Sting II: IBM Strikes Again

A vigilant internal security force fights industrial spying

If things keep going the way they have been lately, the next John Le Carré novel might feature not agents from the British Secret Service or the CIA but spies from the gray-flanneled ranks of International Business Machines Corp.

Consider what happened last week. First thing Monday morning. IBM officials confronted three high-ranking employees at their desks. They charged them with trying to sell secrets about IBM’s new personal computer and fired them on the spot. Later that day the firm sued the three in a New York State court in an effort to block them from using confidential IBM information for personal profit.

Only three months earlier. IBM security men helped the FBI pull off another sting by nabbing five employees of Hitachi, Ltd., and Mitsubishi Electric Corp., two leading Japanese electronics firms. They were accused of conspiring to transport stolen IBM property out of the U.S. In the same investigation, a middle manager of National Advanced Systems, a subsidiary of California-based National Semiconductor Corp., was arrested for receiving stolen goods. Last week IBM filed suit against Hitachi and National Semiconductor, charging them with unfair competition through the use of confidential IBM materials.

Sting II came as a shock because the three employees dismissed last week were very highly placed in the company and had broad access to classified material. The accused: Lewis Eggebrecht, a senior engineer who was chief architect of the IBM personal computer, the company’s fastest seller; Peter Stearns, another senior engineer, who headed an important product-development team; and William Erdman. an office-systems product-line manager.

The first hint that IBM had a serious new security problem came in an Aug. 12 phone call to the company from Martin Alpert, president of Tecmar, Inc., an electronics firm in Cleveland. Alpert said that his company had been approached by IBM’s Erdman with an offer of what appeared to be confidential information. IBM officials persuaded Alpert to play along with Erdman and covertly tape their negotiations. IBM Security Director Richard Mainey planned the ruse and equipped Alpert with a recorder.

Tecmar is one of a fast-growing legion of companies that manufacture supplementary products for use with the IBM personal computer, including hardware to enhance its performance. According to court papers filed by IBM, Erdman told Tecmar that he and some senior IBM technical personnel were planning to leave the company. Without telling IBM, they had already set up their own computer-equipment company, Bridge Technology, Inc. Erdman proposed to sell Tecmar some 40 designs for add-on products for the IBM personal computer, including plans for a so-called combination board that, among other things, would improve the machine’s memory capability. Erdman allegedly boasted that with his designs some of the products would be “out on the street before IBM comes out with them.”

Erdman and Alpert discussed the deal several times on the phone and once met in the IBM manager’s Stamford, Conn., home. As Erdman talked, Alpert taped. The negotiations climaxed in a Sept. 4 meeting at Alpert’s Cleveland office. This time, Erdman brought along Engineers Stearns and Eggebrecht, who described his knowledge of IBM product designs. At the end of the day, Erdman left a draft contract for Alpert to sign.

As of last week, the trio of defendants had not told their side of the story. Erdman spoke briefly with reporters and denied having any association with Bridge Technology, the independent computer company he had allegedly helped start. He professed to be “dumbfounded by the whole thing.” Said his lawyer, John Bartels: “My client is innocent, and I think we will prove it.” Eggebrecht and Stearns shunned the press altogether.

IBM was long the almost unchallenged champion of American computer makers. But as the machines have got smaller and cheaper in recent years, IBM has begun to face new competition from such firms as Digital Equipment Corp., Wang Laboratories and several Japanese companies. As a result, IBM has marketed a broad array of new products like the personal computer, cut prices when necessary and enlisted smaller firms to help write software for its processors.

Greater competition has also meant a more urgent need to guard trade secrets. Says William Easterbrook, a computer-industry analyst at the Kidder, Peabody & Co. investment firm: “IBM is going all out, both to develop and introduce technology, and to protect what they already have.”

The suit filed last week gave a glimpse of IBM’s elaborate security apparatus. The company spends more than $50 million annually to guard its internal secrets. Hundreds of in-house detectives monitor employees suspected of being security risks, keep confidential information out of the hands of those who do not need it and even prowl around offices at night to make sure that desks are locked.

Such measures sometimes thwart the outright theft of classified documents. But they are less effective in preventing employees with trade secrets stored in their heads from jumping to competitors or starting their own firms. Since 1970, ex-IBMers have launched several highly successful computer companies, including Amdahl Corp., which makes equipment that plugs into IBM systems.

In the past, IBM and other computer companies have tended to accept this problem as part of the competitive game, but now they are taking ex-employees to court more often. Last April, for example, Microcomputer Systems Corp. of Sunnyvale, Calif, won a preliminary $2 million judgment against two former employees who had started a rival firm. In the multibillion-dollar computer business, trade secrets have become too valuable to be given up without a fight. —By Charles Alexander.

Reported by Bruce van Voorst/New York