Pepsi did right thing

some don't, experts say

July 07, 2006|By MEREDITH COHN | MEREDITH COHN,SUN REPORTER

It might have been honor. It might have been fear. Or even self-interest.

Possibly, all motivated PepsiCo officials to turn in those who tried to sell the company a secret new beverage recipe belonging to archrival Coca-Cola Co.

Whatever the company's reasons, several experts in business ethics and intellectual property say they are not surprised that Pepsi didn't take the bait. Many say they would expect other large companies to refuse if offered their chief competitor's trade secrets.

"I believe most companies would brush it off, ignore it," said Mike Adams, an Austin, Texas-based intellectual property lawyer at Winstead Sechrest & Minick. "There are legal and moral issues to accepting the information. Whatever the case, it was good business."

But trafficking in trade secrets has long held a place in the corporate world as companies try to gain an edge on competitors. Whether hiring top workers from rivals or collecting intelligence on peers in the industry, businesses sometimes skate a thin line of ethical and legal behavior. Though high-profile lawsuits have brought attention to alleged breaches at some of the world's largest companies, experts suspect that trade secrets are offered for sale more often than the public knows.

Corporations protect their secrets with extensive computer security, employee background checks and building safeguards. Employees are frequently asked to sign noncompete agreements, which bar them from working for competitors for specific periods after they leave.

But problems persist. Experts say defense and technology companies probably are among the biggest victims of intellectual property theft and also among the largest potential markets for stolen information.

In a widely reported incident in 2003, the U.S. military temporarily barred the Boeing Co. from bidding on lucrative Air Force contracts after executives were charged with improperly obtaining trade secrets from rival Lockheed Martin Corp. Microsoft Corp. and Sun Microsystems have been embroiled in controversies over trade secrets.

Some companies are taking tough steps to identify thieves. Apple Computers recently went to court in an unsuccessful effort to force bloggers to tell who leaked information on a new product called Asteroid.

Experts say most companies would likely ignore would-be salesmen of trade secrets, handle the matter quietly along with the other company or - least often - call the authorities.

Many companies don't want others' trade secrets even carried through the door, said Ned T. Himmelrich, head of the intellectual property section at the Baltimore law firm of Gordon, Feinblatt, Rothman, Hoffberger & Hollander LLC. He advises clients who hire employees from rival firms to make them promise that they are not coming with confidential information.

Accepting another company's trade secrets can bring criminal charges or civil lawsuits, he said. But it is a chance some companies take.

"Pepsi blew the whistle because it didn't want to be liable," he said. "If you accept a trade secret knowing it's a trade secret, you're as bad as the other guy. The best evidence they had that showed they were not accomplices was turning those people in."

Pepsi told Coke, which told the FBI. Agents set up a sting operation and arrested three people Wednesday, the day authorities say the alleged conspirators planned to sell them Coke secrets for $1.5 million. An undercover agent had previously exchanged money for other documents with the seller, who identified himself as a company employee named "Dirk."

Authorities say Dirk was Ibrahim Dimson, 30, of New York, who partnered with Edmund Duhaney, 43, of Decatur, Ga. A federal magistrate judge in Atlanta ordered them held yesterday pending a hearing July 11. Joya Williams, an executive assistant at Coke who is accused of taking confidential information from company files, was freed on bond.

The three face charges of wire fraud and unlawfully stealing and selling Coke trade secrets.

In a memo to Coke employees posted on the company Web site, Neville Isdell, the company's chairman and chief executive, thanked Pepsi for "alerting us to this attack."

That widely reported nod to a bitter rival was a reason in itself to do what Pepsi did, said Joshua Newberg, an associate professor of business law and ethics at the University of Maryland's Robert H. Smith School of Business.

"Pepsi executives knew they had an obligation to report this and they were going to report this, so they may as well inform Coke so they could have the good will from Coke," said Newberg. "Coke wouldn't think they had anything to do with it, or better, if faced with the same situation, Coke would do the same thing."

Also, Pepsi got some good publicity.

As such a high-profile company, Newberg said, there would be a high cost if Pepsi were caught accepting trade secrets or not reporting that they were offered.

But not everyone thought that fear of legal repercussions and bad publicity were the only reasons that companies refuse competitors' trade secrets. Some companies want to compete fairly, said Dean W. Krehmeyer, executive director of the Business Roundtable Institute for Corporate Ethics at the University of Virginia.

At a recent seminar for corporate executives, he said, a chief executive sitting across the table from a top competitor said he "enjoyed competing on a level playing field" and had tried to instill that in employees.

"Embedding ethics into the corporate culture gets harder in larger organizations because there are more layers and they are more geographically dispersed," Krehmeyer said. "I'm not surprised by what Pepsi did, but I was pleased to see it."

meredith.cohn@baltsun.com

The Associated Press contributed to this article.

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