Cloak And Dagger In The Lab

J&J is being charged with espionage by a medical-gear rival

Dozens of executives were meeting at an Indianapolis hotel in September, 1992, to discuss top-secret marketing plans and the relaunch of a crucial product. Unbeknownst to them, a sleuth from a bitter rival had slipped in. Quietly, he picked up documents and competitive data that days later would be turned over to his company.

A scene from the murky worlds of Tom Clancy or John LeCarre? The alleged derring-do is actually part of a sweeping set of industrial espionage charges filed in federal court on June 19 by Indianapolis' Boehringer Mannheim Corp. against LifeScan Inc., a Milpitas (Calif.) unit of Johnson & Johnson. The suit provides an extraordinary glimpse at how a battle for information on rivals can spin out of control.

Boehringer and LifeScan are fighting tooth and nail for leadership in the $1.75 billion market for blood-monitoring devices for diabetics. Each has a 40% market share now. The suit alleges that senior employees of LifeScan "deliberately fostered an environment which made clandestine and illegal activities both routine and expected." J&J will not comment on specific allegations but admits it engaged in some "improper activities."

Intelligence-gathering among medical-equipment makers, say several longtime industry observers, is not new. One former industry exec recalls employees' being caught red-handed rummaging through a rival's dumpster. Indeed, Boehringer itself concedes, as J&J claims, it engaged in skulduggery on two occasions. At a 1992 convention, a Boeh-ringer employee represented himself as a potential LifeScan customer to hear about a new product. And in April of this year, a sales rep picked up a Life-Scan manual from a distributor's waiting room. It was eventually returned to J&J.

Still, nothing the industry executives have seen can match the alleged dirty tricks undertaken at LifeScan--a series of actions J&J Chairman and CEO Ralph S. Larsen now says "was not only incredibly wrong. It was incredibly stupid and will not be tolerated." Boehringer alleges, for example, that at a two-day company sales meeting in 1993, a Life-Scan marketing employee who has since left the company, Noureddine Akli, "eavesdropped" on the proceedings. The information he uncovered--that a device, Accu-Easy, was not selling well--was allegedly given to Akli's boss, Daphne Flamer, and turned over to the LifeScan sales force.

One source familiar with the operation says the alleged spying was carried out by a small team within the marketing department and by outside consultants. Boehringer alleges higher-ups encouraged spying with the incentive of three cash awards named for famous sleuths: "Inspector Clouseau," "Columbo," and "Mrs. Fletcher." Several J&J executives acknowledge the awards but insist they were designed to reward legitimate information gathering.

ENOUGH DISCIPLINE. J&J was informed of Boehringer's allegations in August, 1994, by lawyers for the company, and it launched its own investigation. Boeh-ringer sought compensation from J&J ranging from the right to license a J&J product to straight cash, but discussions between the parties broke off in mid-June, 1996. The lawsuit followed.

A J&J spokesman says that sufficient disciplinary action has been taken against offending employees and that steps have been taken to ensure the events do not recur. The company insists that none of its senior management was aware of the activities, and Larsen has criticized the events to managers of J&J units worldwide. Three former employees named in the suit have left the company, the spokesman says, but he refuses to say under what circumstances. One, Flamer, did not return calls. Another, Wei Huang, could not be reached. David Van Avermaete, still with the company and the most senior executive named, referred calls to a spokesman who declined to comment on individuals.

Still, the suit's allegations are numerous--and serious. Checking them out could keep both Inspector Clouseau and Columbo plenty busy.

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