Boeing probe intensifies over secret Lockheed papers
When Boeing fired a 60-year-old engineer named Ken Branch in 1999, he was cited for possessing proprietary Lockheed Martin rocket data in violation of company policy. Boeing and Lockheed were...
Seattle Times aerospace reporter
When Boeing fired a 60-year-old engineer named Ken Branch in 1999, he was cited for possessing proprietary Lockheed Martin rocket data in violation of company policy.
Boeing and Lockheed were rival contenders for an enormous Air Force rocket program that both considered key to their future military and space prospects. And Branch, who had previously worked for Lockheed, apparently brought the documents with him when he joined the competition. Despite the intense rivalry over the rocket program, Boeing promptly alerted Lockheed and the Air Force that it had found the documents in Branch's files — a total of seven pages.
That disclosure seemed like an impressive act of corporate honesty — until three years later, when Boeing attorneys let slip that the document trove found in Branch's cubicle actually contained 3,000 pages of Lockheed papers.
When the Air Force later asked Boeing for a complete accounting, the tally mushroomed to 25,000 pages.
Troubled by Boeing's constantly changing story and the massive quantity of purloined Lockheed trade secrets unearthed by subsequent reviews — more than 66,000 pages to date, held by at least five different Boeing workers — the Justice Department and Lockheed are investigating exactly how Branch came to join Boeing, how much information he may have taken with him and how it was used.
And because of the document scandal, the Pentagon in 2003 stripped Boeing of launches worth $1 billion and suspended its rocket division from bidding for new government business. But the worst may be yet to come.
Ongoing criminal and civil inquiries have spread into many corners of Boeing's $27 billion Integrated Defense Systems unit. Current and former Boeing executives could face indictments, and Boeing could owe Lockheed billions of dollars in damages.
Additionally, the probes have intersected with the ever-expanding investigations of Darleen Druyun, the former Air Force acquisitions officer who is serving a nine-month prison sentence for improperly negotiating a job with Boeing.
Branch's story is an intriguing tale of corporate spies, whistle-blowers, big-dollar defense contracts and alleged cover-ups.
Yet most of it might have remained secret had Boeing not chosen to fight a legal battle with Branch after firing him.
Acquisition of McDonnell Douglas keeps Boeing in the running
Boeing's all-out effort to win the Air Force's massive new rocket program began as a four-way competition. The Air Force had started the so-called Evolved Expendable Launch Vehicle (EELV) program in 1995 to create a new generation of advanced yet affordable rockets.
At the time, the government was racing to build new space-based defense and spy networks, and telecommunications providers were planning scores of commercial-satellite systems.
Boeing's space and defense revenues in 1996 were $5.8 billion, small compared with its commercial aerospace sales of $16.9 billion. To capitalize on the massive growth opportunities it saw in space, Boeing had purchased the rocket divisions of Rocketdyne in 1996 and would acquire the satellite-making arm of Hughes in 2000.
Anticipating a winner-take-all contract that the Air Force estimated would be worth more than $15 billion over 20 years, as well as a leg up in the commercial launch business, Boeing and its three rivals saw the EELV as a pivotal project.
Boeing and one other contender were eliminated in the Air Force's first cut, on Dec. 20, 1996.
But Boeing stayed in the game because five days earlier it had announced plans to merge with McDonnell Douglas, one of the two EELV finalists. Boeing formally inherited McDonnell's Delta IV rocket program when the merger closed in August 1997.
At the same time the merger was being hammered out, another fateful decision was being made much lower in the ranks at McDonnell: the hiring of Ken Branch away from rival Lockheed.
Nearly everyone involved in Branch's hiring and in the subsequent investigations and lawsuits declined to comment for this story, citing the litigation. But documents in the case show how Boeing's pursuit of the rocket contract may have led it beyond aggressive competition and into industrial espionage and deception.
Roots of a scandal
Job applicant hints he can bring Lockheed secrets with him
Branch joined the Delta IV team in January 1997, not long after the Air Force selected the Delta IV and the rival Lockheed Atlas V as finalists for EELV. He was paid $77,220, a 7.5 percent raise over his salary at Lockheed.
In his first job interview with future boss Bill Erskine, a manager on the Delta IV ground-operations crew, Branch displayed samples of proprietary Lockheed data and hinted he could provide more if he got a job, according to a deposition by Erskine in Branch's wrongful-termination suit.
Ex-Lockheed workers were prized commodities at the time. It was not unusual for them to turn up at Boeing. With only a handful of rocket builders in the United States, job switchers often moved from one competitor to another.
In March of that same year, Frank Slazer, director of Delta IV business development, instructed his staff to interview former Lockheed employees "regarding their thoughts and impressions of Lockheed Martin's probable approach" to the EELV program. He cautioned, though, that they should follow the company's ethical guidelines and not seek any proprietary information.
"Whatever it took"
Manager pumping for information had just completed ethics training
Though Branch worked on the Delta IV ground operations crew in Titusville, Fla., he traveled 43 times to the project's headquarters in Huntington Beach, Calif., during the 18 months that Boeing was preparing its formal bid to the Air Force, according to Lockheed's civil suit.
The purpose of the visits is not clear from the public record. Erskine's depositions indicate he believed Branch was being pumped for information by Boeing executives, including Larry Satchell, leader of the "capture team" tasked with gathering data about the rival Atlas V.
"As far as getting competition information out of Mr. Branch, the folks in Huntington Beach were the kings," Erskine later told a Boeing lawyer during an internal investigation.
In October 1998, the Air Force awarded portions of the EELV contract to both finalists. Lockheed was widely considered the superior rocket builder, but the Pentagon cited Boeing's lower prices and gave it the lion's share — 19 of the first 28 EELV launches to Lockheed's nine.
The Lockheed documents in Branch's files remained a closely held secret, even within the Delta IV project, for another eight months. But in June 1999, Erskine allegedly told fellow Delta IV worker Steve Griffin about Branch's job interview, and his offer to bring the entire Lockheed rocket proposal with him if he were hired.
Branch has denied any such quid pro quo.
In a later deposition, Griffin said he was stunned by Erskine's story, especially since he and Erskine had just completed ethics training. But he said Erskine told him he was "hired to win" and "was going to do whatever it took."
Griffin alerted Boeing's legal department. Boeing had to confront a troubling internal issue — and the likelihood of leaks: Griffin's wife, Bridget, worked for Lockheed, and Boeing feared she would tell her employer what her husband had learned.
Boeing attorney Mark Rabe was dispatched to investigate. He quickly found documents marked "Lockheed proprietary" in both Branch's and Erskine's offices.
That triggered the calls to Lockheed and the Air Force. Boeing attorney Gary Black informed Lockheed that Boeing had found seven pages of harmless data, and said no one except Branch or Erskine had seen or used it. Boeing Delta IV program manager Michael Kennedy called the Air Force to report the same thing.
Those calls, however, vastly understated the proprietary data found in Rabe's original investigation.
In a later deposition, Rabe said there was a "five- to six-inch stack" of Lockheed material on Branch's desk, and "approximately one additional box of Lockheed Martin marked information" found in subsequent searches.
But an investigator for the Pentagon's Defense Criminal Investigative Service said later in a separate affidavit that Rabe's initial search turned up "approximately 3,000 pages of material and filled two document storage boxes."
And when the Air Force investigated the document theft in summer 2003, it concluded that Rabe had found eight boxes containing 24,500 pages of Lockheed material.
Seven pages? Or 25,000?
Many documents were at first considered nonproprietary
What exactly Rabe found, and when, are crucial issues as investigators try to answer a fundamental question:
Did Boeing orchestrate a cover-up to deceive Lockheed and the Pentagon about the quantity of stolen data in its hands?
Or, as Boeing claims, did the company innocently misclassify much of the information in Branch's cubicle as nonproprietary and thus insignificant?
Five months after alerting Lockheed to the seven pages, Black called again in November 1999 to say an exhaustive investigation had revealed 197 more pages of proprietary Lockheed data at Boeing. Again, Black said no one outside of Branch or Erskine had seen or used it, and the documents were of little relevance.
Boeing stuck to that story for two years.
But when Boeing began fighting the wrongful-termination suit that Branch and Erskine filed over their 1999 firing, the company inadvertently revealed the full scale of the document theft.
Specifically, two Florida lawyers hired to defend Boeing in March 2002 filed a "statement of undisputed facts" that acknowledged the full box of Lockheed data that Rabe had found. They notified Lockheed in November 2001 and sent it 2,700 additional pages of material beyond the 204 Black had returned in 1999.
Suddenly alerted that Boeing had at least 10 times as much confidential Lockheed data as previously acknowledged, Lockheed asked for full disclosure from Black and Valerie Schurman, who was the lead lawyer for all Boeing space and communications businesses at the time. Although the two Boeing attorneys were privy to Rabe's findings from the start, they reiterated that Boeing had turned over everything it had found to Lockheed — about 3,000 pages, or 22,000 pages less than it would turn over in April 2003.
Boeing explains these early discrepancies this way: It says attorney Black was aware of the roughly 3,000 pages of Lockheed material found in Branch's office in 1999. But he believed only 204 pages were truly proprietary, and those were the ones he returned to Lockheed in November 1999.
Black never updated the Air Force that Boeing had found material beyond the original seven pages, but the company insists that was merely an oversight.
"We've been very candid with the Air Force," said Boeing spokesman Dan Beck. "Mistakes were made, follow-ups were not done that ought to have been done."
The Air Force, in April 2003, made a specific written request to see all Lockheed material found in the offices of Branch and Erskine. A new Boeing attorney handling the case then sent the Air Force and Lockheed 22,000 pages of data.
This massive document dump prompted Air Force deputy general counsel Steven Shaw to conclude in an investigative report that Boeing hadn't been straight with the government from 1999 to 2003. "The information Boeing provided to [Lockheed] and the Air Force was false and misleading," he wrote.
Boeing insists those thousands of pages beyond the initial 3,000 found by Rabe were not reported because they were innocently misplaced. In 1999, Rabe retrieved everything in Branch's office that he believed might be sensitive Lockheed material, said Boeing spokesman Beck.
But around 15,000 pages of Lockheed material from Branch's office were deemed inconsequential, so a member of Boeing's security staff boxed them up and sent them to external Boeing lawyers for storage. An additional 7,000 pages of documents found in a technical library, and allegedly brought to Boeing by Branch, were sent to the same lawyers.
There, they were ignored for more than three years.
More to come
"Substantial violations of federal law," Air Force undersecretary charges
The Air Force came down hard on Boeing after the April 2003 disclosures. Within three months, Undersecretary of the Air Force Pete Teets stripped Boeing of seven launches worth $1 billion and reallocated them to Lockheed. He also suspended Boeing from bidding for new government launch business until the criminal investigation is complete and the Air Force is satisfied Boeing has changed its ways. That suspension has stretched for more than 19 months, and its endpoint is unknown.
"Boeing has committed serious and substantial violations of federal law," Teets said at a news briefing in July 2003. The Air Force also referred the case to federal prosecutors.
The U.S. Attorney in Los Angeles charged Branch and Erskine in 2003 with conspiracy to steal trade secrets. Satchell, chief of the "capture team," is a target of the probe and is likely to be charged as well, said his attorney in court papers.
Branch and Erskine will be tried in March, and the criminal investigation remains active. Prosecutors have amassed more than 160,000 pages of evidence and at least nine current or former Boeing employees have testified before a federal grand jury, according to court filings last year.
The same court papers revealed that Boeing acknowledged to the U.S. Attorney in 2003 that at least 10 of its workers were aware Branch possessed stolen Lockheed documents during his tenure at Boeing.
Yet Boeing continues to insist that the papers were not used to determine the pricing it offered the Air Force in 1998.
Meanwhile, Lockheed is pressing a civil racketeering suit that claims Branch's delivery of documents was part of a "pattern and practice by Boeing to engage in economic espionage" to win government contracts.
By bringing its case under racketeering statutes, which are more often applied to organized-crime cases, Lockheed can seek triple damages if it wins. Lockheed has not specified any damages, though it claims simply developing the Atlas V cost $1 billion.
A trial wouldn't begin before 2006. To prevail, Lockheed must show Boeing is a "corrupt organization" with a pattern of illegal behavior. Toward that end, Lockheed is seeking to demonstrate that Boeing has repeatedly used stolen trade secrets to win government contracts.
Lockheed's civil suit cites other cases in which Boeing has been sanctioned by the government for possessing a competitor's trade secrets, most notably Raytheon documents related to a competition to build a missile that would destroy enemy warheads in flight. Boeing was forced to withdraw from the competition in December 1998 when the Air Force discovered that the company had improperly obtained and disseminated Raytheon data.
And the Darleen Druyun scandal that erupted in December 2003 unexpectedly provided additional material for Lockheed investigators seeking to establish a pattern of Boeing improprieties.
The former Air Force procurement official was hired by Boeing and then fired 11 months later, along with Boeing Chief Financial Officer Michael Sears. Both have pleaded guilty to holding improper job negotiations while Druyun was at the Air Force.
Significantly for Lockheed's case, Druyun has admitted giving Boeing preferential treatment in the award of more than $5 billion of Air Force contracts in return for jobs for herself and members of her family. She also acknowledged that while negotiating Boeing's proposal to lease 100 767 refueling tankers to the Air Force, she gave Boeing "what at the time she considered to be proprietary pricing data supplied by another aircraft manufacturer," according to the Justice Department. Airbus, the European airplane maker, was bidding against Boeing on the tankers at the time.
Lockheed made an even graver allegation in November when it asked the court in Florida to allow it to file evidence that it claims demonstrates Druyun gave Boeing Chairman Harry Stonecipher and IDS chief Jim Albaugh insights into the launch prices Lockheed had proposed during the 1998 EELV competition.
Boeing has filed a that accuses Lockheed of overstating Branch's conduct. It calls the Lockheed suit "an opportunistic attempt to use the acknowledged facts surrounding the Branch incident to inflict reputational and competitive harm upon Boeing."
And Boeing flatly denies that Druyun played any role in the company's EELV bidding.
Just engineers bringing samples of their work from job to job?
When Stonecipher replaced Phil Condit as CEO in 2003 after the firings of Druyun and Sears, he said his top priority was "dealing with this perception that we're a bunch of crooks."
That task is likely to remain on Stonecipher's "to-do" list for some time, because the outcomes of the various investigations triggered by Branch are a long way off.
Since Lockheed filed its racketeering suit in 2003, Boeing has conducted several more searches for Lockheed data in its employees' files and computers.
For instance, one ex-Lockheed engineer, Donald Deming, turned over more than 11,000 pages of Atlas V material he had brought with him when he joined Boeing. Another, Dean Farmer, had 24,000 pages dealing with Lockheed satellite programs.
Boeing says the incidents are harmless cases of engineers innocently bringing their own work papers from one job to another.
But Lockheed has used each of these incidents to expand the scope of its racketeering suit, and the U.S. Attorney is expected to investigate each Boeing worker who improperly held or used Lockheed data.
A source close to the investigations indicated Lockheed believes the number could reach as high as 20 to 25 Boeing workers.
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