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Kraft Sues Big Pizza Rival Over

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									Kraft Sues Big Pizza Rival Over Loss of Trade
Secrets
 By GREG WINTER
 Published: February 20, 2001


 In a case that brings the cloak-and-dagger world of corporate
 espionage to, of all places, the frozen pizza aisle, Kraft Foods, the
 nation's biggest food producer, has sued its biggest rival in the
 grocery pizza business, Schwan's Sales Enterprises, charging that
 Schwan's improperly obtained trade secrets.

 The lawsuit, filed last week in an Illinois state court, accuses Schwan's
 of benefiting from ''deception and subterfuge'' to obtain confidential
 documents about Kraft's frozen pizza plans, the timing of new
 products, research on consumer preferences and other ''nonpublic,
 highly valuable information.''

 According to Kraft's complaint, the two companies combined sell
 about $1.75 billion of pizza a year, so ''even a slight advantage in the
 marketplace could mean millions of dollars of sales gained or lost.''

 It is not the first time that assertions of corporate spying have
 entwined Kraft, the country's leading frozen pizza maker with
 Tombstone and DiGiorno, and Schwan's, a private food company
 based in Marshall, Minn., that is second with its Tony's and
 Freschetta brands.

 In an article he co-wrote in The New York Times Magazine on Dec. 3,
 2000, Marc Barry, a freelance corporate intelligence agent, said that
 in 1997 Schwan's paid him to find out when Kraft planned to
 introduce the new rising-crust pizzas that would soon transform the
 frozen pizza industry.
He said in the article that after ''a day and a half of phone work,''
using an array of false names to throw Kraft off the track of what he
was doing, he had learned the basic elements of Kraft's production
plan.

Mr. Barry is not a defendant in Kraft's suit, despite the assertions in
the article.

''The irony of the situation,'' Mr. Barry said in an interview, ''is that as
a result of looking for evidence to use against me, it appears that Kraft
has stumbled upon yet another operation in progress.''

Kraft, a Philip Morris unit, is suing Schwan's and Timothy Cauley, a
former manager at the A. C. Nielsen market research firm who served
as a consultant for Kraft. According to the complaint, Mr. Cauley used
his access to amass a wealth of secret documents on Kraft's strategy
for the frozen pizza business, and then quit to take a job at Schwan's
in violation of a confidentiality agreement.

While the squabble may seem comical, the stakes are quite high. At a
time when food companies of every kind are struggling to achieve
unit-sales growth of 1 or 2 percent a year, any new product or
successful innovation can quickly become the source of intense
competition. Sales of frozen pizzas are growing at more than 7
percent a year, driven in part by the rising-crust craze.

So companies go to some lengths to protect proprietary information -
- encrypting databases with passwords and posting security guards at
office doors. And they hire spies, known in the industry as ''kites,'' to
ferret out the secrets of competitors.
Reliable statistics from neutral sources on the theft of secrets are even
harder to come by. A 1999 study commissioned by a security trade
group, the American Society of Industrial Security, estimated that
Fortune 1000 companies lost $45 billion that year to information
theft, with a typical company experiencing two or more incidents in
the year. Technology companies were said in the study to be the most
frequent victims, but the damage done to manufacturers by each
incident was said to be higher, at almost $50 million.

Kraft has not said how much it thinks it lost from Mr. Cauley's
defection; it will wait until the case reaches trial before fixing an
amount. As its legal basis, Kraft cites the Illinois Trade Secrets Act,
which it says classifies information as confidential as long as a
company makes ''reasonable efforts'' to keep it that way.

Neither Schwan's nor Mr. Cauley returned repeated calls for
comment.

								
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