Intellectual Property, Industrial Espionage and the Future of Military Diffusion

By Robert Farley, Patterson School of Diplomacy and International Commerce, University of Kentucky

What do intellectual property law, industrial espionage, and cyber-warfare have to do with one another?

Industrial espionage is, by definition, a violation of most existing schemes of intellectual property law. In the 19th and 20th centuries, governments actively practiced industrial espionage, dispatching agents to foreign countries in order to steal secrets and bring them back to domestic producers. Despite the potential for glamour and drama, the fruits of industrial espionage, especially in the defense sector, are generally thought to have been limited.

The phenomenon of cyber-espionage is only part of a broader story about the increasing relevance of intellectual property to the innovation and diffusion of military technology.

Three related trends could combine to change this.

First, the digitization of knowledge has made intellectual property, particularly patents and trade secrets, more accessible to spies. Patent offices have become more accessible, digital record-keeping has increased in scope, and firms have conducted more of their business online.

Second, an increasing proportion of the value of military equipment, as with many modern products, lies in its intellectual property. High tech components, often produced by a variety of subcontractors, can define the capabilities of a system. Similarly, software code (potentially accessible through cyber-espionage) is necessary for most complex systems to function properly.

Third, intellectual property law has grown considerably more sophisticated over the past decades, in both its domestic and international components. The expansion of public-private collaboration in defense, as well as the emergence of new contributors to defense technology, has increased the complexity of the intellectual property calculations facing businesses, government, and the law firms that mediate between them.

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Together, these trends have combined to make the intellectual property components of military technology more valuable and more accessible to potential thieves. And there is little question that thieves are taking advantage. The United States has identified Russian and especially Chinese hackers targeting American and European intellectual property, in both the military and civilian spheres.

Historically, China has maintained a casual attitude towards the intellectual property of foreign countries, especially in the military sphere. China copied, produced, and then exported the MiG-21 fighter, selling it in direct competition with Soviet models. More recently, China brazenly violated a series of licensing agreements with Russia in order to produce the J-11 and J-15, modified versions of the Su-27 ‘Flanker’ family of fighters. China now expects to export the J-11 in direct competition with Russian-built Flankers.

More recently, evidence from the Snowden revelations suggests that China may have appropriated technology associated with the F-35 Lightning II Joint Strike Fighter. Many believe that Shenyang, a major Chinese military aircraft producer, has incorporated this stolen technology into the J-31, a prototype stealth fighter. China is now expected to export the J-31 in direct competition with the F-35.

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The phenomenon of cyber-espionage is only part of a broader story about the increasing relevance of intellectual property to the innovation and diffusion of military technology. Now and in the future, concern over the security of intellectual property may help transform the business practices of the defense industry, affecting the structure of export controls, the nature of partnerships, and the management of supply and production chains.  To briefly summarize the expected changes:

  1. The nature of intellectual property theft in the military sphere will change. Rather than purchasing (or otherwise appropriating) entire systems and then reverse engineering, future theft will likely involve cyber-attacks on states, companies, and even the law firms that protect patents.
  2. While states such as India, China, and Russia have had strong incentives to defect from intellectual property compliance in the past, their status as producers and exporters will increasingly make them IP defenders, in general. In specific instances, however, they will continue to pursue the appropriation of critical foreign technologies, often through illicit means.
  3. There is potential for cooperation between the major arms producers on an international IP compliance regime, which would set guidelines or ‘rules of the road’ for export. However, continuing political and strategic disagreement between these producers will limit the overall impact of such a regime.

Robert Farley will be speaking at CIPS on March 26, 2015 at 12pm.

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