A New Idea for Fighting Chinese Theft of American Defense Technology
China is engaged in an organized effort to mass-produce counterfeit goods for resale abroad. This counterfeiting and copyright and trademark infringement harms America’s business owners, consumers, inventors, investors, and workers. China’s campaign of theft simultaneously seeks to obtain U.S. military technology to gain a decisive material advantage in a future armed conflict. To fight back, the U.S. government should allow American plaintiffs suffering intellectual property misappropriation and infringement by foreigners to file suit in the legal jurisdiction of Washington, D.C. if the copyrights, trade secrets, or patents in question are subject to defense export controls.
Trade talks between Beijing and Washington are at an impasse, and the related issue of Chinese theft of American intellectual property remains unresolved, with the United States requesting hundreds of changes to Chinese law on this topic, according to China. What if President Xi Jinping and President Donald Trump ultimately cannot reach agreement on this issue?
As diplomats negotiate, the theft of intellectual property continues. The 2015 agreement between President Barack Obama and President Xi regarding economic cyberespionage against commercial targets appears to have reduced theft somewhat, but a senior U.S. intelligence official stated in 2018 that China continues to violate aspects of the accord.
In 2017, President Trump released Executive Order 13773, which tasked the administration and the U.S. intelligence community with determining the impact of transnational organized crime, including intellectual property theft, on the United States. The resulting report, which was not made public, revealed a significant impact on American prosperity and serious distortions of the U.S. economy from intellectual property theft. Overall losses from intellectual property theft alone — much of which is attributable to China — are as much as $600 billion a year, nearly equivalent to the gross domestic product of Switzerland. Similarly, malicious cyber activity alone cost between $57 billion and $109 billion in 2016, according to the Council of Economic Advisers.
While many countries engage in cyberespionage for commercial purposes, including U.S. allies, America’s defense industrial base is a primary target of China’s campaign of theft, which presents a special danger. A dramatic U.S. Navy report earlier this year asserted that China derives from cyberespionage “an incalculable near- and long-term military advantage… altering the calculus of global power.” Businesses and universities that work with the Navy are under attack, as well. A senior official described the Navy as “under siege. People think it’s much like a deathly virus — if we don’t do anything, we could die.” An executive of cybersecurity firm FireEye aptly described this Chinese hacking as “preparation for great power conflict.”
Despite the significant national security impact of intellectual property theft and cyberespionage, federal penalties for these crimes are minimal compared to those for other serious crimes, such as narcotics trafficking or terrorism. Copyright infringement, computer fraud, and trade secret theft carry maximum sentences of one to ten years, whereas drug and terror crimes routinely and appropriately result in decades-long sentences. For example, in March, two Baltimore drug dealers received sentences of thirty years and life in prison, respectively, and in June, a New York City man received a sentence of twenty years for attempting to join the Islamic State.
U.S. laws have not kept up with the pace of technology or with adversaries’ use of intellectual property theft as an instrument of national strategy. For example, neither computer fraud nor the violation of digital copyrights can form the basis of a prosecution under the Racketeer Influenced and Corrupt Organizations (RICO) statute, and the law authorizing wiretaps in criminal investigations does not provide for warrants to discover evidence of intellectual property theft.
Fixing these intellectual property issues in current trade negotiations may prove out of reach. A comprehensive trade deal encompassing both the issue of intellectual property theft and the $419 billion annual trade imbalance will be difficult to reach. The United States may lack sufficient leverage to exert its will on China for reasons of neglect decades in the making. It will remain so until the United States repairs its public finances, eliminates or accepts North Korean leader Kim Jong Un’s nuclear arms and intercontinental missiles, and rebuilds naval assets needed by Indo-Pacific Command’s Third and Seventh Fleets.
Economically, politically, and militarily, America’s strength vis-a-vis China is at a low ebb. China holds over $1 trillion in U.S. federal debt, while the projected U.S. federal budget deficit for 2019 is $910 billion and rising. Beijing’s diplomatic assistance is key to Washington’s ongoing efforts to denuclearize China’s neighbor and client, North Korea. The 289-ship U.S. Navy is both smaller than China’s 400-ship navy and stretched farther afield, with responsibilities in the Atlantic and Indian Oceans along with several seas, rather than just the western Pacific.
As a result of the power imbalance and the complexity of the deal, a broad economic agreement encompassing both trade and intellectual property may be impossible to reach. But that does not mean that the United States must fail to address the issue of intellectual property theft: It can and should act unilaterally to do so.
The Federal Bureau of Investigation and the rest of the U.S. intelligence community lack experience in civil litigation, while the civil division of the Justice Department lacks the inclination or resources to pursue complex and long-term lawsuits in the area of cyberespionage. With cybersecurity and law enforcement measures clearly insufficient to deter or defeat Chinese espionage and intellectual property theft against U.S. victims, America’s business community and private practice law community need to enter this fight. The U.S. government should remove the obstacle standing in their way.
Under current federal law, any suit alleging patent or copyright infringement must be filed in the judicial district in which the defendant resides, or in the district where they committed infringement and have a regular place of business. This makes sense for garden-variety commercial disputes between American businesses. It usefully prevents “venue shopping” for plaintiff-friendly districts, in which lawyers seeking to pursue claims find reasons to file them in pro-plaintiff jurisdictions.
However, the current geography-based structure for intellectual property lawsuits makes little sense in cases wherein Americans are burgled by foreign companies acting as government proxies executing national policy. Intellectual property theft by old-fashioned burglary may happen abroad or the theft may take place online via a keystroke in Shanghai by the Third People’s Liberation Army’s Unit 61398 and parastatal actors. Yet most foreign courts are unlikely to be fair venues for American civil plaintiffs seeking to be made whole by pursuing politically sensitive claims, especially those involving defense technology.
This is especially true in China. While some progress has been made recently, and some Chinese provincial jurisdictions appear to be fairer to foreign civil litigants than others, damages for intellectual property theft under Chinese law are still limited, and in the end, Chinese judges report to the Chinese Communist Party. As a 2018 report by the United States Trade Representative put it, notwithstanding recent positive developments, “China remains a hazardous and uncertain environment for U.S. right holders hoping to protect and enforce their IP rights,” as “interventions by local government officials, powerful local interests, and the Chinese Communist Party remain obstacles to the independence of the courts and rule of law.”
To help counteract the Chinese threat, the U.S. government should amend the relevant statute — Section 1400, Title 28, of the U.S. Code. American plaintiffs who suffer intellectual property theft should be allowed to file suit in the District of Columbia if the defendant’s business is located outside of the United States and the infringed copyrights or patents are integral to articles subject to the Export Administration Regulations and International Traffic in Arms Regulations. Haul foreign civil parties into U.S. District Court, where plaintiffs and defendants of any nationality receive fair treatment.
The administration cannot implement this proposal alone; it will require a legislative fix. President Trump and Senate Majority Leader Mitch McConnell would have to reach across the aisle to Speaker of the House Nancy Pelosi to get this done. But protecting Americans from intellectual property theft should not be a partisan issue. While some American lawyers who represent foreign defendants in intellectual property theft cases will be displeased, both parties’ leaders and voters are already displeased with China’s activities and would likely be supportive of the proposed change.
Intellectual property suits against foreigners will still present challenges, even in U.S. federal courts. Civil defendants based in foreign jurisdictions may still hide or destroy evidence, try to bury plaintiffs under mountains of non-responsive foreign-language documents (which need to be translated and reviewed at great expense), or seek to avoid paying judgments. Some bad actors may remain over the horizon and beyond the reach of American law. But other foreign companies that notoriously act on behalf of Chinese intelligence often have subsidiaries to sue and attachable assets to seize in the United States, rendering some cases against them worth bringing, in economic terms.
Americans ought to be allowed to play this tough game on their home field. The U.S. government should give the American business community and the private bar a tool to take up this important fight on behalf of fellow citizens and servicemembers.
Kevin Carroll served as a Senior Counselor to Secretary of Homeland Security John Kelly, and earlier as a CIA and Army officer.