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July 3, 2000
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Judging Oracle's Ethics
Last week, we had a good discussion on the ethics of Oracle's attempts to discredit Microsoft (including the use of industrial espionage techniques), and whether all of this should affect our decision to invest in Oracle's stock. At that time, my conclusion was that unethical behavior on the part of a company is a clear signal to divest, but that I did not have enough information to make an informed decision about Oracle's behavior, yet.
Since then, I have been doing some reading aimed at giving enough information to make an informed decision. Here is what I found.
First, industrial espionage is quite common. An article in the Post-Intelligencer (Seattle) reports, "Industry analysts estimate that slightly more than 80 percent of the world's companies with a market capitalization of more than $1 billion have a formal intelligence program to either gather information on competitors or protect their own information." (http://seattlep-i.nwsource.com/business/dump03.shtml) Yet, according to an article at CNET, "Although the tech industry has had its share of blatantly illegal espionage, most modern corporate spy activity falls into a gray zone between aggressive competition and unethical snooping." (http://news.cnet.com/news/0-1003-200-2174240.html)
The two most helpful articles I found about industrial espionage were http://www.aic.gov.au/publications/tandi/ti106.pdf (an article by the Australian Institute of Criminology that includes a four-part taxonomy of industrial espionage -- this is a pdf file, and require Adobe's Acrobat Reader to access), and http://www.smdc.army.mil/SecurityGuide/v1comput/Case1.htm (a wonderful article which gives a detailed anatomy of an industrial espionage attack).
Two other articles on industrial espionage which might be of help can be found at http://www.newhaven.edu/california/CJ625/p6.html and http://www.securtelecom.com/IndustrialEspionage/espionage.htm.
However, Oracle's dumpster diving to dig up information on Microsoft appears to me to be what the Australian Institute of Criminology calls competitor intelligence: "the globally accepted term for legal research efforts by businesses studying their competitor's products, organizations, and related matters."
The practice is widespread (one webpage, http://www.shownotes.com/protected/Bookstore/ci.htm, lists 6 books on competitor intelligence). There are easily accesible how-tos (http://www.businessforum.com/oss%2801%29.html as one example), and how-to counter it (http://www.betaanalytics.com/counter.htm).
My initial reaction was that the practice of competitor intelligence and industrial espionage, even when done within the law, is distasteful. Yet, good businesses from time immemorial have realized that they need to have as much information on their competitors as possible to compete well. So long as the efforts don't cross the line into illegal practices -- even if they fall into that "gray zone between aggressive competition and unethical snooping", I am coming to believe that they don't disqualify a company from my investment portfolio.
So where does Oracle's actions fall? The best information reported indicates that they dug into the garbage of several think tanks, "bought" garbage from insiders of one sort or another, then put a particular spin on the information they gained in an attempt to shine a particular light on one of their competitors.
None of that activity is illegal -- even if one wanted to call their "buying" of garbage bribery, it is not illegal. Nor is it unusual for one company to paint a competitor in a light designed to discredit them in the public's eye, and put them at a competitive disadvantage.
So, unless more information comes forth to change my conclusion, I am content with my investment in this company.
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