US report warns on China IP theft

The theft of intellectual property from the US is "unprecedented" and costing the nation an estimated $300bn (£200bn) each year, a report says.

The study, led by former top-ranking officials, said China was thought to be behind 50-80% of the theft.

Stronger deterrent measures that made IP theft unprofitable were needed, the report said.

These included banking sanctions and import or investment curbs on companies failing to protect IP rights.

The non-partisan private commission was co-chaired by Dennis Blair, Mr Obama's former director of national intelligence, and Jon Huntsman, former US ambassador to China and Republican presidential candidate.

Its report comes weeks before a summit of the US and Chinese presidents, set for 7 and 8 June, at which the issue of Chinese cyber espionage is likely to be raised.

Earlier this month, the Pentagon for the first time directly accused the Chinese government and military of targeting US government computers as part of a cyber espionage campaign aimed at collecting intelligence on US diplomatic, economic and defence sectors.

China called the report "groundless", saying it represented "US distrust".

The report, released on Wednesday by the Commission on the Theft of American Intellectual Property, said IP theft cost America jobs and suppressed innovation.

"The scale of international theft of American intellectual property (IP) is unprecedented - hundreds of billions of dollars per year, on the order of the size of US exports to Asia," it said.

China, it said, was "the world's largest source of IP theft", with Russia and India other actors, as well as other countries.

"National industrial policy goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in this practice," the report said.

Foreign IP was also less protected by "weaknesses and biases" in China's legal and patent systems, it said.

As well as cyber espionage, it pointed out that most IP theft took place the "old-fashioned way", through bribed employees, on-site theft and re-engineering.

Current legal avenues for addressing theft were inadequate. "IP theft needs to have consequences, with costs sufficiently high that state and corporate behaviour and attitudes that support such theft are fundamentally changed," it said.

The report made a number of recommendations, including giving the national security advisor responsibility for responding to IP theft.

The Treasury should be given the power to block entities benefiting from IP theft from the US banking system, while measures blocking goods benefiting from stolen IP from the US should be strengthened.

More resources should also be given to the FBI and Department of Justice to prosecute IP theft, it said.

On cyber-hacking, it stopped short of calling for revising laws to allow "offensive cyber" - recovering stolen files or damaging a hacker's network, citing fears of damage to third parties.

But it said "informed deliberations" on how companies could legally conduct "threat-based deterrence operations against network intrusion" should be undertaken.

Mr Huntsman said he expected the issue to be raised at the upcoming presidential summit.

"The president sets the priorities for the US-China relationship, and this clearly would have to be at the top of our economic agenda," he said.