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Economic Espionage under International Law

Published on January 16, 2019        Author: 
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In December 2018 the Council on Foreign Relations and the BBC published independent reports identifying China as a prolific perpetrator of economic espionage. Economic espionage describes the state-sponsored theft of confidential information belonging to foreign companies. Once obtained, the state passes the stolen information to domestic companies in order to enhance their competitive position within the market and, by making them more profitable, to strengthen the national economy.

Economic espionage costs victim companies millions of dollars a year. Given that nowadays states draw a direct line between the maintenance of their economic security and their national security, states have increasingly determined that economic espionage constitutes a threat to national security. Indeed, the intensity of this threat has been amplified since the advent of cyberspace because of the vast amounts of business information stored in this domain combined with the ease, speed and anonymity with which it can be accessed.

How can states protect their companies from economic espionage and thus counteract the threat to national security that it represents? States often regard national law – and in particular national criminal law – as the most effective legal framework for combatting economic espionage (see, for example, the US’s reliance on the Economic Espionage Act 1996). Yet, the utility of national law is undermined by the fact that states find it difficult to exercise their jurisdiction over government agents once they have returned to their home state and, more acutely in the case of economic cyberespionage, where they have engaged in this conduct remotely and have thus never set foot in the victim state’s territory.

To date, states have said relatively little about the role that international law can play in confronting economic espionage, such as the agreements comprising international trade law and which are designed to protect industrial and intellectual property rights. Perhaps the reason for this is because they are aware of the international legal scholarship on this topic and its conclusion that international trade law is inapplicable to economic espionage (see Fidler and Strawbridge). In the remainder of this post, I take a fresh look at the interaction between international trade law and economic espionage.

The important provision in this context is Article 10bis of the Paris Convention 1967, which provides:

  1. The countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition.
  2. Any act of competition contrary to honest practices in industrial or commercial matters constitutes an act of unfair competition.
  3. The following in particular shall be prohibited:
    1. all acts of such a nature as to create confusion by any means whatever with the establishment, the goods, or the industrial or commercial activities, of a competitor;
    2. false allegations in the course of trade of such a nature as to discredit the establishment, the goods, or the industrial or commercial activities, of a competitor;
    3. indications or allegations the use of which in the course of trade is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose, or the quantity, of the goods.

Whether Article 10bis applies to economic espionage hinges on three questions.       

  1. Is economic espionage an ‘act of competition’?

In SKF v Jordan (1988) the Commission of the European Economic Community determined that an ‘act of competition’ within the meaning of Article 10bis(2) only includes conduct undertaken by ‘competitors’ (para 10). If this interpretation is correct, economic espionage cannot be classified as an act of competition because, strictly speaking, the perpetrating state is not a competitor of the victim company. The better view, however, is that an act of competition does not depend upon the actors involved in the impugned activity (are they competitors?) but instead focuses upon the impact of this activity upon market participants (has a company been disadvantaged?). This broader interpretation is favourable because it is in line with the object and purpose of the Paris Convention, which is to prevent unfair competition within the Paris Union generally rather than between competitors within the Union specifically (Article 1). If this approach is accepted, economic espionage constitutes an ‘act of competition’ because it blunts the competitive edge of the victim company.

  1. Does economic espionage amount to an act of ‘unfair’ competition?

It is only ‘unfair’ acts of competition that are prohibited by Article 10bis. Article 10bis(2) defines unfair competition as ‘any act of competitioncontrary to honest practices in industrial or commercial matters’. Article 10bis(3) provides three examples of unfair competition (outlined above), none of which include the theft of confidential business information. Yet, Article 10bis(3) expressly states that these three examples ‘in particular shall be prohibited’, indicating that this list is not exhaustive of the activities amounting to unfair competition. Additionally, Article 10bis(2) encourages a broad reading of the concept of unfair competition because it explains that ‘any’ act of competition ‘contrary to honest [business] practices’ is covered by this provision. In short, there can be no doubt that the theft of a company’s confidential information qualifies as an act of dishonest (and thus unfair) competition.

Note that Articles 1(1)-(2) of the Paris Convention explain that this agreement is designed to protect ‘industrial property’, which includes ‘patents, utility models, industrial designs, trademarks, service marks, trade names, indications of source or appellations of origin’. This means that acts of economic espionage against trade secrets such as research designs, test information and formulas would certainly fall within the scope of protection afforded by the Paris Convention. However, Article 1(3) further explains that ‘industrial property shall be understood in the broadest sense’ and, indeed, Article 10bis(2) provides that ‘any act of competition contrary to honest practices in industrial or commercial matters’ is unlawful. Thus, acts of economic espionage against confidential business information more widely – such as the details of employees, customers and suppliers – is arguably an act of unfair competition prohibited by Article 10bis.

  1. Does Article 10bis impose obligations extraterritorially?

Scholars such as Fidler and Strawbridge (pp. 852-853) argue that Article 10bis’s scope of application is territorially constrained insofar as it only requires states to protect Paris Union nationals from unfair competition where they are physically located within their territory. If correct, this approach rules out the application of Article 10bisto economic espionage in those instances where a state steals confidential information from companies located within foreignjurisdictions, which is generally the case with economic espionage.

There is no case law or state practice on whether Article 10bisimposes extraterritorial obligations upon states. There has, however, been considerable case law and state practice on whether treaties generally (and human rights treaties specifically) are capable of extraterritorial application (for a discussion see Milanovic, chapter 7). The takeaway point is that there is no general and uniform rule on the spatial scope of treaties. Instead, the clues as to whether a treaty provision applies extraterritorially are found in the text of that provision as well as the broader object and purpose of the treaty. 

There is nothing within Article 10bisto suggest that this provision only imposes obligations upon states in relation to Paris Union nationals that are located within their territory. In fact, by stipulating that ‘countries of the Union are bound to assure to nationals of such countries effective protection against unfair competition’, the phraseology of this provision indicates that it is nationalitythat restricts the application of Article 10bisrather than the geographical locationof the targeted nationals. This interpretation does not mean that states are under a positive duty to actively protect Paris Union nationals from unfair competition wherever they are located; such an interpretation would be unreasonably burdensome. But, at a minimum, it does mean that states are subject to a negativeduty to abstain from engaging in conduct that subjects Paris Union nationals to unfair competition (that treaty obligations can be ‘divided and tailored’ into positive and negative duties see Al-Skeini, para 137).

 

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According to the above argument, Article 10bisis violated where a state collects confidential information from a company that qualifies as a national of a Paris Union country. But how does a victim state enforce this provision against a malefactor? As a general matter, the Paris Convention is not incorporated within the World Trade Organisation (WTO) and, consequently, alleged violations of this agreement cannot be pursued through the WTO’s Dispute Settlement Body (DSB). Crucially, however, Articles 1-12 and 19 of the Paris Convention 1967 are brought within the ambit of the WTO by Article 2.1 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) 1994. Hence, Article 2.1 TRIPS allows a WTO member to argue before a WTO Panel that another WTO member has violated WTO law by infringing Article 10bisof the Paris Convention.

An aggrieved WTO member can request the DSB to establish a Panel to hear a dispute and this request cannot be refused unless all DSB members agree (Article 6.1, Dispute Settlement Understanding (DSU)). A Panel report (or, where it is appealed, an Appellate Body report) passes to the DSB and becomes binding unless its members agree unanimously to reject it (Articles 16.4 and 17.14 DSU).

Bringing a claim against a WTO member that commits a one-off act of economic espionage may not be particularly useful to a victim member because, even if a WTO Panel finds that economic espionage violates Article 10bis, remedies cannot be awarded for unlawful acts where the violation is no longer occurring. The reason for this is because the underlying rationale of the DSB is to ensure members’ conformity with WTO law rather than to provide compensation/restitution for past wrongs (India – Measures Affecting the Automotive Sector, Panel Report, para 8.15).  

States such as China are reportedly involved in a widespread and sustained economic espionage campaign. Importantly, where evidence suggests that a state has established a policy or plan to engage in economic espionage and, as a result, the reoccurrence of this practice is inevitable, a Panel can recommend that the offending member adjust its behaviour and put an end to the unlawful conduct (Article 19.1 DSU). If the offending member continues to undertake economic espionage in violation of WTO law (that is, it fails to adhere to the Panel’s recommendation), the DSB can authorise the victim member to ‘suspend the application to the Member concerned of concessions or obligations under the covered agreements’ (Article 22.2 DSU). Under Article 22.4 DSU, DSB-sanctioned trade retaliation ‘shall be equivalent to the level of nullification or impairment’ sustained by the victim member and must be designed to induce the offending member into law-compliance (namely, to cease its participation in economic espionage).

In conclusion, international law provides rules (Article 10bis) and judicial procedures (through the WTO) that can be invoked to confront the growing threat posed by economic espionage.

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