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Fake-company RFQ’s: unethical or actually illegal?

Posted February 12th, 2011 by Andrew Goodman

This week, news has surfaced that an Ottawa-based startup did damage to established B2B vendor SuccessFactors by obtaining extensive private business information from them through the ol’ “fake customer” subterfuge. This wasn’t the usual casual fakery. Allegedly, the startup went to the trouble of creating a fake company, complete with website and 500 fake employees, to better pose as the “client”.

Petty theft and grand larceny alike are becoming all too common in the world populated by software, systems, intellectual property, and original contributions to an industry.

Certainly any B2B vendor — us included — are quite familiar with requests that don’t seem quite sincere, elaborate processes that seem designed to pump us for information with limited chance of landing any real business, etc.

It’s actually heartening to realize that where an offending company conspires to take this to unreasonable, harmful levels, it’s a legal issue, not just a simple matter of being slimy.

None of us like having our work and business assets stolen. I suppose that justifies Google’s emotional reaction to the recent Microsoft-stole-our-SERP’s sting discovery. (But they should take them to court, if they have a case.)

Talking with a fellow original information creator this week, about smaller, more petty theft, this week, I sympathized deeply.

Plagiarism, it seems, is something we laugh at. And in his anecdote, you could only laugh as well as cry. Two prominent SEO’s were presenting to a large audience at a prestigious conference last year. My friend got up to ask a question. And that’s where they began getting edgy. They reassured the audience that this guy might have an agenda because he’s a fellow SEO. He then cleared his throat and thanked them for the promotion of the tool that he also recommends. And for the nice mention of his agency, since his agency’s small transparent logo had been left on the slide. And all the slides. They had been “rushed,” apparently, so running out of time before the big day, they’d stolen his entire 30-minute presentation, lock, stock, and barrel.

They were sufficiently unashamed to make a joke about it, onstage, at a subsequent conference, when someone was trading tips about how to find expensive research reports without paying for them.

There will be no legal case, but it lowers my opinion of the people involved.

When it comes to folks posing as clients so they can get proposals, tips, or even business model advice for themselves or to pass on to a friend, it feels like this makes up something like 10% of the RFQ traffic in our industry, and I suspect in others, as well.

I experienced something of a compound version of this recently. A pretty cool-seeming prospect came to us with the usual type of project request, and we went away to think about it. One thing that seemed truly odd was that the VP Marketing mentioned that he didn’t even know “you could hire an outside agency to manage this type of thing.” Really. Although their request seemed relatively genuine, I couldn’t help but think he was holding something back, and that the conversation felt like it was powered by a little more play-acting than usual.

Still, I’m relatively trusting. Although not as trusting as some people, because I’ve seen so many hundreds of RFQ’s and patterns are patterns. It’s good that most are sincere, else I’d be insane by now.

It was only by accident that I Google the founder of the company, frankly, as I did my due diligence over a weekend. From there, my eyes widened as I discovered the lawsuit alleging that the firm originated as a conspiracy to port intellectual property from their former employers over to this new company. They paid a good chunk of change in a legal judgment, but were exonerated from the majority of damages, upon appeal.

What was harder to take was the long video excerpts of the actual court depositions, posted online by their bitter former employer. There was the dissembling, the creative lying, the ludicrous lying, the evasion… the downright comical lying. At one point, the thuggish refusal of a defendant’s legal counsel to follow procedure, offering loud yet vague threats of personal harm to the opposing counsel. “Call the bailiff!,” he thundered, at one point.

To quote the Japanese television producer in the Seinfeld episode about the pilot of George being made Jerry’s butler: “Is this common in your legal system?”

Some obscene emails from the founder, relishing a conspirator’s work for the original information theft, were rolled into this not-so-pretty package.

Anyway, I was glad we got that sorted out. We declined the project.

Regarding more conventional examples of fake clients, it always gives one a mildly nauseated feeling to go through several stages of an RFQ process where the meetings and calls become increasingly elaborate, but appear … it’s hard sometimes to put a finger on how and why … completely fake (as opposed to legitimate processes that may, of course, result in no sale or even no project being launched). But what SuccessFactors endured was not only worse than most examples of this, it was more deliberately plotted, and will give them more ammunition in court.

So, there are multiple variations on subterfuge in today’s B2B world, it seems. There is theft of ideas that goes beyond legitimate sharing and borrowing, to entire chunks of other people’s content being passed off as one’s own. There is approaching competitors or vendors with insincere RFQ’s — or in some cases, protracted efforts to build business relationships — in order to pump a good company for private information on false pretenses.

Finally, there is the “half-hearted M&A ruse”. Of course, when serious acquirers go into serious talks, no one is immune from the difficult decision as to how much information to share. If a serious, legitimate acquisition comes along, then any selling company will have to build a relationship and eventually share information.

But beware of smaller companies and nosy folks who may want to simply open your books and dig into your client list, for directly competitive purposes, with no funds or intent to acquire. A friend of my friend above had this happen. Not only did a large, legitimate acquirer come along later, but the smaller company that had nosed around earlier nearly killed the deal by casually sharing negative information with that bigger company and trying to talk down the valuation. At this point there was nothing even to be gained from such spiteful chatter. It’s simply the case that some people like to run intelligence-gathering schemes, and brag about what they come up with, almost as a hobby. It’s a great way to lose friends.

It is disheartening to think that these various behaviors are widespread, and merely slimy. It’s actually encouraging to realize that taken to certain extremes, they’re illegal. And serious examples are not all that widespread, fortunately. Perhaps, indeed, because they are illegal.

Is paying legal judgments just a cost of doing business? Is it even a deterrent to the individuals who cook up such schemes? It should be, given the inconvenience of paying judgments, shutting down a company that may be bankrupt from paying the judgment and legal costs, starting new businesses, etc.

The price is likely to be worse than just financial, and it should cause conspirators to think twice. Your name will be repeated a lot, and not in a good way. In a worse scenario, your depositions will be posted online, and whole groups of people will get together at work to watch them, with bowls of popcorn.

Mark March 29 on your calendar. That’s the date of the court hearing of Halogen’s motion to dismiss SuccessFactors’ claim.

2 Responses to “Fake-company RFQ’s: unethical or actually illegal?”

  1. Bill Laidlaw says:

    Our retail store gets shopped by larger competitors on a regular basis. Is it unethical? If they are taking sales staff away from legitimate customers my answer is yes. Is it illegal? I don’t think so. The few times that boundaries have been overstepped I have made it clear to the perpetrators the steps (Defcon 1) I would take to respond and they have backed off with apologies. My take is larger companies overestimate the value of these supposed proprietary numbers and insights.

  2. Andrew G says:

    There is definitely a sliding scale, legally. At some point, I suppose, a legal line is crossed.

    You can’t take extraordinary steps, let’s say, to sabotage a competitor’s business.

    We already have laws that are usually suitable to handle a lot of situations… you can’t murder your competitors for example :) . But the tort system has to be able to handle business harm beyond the criminal justice system’s capabilities.

    If I am at a party and pour Kra-Z-Glue into my neighbor’s coffee maker, I’ll pay a fine in small claims court, at best.

    If I pour Kra-Z-Glue into a competitor’s manufacturing apparatus, causing $50 million in damage, that will be a different story.

    Cases are complex, each case is unique, and to be sure, most cases of minor competitive intelligence are not only legal, but relatively common.


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