WASHINGTON—The Senate Committee on the Judiciary emphasized on Wednesday that the U.S. should increase policies to protect against data theft by Chinese agencies, who are allegedly stealing U.S. information technology amidst a growing arms race over global domination of the technology market.
“The issue is that our system was never designed for this,” said Tom Lyons, former senior officer at the CIA, who testified at the hearing. “Our commercial sector and legal system assumes good faith, self interested profit oriented companies, but none of those assumptions hold up when the other side’s complex theft sponsors copycat products at subsidized costs and has little code as some profit.”
The committee suggested new protections, emphasizing enhancing surveillance and identification methodologies and incentivizing companies and individuals to speak up in the face of technological IP theft.
“American firms are not competing against Chinese rivals in any normal sense. They are competing against the largest intelligence apparatus in the world, one whose mission includes putting American companies out of business,” said Lyons, the founder of the“ 2430 Group,” which consults organizations on IP protections.
For IP regulation applications to be most effective, there has to be cooperation between private companies that develop it, and the state.
“It’s truly unprecedented, the mismatch between how strategically important this technology is and how little involvement the government has in developing it. And that is most likely not a good thing,” said Helen Toner, interim executive director at the Center for Security and Emerging Technology at Georgetown University.
So far, the policy response to technological espionage has emphasized public enforcement, while IP is primarily based on civil enforcement.
“In many respects, by focusing on criminal remedies for over two decades, you’ve helped enhance the role of the state. We need to look at IP as a private right, which is what it is,” Marc Cohen, senior technology fellow at the Asia Society of Northern California said.
The Federal Bureau of Investigation found the annual cost of IP theft from China is between $225 to $600 billion per year. The FBI reports that China is implicated in roughly 60% of total trade secret theft cases, and 80% of economic espionage prosecutions involve conducts that would benefit Beijing.
Sen. Ted Cruz (R-TX) questioned witness Tom Lyons, now serving as the Co-Founder of 2430 Group, on China stealing and repackaging the American MQ-9 drone, which is capable of carrying precision-guided munitions. Cruz also noted that a Chinese national pleaded guilty in a U.S. federal court in 2016 to stealing F-35 technical data and selling it to Beijing. (Yuqing Liu, MNS)
China is in a better position, since it has an industrial policy framework around patent examination guidelines, that is amended and reinvented by leaning in heavily on where the emerging technologies are, experts say.
In contrast, the U.S. “has a very static system that is slow to legislate and slow to react,” said Cohen.
“So what are the consequences if you’re an inventor here in an area, in genomics, business, software, many other areas, in AI, your patent will be granted in China, perhaps the EU as well will not be granted in the U.S.,” the scholar added.
Guo Jiakun, the spokesperson for the Chinese foreign minister, said at a press conference on Wednesday in Beijing that the accusation of China stealing IP is “entirely groundless.” According to Guo, China is strengthening its IP protection legislature with domestic and international infrastructures, and is evolving to a “global innovation laboratory.”
Policy Recommendation
Chinese companies are engaging in distillation, a process in machine learning in which smaller language models in AI mimic the outputs of larger ones. While it was framed as an imminent threat, any effort to tackle distillation, as outlined by Toner, should “not undermine the open and international AI research ecosystem that has been fundamental in U.S.’s success in AI.”
Experts also cited that corporations remain silent in the face of targeted attempts of IP theft, in fears of large expenses, jeopardizing Chinese market access and threat of retaliation. The government can better support these companies by incentivizing them to file espionage claims, through employing what is known as a qui tam model, that allows the government to intervene in and take over lawsuits initiated by private companies or individuals.
This way, the Department of Justice can litigate for the plaintiff companies, who can gain from a share in the financial recovery, while not having to share legal costs.
It was recommended that the DOJ should provide clear guidelines to technology companies, on the extent to which they can cooperate on defending against distillation, without being subject to antitrust infringement.
The recommendations also emphasized that weaknesses in detection are an integral part of information breaches.
“Detection is everything, and companies cannot report what they don’t discover,” Lyons said.
He added that individual actors need to be encouraged to report incidents of theft and step up to protect their companies, through an enhanced “whistleblower program.”
Policy recommendation centered around identifying and improving the structural weaknesses that allow for espionage. Reports suggested mandating federal contractors to undergo foreign influence background checks, and granting them authority to conduct these checks on employees as well, will help enhance surveillance and identify information theft. Additionally, it was recommended to offer tax credits on companies that utilize counterintelligence programs.
Toner emphasized the importance of facilitating information sharing about security threats between government and industry by expanding funding for the AI Security Center within the National Security Agency, and the Center for AI Standards and Innovation, a body within the National Institute of Standards Technology.
“There’s a lot of discussion right now about what we can do, and what, from a legal standpoint, can Congress do, to perhaps shift the regulatory field, to incentivize companies to take this seriously,” Lyon said. “What’s clear is that in the Senate and in the Congress at large, there’s an understanding that theft is affecting the bottom line and the economic advancement of the U.S.”