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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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