Ralph Nader torpedoes the Corvair. Lee Iacocca rescues Chrysler. Ross Perot storms out of General Motors. We can always count on Detroit for a steady supply of outrageous characters and unpredictable plot lines. The latest tale out of Motown could be titled “GM Betrayed!” It stars Inaki Lopez, the erstwhile purchasing czar known as “the Grand Inquisitor,” who now stands accused of being the Grand Pilferer. Co-stars include GM chief Jack Smith, the mentor who says he was doubled-crossed, and Harry Pearce, the crusading GM attorney who hopes to do to Lopez what he did to NBC’s “Dateline.” The story features millions of bytes of allegedly stolen trade secrets, worth millions of dollars.
Just two months ago GM bid a mournful farewell to Lopez, a.k.a. J. Ignacio Lopez de Arriortua, as he left his turnaround job at GM to go work for Volkswagen AG. Sad, said Smith, but no hard feelings. Now GM has accused Lopez of stealing cartons of confidential data such as pricing lists and new product designs. German prosecutors have said they are launching a criminal investigation. Lopez has denied the charges. The team of GM executives he brought to VW with him sued GM for defamation in a separate action. GM had asked a court to prevent them from working for VW, but the court refused.
In essence, the prosecutors will investigate whether Lopez, who appeared to be agonizing over whether to stay with his friends at GM or go rescue VW, had already orchestrated an airlift of documents and computer discs. Did he also, as GM says, push up strategy meetings so he could gather information and prepare his team for an exodus? Before this is over, it could prove to be the biggest-and most public-of a growing number of intellectual-property cases. At the moment, heads are still spinning. “It’s incredible,” says Donald Trauscht, CEO of Borg-Warner, a supplier to both companies. Adds one Detroit executive: “Everybody sits there and says, ‘This can’t be true’.”
True or not, the stakes are high for both GM and its European archrival, VW. Theft on the scale that GM charges would mean “enormous” damage, says one official at Adam Opel AG, the GM unit in Germany. At the same time, GM has put itself on the line, not only by leveling serious charges but by suggesting that it invested enormous trust in the wrong man and that it has lost a critical competitive edge.
For VW and its controversial chairman, Ferdinand Piech, the verdict on Lopez will be critical. Piech, who is struggling with unions and suppliers in the German auto industry’s worst crisis since World War II, has shoved aside top executives to make room for Lopez and vigorously defends him. But things got messy last week. The influential German magazine Der Spiegel put Lopez on its cover, calling him Der Skrupellose, or Unscrupulous One. And Piech told the Financial Times that Lopez had approached him (not the other way around) last year, only to be contradicted the next day by Lopez, who said in a speech that a middleman contacted him. Both men refused requests for interviews.
‘A message’:There will be few answers to anyone’s questions until German prosecutors complete the investigation, which could take six months, or GM and VW settle the case, which some sources say is likely. Meanwhile, Lopez defenders say a defensive GM, angry suppliers and displaced VW executives have hyped the story. GM gave Lopez too much power, says one insider. “Now they want to send a message: ‘You can’t expect to embarrass GM and get away with it’.”
Lopez won recognition at GM in the 1980s in Russelsheim, Germany, where he and Jack Smith whipped the European operation into shape. A year ago when Smith took over as GM’s president, he invited his buddy to work the same cost-cutting, efficiency-enhancing miracles stateside. Lopez was colorful from the start, with his nicknames (the “Russelsheim Strangler” was one), odd inspirational gimmicks and healthfood Warrior Diet. He quickly became the media’s favorite symbol of the new fighting GM. Less amused were suppliers, some GM staff and unions. Lopez tore up contracts and, some suppliers say, shared one contractor’s data with another. (The latest news “gives those charges new credibility,” says Maryann Keller of Furman Selz.)
Despite, or because of, Lopez’s provocative style, he had management support. And Lopez was a walking advertisement for company loyalty. “I’d cut off my right arm for my leader,” he liked to say. “I have only two words for Jack Smith: ‘Yes, sir’.” In February, when rumors began to float that Lopez was talking to VW, GM promoted him. On March 8 Lopez attended an Opel strategy meeting in Germany, where 10 years of product-design plans were presented. On March 10 he said he was leaving. Two days later he changed his mind, accepting another promotion. On March 15, hours before a press conference to announce that Lopez would run GM’s North American Operations division, he said he was going after all. Left at the podium, a strained Smith lamented GM’s loss.
Within weeks, GM’s lament turned to fury. Seven GM executives followed Lopez to VW and 40 others were approached, leading GM to get an injunction in Germany against more VW hiring. Then GM pressed its charges against Lopez and asked German authorities to investigate. At a press conference, Lopez denied taking anything but his “years of experience.” That rings true to Lopez believers. GM is “overdoing it,” says Curtis Hoxter, a PR executive and an acquaintance of Piech. Other skeptics say GM will have a hard time proving theft when most critical data must be in Lopez’s head.
‘Giant problem’:Corporate espionage experts, though, take the charges seriously. Theft of intelligence has “become a giant problem,” says consultant Richard J. Heffernan. Computers make it easier, decline in corporate loyalty makes it more tempting and competition makes it more costly. On the heels of Lopez’s defection, GM introduced its first non-compete contracts.
While GM refuses to release any evidence, many observers give the charges credence because of their respect for Harry Pearce, the general counsel who faced down NBC after the network aired a program about allegedly defective GM trucks. NBC ran a televised apology after Pearce, in a scathing news conference, disclosed that NBC had rigged a demonstration with explosive devices. With a collection of swords hanging in his office, Pearce has a warrior image to match Lopez’s. Behind him is CEO Smith, who has a reputation for straight shooting, and GM chairman John G. Smale, who, as head of Procter & Gamble in the ’80s, sued everyone from diaper competitors to a TV weatherman spreading rumors about Devil worship at P&G.
Anticipating a new, tough environment for corporate defectors, even rivals are cheering GM’s hard line. “Every time they stand up and fight we applaud,” said one Chrysler executive. Some edgy suppliers, who have been squeezed by Lopez’s penny-pinching ways in Europe, are rooting for GM, too. The latest Lopez joke in Germany goes this way: an auto-parts maker tells Lopez he has some good news and some bad news. The bad news? asks Lopez. “We’ve put out a contract on your life with a professional killer.” The good news? “He’s very cheap.” Funny enough-but to GM, the Lopez affair is no laughing matter.
The GM/Lopez face-off is shaping up as the biggest-and most public-of a growing number of disputes over allegedly stolen corporate secrets. Among the “intellectual property” cases:
Cookie wars:In 1984 Procter & Gamble sued Frito-Lay, Keebler and Nabisco for allegedly stealing its patented process for making soft-chewy cookies. One charge: Keebler took aerial photos. The case was settled in 1989 with the three companies forking over $125 million to P&G.
Computer caper:Texas Instruments claims two former research engineers stole trade secrets when they left the company in 1986. Facing criminal charges, they said they’d simply copied their own computer files. A jury disagreed-and the Texas Court of Criminal Appeals upheld the conviction.
Drug data:In an FBI sting, two scientists handed over documents and vials to an undercover agent for $1.5 million. The pair were convicted in 1991 for conspiring to sell trade secrets involving Schering-Plough’s cancer drug interferon and Merck’s animal drug ivermectin.
Chip crimes?In a case that’s rattled Silicon Valley, California prosecutors are trying a software entrepreneur and a former Intel employee for allegedly stealing proprietary microchip information. The three-month-long trial may go to the jury this week. Both men deny the charges.
E-mail exchange:A California grand jury three months ago accused a former Borland executive of sending Symantec CEO Gordon Eubanks (right) company secrets through electronic mail. They say they’re innocent.
