Trade secret plot pulls Coke, Pepsi together
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Before May, America's two soda superpowers existed only in opposition, mutually exclusive -- Coke or Pepsi?
But a plot to sell trade secrets transformed the or into and, as the unlikely corporate tandem of Coca-Cola and Pepsi foiled an attempt to shop a new Coke drink recipe to its nemesis.
Trade secrets are the most powerful, but also among the most risky, form of protection for a company product or formula. Corporations so rely on secret formulas, accessible to only a small circle, that they hire contractors to test security measures by simulating heists. They hold the information in such sanctity that the rare moments of jeopardy can turn competitors into cooperators.
Federal authorities accuse Joya Williams, a Coke employee, and two others of stealing guarded information and a sample of the confidential beverage.
In May, a letter appeared at Pepsi's New York headquarters offering to sell the trade secret. But that's how the beverage superpowers learned of common corporate priorities: Pepsi officials immediately notified Coke of the breach; in turn, Coke executives contacted the FBI and a sting operation was put into play.
"We were just doing whatever any responsible company would do," Pepsi spokesman Dave DeCecco said. "Despite the fierce competition in this industry, it should also be fair."
Investigators linked Ms. Williams to the offer through contact information and security camera footage. She was arrested Wednesday, along with Edmund Duhaney and Ibrahim Dimson, and charged with wire fraud and stealing and selling trade secrets.
Yesterday, in a federal courtroom in Atlanta, a judge released Ms. Williams on bond and held the two men, both of whom have criminal records.
"While this breach of trust is difficult for all of us to accept, it underscores the responsibility we each have to be vigilant in protecting our trade secrets," Coke Chief Executive Officer Neville Isdell wrote Wednesday in an e-mail to employees.
Business experts agree with Mr. Isdell. And trade secrets, by definition, allow companies the greatest strength to protect their information.
Patents become public information 20 years after they are filed. Corporate copyrights expire either 95 years from publication or 120 years from creation, whichever is shorter.
When Coke, at the end of the 19th century, decided not to patent its formula, it did so for one reason: to keep it secret, forever.
Still, trade secret status delivers an automatic risk. If it's guarded too loosely, and, for instance, it appears on the company's intranet or a copy of a secret recipe makes it into an outdoor garbage can, said information becomes public.
Large corporations, therefore, restrict access to trade secrets. They perform background checks on new employees and ask for exit interviews for departing ones; they maintain a paper trail detailing those with access; and they ask for nondisclosure agreements. And sometimes, as in Coke's case, the formula grows because of its secrecy into a giant mystery.
"The formula for Coke is the most famous trade secret," said David Tungate, an associate professor of law at Carnegie Mellon University's Tepper School of Business. "Allegedly, only two or three people have access to a safety box where the secret resides. That's always been the myth about it.
"I guarantee you that the formula would never land in the hands of an administrative assistant."
New products, though create a new vulnerability. New technology creates the same problem. Information flows across borders. Last year, Forbes magazine reported on a computer worm, linked to China, that had been designed for industrial espionage.
Other plots, though, take more traditional forms: an exchange of information that directly harms one company and helps a competitor. Boeing's 1998 involvement in industrial espionage -- a former Lockheed Martin employee hired by Boeing passed along thousands of private documents -- cost the aircraft manufacturing company roughly $1 billion in contracts with the U.S. Air Force.
In Pittsburgh in 1996, a man working for an independently contracted cleaning company entered PPG Industries headquarters, gathered secret information about new fiberglass formulas, and offered to sell it to competitor Owens-Corning. The Owens-Corning CEO contacted PPG, which alerted the FBI.
"I learned about it from our corporate security director," then-PPG CEO Jerry Dempsey said. "To think somebody would take trade secrets and then sell them out in the open. ... But he flunked the course, because we caught him."
Many hire contractors to test their security. When corporations contact Drew McKay, senior vice president for Oakton, Va.,-based risk management company Vance, executives ask his advice about improving security. Mr. McKay then often goes about testing it.
"We will try penetration testing," he said. "You can do it electronically or physically. Oftentimes a company will say that its building is protected, but ... We have people on staff who are experts at doing this, for the purpose of exposing weaknesses."
Had Pepsi accepted the information about Coke's new product, it would have risked discovery -- and a fallout.
"It would have been devastating to Pepsi," said Brad Agle, director of the David Berg Center for Ethics and Leadership and a University of Pittsburgh associate professor. "It would have said to the consumer, 'Pepsi needs Coke's formula.' "
First Published July 7, 2006 12:00 am