBI”), the FBI allegedly contacted Dow and invited them to view documents from the defendant company that were suspected of containing Dow’s trade secrets and which were misappropriated by the defendants. Dow later filed a lawsuit.

In response to that lawsuit, however, it was alleged that Dow conspired with the FBI to obtain the defendant company’s trade secrets and proprietary information, which the FBI had obtained through its grand jury investigation. The Court dismissed the defendant company’s claims because they were insufficiently plead, but noted that the claims may have survived had it been alleged that an agreement existed between Dow and the FBI prior to the FBI obtaining the defendant company’s information. This case should serve as a reminder that companies will go to great lengths to obtain competitive intelligence and, as such, should be wary of where they keep their confidential information.

Hospitality industry companies should not assume that a repository of confidential or trade secret information is safe – and need to think outside the box – when it comes to securing it from competitors. Not even a hospitality company’s trash is safe from the prying eyes of a competitor. For example, a competitor may be tempted to engage in acquiring information by dumpster diving – i.e., going into the trash of a competitor to gain competitive intelligence. While this may seem like the stuff of fiction, it can and does happen. In one case, in California, a company “started to suspect that someone was illicitly stealing trade secrets by ‘dumpster diving’ in the trash bins behind their offices.”

Silvaco Data Sys. v. Tech. Modeling Assocs., 896 F. Supp. 973, 974 (N.D. Cal. 1995). That company then discovered, “after hiring a private investigator to ‘stake out’ the area,” that their competitor’s janitor was removing trash bags full of the company’s documents from the dumpsters and transporting them back to the competitor. Id. Both companies sued in response to the allegations and eventually settled the lawsuit. Critical to such a claim may be laws of the location where the trash was and where the trash was located at the time (i.e., public or private property) in determining whether such activity is legal. Regardless, hospitality companies must be wary of where they are maintaining (and disposing of) their confidential and trade secret information.

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