Protecting Competitive Information: The Lopez Case
This is a case concerning Mr. José Ignacio Lopez de Arriortua, the head of global purchasing at General Motors who left to join Volkswagen in a similar position in March 1993.
Within a month, GM claimed that Mr. Lopez had taken with him highly secret information about their Opel division in Germany. Shortly thereafter, GM filed a complaint with the German courts alleging industrial spying and theft. In subsequent months, General Motors went to court to prevent Mr. Lopez from working for Volkswagen, and also attempted to prevent seven other GM employees who had left with him from working for VW. At the time of this writing, many of the issues are still in the courts awaiting decisions. The German courts ruled, however, that Mr. Lopez and his team could begin work at Volkswagen.
Although the details are not entirely clear and the situation may be resolved through legal remedies or an out-of-court settlement by mid-year 1995, the following general account based on published reports provides a springboard for considering important ethical issues in cases like this.
Background at General Motors
General Motors has been the largest auto manufacturer in the world for several decades. In the 1980s, however, GM began to lose market share to Japanese and German auto makers, and by the early 1990s, it was also dealing with a strong resurgence of Ford and Chrysler. In particular, GM had been slow to change its manufacturing processes, and consequently found itself competing with higher cost structures than many of its competitors.
One bright spot in the GM story was the performance of its German company, Adam Opel AG, which had slashed costs considerably through a very aggressive approach to its suppliers. The architect of this initiative was José Ignacio Lopez, Opel's head of purchasing. Through what some called heavy-handed tactics, Mr. Lopez had successfully renegotiated many supplier contracts to provide much lower costs, and he was given much of the credit for the turnaround of GM in Europe. By 1993, General Motors was a very close second to Volkswagen in auto production in Europe.
In the meantime, GM had brought Mr. Lopez to Detroit in May 1992 to replicate his achievements as the head of global purchasing for the entire organization. Using the same aggressive approach, he soon began to make a difference in the company and was named the auto industry's "Man of the Year" for 1992 by a major trade publication in Detroit. Ironically, only a few months later, he was the center of a major confrontation between General Motors and Volkswagen.
Lopez Moves to Volkswagen
Volkswagen, the largest auto producer in Europe, had fallen on hard times in the early 1990s. Like GM, it was having a difficult time keeping its costs in line and staying competitive. Over the past several years, it had seen General Motors and its Opel company cut into its market share. Obviously, VW was well aware of the role Mr. Lopez had played in the GM resurgence.
Some time in early 1993, Volkswagen and Mr. Lopez began to talk. Mr. Lopez had reportedly become disenchanted with his employer over what he saw as a broken promise. Apparently feeling betrayed, he decided to leave GM.
General Motors Reaction
Once Mr. Lopez told GM Chief Executive John Smith that he was leaving, events moved swiftly. A week later, on March 16, 1983, Mr. Lopez was appointed head of purchasing and production for Volkswagen, and within another week, seven of his colleagues, who had followed him from Opel to Detroit, resigned from General Motors to join him at VW. On April 7, Mr. Smith made the first serious allegation that Mr. Lopez may have stolen secret documents and plans about future GM and Opel products and strategies, a charge Mr. Lopez denies. Six weeks later, GM went to court in Germany alleging that Lopez and others had stolen secret competitive information.
In the two years since, charges and counter-charges have been made by individuals and the companies concerned. Boxes of documents were found and seized by the courts. Volkswagen denied the material was secret and went so far as to suggest the documents were planted by Opel security forces. Opel and GM attempted to ban Lopez and the other seven from working for VW, but they lost this case in the German Labor Law court in Wolfsburg in September 1994. At this point, Mr. Lopez had been on the job for over a year and was receiving full support over the incident from the Volkswagen head, Ferdinand Piëch.
Discussion Questions
It is important to note that none of the charges against Mr. Lopez has been established in court. It is also true that this case raises complex legal issues that would require sophisticated legal analysis. For our purposes, the case can be used to illustrate a series of ethical questions that arise when "intellectual property" is involved and "knowledge workers" move from one job to another.
- There seems to be general agreement that Mr. Lopez was the architect of the process he brought to Opel and subsequently to General Motors.
- What does a manager like Mr. Lopez have a right to take with him and what is GM's "property"?
- How broadly can one interpret the concept of intellectual property?
- Does this concept apply to knowledge obtained before coming to work for a company if that knowledge is given a forum in which to grow at the new company?
- Mr. Lopez apparently persuaded seven of his staff to leave General Motors and to join him at Volkswagen.
- Is it ethical for someone going to a major competitor to persuade others to leave with him and to bring their technical expertise to the venture?
- Does the ethical issue change if only one person were leaving? If an entire department left?
- Does it make a difference how the individuals were treated (e.g., Lopez's apparent perception of a broken promise)?
- What actions are appropriate by the "sending" company to prevent such losses?
- Boxes of GM documents were discovered in a domicile used by the General Motors group that followed Mr. Lopez to Volkswagen. VW asserted that none of the material was secret or significant competitive information.
- What kinds of documents, if any, is it legitimate for the departing managers to take?
- What would be inappropriate or unethical to take?
- Mr. Lopez obviously holds a great deal of information in his head about GM's confidential, competitive information (e.g., strategic plans for new products, forecasts on production). But some of this information (e.g., effective strategies for dealing with particular suppliers) resulted from applying his own distinctive expertise.
- Can his use of his knowledge be considered unethical theft or possession of competitive information?
- What guidelines would you propose to assist a high level, experienced manager coming from a competitor in applying or ignoring what he or she knows (without benefit of documents)?
Lopez indicted in GM theft
Ex-executive accused of giving trade secrets to VW; feds want him brought to U.S.
By Bill Vlasic, Daniel Howes and Mark Truby / The Detroit News
DETROIT -- The U.S. Justice Department on Monday unsealed a six-count indictment charging former General Motors Corp. purchasing chief J. Ignacio Lopez de Arriortua with stealing GM documents and funneling them to the German automaker Volkswagen AG .
The charges mark the latest twist in the bizarre international saga involving Lopez, the fiery Spaniard who streamlined GM's purchasing operations before jumping to VW in 1993.
The indictment, filed in federal court in Detroit, charges Lopez with wire fraud and transportation of stolen property, including detailed designs of future GM automobiles and assembly plants.
A federal grand jury returned the indictment last October, but it was kept secret for unknown reasons until Monday. The Justice Department said it will make a formal request to Spain, where Lopez lives, for extradition to the United States.
The long-running Lopez controversy is one of the highest-profile industrial espionage cases ever. Few such cases result in criminal charges, especially against such a high-ranking executive.
GM declined comment on the specific charges against Lopez, but said it has and will continue to cooperate with federal investigators.
Lopez, a native of Spain, was unavailable for comment. His Washington attorney, Plato Cacheris, called the indictment an "exercise in futility." He noted that GM and VW settled a civil lawsuit in 1997 and German authorities dropped criminal charges against Lopez a year later.
"This is a case that will not go to trial," said Cacheris, a high-profile defense attorney who previously represented former White House intern Monica Lewinsky. "Mr. Lopez will not return to the United States, and the Spanish government will not extradite him."
Lopez was the only defendant named in the indictment. The 58-year-old Spaniard resigned from VW in 1996, and is now private investors on his plan to build an independent automotive plant in Spain.
William Hundley, a Washington attorney representing VW, said the automaker is cooperating with the investigation. "The indictment really has no impact on us," he said.
The indictment charges Lopez took confidential GM documents detailing future car and auto plant designs and proposals, as well as material outlining the purchasing cost savings for GM's Adam Opel AG unit in Germany.
Lopez faces four counts of wire fraud, and two counts involving the interstate transportation of stolen property. Each count of wire fraud carries a maximum penalty of five years imprisonment and a $10,000 fine. The other charges each carry a maximum penalty of 10 years in jail and a $10,000 fine.
There was no immediate explanation from the Justice Department why the indictment was sealed for more than seven months. However, legal experts said it probably indicates that authorities were negotiating for his voluntary surrender or were hoping to arrest him outside of Spain, where he is still a revered industrial figure.
"It may be that some negotiation was going on that fell apart," said Jerry Israel, a retired University of Michigan law professor.
Spain denies requests
Spanish authorities routinely deny requests to extradite Spanish citizens for trial in foreign countries. Failure to extradite Lopez would mean he would not be prosecuted in U.S. courts.
But it also would mean the man promoted by GM and wooed by VW likely would never again work in the global auto industry outside of Spain.
Lopez, who dreamed of building the world's most efficient auto factory that he dubbed Plant X, has consistently professed his innocence.
Cacheris said he knew that federal investigators were interviewing witnesses in Europe late last year, but was surprised by the indictment and had no idea why it had remained sealed for months.
"It was probably (unsealed) in response to GM pressure," he said. "This case is a waste of time and energy for the Department of Justice."
Lopez in poor health
Cacheris said Lopez is suffering severe health problems. In 1998, Lopez was seriously injured in an auto accident in Europe that left him in a coma for several days and hospitalized for three months.
"His doctors say he has serious memory loss," Cacheris said.
The Lopez affair is one of the most notorious to envelop the international auto industry since John DeLorean's indictment in the 1980s for allegedly selling cocaine to fund his fledgling auto plant in Northern Ireland.
Eccentric and dynamic, Lopez made a name for himself at GM Europe in the 1980s as a deputy to John F. Smith Jr., GM's international chief at the time. When Smith took over as GM's chief executive in 1992, he brought Lopez to the United States to oversee corporate purchasing.
Lopez made an immediate impact by forcing GM suppliers to dramatically cut prices, a major component in GM's financial turnaround. Supplier often complained of his tough tactics, saying he tore up contracts and shared confidential material with their competitors.
Zealous personality
Still, he captivated Detroit with his zealous personality. He dubbed his subordinates "warriors," and told them to follow a diet that eschewed sugar and red meat in favor of fruit.
A struggling Volkswagen wooed Lopez to join it in 1992. Smith tried to keep Lopez by offering him the job as head of GM's North American operations, but Lopez jumped to VW.
His departure set off a chain of events seemingly lifted from an international spy novel. GM accused Lopez of stealing boxes of internal documents and taking them to VW. A civil lawsuit was filed by GM in federal court in Detroit, and was settled in 1997 when VW agreed to pay GM $100 million and buy another $1 billion worth of GM auto parts.
In 1998, a German court dropped criminal charges against Lopez for spying. In exchange, Lopez agreed to contribute $230,000 to charity.
Effectively exiled to his native Spain, Lopez has since been seen less and less on the global automotive stage. Last summer, at a conference in Madrid, he detailed plans for his new car company. It would be called Lora -- LO for Lopez and RA for Arriortua.
He said the company would build four models that would be assembled by 50 suppliers in a new state-of-the-art plant envisioned for his hometown of Amorebieta, Spain. The first model, he said then, would premiere little more than a year from now. Financing is not yet in place.
The Lopez saga
1980: Spanish native J. Ignacio Lopez De Arriortua joins GM Espana as manager of engineering and rises through the ranks to become head of purchasing for GM Europe.
May 1992: Lopez named General Motors Corp.'s vice-president of worldwide purchasing and quickly gains a reputation as a relentless cost-cutter with a flair for the dramatic.
March 9-15, 1993: In the course of a week, Lopez signs an employment contract with German automaker Volkswagen AG , resigns from GM, changes his mind about leaving GM and finally decides again to join VW. The defection draws international attention.
April 30, 1993: GM seeks criminal charges against Lopez in Darmstadt, Germany, VW's home state, for industrial espionage.
June 22, 1993: Police in Germany find four boxes of GM documents in the former home of two Lopez associates who defected with him to VW.
October 1993: A federal grand jury in Detroit begins investigating whether Lopez stole secrets from GM before leaving for Volkswagen.
November 1996: Lopez resigns from VW.
January 1997: VW agrees to pay $100 million to GM and buy $1 billion in auto parts from GM to settle GM's industrial espionage lawsuit against VW and Lopez.
February 1997: VW returns four binders full of trade secrets to GM.
July 27, 1998: German authorities drop their investigation against Lopez after the former purchasing star pays $225,000 to charity.
May 22, 2000: U.S. authorities unseal six-count federal grand jury indictment against Lopez. He is accused of stealing GM documents detailing new car models, a proposed assembly operation and supplier prices.
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