The United States has long struggled with intellectual property (IP) theft facilitated or condoned by the Chinese government. Just in the past year, a CNBC CFO survey reports that one in five North American corporations have had their IP stolen by China, and just below one-third of CFOs of North American-based companies on the CNBC Global CFO Council state that Chinese firms have stolen from them during the last decade. This IP theft is very costly. In fact, some sources estimate that the annual cost that international IP theft imposes on the United States exceeds $225 billion in counterfeit goods and could be as elevated as $600 billion.
Chinese entities have been alleged to steal IP from foreign companies using methods such as trading with or forming joint ventures with the companies and then gaining access to their sensitive or proprietary information. Businesses have also willingly allowed Chinese partners to access this information in exchange for accessing China’s immense market. Some examples of alleged Chinese IP theft include a conspiracy to hack into U.S. defense contractors’ computer networks to steal sensitive military data and the fact that the Chinese military has infrastructure that can look suspiciously similar to that used by the United States. In the context of urging NATO allies to ban Chinese 5G equipment, Defense Secretary Mark Esper warned at the Department of Homeland Security’s National Cybersecurity Summit last September that China is committing “the greatest intellectual property theft in human history.”
Due to the clear costs of these and other alleged thefts, there has been a strong bipartisan push by the U.S. government to curb it. Earlier this month, following the China Initiative Conference [1], the Attorney General and federal prosecutors told the public that they plan to be more aggressive in combating theft of U.S. IP by or on behalf of the Chinese government. They plan to do this by prosecuting companies and individuals for IP theft and also through education and awareness programs. One important prong will be educating American academic institutions of the risk. Prosecutors noted that academic institutions create a lot of IP, but do not protect it as well as private institutions do, making it more susceptible to theft.
Aside from federal prosecutors ramping up their enforcement, the U.S. Department of Justice (DOJ) is also acting to protect U.S. IP. On February 13th, the DOJ brought additional charges against Chinese telecommunications company, Huawei, including charges for conspiracy to steal trade secrets. The DOJ alleged that the company and its subsidiaries had either stolen, or directed others to steal on its behalf, trade secrets and copyrighted information through various creative means over decades in an effort to benefit itself and cut costs.
Over the coming months, it will be interesting to see if this increased enforcement and prosecution in fact helps to stop Chinese IP theft in its tracks. In the meantime, companies can take steps to stay on top of these developments. For example, companies should consider forging relationships with local, state, and federal law enforcement to enable open lines of communication and should also stay appraised of any developments such as DOJ indictments. Lastly, and importantly, companies can use the insight gained from these sources to evaluate what is happening in their own walls and networks and better protect their IP.
[1] The China Initiative Conference was in Washington D.C. on February 6th, 2020. Five federal prosecutors met to discuss economic and national security threats posed by China.