Situation Report: Samsung accuses LG of corporate espionage

By TIMOTHY W. COLEMAN | intelNews.org |
Most technology companies spar with rivals over patent portfolio infringement, pricing arrangements, bundling of products and services with partners, and other trade practices. More recently, technology companies have been waging a war for talent and human capital. But in Korea, a dispute between Samsung and LG Electronics has been taken to a new level with Samsung publicly accusing LG of conducting corporate espionage. According to VenterBeat, Samsung has leveled corporate espionage charges against an employee at LG regarding particularly sensitive display technology that is used in smartphones and other mobile devices. This technology is of great value to Samsung, as its displays are used in nearly 98 percent of mobile phones around the globe. The critical display technology, active-matrix organic light-emitting diode, or MOLED, technology, is an extremely thin-film, which is a lynchpin technology for televisions and mobile devices. This technology replaced previously existing display technologies because it required significantly less power and therefore less battery drain and it also increased response rates to mere milliseconds. Such technology was perfectly positioned to help spur on the proliferation of the mobile and smartphone boom.Samsung is alleging that LG essentially poached one its lead engineers who had helped develop the next generation of MOLED technology, called Super-AMOLED. The former Samsung employee is being accused of violating a non-compete clause, which prevented the employee from working for a rival company for two years after leaving Samsung. As was reported by The Korea Times, LG stated that the employee, who now works at LG, “voluntarily quit and voluntarily chose to work for us and we would do our best to protect Kim’s [the former Samsung employees] rights”. A conflicting report by Bloomberg News paints a more complex and coordinated corporate espionage picture. The article states that the charges of trade secret theft and outright corporate espionage do not stem from the fact that a single employee left Samsung for LG, rather that as many as six LG employees were involved, two of whom were former Samsung employees. An indictment filed on behalf of Samsung in Suwon District Court, South Korea, alleges that six unnamed individuals at LG “stole or leaked” Samsung’s Super AMOLED mobile technology.

To further complicate the picture, the Yonhap News Agency reports that there were 11 people involved in the theft and that six were former or current researchers at Samsung. The article goes on to assert that senior level “executives” at LG participated in the thievery. Officials at Samsung told the Yonhap News Agency that “executives of LG Display, which lacks OLED technology and related human resources, took the lead in this criminal act in order to overcome their shortcomings as quickly as possible”, adding, that Samsung “is now on the verge of losing trillions of won from the leak”.

Representatives from LG have vigorously denied the charges saying: “LG Display’s products boast excellent technology and even received a presidential award […]. We do not need Samsung’s technology which works under a totally different display system”. Samsung is seeking recourse in the courts demanding that LG make a public apology, pay a fine of 10 million won a day (roughly about US$ 10,000) and guarantee that it will no longer steal Samsung engineers moving forward. LG is filing a countersuit alleging defamation. As the war of words and legal action continues, it is important to note that this is not the first time these two firms have clashed in recent months. In fact, in March of this year, a biotechnology employee from LG quit and started working at Samsung. LG filed a lawsuit claiming that the employee violated a non-compete agreement.

As intelNews reported on June 28, on the subject of India’s corporate espionage boom, efforts to effectively compete against corporate rivals can be taken to the extreme and cross the boundary between legal and illegal initiatives. The situation between Samsung and LG, with accusations of full-blown corporate espionage and counter-allegations of defamation, shows that this is not just a simple instance of a battle for talent. It represents the continued graying of corporate strategies to acquire human capital and, potentially, the underlying technologies that provide firms with competitive advantages. The public aspect of this dispute and the criminal nature of the accusations are troubling indicators.

The conflicting press reports about the number of individuals involved prevent, at present, the emergence of a clear picture of the complexity and breadth of the supposed corporate espionage efforts. However, as further details are likely to come into view, clarification on the number of people involved and the seniority of the accused LG executives will be important pieces of the puzzle and possible conspiracy.  As competition between technology rivals, Samsung and LG in this case, continues to heat up, a new breed of corporate strategies, which seems to include quasi-economic warfare tactics of corporate espionage, appears to be increasingly leveraged.  It will be interesting to see what the ultimate outcome of this case will be. The fallout from this could be significant if Samsung’s accusations of espionage against LG are substantiated and proven in court.