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Stealing tech secrets

Julian Ryall, TokyoMarch 18, 2014

The arrest of a former employee of Toshiba Corp. for allegedly selling cutting-edge technology on flash memory is viewed by experts as merely one of many cases of industrial espionage currently affecting Japanese firms.

An undated handout image shows Kirobo, a 34cm high talking robot, during a zero-gravity test with robot's developer, Tomotaka Takahashi (L) and Fuminori Kataoka (R), project general manager from Toyota Motor Corp. For the first time in the world on 04 August 2013,
Image: picture-alliance/dpa

When police arrested Yoshitaka Sugita on charges of revealing trade secrets to a rival of Toshiba Corp., the 52-year-old engineer allegedly claimed he had acted out of grievance after being overlooked for a promotion.

That may turn out to be the truth, but a more prosaic explanation for this latest case of industrial espionage is that Japan's previously well-rewarded technology experts no longer feel their companies are paying them the market rate.

Sugita, 52, may be the latest Japanese engineer to be caught selling off domestic firms' crown jewels, but the analysts say he is most certainly not the only one.

"I can't say that I'm at all surprised by this as there are lots of Japanese employees of technology companies who are being hired by South Korean and Chinese firms," Koichiro Hayashi, the former dean of the Yokohama-based Institute of Information Security, told DW.

"They are mostly motivated by the money that these foreign companies are offering, but there are also a few who have lost their jobs at companies here because of Japan's economic problems," he said.

Economic problems

"I think there is a direct link between the rise in these cases in the last three or four years and the financial problems that many companies have experienced in that same period," Hayashi added.

A woman walks past an electronic board displaying a graph showing a dramatic turnaround of Japan's Nikkei average outside a brokerage in Tokyo May 23, 2013.
Experts believe there is a link between the rise in espionage cases and the financial problems of Japanese companiesImage: Reuters

Sugita's case may only be the most recent incident, but it has certainly attracted the attention of the media in Japan. The Tokyo-based Yomiuri Shimbun newspaper reported that the "leak of Toshiba secrets highlights the extent of the threat to Japan's manufacturers" and demanded that "efforts ... be redoubled to beef up arrangements to protect Japan's technology."

Sugita has been charged with violating the Unfair Competition Prevention Law while working for Toshiba at its plant in Mie Prefecture and allegedly repeatedly downloading research information on NAND-type flash memory onto a memory stick. On each occasion, he then simply walked out of the plant without being challenged.

The technology, developed by Toshiba, dramatically increases memory capacity and reduces manufacturing costs. At the time it was allegedly stolen, it was the most advanced storage technology in the world.

Demoted from a managerial position in 2007, after four years at the plant, Sugita's salary was also cut and his perks reduced. Police allege that he began to steal company secrets a short while afterwards and resigned in May 2008.

Rich enough to retire

Two months later, he started work for South Korea's SK Hynix Inc. and was assigned to the semiconductor research division. Local media reported that Sugita boasted to friends that he had made so much money working for SK Hynix that he would never have to work for the rest of his life.

Toshiba has been cooperating with the Tokyo Metropolitan Police and has filed a lawsuit against SK Hynix claiming damages. But the damage has already been done, analysts point out, and is probably still being done at other leading Japanese technology companies.

"The problem is probably a lot bigger than anyone thinks," said Nicholas Benes, representative director of the Board Director Training Institute of Japan.

"In comparison with things, say 10 years ago, industrial espionage and cyber attacks have careered out of control," he told DW.

"Japanese companies tend to think that they have a long-term, seniority-based employment situation that makes their employees loyal, but it's very easy to walk out of a research center with a memory stick in your pocket," he said.

In a survey of more than 3,000 companies by Japan's Ministry of Economy, Trade and Industry, 11 percent said foreign firms had head-hunted their top technical engineers. Almost 15 percent said that former employees, business partners or existing staff had leaked restricted data within the last five years.

Damage claims

In April 2012, Nippon Steel Corp. filed a civil lawsuit against South Korean steel manufacturer POSCO on the grounds that it had illegally obtained the company's technology for manufacturing grain-oriented electrical steel sheets.

In late 2005, the Tokyo Metropolitan Police revealed that a member of Russia's trade mission to Japan paid 910,000 yen (6,451 euros) to an employee of a Toshiba subsidiary over a period of eight months for data on semiconductors. It was the fifth time since 1989 that the Japanese police have investigated industrial espionage involving Russia's trade delegation in Tokyo.

In May 2012, the Chinese Embassy in Tokyo denied police allegations that a former diplomat at the embassy was a spy involved in illegal commercial activities.

Police requested that the diplomat turn himself in for questioning. The embassy refused to comply and the diplomat, a first secretary originally from an intelligence unit within the Chinese People's Army, swiftly returned to China.

The 'honey trap'

But foreign powers are finding that there are other ways to get secrets out of Japanese experts, according to local media. In October 2013, the weekly tabloid magazine Shukan Jitsuwa reported that executives and engineers at some of Japan's largest high-tech companies had been ensnared in a "honey trap" set by Chinese women working at a hostess bar in Kyoto.

A computer screen showing a code
Experts say industrial espionage and cyber attacks have careered out of control in Japan over the past yearsImage: picture-alliance/dpa

Executives and employees of at least five leading companies were patrons of the club, before it shut down in June and the Chinese manager disappeared.

Questioned by police, the manager denied that customers spoke about their work at the club, but admitted that the women were available to meet the men at later dates.

The women would then reportedly encourage their patrons to discuss the new technologies that were being developed at their companies and corporate strategies for operating in the Chinese market. If that did not work, the magazine suggested, then the men would have been highly susceptible to blackmail.