GOT DYE, WILL SPY, FOR A SLICE OF PIE

On April 14, 2008 in General

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Image by pedrosimoes7 via FlickrOf all the forms of intellectual property that are available, Trade Secrets are the most unique in nature. They are the only kind of intellectual property rights that acquire protection rights by NOT disclosing to the public, as opposed to all other forms wherein the details need necessarily be disclosed in its entirety. The contents and information need to be kept from public light, and extreme precautions need be taken to ensure that it does remain so. On many occasions, the number of people within an organization privy to secret information needs to be restricted to a select few for a number of good reasons.

For the competitors who are losing the edge in the battleground called market place, trade secrets are the mystical weapons that are being wielded against them. Countering this attack is a very difficult task, and requires considerable resources. One of the common ways of figuring out the trade secret is use is reverse engineering. This typically involves buying the product in question, and then systematically taking it apart until every last bit of information can be squeezed out of it. This works effectively when the trade secret is an ingredient in a composition. Very often, it is not as easy as that though, especially when the trade secret involves a method of manufacturing, or a way of categorizing information to render facile use of it, etc.

Another way of obtaining trade secrets is to lure employees privy to this knowledge with an attractive pay packet and bonuses. While this may legally acceptable in many jurisdictions (operative word being MAY), this can easily be prevented by the use of binding contracts. This practice is generally not very “clean”, even in the absence of binding contracts, and possibly even illegal in the presence of such contracts.

One of the most dangerous, despicable and yet most effective practices of obtaining trade secrets is the use of industrial espionage. It is frowned upon, damages images of companies, results in heavy losses, and is punishable as a criminal offence. Yet it is turned to as a desperate measure to gain the market advantage. A typical example is the dye industry during the early 20^th century.

The following narrative illustrates the use of industrial espionage by some of the well-known companies, and efforts to thwart it. The information contained herein has largely been sourced from the article originally written by Dr. Robert J. Baptista in http://www.colorantshistory.org/SpiesDyes2.html, published on September 6, 2006

Germans produced dye chemists who could make molecules that could impart the right color to the object it was fastened to with extreme alacrity. Yet it didn’t seem too easy for anyone else in the world to do the same. So German companies enjoyed a kind of monopoly in this area. The patents that were written in this field were clearly one which can be reproduced by one skilled in the art, which appeared to be only other German chemists. So, other countries imported dyes from Germany. But World War I complicated the situation a bit.

USA had been attempting to build its own expertise in the dye area, with very marginal success because the demand for domestic dyes was insatiable, especially during the World War I and selling prices rose spectacularly. In 1914 sulfur black, one of the largest volume dyes used in the textile industry, sold for $0.20 per pound. During 1915 the price soared to $2.75-3.00 per pound. Dye-making suddenly became one of the most profitable industries in the U.S., attracting investment by both small and large firms. During the World War I dye famine, American companies struggled to produce synthetic dyes formerly imported from Germany. There were few American chemists with the requisite know-how of dye-making and this presented a major technology barrier. Some emerging companies, such as the Beckers Aniline & Chemical Co. of Brooklyn, had the advantage of an experienced founder like William G. Beckers, a native German with a PhD in chemistry and a background in the dye industry who emigrated to the U.S. and began producing a range of dyes in 1912. The company flourished and in 1917 was merged into the National Aniline & Chemical Company of Buffalo, the early leader of the domestic dye industry. Other companies, such as Standard Aniline Products Co., recruited Swiss chemists during the war, since Switzerland was the second leading exporter of dyes after Germany.

Du Pont, which was primarily a gunpowder manufacturer before the war, decided to throw its hat into the ring. In 1917 a multi-million dollar plant, known as the Chambers Works, was constructed in Deepwater, New Jersey., with its first production target being sulfur black because of the huge market for this cotton dye. But very soon, Du Pont found out the complexities and intricacies involved in dye manufacture the hard way, in that the first batches were either off-shade or could not even be applied to cotton. Even Dr. Elmer K. Bolton, director of Du Pont’s research laboratory, who was summoned to Chambers Works to solve the sulfur black production problems, was just as mystified as the other American chemists and engineers.

Desperate to reach and remain in the forefront of the business, Du Pont embarked upon a cloak and dagger mission to obtain the services of German chemists. Dr. E.C. Kunze, a Du Pont representative in Zurich, convinced four Bayer chemists in Leverkusen to bolt Germany for the U.S. and accept jobs at Du Pont. They each signed five-year employment contracts for $25,000 a year, which was a staggering sum in 1920 and equivalent to $267,000 today. The German chemists filled a trunk with process information, equipment drawings, plant layouts and dye samples. In December 1920 they were spirited out of Germany by Dr. Kunze. But at a Dutch border checkpoint the trunk was opened. The suspicious looking contents resulted in seizure of the trunk and notification of German authorities. The Cologne prosecutor issued an arrest warrant for the four chemists for industrial espionage. The charges against the chemists included “illegally appropriating valuable recipes, formulae, etc., to which they had access by virtue of their positions of trust and confidence”. Protection of dye manufacturing secrets had led Germany to the extreme step of prohibiting the issuance of passports to German chemists. The German public was outraged about the incident and newspaper headlines screamed “Four Traitors”, “An American Plot Against German Dyestuff Industry”, and “The Power of the Dollar”.

Despite the arrest warrant, two of the German chemists, Dr. Joseph Flachslaender and Dr. Otto Runge, managed to board the Dutch steamer Ryndam on December 31, bound for New York. On January 3, 1921 the ship was met by Richard Sylvester, Du Pont security officer, and Dr. Bolton. When the two men failed to disembark, Sylvester posed as the Honorary President of the International Association of Chiefs of Police and demanded to see the men. The Ryndam’s captain refused to release the passengers, mentioning the outstanding arrest warrants from Germany . Sylvester and Bolton called for help. After discussions took place between Washington , DC , Wilmington , and officials at Ellis Island , Drs. Flachslaender and Runge were released after a few days and began their new careers at Du Pont.

The remaining two chemists, Dr. Max Engelmann and Dr. Heinrich Jordan, had greater difficulty leaving Germany . Du Pont resorted to its political and military contacts for help. In May 1921 Major General Henry T. Allen, commanding general of U.S. forces in Germany , ordered Captain H.E. Osann, chief of the U.S. Military Secret Police in Coblenz, along with a company of soldiers, to escort Dr. Engelmann and Dr. and Mrs. Jordan from unoccupied Germany to the American sector. This mission was successful even though the chemists were under surveillance by the German police. They boarded the U.S. Army transport Somme, arriving in Hoboken, New Jersey on July 5, 1921. Du Pont now had four talented German dye chemists working in the Jackson Research Laboratory in Deepwater, New Jersey. The company would soon become the leader in the U.S. dye market, a position it held until it exited the business in 1980.

Stolen dye manufacturing know-how from German plants brought high prices even into the late 1920s. In August 1927 three employees of the Hoechst plant in Frankfurt were caught trying to carry trade secrets to England in their socks. A contract found on the men showed the purchase price of the information was over $200,000. The contract provided for air passage to England , steady employment and a share of the profits.

In September 1928 I.G. Farben discovered a well organized spy ring operating in its Leverkusen chemical works. Three chemists were arrested. The espionage system was uncovered by the intelligence department of I.G. Farben which had placed agents in its plants throughout Germany .

The arrested men said that almost every I.G. Farben plant employed several Germans who were spying for the French secret service. But I.G. Farben reported that only unimportant formulas for aniline dyes made their way to France . There was evidence that information relating to new processes, such as coal liquefaction and Indanthrene dye manufacture, was actively being sought by the spy ring. I.G. Farben expressed confidence in their basic approach to prevent the theft of industrial secrets. Information was tightly compartmentalized and no one employee had access to complete information regarding any one process which was not public property.

As a further note to the source of the information here, the author of the original articles Dr. Baptista worked for Bayer Corporation and its predecessor Mobay Chemical Corporation during 1972-2000. He joined the Verona Dyestuff Division of the company as a research chemist in Bayonne Plant 1 and became Plant Manager in 1977. During the 1981-1985 period, he was Plant Manager of Bayonne Plants 1 and 2. He has published a number of articles on the history of dyes and companies involved in dye production based on his own experiences and newspaper clippings, most of which are available on www.colorantshistory.org .

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