Time to Fight Back Against China's Massive Intellectual Property Theft

According to the 2017 Report of the Commission on the Theft of American Intellectual Property, the annual cost to the U.S. economy from intellectual property theft exceeds $225 billion and could be as high as $600 billion. In 2015, the Office of the Director of National Intelligence estimated that economic espionage through hacking costs Americans $400 billion per year. The Chinese government is estimated to be responsible for 50 to 80 percent of cross-border intellectual property theft worldwide[1] and a 2013 Verizon report claimed China is responsible for 90 percent of cyber-enabled economic espionage in the United States.[2] The profit China derives from stolen commercial secrets is so great that it likely accounts for a large portion of China’s often-touted miraculous economic growth.

Many experts, academics, Western governments, and cyber firms have identified this theft. All who have worked in China knows this is true but virtually no one proposes anything to remedy the loss. The US Government seems to have adopted the attitude that it is something Americans just have to swallow year after year.

Americans have enjoyed some success in suing states that have sponsored terrorism. Multi-billion-dollar judgments have been awarded to US plaintiffs in now numerous lawsuits against states, such as Iran, which have directed, sponsored, or financed terrorist acts. US industry ought to model such lawsuits to recover the intellectual property lost to the Chinese communist government via cyberspace-enabled espionage as well as against the financial institutions that launder money accrued from such theft. Congress could incentivize this straightforward remedy by amending the Economic Espionage Act to provide a private cause of action to allow private entities to take legal action against the state of China for such intellectual property loss.

Instead of embracing Western institutions and the rule of law, the Chinese government cynically uses them when in their interests and flouts them when they can. The government knows well how difficult it is for states that adhere to democratic principles to react to such brazen law breaking and thus knows the US Government may never get around to blocking or punishing Chinese intellectual property theft, let alone recover the economic loss from the last decade of such unchecked Chinese economic espionage. In short, the current situation favors and encourages the law-breaking, totalitarian state of China.

Economic espionage consists of the theft or private, industrial (proprietary) information and sensitive business information to aid Chinese industry and trade and business negotiations. This illegal activity is what China is especially well-known for and rightly so. Chinese-government economic espionage is likely greater than the economic espionage conducted by all other states against the United States combined. A 2013 MacAfee study estimated the annual loss for the United States from cybercrime and espionage amounted to as much as 1 percent of US national income and as many as 508,000 US jobs; China accounts for most of this loss. The US-China Economic and Security Review Commission concluded that Chinese espionage comprises the single greatest threat to US technology.

Further, China’s Cybersecurity Law, implemented in 2017, now requires personal information held by “critical information infrastructure” to be stored on servers in China and data deemed important be given a “security assessment” before it can be transferred abroad (meaning such information won’t likely or easily be allowed to be transferred). Conversely, any US business that wants to do business in China must agree to Chinese cybersecurity laws that require its data to be housed in China (which means US intellectual property will be lost once it rests inside China). Such requirements, beyond the obvious targeting of US intellectual property, form a formidable (if not Orwellian) barrier to fair trade and international digital commerce:  any data stored in China is Chinese data (‘what’s mine is mine; what’s yours is also mine’).

Since US private sector loss to Chinese economic espionage is often hidden and incremental, the United States almost always defaults to a passive, dismissive attitude and does nothing. At the very least, the US Government ought to inform US industry that it cannot protect US proprietary information from Chinese government hackers and point out that business in or with China will likely ultimately cost more than they realize (such as loss of their source code as well as any intellectual property advantage they may have).

As former Director of the National Security Agency and the CIA, Michael Hayden, recently said, ‘the US Cyber Calvary ain’t coming to save any US business.’ The private sector ought to realize that its best remedy may be the Court system to seek damages to deter future Chinese industrial theft. Further, the US Government ought to encourage US industry to set up intellectual honeypots (pockets of false intellectual property), which the Chinese could hack into and steal in order to effect a level of deterrence and doubt into the Chinese intellectual property espionage effort. Nothing legally prevents them from creating such false information now and US industry would be foolish if it is not already doing this.

Chinese cyberspace-enabled economic theft has not only damaged US companies but has also helped China save on research and development expenses, while catching up on critical industries. The cumulative effect has been to erode the United States’ long-term position as a world leader in science and technology.

James Van de Velde is Associate Professor at the National Intelligence University as well as Adjunct Faculty at Johns Hopkins and Georgetown University. The views expressed in this article are those of the author and do not necessarily reflect the official policy or position of the US Government, the Department of Defense, or the National Intelligence University.

[1] Dennis C. Blair and Jon M. Huntsman, Jr., “The Report of the Commission on the Theft of American Intellectual Property,” National Bureau of Asian Research, May 2013, page 3.

[2] “2013 Data Breach Investigations Report,” Verizon, 2013, page 21. (http://www.verizonenterprise.com/resources/reports/rp_data-breach-investigations-report-2013_en_xg.pdf )