Although the market trends may change faster than ever today, companies have been gathering competitive intelligence (“CI”) since the dawn of capitalism. It’s not a new concept, but there are new ways to do it—some more strategic than others.
To set the record straight, CI is not a corporate game of “I Spy.” It does not involve theft, electronic eavesdropping, hacking, bribery, or hiring a competitor’s employees to divulge confidential information. CI is the tactical gathering of market and competitor information that can be used to identify risks, opportunities, and changing conditions in an industry.
It’s no secret that companies gather CI in several ways, from attending trade shows, talking to customers who do business with competitors, probing marketing materials and blogs online, and contracting consultants to provide market analysis. But at what point has a company gone too far?
Some typical methods used to gather CI highlight the grey areas a company may face:
1. Buying competitors’ products to study components and evaluate costs.
While typically permissible to buy a competitor’s product and even to reverse engineer the product (if not patent protected), the issue becomes more grey if a competitor asks you to fill out an application or sign a contract to buy the product. If a competitor would not sell the product to you if you completed the application honestly, you could face fraud charges, or even claims of misappropriation of trade secrets if you provide false information in the application. Also, a contract to buy the product could legally restrict the use of the product or prevent what might otherwise be legal reverse engineering.
2. Attending a trade show to discover information about a competitor’s products.
There is nothing wrong with attending a trade show in an effort to discover what competitors are doing. Quite the opposite, trade shows are great opportunities to gather competitive intelligence and to stay current on new trends. Problems may arise, however, when one is required to identify himself or herself before gaining access to a competitor’s information, or when a non-disclosure agreement (“NDA”) is required to gain entry to a competitor’s private booth or showroom. Again, there is the potential for fraud charges if you misrepresent your identity or employer to gain access to certain information, or potential claims of material omission if you fail to provide required information. Even more, having signed an NDA, the employee could be breaching the agreement with the competitor by reporting back to her employer. Gaining information through false pretenses or in violation of an NDA could also expose you to claims of misappropriation of trade secrets.
3. Digging through a competitor’s trash to obtain information about a competitor’s products.
Trash is more complicated than it might seem. Just because a competitor is discarding an item does not mean it is discarding the trade secrets that contributed to its creation. In other words, the competitor might be relinquishing control of the item—it’s broken, used, or defective—without intending to relinquish control over the ideas that went into it. If information obtained from the trash is designated as confidential or trade secret, there is a potential claim for theft of trade secrets. There’s also the issue of where the trash is located: Is the trash on private property? Are you trespassing? Ultimately, one man’s trash may not be another man’s treasure.
4. Obtaining information from customers common to you and a competitor.
It is important to consider the contractual agreements in place between the customer and competitor. If there is any sort of contract in place (even a purchase agreement), any actions you take could be grounds for tortious interference with business contracts if the contracts require confidentiality. Obtaining information from a party you know or should know is obligated to keep that information confidential can also be a basis for a trade secret claim.
Companies need to gather CI to stay relevant in today’s ever-changing market, but CI requires strategy. And, we don’t mean a strategy to avoid getting caught. Strategic CI-gathering requires companies to not only know the law, but also know what is expected ethically, understand the risks involved, and employ common sense. No CI—no matter how great it is—is worth the cost of a criminal investigation or costly civil lawsuit.