Spy charges strain US-Japan relations

Why might more than a dozen officials at two of Japan's biggest and most successful electronics companies enter the dark, devious world of industrial espionage?

The selling of large mainframe computers is a tough, glamorous business. Millions of dollars ride on a single contract, and companies sprint hard to offer products competitive with the giant of the industry: IBM.

A company that makes a misstep, that faces a slight delay in developing new technology, risks being forced out of the race.

Under that kind of pressure, officials at two Japanese companies - Hitachi and Mitsubishi - apparently decided that they needed a competitive edge. According to the FBI, they decided separately to acquire it by stealing.

On June 22, FBI agents swooped through San Francisco and Los Angeles to arrest six Japanese businessmen on charges of conspiring to steal confidential information from IBM. Warrants were also issued for the arrest of 12 other individuals, all of whom currently live in Japan. The Justice Department said all but two of the defendants were high-level employees of either Hitachi Ltd. or Mitsubishi Electric Corporation.

The arrests reflect the highly competitive nature of the computer market. They could also tarnish Japan's efforts to appear to be a fairer trading partner , and add fuel to the protectionist fires already burning on Capitol Hill.

''This is such an unusual occurrence,'' says Paris Burstyn, senior analyst with the Yankee Group, a Boston research and consulting firm specializing in the communications industry. ''They must have felt they were in a desperate situation.''

The road that may have led officials of the two companies into desperation seems to have begun with an innocuous product announcement, industry analysts say. In October, IBM said it would soon sell a computer operating system named MVS/XA, to run in its 3081 and the yet-to-be released 3083 mainframe computers. Computer operating systems are, in effect, electronic ''employees'' that tend the machine: They organize incoming tasks, decide what runs when, and parcel out the final information.

This new product looming on the horizon must have worried the Japanese, the analysts say. Hitachi, through a subsidiary of National Semiconductor, sells plug-compatible computers (PCMs), relatively low-cost machines that can run IBM programs. Mitsubishi, which currently sells only small business computers, is expected to introduce a low-cost PCM by the second quarter of 1983.

''It seems compatibility, rather than technology as such, was what they were interested in,'' says Michael Solomon, of Cove, Cooper & Lewis, a public relations firm serving many Japanese clients.

To stay competitive, both companies would have to adjust their designs to the MVS/XA - a process that could take six months to a year. But while Japanese engineers worked feverishly to unravel the new system's mysteries, IBM would be striding ahead, raking in millions of dollars.

So, rather than fall behind, officials of both Hitachi and Mitsubishi allegedly decided to run the risk of engaging in industrial espionage.

An IBM spokesman says that late in 1981, ''IBM became aware that proprietory documents containing important technical and product development information had been stolen.''

IBM went to the FBI, and an undercover operation began.

Soon the FBI was informed the Japanese were gingerly trying the black market, saying they had ''incomplete'' computer manuals and were willing to pay well for the missing information.

Sources told the FBI the Japanese wanted design information on the 3081 computer, data on a memory storage unit, information on how computer programs might be written, and data on how IBM tied together the circuits in their computers.

The FBI says it arranged for an undercover agent to sell documents and other technical information to Hitachi representatives for $622,000. Mitsubishi officials, it is charged, got a somewhat better deal: they paid $26,000 for the same service.

With that evidence, the FBI moved in and made the arrests, issuing warrants for those defendants out of reach in Japan. All but one of the defendants charged were Japanese nationals. Most were department managers and senior engineers. The companies themselves have not been charged.

The move was a blow to the companies' competitive positions. Hitachi's place in the American PCM market is already slipping, in the face of tough competition from a Fujitsu-Amdahl Corporation consortium. The Yankee Group estimates Hitachi will lose $5-to-$10 million on its US operation this year.

Mitsubishi, which wants keenly to become a producer of large main-frames, will now face a tougher time getting into the market.

The embarrassing accusations aimed at businessmen still in Japan will also cause a ''brain drain'' in their executive suites, says Mr. Burstyn. If the charges prove true, those accused will lose face, and thus managerial effectiveness.

The arrests also seem certain to irritate US congressmen already suspicious of Japan's trading intentions.

''Many of my clients are quite distressed at this news," says Mr. Solomon.

He says the Japanese fear the incident will obscure efforts being made to open Japanese markets and spur US protectionist bills.

You've read  of  free articles. Subscribe to continue.
QR Code to Spy charges strain US-Japan relations
Read this article in
QR Code to Subscription page
Start your subscription today