The Chinese Hacking Indictments and Why Economic Espionage Is Different

On Monday, the Justice Department announced indictments against five named members of China’s People’s Liberation Army for hacking and theft of trade secrets. In reaction, the Chinese government denied the attacks and essentially said the U.S. spies, so the U.S. has no basis for complaining.

I think the Chinese government is wrong on both counts.

The U.S. cybersecurity community has long known that incessant cyber-attacks come from China. In 2008, in the wake of the Obama election, I was talking with the security expert for a Washington think tank that had good connections with the new administration. This expert said that attacks were coming every night from China. They would begin just after breakfast time in the time zone in eastern China then take a break for lunch (the middle of our night). The presumably well-fed attackers would begin again after lunch. The targets included address books of the well-connected—one goal apparently was to map the social networks of the new U.S. trade and other officials.

The second argument from the Chinese government is essentially that there is no difference between what they do and surveillance by the NSA and other U.S. agencies. In response, there is a strong case that industrial cyber-espionage is different and deserves the sort of strong response shown this week by the Justice Department.

Unknown to many observers, the U.S. has a long-standing policy of not using surveillance to steal industrial secrets to advantage domestic industry. This issue came to the fore in the work of President Obama’s Review Group on Intelligence and Communications Technology, on which I served as one of five members. In our Recommendation 31, we supported international norms or international agreements for specific measures that would promote economic growth and increase confidence in the security of online communications. Specifically, we recommended that “governments should not use surveillance to steal industry secrets to advantage their domestic industry.”

One reason to stop industrial espionage is that it is a simple crime—stealing from a specific victim for the benefit of a specific other company. Attorney General Eric Holder, in his news conference announcing the indictments, pointed out that we would of course consider it criminal if a burglar pulled a truck up to an industrial facility to steal things from inside. Stealing trade secrets from a company is similar, to the loss of companies named in the indictment such as Alcoa, U.S. Steel and Westinghouse.

Criminal laws against industrial espionage serve broader goals than simply vindicating the victim. Protection of trade secrets fosters economic efficiency and protects investment and investment in intellectual property. As a matter of new technology, companies invest in trade secrets while they prepare to enter a market, and many innovations then ripen into patents that are published to the world and make the innovation known to follow-on innovators. Military-grade cyber-attacks on those trade secrets steal from the innovator and also reduce the expected profit from the hard work of developing new products and services.

In our Recommendation 31, we supported international norms or international agreements for specific measures that would promote economic growth and increase confidence in the security of online communications. Specifically, we recommended that “governments should not use surveillance to steal industry secrets to advantage their domestic industry.”

A related efficiency harm is that it is costly and difficult for ordinary corporations to protect themselves against military-grade cyber-attacks. The spending needed to protect trade secrets against that level of attack imposes costs across the broad swathes of industry that compete with other countries.

Beyond efficiency harms, industrial espionage also fosters unfair competition. One interesting wrinkle is that several of the companies that came forward were involved in unfair competition trade disputes with China. In 2011, a subsidiary of SolarWorld asked the U.S. Commerce Department to investigate whether Chinese competitors were involved in “dumping,” or sale below cost designed to force out the U.S. producer. The Commerce Department indeed found evidence of illegal dumping. But it allegedly turns out that the hackers had stolen the chief financial officer’s cash flow projections—the Chinese army was allegedly providing Chinese companies with the data needed to know just how long it would take to force SolarWorld out of the market.

The response from China has been to accuse the U.S. of “hypocrisy and double standards.”  There have been reports that the U.S. has done surveillance on corporate networks, with particular publicity about the Brazilian energy company Petrobras. The administration has explained that corporate surveillance does take place for reasons including terrorist financing and enforcing sanctions laws against countries such as Iran.

Where done under proper legal authorities, my view is that there are compelling reasons to carry out law enforcement and national security surveillance. In a world where war, crime and terrorism exist, nations continue to need tools to protect the security of their citizens.

More broadly, as the Review Group recommended, we should support the creation of global norms that support peaceful, efficient and fair use of the Internet by individuals and corporations.

One of the other norms we supported was that “governments should not use their offensive cyber capabilities to change the amounts held in financial accounts or otherwise manipulate the financial systems.” Since World War II, the international trade system has reduced tariffs and expanded to include China and other countries that would never have joined originally. Having the Chinese military steal corporate secrets for the advantage of Chinese companies is contrary to the international trade system and the way the Internet should operate. The indictments this week are a positive step toward bringing a sensible rule of law to attacks in cyberspace.

Written By

Peter Swire, CIPP/US


If you want to comment on this post, you need to login.
  • Peter Swire May 22, 2014

    Harvard Law Professor and former senior DOJ official Jack Goldsmith took a contrary positions here: http://www.lawfareblog.com/2014/05/the-u-s-corporate-theft-principle/ I have responded Jack's arguments there.


Board of Directors

See the esteemed group of leaders shaping the future of the IAPP.

Contact Us

Need someone to talk to? We’re here for you.

IAPP Staff

Looking for someone specific? Visit the staff directory.

Learn more about the IAPP»

Daily Dashboard

The day’s top stories from around the world

Privacy Perspectives

Where the real conversations in privacy happen

The Privacy Advisor

Original reporting and feature articles on the latest privacy developments

Privacy Tracker

Alerts and legal analysis of legislative trends

Privacy Tech

Exploring the technology of privacy

Canada Dashboard Digest

A roundup of the top Canadian privacy news

Europe Data Protection Digest

A roundup of the top European data protection news

Asia-Pacific Dashboard Digest

A roundup of the top privacy news from the Asia-Pacific region

IAPP Westin Research Center

Original works. Groundbreaking research. Emerging scholars.

Advertise in IAPP Publications

Find out how to get your message in front the people you want to reach. Download a media kit now.

Get more News »

Find a KnowledgeNet Chapter Near You

Network and talk privacy at IAPP KnowledgeNet meetings, taking place worldwide.

Women Leading Privacy

Events, volunteer opportunities and more designed to help you give and get career support and expand your network.

IAPP Job Board

Looking for a new challenge, or need to hire your next privacy pro? The IAPP Job Board is the answer.

Join the Privacy List

Have ideas? Need advice? Subscribe to the Privacy List. It’s crowdsourcing, with an exceptional crowd.

Find more ways to Connect »

Find a Privacy Training Class

Two-day privacy training classes are held around the world. See the complete schedule now.

Online Privacy Training

Build your knowledge. The privacy know-how you need is just a click away.

The Training Post—Can’t-Miss Training Updates

Subscribe now to get the latest alerts on training opportunities around the world.

New Web Conferences Added!

See our list of upcoming web conferences. Just log on, listen in and learn!

Train Your Staff

Get your team up to speed on privacy by bringing IAPP training to your organization.

Learn more »

CIPP Certification

The global standard for the go-to person for privacy laws, regulations and frameworks

CIPM Certification

The first and only privacy certification for professionals who manage day-to-day operations

CIPT Certification

The industry benchmark for IT professionals worldwide to validate their knowledge of privacy requirements

Certify Your Staff

Find out how you can bring the world’s only globally recognized privacy certification to a group in your organization.

Learn more about IAPP certification »

Get Close-up

Looking for tools and info on a hot topic? Our close-up pages organize it for you in one easy-to-find place.

Where's Your DPA?

Our interactive DPA locator helps you find data protection authorities and summary of law by country.

IAPP Westin Research Center

See the latest original research from the IAPP Westin fellows.

Looking for Certification Study Resources?

Find out what you need to prepare for your exams

More Resources »

GDPR Comprehensive: Registration Open

New! Intensive two-day GDPR training led by the sharpest minds in the field. It's a can't-miss event.

The Congress Is Cancelled

The IAPP Europe Data Protection Congress 2015 is cancelled. Click through to learn more.

Sponsor an Event

Increase visibility for your organization—check out sponsorship opportunities today.

Exhibit at an Event

Put your brand in front of the largest gatherings of privacy pros in the world. Learn more.

More Conferences »

Become a Member

Start taking advantage of the many IAPP member benefits today

Corporate Members

See our list of high-profile corporate members—and find out why you should become one, too

Renew Your Membership

Don’t miss out for a minute—continue accessing your benefits

Join the IAPP»