Chinese intellectual property theft: Time for show trials (but get our story straight)

The mantra that “China is robbing our technology blind” regarding intellectual property, as mouthed by White House aide Peter Navarro, echoes a widespread — and not inaccurate — charge against Beijing that predates the Trump administration. In reports from 2013 and 2017 the independent Commission on the Theft of American Intellectual Property concluded that China was the chief culprit in the loss of between $250 and $600 billion annually from IP theft (patents, copyrights, trademarks, and trade secrets). These are truly staggering numbers, but they also betoken a lack of precision and specificity in the breakdown among differing forms of intellectual property (IP) and the role of non-IP trade secrets.

The leaders of the IP commission, Admiral Dennis Blair and General Keith Alexander, penned an opinion piece last year that not only points the finger directly at China but also illustrates confusion as to just what the US should target. They stated: “Chinese companies, with the encouragement of official Chinese policy . . . have been pillaging the intellectual property of American companies.” They listed a large array of US economic sectors as examples, including automobiles, chemicals, aviation, pharmaceuticals, consumer electronics, and software, among others.

But even these two highly knowledgeable leaders then went on to confuse the US case against Beijing’s “pillaging” by adding a list of military IP thefts, including plans and designs related to the F35 fighter, the Patriot missile system, the Aegis Combat System, thermal imaging cameras, and unmanned underwater vehicles, among others, as examples of Chinese spying operations. The problem and confusion to the reader here is that such military espionage is considered fair game by all nations, including the US. And one hopes that US intelligence agencies have been equally diligent in ferreting out Chinese (and other nations’) advanced military designs and equipment.

In 2015, President Barack Obama got Chinese President Xi Jinping to agree that the Chinese government would not conduct economic espionage that would pass along IP or trade secrets to Chinese firms. After the 2015 agreement, Chinese IP attacks did lessen, but in recent months, they have ticked up again. As I have noted in a previous blog, what seemed to have happened was a decision by the Chinese government to rein in freelancing of cyber espionage groups loosely connected to elements of the People Liberation Army. More recent analysis by US intelligence agencies and private cybersecurity companies points to an increased focus on dual-use technology. Given the extremely broad Chinese definition of national security, this sweeps in sectors not directly critical to the military — but quite in line with the strategic sectors highlighted in Beijing’s now-famous Made in China 2025 document, which sets forth a plan for China to achieve technological independence by 2025.

Trump administration: Section 301 report

This brings us to the Trump administration’s March 2018 Section 301 Report, so named because Section 301 of the 1974 US Trade Act allows the US to act unilaterally against unfair or unreasonable trade practices. This report was the product of a yearlong investigation of Chinese predatory trade practices, including continuing theft of IP from the US and other foreign companies. In contrast to other trade documents from the Trump administration, the Section 301 Report proved to be a carefully researched and analytically sound document.

The section of the report that deals with Chinese IP theft concentrates largely on cyber-assisted theft. It describes several documented instances of IP theft relating to patents, software, and trade secrets. Details are presented from publicly available sources in well-known cases involving the US tech companies such as Westinghouse, Solar World, BAE Systems/Price Waterhouse, and US Steel. The report also makes extensive use of detailed reports form cybersecurity firms, such as Mandiant’s well-known survey of cyber intrusions in 2013 and other somewhat later analyses by FireEye and the Fidelis Security, among others.

While a few recent examples of Chinese economic cyberespionage are cited, the report notes that the “data set” since the September 2015 Obama-Xi agreement “is more limited.” However, citing US business experience and recent analyses by cybersecurity firms, the report concludes: “In sum, evidence indicates that China continues its policy and practice, spanning more than a decade, of conducting and supporting cyber-related theft and intrusions into the commercial networks of US companies.”

Meanwhile, in current trade negotiations, China continues to insist that it does not countenance or conduct economic espionage and has labeled the Section 301 process “irresponsible.” It has pressed the Trump administration to provide proof of its allegations.

The Trump administration should do just that. In coming months as the US and China spar over its predatory mercantilist practices, the Trump administration should give notice that it will widely publicize any cyber intrusions or IP theft that it uncovers. Internally, the administration should enlist the direct aid and support of US intelligence agencies, pushing them to forgo, in these instances, their understandable reluctance to make public their technological capabilities. Particular attention should be focused on the priority technologies named in the Made in China 2025 document.

Finally, as I have argued previously, the US should warn Beijing that in the future, any Chinese company (or group of companies) that profits from cyber theft will be banned from the US market. This will include companies in the same sector, even if no cyber connection is uncovered.

Beijing is right to demand proof. The US should provide it.