“Unlike in the past, non-traditional actors have invaded the intellectual property arena; the DOJ has given several examples such as ‘researchers in labs, universities, and the defense industrial base” that are being coopted into transferring technology for foreign use.’”
Open innovation is a key ingredient to the development of valuable intellectual property. Research institutions, universities, and private businesses work in close collaboration with one another, sharing confidential business information, processes, and trade secrets in order to create content. But while open innovation is a boon to creativity it is also a vulnerable entry point for bad actors to exploit the open and collaborative mindset of research-focused institutions (like universities) or the faith in contractual confidentiality obligations that many companies rely upon to conduct business. Bad actors leverage the false sense of security and trust that collaborative entities have, in order to gain competitive advantages and profit from the efforts and resources invested by others in innovation. In other instances, these “bad actors” may not even be absconding with innovations with a malicious mindset; rather many instances of stolen IP result from mere willful ignorance of intellectual property rights or export control regulations, or from a cultivated sense of false entitlement. Regardless of the intentions, theft of proprietary information and innovations is very real and becoming more widespread. “Discoveries that took years of work and millions of dollars in investment here in the United States can be stolen by computer hackers or carried out the door by an employee in a matter of minutes,” said a former U.S. Attorney General.
Several recent U.S. government findings have placed the blame for some of the most significant threats to domestic intellectual property at bad actors in the People’s Republic of China. A report by U.S. Trade Representative Robert Lighthizer found that Chinese sponsorship of hacking into American businesses and commercial networks has been taking place for more than a decade and posed a significant threat to our nation’s economic prosperity and competitiveness. The White House Office of Trade and Manufacturing Policy also reported on “How China’s Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World,” documenting “the two major strategies and various acts, policies, and practices Chinese industrial policy uses in seeking to acquire the intellectual property and technologies of the world and to capture the emerging high-technology industries that will drive future economic growth.”
DOJ China Initiative
In order to combat these economic espionage threats, on November 1, 2018, the U.S. Department of Justice (DOJ) announced the “China Initiative” “focused on preventing and prosecuting thefts of American technology and intellectual property for the benefit of China.”
The Initiative reflects the DOJ’s strategic priority of countering Chinese national security threats and reinforces the President’s overall national security strategy. The Attorney General has set the following goals for the Initiative:
- Identify priority trade secret theft cases, ensure that investigations are adequately resourced; and work to bring them to fruition in a timely manner and according to the facts and applicable law;
- Develop an enforcement strategy concerning non-traditional collectors (e.g., researchers in labs, universities, and the defense industrial base) that are being coopted into transferring technology contrary to U.S. interests;
- Educate colleges and universities about potential threats to academic freedom and open discourse from influence efforts on campus;
- Apply the Foreign Agents Registration Act to unregistered agents seeking to advance China’s political agenda, bringing enforcement actions when appropriate;
- Equip the nation’s U.S. Attorneys with intelligence and materials they can use to raise awareness of these threats within their Districts and support their outreach efforts;
- Implement the Foreign Investment Risk Review Modernization Act (FIRMA) for DOJ (including by working with Treasury to develop regulations under the statute and prepare for increased workflow);
- Identify opportunities to better address supply chain threats, especially ones impacting the telecommunications sector, prior to the transition to 5G networks;
- Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses;
- Increase efforts to improve Chinese responses to requests under the Mutual Legal Assistance Agreement (MLAA) with the United States; and
- Evaluate whether additional legislative and administrative authorities are required to protect our national assets from foreign economic aggression.
Cases on the Rise
From 2013 to 2016, the DOJ did not charge a single person with spying for China. Since announcing its “China Initiative” last year, however, it has filed over 20 criminal cases pertaining to economic espionage, trade secret theft, and export controls. In addition, out of a heightened scrutiny of vulnerabilities in the nation’s university system, the Department of Education, NIH, and other Federal agencies that regulate or fund Universities have begun increasing efforts to dig deeper into researchers’ relationships with China. While these efforts have not necessarily resulting in charging individuals with “spying,” they have led to financial sanctions and arrests of U.S. citizens affiliated with U.S. universities based on lesser charges.
Economic sanctions have been a foreign policy tool since as early as 1917 with the passage of the Trading with the Enemy Act. However, today the primary criminal statutory enforcement tool is the International Emergency Economic Powers Act (IEEPA), which grants the President broad emergency powers to impose restrictions on property in international trade. 50 U.S.C. § 1702(a)(1)(B).
Export controls apply to a broad range of technological products, including physical shipments, cross-border electronic transmissions (such as by email or downloading from a remote computer server), and the disclosure of controlled technology to a non-U.S. citizen or permanent resident even if such transfers occur entirely outside of the United States. For those products that are implicated by the controls, a labyrinth of regulations exist that must be expertly navigated to avoid sanctions, including the Arms Export Control Act, the International Traffic in Arms Regulations (ITAR) administered by the Department of State’s Directorate of Defense Trade Controls; the Export Administration Regulations (EAR) administered by the Department of Commerce’s Bureau of Industry and Security; and the trade and economic sanctions programs and regulations administered by the Department of the Treasury’s Office of Foreign Assets Control. Certain restrictions are also country specific due to national security, foreign policy, nonproliferation, or other concerns. Violations of U.S. export control laws and regulations can result in variable civil penalties, including up to $500,000 per violation under the ITAR and up to $250,000 per violation under the EAR. Some also carry criminal penalties. For example, it is unlawful for a person to violate, attempt to violate, conspire, or cause a violation under the IEEPA and willful violations are criminal punishable by up to twenty years of imprisonment. 50 U.S.C. § 1705(a), (c).
The Counterintelligence and Export Control Section of the National Security Division is responsible for investigating and prosecuting economic espionage matters and criminal export violations of military and strategic commodities and technology. The DOJ’s “China Initiative” also formed a Working Group of United States Attorneys to provide guidance and advice.
Federal agencies that support research at universities have also been taking efforts to ensure the research activities they support are free of inappropriate foreign involvement. For example, the Department of Education has announced (through letters published in the Federal Register) that it would be conducting investigations of a series of named universities, to assess whether they have accurately reported contacts with the Chinese government, Chinese universities, Chinese companies, and others. As another example, in July 2019, the National Institutes of Health (one of the largest funders of biomedical research in the world) issued a notice (NOT-OD-19-114) specifically reminding its grant awardees of their need to report foreign collaborations and financial conflicts of interest resulting from foreign funding.
In a case demonstrating how these requirements are being enforced, the chair of Harvard University’s chemistry department was recently arrested on charges of making false statements to two Federal agencies who had made research grants. The grants included standard requirements that the recipient disclose conflicts of interest, including financial conflicts of interest and foreign involvement in sponsored activities. The agencies allege the individual had lied about his involvement with two China-based institutions: a university based in China, and the Thousand Talents Program, a Chinese government program focused on recruiting international researchers and innovators to aid China’s innovation and economic goals.
Similarly, the NIH notified a university and associated hospital in 2018 that it suspected several faculty had committed “serious violations” by sharing confidential information from grant documents and failing to disclose funding received from foreign entities.
The Road Ahead
Many universities and other research institutions have been contacted by the DOJ/FBI to bolster their export control review procedures. And, several have recently been involved in issues of foreign students or visiting researchers attempting to abscond with export-controlled materials. An FBI Assistant Director stated that, “The FBI is committed to protecting institutions from adversaries who seek to steal sensitive American technology under the guise of research.” But, simply resting on the likelihood the “fundamental research exemption” applies for university research activities may no longer be sufficient protection.
For research institutions, universities, and private businesses that do business with China, or otherwise involve intellectual property or technology transfer, there are several important takeaways about the future impact of DOJ’s “China Initiative”:
First, the DOJ will continue to identify priority economic espionage, trade secret theft, and criminal export control cases. A recent case from Los Angeles involved the conviction of an electrical engineer after a six-week trial for conspiring to illegally export semiconductor chips with missile guidance applications to China. In another instance, individuals who had worked for a U.S. hospital system’s research institute were indicted for theft of trade secrets, after they had taken information relating to certain exosomes and secretly formed a company in China to pursue the technology. Expect similar cases to be brought in the near future especially in districts with representation on the DOJ China Initiative’s U.S. Attorney Working Group, such as the Northern District of Alabama (Birmingham), Northern District of California (San Francisco), Eastern District of New York (Brooklyn), District of Massachusetts, and Northern District of Texas (Dallas).
Second, the development of a strategy that addresses identification and compliance while taking into account non-traditional actors will be vital. Unlike in the past, non-traditional actors have invaded the intellectual property arena; the DOJ has given several examples such as “researchers in labs, universities, and the defense industrial base” that are being coopted into transferring technology for foreign use. Having robust corporate policies, procedures, and compliance programs in place may lower risks.
Third, colleges, universities, and their affiliates must act now to set new policies and reinforce existing requirements regarding interactions between their researchers and foreign collaborators. For example, given the NIH notices and Harvard arrest, universities should make sure that their internal offices or research compliance and/or offices of research sponsorships are taking efforts to educate faculty on the full scope of reporting requirements attached to their grants. In addition, universities should consider periodic check-ins, interviews, or other auditing of the outside activities of lab assistants, post-docs, and other staff working in key research laboratories. Policies on outside consulting work often apply to faculty but are not monitored as regularly (if at all) for such staff, and policies on dual appointments with other universities (e.g., foreign universities) are often not sufficiently concrete or not enforced. Finally, universities should consider other ways to educate their administrators and principal investigators about potential threats and “influence efforts on campus,” according to DOJ. Information sessions and internal investigations, when necessary, can help identify vulnerable areas, threats, and breaches.
Lastly, private industry must identify potential supply chain threats. The telecommunications sector remains particularly vulnerable with the looming transition to 5G networks. The Chinese telecom giant, Huawei, has been charged in Brooklyn, New York with IEEPA violations for allegedly skirting U.S. sanctions on Iran and in Seattle, Washington for its alleged theft of trade secrets of T-Mobile robotic technology.
In view of these threats, measures to safeguard intellectual property, trade secrets, and proprietary information has never been more important.
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