Threat of intellectual property theft lurks beneath China-Israel deals

Israeli tech companies have raised IP protection as a major concern of doing business with China.

By NIV ELIS
Preisdent Shimon Peres in China (photo credit: AMOS BEN GERSHOM, GPO)
Preisdent Shimon Peres in China
(photo credit: AMOS BEN GERSHOM, GPO)
It’s been a landmark week for Israel in terms of ties to China, the sleeping dragon whose economy is quickly waking up. Agreements were signed in the fields of education, industrial cooperation, and research and development.
On Wednesday, a ministerial committee on China relations approved a NIS 49 million plan to advance bilateral trade, which set the goal of doubling exports to the East Asian giant to $5 billion a year by 2019.
Yet in all the pomp and circumstance, through all the ceremonies, the persistent threat of China’s intellectual property threat went mostly unmentioned.
Just on Monday, the US Justice Department indicted five members of the Chinese People’s Liberation Army Unit 61398 for corporate espionage, alleging that since 2006, it has been hacking into corporate networks and copying emails.
“It’s certainly not a secret that there are a number of threat groups operating from China that are targeting companies and governments around the world to steal information,” said Nart Villeneuve, a senior threat intelligence researcher at cybersecurity firm FireEye. Last year, FireEye acquired a firm called Mandiant several months after it exposed Unit 61398 in a lengthy report.
“Customers are very wary and suspicious that their IP [intellectual property] will be stolen.
This always comes up in discussions,” said an executive at one Israeli company that promotes manufacturing in China, but asked not to be named.
“It’s a legitimate concern,” said Rachid Zerouali, a sales manager at the NAMSA medical research organization.
When he worked in the orthopedics business and sent manufacturing to China, he said, his clients would find that there was quick turnover in their Chinese employees. Shortly thereafter, a company manufacturing eerily similar products would pop up down the street.
Similarly, Zerouali said, in China all testing for regulatory approval by the China Food and Drug Administration mandated testing by Chinese labs, which required turning over a lot of sensitive information. Without trust, such practices raise a lot of eyebrows.
The Economy Ministry’s Chief Scientist Avi Hasson told The Jerusalem Post that Israeli tech companies have raised intellectual property as a major concern of doing business with China.
“We cannot ignore the issue,” he said. “On the other hand, there’s been major progress within China on regulation, enforcement, legislation around intellectual property.”
According to Hasson, Israel has an “intimate” dialogue with the Chinese government over the issue, China’s State Council Vice Premier Liu Yandong mentioned efforts to bolster IP protection on the laundry list of business- friendly conditions rattled of at the MIXiii Israel Innovation conference at the Tel Aviv Fairgrounds this week.
“For a very long time this is how China’s developed, stealing patents and information from foreign industry,” explained Reut Barak Weekes, a specialist on the Chinese economy at the Hebrew University of Jerusalem.
“Now, China is trying to leverage its level of industry, and is legislating patent laws and intellectual property rights law, both to protect the Chinese and to show that they’re not just stealing.”
Some companies have taken note of the improvement, but say there is a long way to go.
“It’s still not like Israel or the United States, but things have definitely been getting better,” said Amir Palmery of Elandel Services, which deals with intellectual property issues. Enforcement has markedly improved, he said.
While the conditions may have improved, some of the espionage has been linked directly to the government, making its assurances dubious.
“China doesn’t acknowledge that this type of activity occurs,” said Villeneuve. Some of the bodies that carry out cyber espionage do it in order to benefit state-owned enterprises, he said.
Given that the phenomenon has gone on so long, said Weekes, most companies dealing with China are savvy about their dealings there.
“Companies are aware of it, this is not a new story,” she said Companies preparing to take advantage of the myriad new incentives to cooperate with China should go in with open eyes and a security strategy.
“It’s a risk factor that I personally would take into account,” said Villeneuve.