This article originally appeared in the July 2024 issue of Security Business magazine. Don’t forget to mention Security Business magazine on LinkedIn and @SecBusinessMag on Twitter if you share it.
Recently, I received a random marketing call from someone purporting to be from my cable/internet/phone provider. I was tempted to ignore it, but having experienced recent internet connectivity issues, I elected to take the call as an opportunity to register my concerns. The caller identified himself, stated he was with the cable company and said he was calling to ensure that I was happy with my service. This seemed a little unusual to me and somewhat unprecedented in our many years with this company, so, I was mildly suspicious. He had detailed information about my account, the pricing, my equipment, etc., which added a degree of authenticity to the call and put me at ease that he was earnestly from my actual service provider.
My skepticism was also the result of my professional experience. I have litigated and written about cases involving theft of trade secrets, improper customer solicitation and unfair competition.
In the security industry, information about customers’ current pricing, contract information, equipment, and related account information is highly valuable to identifying target customers and marketing to prospective customers. Misappropriation of that information permits competitors to target customers with specific price and equipment proposals that the competitor may not otherwise offer.
Case in Point: ADT vs. Skyline Security
This issue came to the forefront in early 2024 as part of a lawsuit filed in federal court by security giant ADT against Skyline Security and several of its managers for allegedly stealing ADT’s trade secrets and using that information to poach thousands of ADT’s customers across the country.
ADT alleged that, since at least 2018, the defendants were able to identify, target, and then mislead ADT’s customers into making changes to their home alarm systems. This, ADT alleged, yielded millions of dollars of ill-gotten profits for Skyline in its capacity as a dealer for Brinks Security, a leading competitor of ADT.
ADT – like all other sophisticated security providers – protects its customer information carefully. This includes password protection and multi-factor authentication, as well as other types of access controls, such as limiting access only to those select employees who need access to it to perform their duties.
Despite this, ADT alleged that some of the defendants devised a scheme to successfully gain access to ADT’s proprietary business information and trade secrets, which was then sold to Skyline and perhaps other competitors.
One of the defendants was a former ADT employee who, after his termination, used the employee access credentials of a former colleague and friend. This level of access enabled the terminated employee to obtain customer lists and related account information such as terms and duration of contracts, equipment, names of homeowners, pricing, and other valuable details about accounts. In turn, ADT alleged this information was sold and used by Skyline to target ADT’s customers.
Armed with ADT’s proprietary information, Skyline’s sales representatives allegedly misled many existing ADT customers into believing, among other things, that the Skyline agent was updating the customer’s equipment, when in reality the Skyline agent was switching out the ADT system for a Skyline system; that ADT has been bought out or is going out of business and that Skyline is taking over ADT accounts; and that Skyline is a subcontractor, installer, or is otherwise affiliated with or acting on behalf of ADT.
Sales Ethics
Because these are common tactics used by fraudsters, the security industry has its own Code of Ethics and Standards of Conduct, which requires that companies “truthfully and clearly identify themselves by name…at the initiation of a sales presentation, without request from the consumer.” It also prohibits common deceptive sales practices, such as claims that a competitor is going out of business or that the company is taking over the competitor’s accounts, as well as any offer of an “update” or “upgrade” of an existing system that requires the execution of a contract with a new security services provider.
As a result of telephone and door-to-door sales calls, Skyline signed many customers to new, long-term contracts (thereby binding many of those customers both to Skyline and ADT). ADT alleged that, since early 2019, it received more than 700 documented complaints from its customers about Skyline sales agents using deceptive and misleading sales tactics in attempting to convert their accounts.
ADT’s complaint against Skyline alleged various causes of action – including claims under Florida’s trade secret act, the federal trade secret act, unfair competition, tortious interference with contract, and civil conspiracy.
The lawsuit was quickly resolved – likely with a substantial settlement paid in favor of ADT and a cancellation of any contracts wrongfully entered into by Skyline with ADT’s customers.
That said, the case is instructive on how not to compete. Also, it is a clear example of the damage that can be caused by the theft or misappropriation of proprietary and sensitive customer account information. The lessons here go in both directions. Do not steal or encourage others to steal your competitor’s trade secrets, and be sure to protect your own.
