China Targets Intellectual Property in the United States

May 27, 2015

China PiracyIn May 2015, there have been two arrests and multiple individuals indicted, accused of economic espionage and theft of intellectual property on behalf of entities in China.

Signals Technology

The most recent case involves six Chinese nationals accused of theft of advanced signals technology primarily used for cell phones. The 32-count indictment accuses the six with colluding to steal the intellectual property of two companies (Avago Technologies and Skyworks Solutions, Inc.) with the assistance and direction of the State Key Laboratory (National Laboratory) located within Tainjin University. The previously sealed indictment was unsealed with the arrest of Tainjin University Professor Hao Zhang on May 16, 2015 in Los Angeles. The other five individuals remain at large, presumably in China.

Energy Technology

Separately, Xiawen Huang, a dual-citizen (in China and the United States), was arrested on May 7, 2015 for economic espionage and theft of trade secrets from two companies which previously employed Huang. This case continues to carry a bit of mystery, as his indictment remains sealed. According to Huang’s LinkedIn profile he previously worked for BASF in New Jersey from 2008-2012 and for CoaLogix in North Carolina from 2012-14. According to media reports, Huang is allegedly accused of stealing intellectual property from the two firms and setting up a competing company in China using Chinese government funds and the stolen intellectual property. When Huang’s North Carolina residence was searched, it was reported that three to four terabytes of information were recovered.

Interestingly, perhaps the source of the continued mystery behind the indictment is the nature of Huang’s work (2004-08) at the Pacific Northwest National Laboratory. According to the lab’s website it is heavily involved in working on the next generation of energy solutions.

China protests

As one would expect, China’s protest was via indirect means, using the Global Times editorial page, to deflect and deny the existence of a problem, while pointing fingers at the U.S. Department of Justice’s xenophobic and anti-Chinese bias in the use of the Economic Espionage Act and Theft of Trade Secrets statutes. The reality is that Chinese state- owned enterprises will always be state supported as they endeavor to achieve the goals within China’s five-year plans. This support may come in the form of funding and direction, as indicated in the indictment of the six Chinese nationals, or in the form of grants and awards, as was the case with Huang.

What is a company to do?

Jeffrey Carr, CEO of Taia Global, a firm focused on identifying at-risk assets recommends, “All companies need to invest in recognizing what [value] their intellectual property has to their competition, including state sponsored/owned entities like those referenced in these recent arrests.”  Carr continues, “Tools, such as ‘Redact,’ are available to highlight foreign government research and development spending on priority technologies and projects and assist companies in identifying potential threat vectors. Intellectual property is your enterprise’s lifeblood and all companies, regardless of size, should have an intellectual property protection program in place.”

These companies may or may not have had a robust intellectual property protection program in place. The magnitude of the theft of intellectual property from the United States, calculated by the IP Commission Report of 2013  is greater than $300 billion per year, with up to 80% of this theft being attributed to China. This same report highlights China’s current five-year plan (2011-15), which was augmented in 2012 with the identification of seven industries of national strategic import of which three were energy focused and two were focused on information technologies and communications. In other words, take China at their word and keep your hand on your intellectual property.