Employee espionage steps onto the world stage

A news story caught my eye this morning. It is about a Chinese researcher who worked for Dow Chemical. He is accused of taking technology from Dow Chemical, and using it to start a company in China, with the financial support of the Chinese Government.

Technical espionage has been going on for years, but in the past, it has focused on weapons technology, which was of interest to foreign governments.

Now, emerging economies have a rapidly-growing industrial focus, supported by huge direct government investment. In this innovative environment awash in money, almost any leading-edge technology that can be used to develop a profitable new business is of interest.

As the Chinese industrial base grows, almost every Western company with a sophisticated technology base, and the manufacturing expertise to translate their new discoveries into a reliable finished product, is at risk of having not only their base technology exposed to world view, but also their manufacturing processes, giving any new company in another part of the world a huge leg-up into the industry. More troubling, in many cases, this kind of knowledge theft is being encouraged by some foreign governments, which gives the thieves immunity in their new, foreign, corporate environment.

China now has a killer combination: an industrial base big enough to take advantage of these kinds of illegal technology transfers, and the funding to expedite them. And the rest of the world is catching on. Now there is China India, and a bunch of other Asian countries who are making big Government investments in new companies, and they are looking for "ideas".

In the past, the world attitude has been to let American companies do the heavy hauling on the R&D and manufacturing innovation, and then buy the products from the US. Now that these foreign countries are getting into new product innovation for themselves, they are taking ideas from anywhere, and funding the new companies that are formed to use them, with no questions asked.

Some 20 years ago, it used to only be military secrets that were of concern to the US Government, and much of the law is designed to combat military secrets leaks. Accordingly, the law as it stands is entirely inadequate to protect Western companies from intellectual property depredation.

From the New York Times:

The Justice Department lost a case involving two California engineers. The government focused on documents showing that the engineers were working with a venture capitalist in China to seek financing for a microchip business from China’s 863 program, which supports development of technologies with military applications.

But the men were arrested before they filed the grant application. The judge in the case concluded in May that the government had needed to prove that the men had “intended to confer a benefit” on China, “not receive a benefit from it.”

This underlines the problem. There seem to be inadequate protections under the law for personal enrichment from technology theft. The law protects against another country's gain from technology theft, which is in line with protecting military secrets. But it seems to offer no protections in the area of industrial espionage, where the thieves are entrepreneurs attempting to enrich themselves in an industrial market.

It also raises interesting questions that must make us revisit the fundamental US approach of keeping Government at arms-length from business investment. It seem that the Chinese experiment, which involves very large Government participation in industry, seems to be a successful one.

However, in the US, Government involvement in industry is relegated to assisting industry, either by developing new technologies, or providing subsidized loans to new companies in desirable industries, and leaving the private investors to reap all the benefits.

The National Institutes of Health spend tens of billions of dollars on research every year. They have no industrial income that defrays these expenditures in a meaningful way, and often their discoveries languish for lack of private investment, which would need to develop manufacturing techniques and corporate structure to exploit these new discoveries.

There are many other US government research departments that likewise develop a huge library of new discoveries that are not industrialized.

Now, it seems the Chinese government is prepared to bite this bullet, and they stand to benefit from their direct ownership of the companies they invest in to bring the technologies to market. They are also prepared to use their universities and government research institutes to develop the technology that these new companies will employ, because their shareholdings in the companies that will exploit their research will directly benefit them in the future.

It is logical (maybe not ethical) in this environment to steal as much technology as possible, because it saves repeating the costly research. And if such theft is protected by the Chinese government (which is easy, because they control the investigations inside China, where all the evidence is, in the factories that are employing the stolen technology).

So America needs to do two things immediately.

First, revisit the law, and ensure that laws are passed that give US companies adequate protections against intellectual property theft.

The second is to examine how technology can get from US government research organizations into the hands of consumers in a more efficient manner. In the past, the US has been looked to as the country that is the innovator, with Japan being regarded as the second fall-back.

The world has changed. The US economy is faltering, and I see no improvement in the US economy on the near horizon. It is time for a complete re-examination of US government participation in business, and the changes that need to be made to dramatically improve American efficiency in technology exploitation.

But then, I could be completely wrong. And maybe it simply doesn't matter. Or the problem is unfixable. Give it some thought, and leave a comment.