FOCUS: Renault Affair May Spur Crackdown On Industrial Espionage

The media buzz surrounding the apparent attempt by three Renault SA (RNO.FR) executives to pass on confidential data on the car maker's electric vehicle program is spurring the French government to tighten legislation that could result in leaks of sensitive corporate information being treated as a crime akin to selling defense secrets.

Compared with other industrial powers like the U.S., France has lagged in protecting its companies from the unwelcome attention of foreign competitors and nations that don't refrain from espionage to gain economic and competitive advantage.

But that is likely to change following the revelation on Jan. 3 that France's second-largest car maker has suspended the work contracts of the three officials who had access to proprietary data on electric vehicle projects, following a months-long investigation. The managers face further questioning next week that could lead to their dimissals.

Industry Minister Eric Besson said the term "economic warfare" is appropriate in the Renault case, as foreign interests were at the root of the security breach. But he stopped short of identifying who was responsible.

However, extensive coverage in the French media has pointed the finger at China, which is making a massive effort to develop a world-standard electric vehicle industry. France's domestic intelligence service hasn't been formally asked to investigate the Renault case, but this is likely once the company files a civil suit.

The Renault episode "illustrates once again the risks to our companies from economic intelligence," Besson said last week, adding that he has instructed his ministry and other administration bodies to step up the requirement that intellectual property be better protected at French companies that receive money from the state.

France only started taking the threat of industrial espionage seriously seven years ago after a parliamentarian, Bernard Carayon, issued a report underlining how vulnerable the country's private sector is to intrusion.

"In the U.S., as in China and Russia, the doctrine is both offensive and defensive," Carayon said in an interview published last week. "But here, it is insufficiently defensive and not at all offensive."

Besson said in a radio interview last week that the government is preparing draft legislation to protect industrial secrets in the same way that breaches of defense secrets are punished by criminal penalties. The idea is to make it a criminal offense "to obtain, keep, reproduce or transfer to unauthorized third parties secret information of an economic nature."

Following Carayon's 2003 report, successive French governments have tried to educate companies, especially smaller and midsized ones, on the dangers of leaks of sensitive corporate information, but officials say there is still no real corporate culture that includes a need to preserve secrets.

The head of France's intergovernmental agency dealing with economic intelligence is quoted as saying in an interview published in Sunday's edition of the Journal du Dimanche that the situation is "alarming," with several thousands of cases recorded over the last five years. They involve all sectors, all regions and companies of all sizes, Olivier Buquen said.

Whereas in the past it was the big industrialized nations that resorted to industrial espionage, the number of countries where such practices originate is on the increase as companies in less mature nations race to reduce their technology gap. The U.S. recognized the danger 15 years ago when Congress passed its Economic Espionage Act, which imposes criminal penalties much more severe than those for intellectual property theft.

For Renault and its alliance partner Nissan Motor Co (7201.TO), the stakes are huge. The companies are investing EUR4 billion to ensure a place as market leader when electric vehicles become a mass market, and allowing competitors to get hold of technical secrets would be a considerable loss of their technical advantage. China is on a massive push to develop its own electric vehicle industry, and wants to invest EUR11.5 billion in the coming years.

Renault's chief operating officer, Patrick Pelata, said in an interview published in Le Monde on Saturday that his company had been the object of an "organized international" network tasked with extracting information from the Renault employees. "This was the work of professionals," he said. However, Pelata said the information that was leaked apparently doesn't include highly sensitive technical information on electric vehicle batteries, such as the way the batteries are assembled and the chemistry of their electrodes. Instead, the information apparently involved less sensitive data on vehicle architecture, costs and Renault's economic model.

Some observers say the outrage of French politicians over the security breach at Renault is somewhat ironic, as France has its own sulfurous reputation as a prime actor in economic intelligence gathering, sometimes through underhanded methods. An embarrassing case came to light in the 1980s when it was revealed that seats in the first-class compartments of some Air France planes had been bugged.

An American diplomatic cable made public by WikiLeaks last week quoted a German satellite company executive who referred to France as the "evil empire" for technology theft, and claimed that France inflicts more damage on the German economy through spying than China and Russia together.

-By David Pearson, Dow Jones Newswires; +331 4017 1740, david.pearson@dowjones.com

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