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The Department of Justice’s National Security Division Chief Addresses China’s Campaign to Steal U.S. Intellectual Property

On August 12, 2020, John Demers, the head of the National Security Division (NSD) at the Department of Justice (DOJ), spoke publicly about national security threats from China at an event sponsored by the Center for Strategic and International Studies in Washington, DC. In more candid remarks than typically provided in a public forum, Mr. Demers concentrated on China’s efforts to steal U.S. intellectual property (IP) from U.S. companies and other institutions, and how DOJ’s “China Initiative” seeks to counter this threat.

Today’s Altered Threat Environment

Mr. Demers reinforced that China is predominantly responsible for the theft of U.S. intellectual property, and that the insider threat is a growing problem:

  • Over 80% of all cases charged as economic espionage (i.e., cases involving the theft of trade secrets by or on behalf of the Chinese government or its instrumentalities or agents) involve China, and 60% of all trade secret cases involve China.

  • China’s typical modus operandi is to steal American IP, replicate it, replace the U.S. company originating that IP in the Chinese domestic market, then displace the United States in the global market.

  • Recent years have seen increased involvement by China’s intelligence service in the theft of IP:  since 2014, responsibility for stealing American IP has shifted from cyber operations conducted by the People’s Liberation Army (PLA) to insider-focused operations conducted by the Ministry of State Security (MSS), the intelligence and security agency for China responsible for counter-intelligence, foreign intelligence and political security.

  • The MSS, Mr. Demers observed, is good at developing relationships with individuals at U.S. companies who have access to IP, and many of DOJ’s trade secret prosecutions now result from insider threats.

  • China’s “Thousand Talents” program serves as a vehicle for acquiring American IP.  Individuals applying for the program, Mr. Demers stated, must demonstrate that they will bring IP to China.  Some take U.S. IP to China and get paid for work performed in China; others simply hand over the IP to Chinese authorities.

  • One hallmark of criminal cases charging individuals participating in the Thousand Talents program is that they conceal their affiliation with the program – either from the U.S. government, where a federal grant is involved, or from a university or other institution with which they are affiliated.

The scale of Chinese operations to steal American IP is also influencing the U.S. Government’s strategy for countering this threat:

  • DOJ has increased the number of prosecutors in NSD’s Counterintelligence and Export Control Section (which has responsibility for prosecuting economic espionage) to work on China-related cases, and the FBI also has increased its dedicated resources.

  • But the government has recognized that it “cannot prosecute our way” through the IP threat, Mr. Demers stated.

  • Instead, where possible, the government now seeks to disrupt malign Chinese government activities.

  • The Chinese consulate in Houston -- where PLA officials were based who had not disclosed their affiliation to the U.S. Government --  had “long been on the FBI’s radar screen” for its involvement in IP theft in the United States, including its involvement in the Thousand Talents program.  Its closure in July 2020 by the U.S. Government was part of the effort to disrupt Chinese operations.

  • The government’s disruption activities also includes increased, “targeted” screening of outbound Chinese students at U.S. airports, where they may be questioned about their fields of study and what institutions they are affiliated with in China.

Countering the Insider Threat

Given the shift in China’s tactics, U.S. companies must be proactive in protecting their valuable intellectual property from insider threats, and they should think broadly in considering the potential universe of threats.  Insiders include not only employees, but contractors, business partners, and possibly entities in their supply chain -- essentially, anyone with the authorized ability to access their internal systems and resources.  Companies therefore should focus less on a given person’s job title, for example, and concentrate more on the universe of people who have access to the information the company cares most about. Ultimately, the focus must be on identifying the “malicious insider” -- someone who not only has authorized access, but intentionally exceeds or abuses it for nefarious reasons.

Network monitoring, consistent with applicable federal and state laws, is certainly essential to detect suspicious insider behavior, as well as external intrusions. But purely technical tools are not enough to implement a robust insider threat mitigation program. Rather, human intelligence-gathering, judgment, and analysis -- focused on human behavior -- is essential, too.

The FBI has identified multiple behavioral indicators that an employee could be stealing a company’s intellectual property, including:

  • Without need or authorization, taking proprietary material home via documents, thumb drives, or other digital media;

  • Manifesting interest in matters outside the scope of the employee’s duties, particularly those of interest to foreign entities or business competitors;

  • Working odd hours without authorization, and remotely accessing the computer network at odd times;

  • Unexplained affluence;

  • Unreported foreign contacts; and

  • Short trips to foreign countries for unexplained or strange reasons.

Several corporate best practices have emerged to identify and respond to insider threats. As a threshold matter, companies should create and implement an insider threat program that has the support and resource commitment of the company’s board of directors and executive management, as well as cross-organizational participation by components such as human resources, internal auditing, and legal counsel. Companies should make sure they have an incident response plan in which all company stakeholders participate – and make sure they rehearse it.

Correspondingly, companies should create a dedicated insider threat team to implement that program. In implementing an insider threat program, companies should:

  • Develop an inventory of their most valuable intellectual property, who has authorized access to it, and by what vectors.

  • Develop criteria for anomalous behavior to focus the operations of the insider threat program. 

  • Develop and provide regular training and awareness programs for all personnel.

  • Use technical tools, such as network monitoring software, identity and access management controls, and data loss prevention tools to monitor employee behavior on company networks. In this regard, companies should consider artificial intelligence applications to identify or warn of insider threat risks.

Technology solutions must be accompanied by intelligence-based human analysis to interpret technical data and bring judgment to the identification and evaluation of anomalous behavior. But whatever the mix of monitoring and analytical tools that companies employ to identify risk, they should ensure that these tools are employed in an objective, evidence-based manner. 

© 1998-2020 Wiggin and Dana LLPNational Law Review, Volume X, Number 237

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About this Author

David Laufman White Collar Criminal Attorney
Partner

David is a member of the firm’s White Collar Defense, Investigations and Corporate Compliance Practice Group; a member of the International Trade Compliance Practice Group; and Co-Chair of the National Security Practice Group. David’s defense and compliance practice at Wiggin and Dana draws heavily on his extensive experience in government enforcement and national security affairs, most recently as Chief of the Counterintelligence and Export Control Section (CES) in the National Security Division at the Department of Justice (DOJ).

David represents companies and individuals in...

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Joseph M. Casino Patent Litigation Attorney Wiggin and Dana New York, NY
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Joe’s 20+ year career is highlighted by his work as lead counsel in hard-fought patent litigations throughout the US and in Patent Office proceedings. As the leader of Wiggin and Dana’s Intellectual Property Practice Group, he advises clients on patent office disputes, complex licensing, patent monetization, patent portfolio development, and worldwide intellectual property strategic matters.

Joe’s keen understanding of technology has made him a valuable resource for clients facing the most complex IP challenges. His experience includes over 150 patent cases in a variety of high tech fields, including consumer tech, electronics, aerospace, computers, hybrid electric vehicles, semiconductors, smart phones, medical devices, and batteries. Examples include Lufthansa Technik AG v. Astronics Advanced Electronic Systems Corp., Case No. 2:14-CV-1821 (W.D. Wash.), an avionics industry case where Joe led the patent team to a successful claim construction and summary judgment of patent indefiniteness, which was affirmed on appeal; and Therasense, Inc. v. Becton, Dickinson and Co., Case No. 3:05-CV 3117 (N.D. Calif.), a medical-device case where Joe’s client obtained a successful summary judgment on one patent and a verdict of invalidity/inequitable conduct on a second patent, including an award of attorneys’ fees, setting the current standards for inequitable conduct through an en banc appeal.

His knowledge spans all aspects of IP law, including litigation, licensing, opinions, and prosecution. His work has earned him industry recognition, being named one of the world’s leading IP strategists by IAM Strategy 300, as well as Super Lawyer honors. Joe has been the lead negotiator for license and cross-license discussions involving some of the largest patent portfolios. Joe is Secretary for the Licensing Executives Society standard-setting program for developing an ANSI standard of best practices for licensing negotiations.

Joe has authored dozens of articles and papers on IP and patent law. He has also lectured extensively on topics such as patent eligibility, inter parties review, patent exhaustion, drafting patent license agreements, damages and risk analysis, claim construction, and the doctrine of equivalents.

Joe received his J.D. cum laude from Brooklyn Law School, where he was an editor for the Brooklyn Journal of International Law and received various academic awards. He earned a B.S. cum laude in computer science from Brooklyn College.

Joe also has a keen interest in promoting diversity. He serves as the Vice Chair of the Board of Directors for the Council for Unity, a unique charity that promotes diversity and conflict resolution through bringing together students of all cultures.

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Michael Kasdan Intellectual property lawyer Wiggin Dana
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Michael focuses on all areas of intellectual property law, harnessing his electrical engineering background to help businesses reap maximum value from their innovations.

As a Partner in the firm's Intellectual Property Practice Group, Michael develops effective offensive and defensive patent strategies for organizations of all sizes. He has negotiated, defended, and asserted IP rights in federal courts, the U.S. Patent and Trademark Office, the International Trade Commission, and private arbitrations and mediations. As an advisor, he has worked with both established companies and...

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