Automakers grapple with rising tide of industrial espionage
Mich. prosecutors warn of intellectual property crimes
DETROIT -- The rate of industrial espionage activities in the auto industry and the United States as a whole is on the rise, according to government data -- with Toyota, Ford and General Motors all on the receiving end of the trend in recent years.
The latest case involved a former Toyota Motor Engineering & Manufacturing North America Inc. IT contractor, who was accused of hacking into the company’s network last month and stealing trade secrets.
Meanwhile, GM and Ford were burned by employees who allegedly stole and shared sensitive information with foreign competitors, prosecutors said.
American companies create some of the most sought-after products in the world, making them ideal targets for intellectual property crimes, said U.S. Deputy Attorney General James Cole during the keynote address at the Protecting Michigan’s Technology conference last week in suburban Detroit.
U.S. Immigration and Customs Enforcement Homeland Security Investigations (ICE HSI) opened 1,212 intellectual property investigations in the fiscal year ending Sept. 30, 2011, up 66 percent compared with 2009, and made 574 arrests that led to 291 convictions, according to the U.S. Intellectual Property Enforcement Coordinator’s annual report.
“A well-placed rogue employee can capture a company’s highly protected crown jewels, things on which profits and jobs depend,” Cole said.
Cases involving the confiscation of intellectual property from automakers and the distribution of counterfeit parts were examined during the conference.
The event was co-hosted by Michigan’s federal prosecutors. The goal of the conference was to educate companies and “deter bad actors” from stealing from Michigan businesses, said Detroit-based U.S. Attorney Barbara McQuade.
Federal prosecutors during the conference shared details of recent cases they pursued.
In one instance, a Ford employee stole thousands of secrets to help secure a job with another company, said Cathleen Corken, an assistant U.S. attorney. Here is how Corken described the case:
Xiang Dong Yu, or Mike Yu, of Beijing, was a Ford product engineer from 1997 to 2007. In July 2005, he traveled to China looking for a job at a Chinese auto company. He interviewed with several companies and shared some of Ford’s trade secrets with them.
Corken said JAC Automotive ended up hiring Yu, but he didn’t tell Ford he took the job. Instead, he told Ford he had to return to China to take care of his sick mother.
But Yu didn’t like his new job, Corken said, so he returned to Ford shortly thereafter.
Yu then accepted a job with Chinese electronic manufacturer Foxconn in December 2006 but didn’t tell Ford until Jan. 2, 2007, while he was making living arrangements in China.
Before Yu left Ford again, he made sure to copy around 4,000 Ford files -- including information about engine and transmission mounting, electric power supplies, and electrical subsystems -- to an external hard drive.
Around this time, Yu’s ex-girlfriend sent an anonymous e-mail to Ford informing them that he shared secrets with Chinese companies in the summer of 2005. Ford then interviewed Yu about his activities when he returned briefly to the United States before starting at Foxconn. Then he changed jobs again.
In October 2009, Yu, now working for Beijing Automotive Group, was arrested on a warrant in Chicago after flying in from China, Corken said.
The FBI soon discovered 41 Ford system design documents on Yu’s company laptop, each of them accessed during his time at Beijing Automotive.
Yu is serving a 70-month sentence in federal prison and was ordered to pay a $12,500 fine after pleading guilty in federal court to two counts of theft of trade secrets.
Ford estimated that losses related to the theft were between $50 million and $100 million in labor costs, Corken said.
In the GM case, a former employee and her husband face charges of conspiracy to possess trade secrets from the automaker.
The woman allegedly gave secret information about hybrid vehicles to her husband to help a foreign competitor.
GM said the thousands of documents the woman stole were worth more than $40 million. The case heads to trial next month.
Protection against cybercrimes could get tougher in coming years because of the proliferation of devices such as smartphones and laptop computers that can connect to the Internet, the Office of the National Counterintelligence Executive said in its October 2011 report to Congress.
The number of Internet-capable devices is expected to jump to 25 billion in 2015, doubling 2010’s 12.5 billion.
Companies need to safeguard themselves from possible dangers that could stem from departing employees by being as thorough as possible during exit interviews, Corken said.
For one thing, companies should preserve e-mails after an employee leaves, she said.
Outgoing employees also should certify that they returned all company documents and electronic devices with company information, Corken said.
About 4 percent of data breaches come from employees, said Joseph Varani, cyber-crimes analyst for the Computer Crime and Intellectual Property Section of the U.S. Department of Justice.
Varani said there are several steps companies can take to protect themselves, such as using anti-virus software and keeping the system’s software up to date.
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