China at Center of DOJ Initiative to Protect US Companies from Trade Secret Misappropriation

Fenwick & West LLP

Fenwick & West LLP

The U.S. Intellectual Property Enforcement Coordinator submitted its Annual Intellectual Property Report to Congress in February. The report recognizes the economic importance of intellectual property and recommends enforcement policies to protect U.S. intellectual property domestically and abroad. It summarizes the administration’s engagement with trading partners and use of legal authorities, including the U.S. Department of Justice.

One DOJ prosecution initiative is protecting American businesses from commercial and state-sponsored trade secret misappropriation. The DOJ reports 10 recent cases to illustrate this focus. Its FY 2018 prosecutions reveal that trade secret misappropriation is widespread, encompassing all regions of the United States and spanning numerous industries, including finance, engineering, technology, aviation, manufacturing, defense and pharmaceuticals. Another indication that the problem is grave: 81 industries (out of 313 total) are identified as IP-intensive and account for 38 percent of U.S. GDP. Technological innovation is linked to three-quarters of U.S. growth since the mid-1940s, and estimates of the cost of trade secret misappropriation from U.S. firms range from $180 to $540 billion.

In FY 2018, the DOJ prosecuted the following misappropriations: 

  • Chinese hackers working for an internet security firm that accessed private companies to take sensitive internal documents and trade secrets
  • A Chinese intelligence officer attempting the theft of aviation trade secrets
  • Scientists taking GlaxoSmithKline biopharmaceutical research for the benefit of a Chinese company
  • An engineer taking GE data files of turbine technology trade secrets
  • An employee taking circuit board schematics for autonomous vehicles before returning home to China
  • An employee taking DuPont trade secrets to a competitor in the enzymes industry
  • An engineer placing defense contractor files in a personal cloud account to bring to a private company
  • A Chinese manufacturer/exporter of wind turbines taking trade secrets from a U.S. company
  • A Canadian citizen taking mining trade secrets to solicit China-based investors to build a competing plant
  • Employees taking trade secrets from a competitor
  • Chinese state-owned companies taking chemical production technology from DuPont
  • Two businessmen conspiring to take trade secrets from a foam material engineering firm for the benefit of a Chinese company
  • An employee taking proprietary source code to benefit a Chinese government commission

A common theme among most of these prosecutions is the presence of a Chinese state or business actor.

In 2015, China unveiled its “Made in China 2025” plan to make itself into a high-tech leader. It identified 10 industries — including robotics, information and clean-energy cars — that should become globally competitive by 2025, and targeted rapid technological progress for all services and professions in China. The plan received little attention then but has since become a blueprint for U.S. response. 

According to the administration’s U.S. Trade Representative, China conducts and supports misappropriation, including unauthorized intrusions into computer networks of U.S. companies to access sensitive commercial information, as part of a larger scheme of actions that burden U.S. commerce. The USTR’s November 20, 2018 Update on China details the recent history of U.S. investigation into China’s practices, China’s refusal to “respond constructively” and the ensuing trade battle, including tariffs targeted at the industries on the “Made in China 2025” list.

Beijing has since replaced the “Made in China 2025” policy with a program that allows greater access for foreign companies. Premier Li Keqiang’s State of the Union-type speech on March 5, 2019, made no mention of the old policy, in marked contrast to previous addresses.

And on March 15, China passed a foreign investment law that bars officials from divulging corporate secrets. The change eliminates conflicts of interest in review panels that foreign companies must pass before establishing plants or beginning manufacturing. The administration views the panels as instruments for taking proprietary information and forcing technology transfers.

China’s current moves may be cosmetic or constitute real change, and resolution of the trade war is apparently on the horizon. How this will affect the administration’s investigation and prosecution of Chinese-sponsored misappropriation is difficult to predict. For now, China remains at the center of the administration’s focus on trade secrets.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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