GM / VOLKSWAGEN: A CASE OF INDUSTRIAL
ESPIONAGE
Youjung Byon
Edward Urban
Tim Nguyen
Jose Ignacio Lopez
 The “Grand Inquisitor”
 1969-1980: Firestone in Bilbao, Spain
 1980-1986: GM Europe’s 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
INDUSTRIAL ESPIONAGE
 Employee Discontent  Industrial Espionage
 Information Brokers
 Anti-Espionage Services
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) GM’s 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
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.
VOLKSWAGEN AG
FINANCIALS
COGS / Sales
1.00
0.80
0.60
GM
0.40
VW
0.20
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
-
Net Income
8,000,000.00
6,000,000.00
4,000,000.00
GM
VW
2,000,000.00
1993
(2,000,000.00)
1994
1995
1996
1997
1998
1999
2000
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.
POLITICAL & ECONOMIC DIMENSIONS OF THE
FRAUDULENT SCHEME
 Regulatory dimension: Trade Secrets vs. Patents
 Issues of International Competition
 Status Quo (before 1996):
1) The law of trade secrets fell within the scope of common law
at the state level.
2) Uniform Trade Secrets Act (“UTSA”) vaguely defined “trade
secret”.
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 Lopez’s 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
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.
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.
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):
1) 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!
2) Following this sweep, teams will remove any alien devices and
immediately inform superior management if company is losing material
through electronic surveillance.
3) This will be followed up with a full report enabling a possible trace of the
leak and identification of the perpetrators.