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. Last Updated: 07/27/2016

U.S. Firms Fight Corporate Spies

NEW YORK -- John Hickey became suspicious as he reviewed the 16 detailed questions faxed by a graduate student.

For months, the student, Justin Waldrep, had been quizzing executives at Hickey's company, NRB Industries, a textile manufacturer, for what he said was a business school research paper. But the new questions seemed far more detailed than any student would need. Increasingly uncomfortable, Hickey decided to find out more about Waldrep.

With a few telephone calls, Hickey discovered he had reason to be concerned, according to a lawsuit filed by his company. Waldrep was not working on a research paper. He was not attending business school. He was not even a student.

In its suit, the company reached one conclusion: Waldrep was a corporate spy.

NRB Industries filed its lawsuit last year and has since settled. It and another textile company, Johnston Industries, which filed a lawsuit recently in an Alabama state court, say they were the targets of a corporate espionage operation conducted for a top competitor, Milliken & Co.

According to the two lawsuits, Waldrep posed as a graduate student and another consultant posed as a representative of Swiss investors in order to steal confidential information from various manufacturers on behalf of Milliken, the largest private textile company in the United States.

Milliken paid the consultants more than $500,000 for detailed information on the customers, suppliers and manufacturing operations of nine textile companies, according to NRB's lawsuit.

Johnston executives say that Milliken used the stolen information to lure customers away after first reducing prices on some Milliken products. Milliken also introduced a fabric very similar to one manufactured by Johnston and then marketed it to Johnston's customers. Johnston executives say the small, publicly held company, whose products include fabrics for automobile and airplane seats, has lost millions of dollars in sales.

The accusations against Milliken are emerging as corporate espionage increasingly receives attention from lawmakers and executives. Some government estimates put the total cost of such spying to U.S. business as high as $250 billion a year.

The two lawsuits also underscore that the biggest security threats faced by companies typically do not involve hackers electronically sneaking into corporate computers. Rather, the threats are often the people who are invited in. "The area of greatest concern is letting people in the front door and giving them the keys to the kingdom," said Michael Allison at International Business Research in Princeton, New Jersey. "Companies forget that people can take information home in their heads."

In the case of NRB and Johnston Industries, the knock on their front doors came from Waldrep and his boss, Rodney Taylor. In a 24-page sworn statement filed in U.S. District Court in New York, Waldrep, who agreed to cooperate with NRB after he was sued, detailed how Milliken had repeatedly hired the consulting firm, R.A. Taylor & Associates of Atlanta, to get information from its competitors and how he and Taylor then obtained that information.

In a statement, Milliken said it had hired R.A. Taylor "to obtain, through proper means, information about Milliken's markets and some of its competitors."

"When claims were made about the propriety of the collection techniques being used, Milliken ceased doing business with these consultants," the statement said.

But according to Waldrep's statement, Taylor told Milliken executives in late 1994, soon after the company hired him, that he would pretend to be an investment banker seeking investment opportunities on behalf a Geneva bank.

Rodney Taylor, the company's principal, said he had not yet seen the Johnston Industries lawsuit. "So it would not be appropriate for me to comment," he said.

Waldrep did not return phone calls.

NRB said it had "amicably resolved" its suit against Milliken, Waldrep, R.A. Taylor and Rodney Taylor earlier this year. Terms were not disclosed.

Experts say that corporate espionage is more common than the public knows because many cases are settled privately by companies seeking to avoid publicity and because most companies do not realize that information has been stolen.

In 1996, the U.S. Congress made stealing trade secrets a federal crime. So far, federal prosecutors have pursued few such cases.

A congressional study estimated that American companies may be losing $250 billion annually because of information that gets into the hands of competitors.