The big bluff: Obama, cyber economic espionage, and the threat of WTO litigation.

Author:Strawbridge, Jamie
  1. Introduction II. Procedural Issues: WTO "Measures" and the Scope of Challenged Conduct A. Option One: Challenging a Single, Past Cyber Attack B. Option Two: Alternative Constructions of the "Measure" At Issue 1. Mounting an "As Such" Challenge 2. Mounting a Modified "As Applied" Challenge 3. Challenging a WTO Member "Practice" III. TRIPS Article 2.1 & The Paris Convention A. Introduction B. Obligations Under Paris Convention Article 10bis 1. The Definition and Scope of "Unfair Competition" 2. "Act of Competition" & "Contrary To Honest Practices" 3. The Nature of Article 10bis Protections IV. TRIPS Article 39 A. The Scope of Article 39 Obligations B. The Nature of TRIPS Article 39 Obligations V. Indirect Challenges: Violations of Good Faith, Non-Violation Complaints A. Good Faith B. Non-Violation Complaints VI. Conclusion I. Introduction

    Companies build their business and stake their success on secrets. After Dr. John S. Pemberton invented Coca-Cola in 1886, the syrupy formula was shared with only a select few and was never written down; when it was finally committed to paper, the formula was sealed in a bank vault (.1) The secret formula for WD-40 is also kept under lock and key and has only seen the light of day twice: once when the company changed banks, and once when the head of the company inexplicably rode into Times Square on the back of a horse in a suit of armor, wielding the formula. (2) More contemporary famous trade secrets include Google's search algorithm--that invisible code that helps ensure Internet searches lead users to the information they seek.

    As long as there have been trade secrets, there have been efforts to steal them in order to gain competitive advantage. (3) The old-fashioned method of trade secret theft--the disgruntled employee making off with secret files--continues to be a multi-billion-dollar problem (4) for U.S. companies. (5) But with the advent of the Internet, a new problem now dwarfs the one posed by the disgruntled employee: the theft of trade secrets through cyberspace, perpetrated by domestic and foreign computer hackers who extract electronically stored trade secrets from leading companies without ever leaving the cozy confines of their home or office. (6)

    The Obama administration has publicly criticized the cyber-enabled theft of U.S. company trade secrets in a way no previous administration has, calling it "one of the most serious economic and national security challenges" that the United States faces. (7) But the administration is particularly concerned that foreign government officials, especially those in the Chinese government, are hacking into the networks of private U.S. companies. (8) Although this problem is not new, (9) the scope of the problem with Beijing--now estimated to cost the United States billions of dollars each year (10)--has led the Obama administration to all but abandon diplomatic niceties on this subject. "For too long, the Chinese government has blatantly sought to use cyber espionage to obtain economic advantage for its state-owned industries," the administration argues. (11) Backing up these tough words, the administration has pursued a range of measures beyond diplomatic pressure, including indicting Chinese officials in U.S. court, (12) developing economic sanctions, (13) improving U.S. inter-agency coordination on cyber hacking, (14) and considering ways to bolster U.S. defenses against hacking attempts. (15) Most recently, President Obama pressed his Chinese counterpart to publicly pledge that the Chinese government would not conduct or condone acts of cyber economic espionage. (16)

    Most striking, however, has been the assertion from the administration (17) and Democratic leaders on trade policy in Congress (18) that cyber-enabled theft of trade secrets conducted by Chinese government officials violates international law. Because there are no international treaties dealing directly with the issue of cyber economic espionage, (190) the administration and members of Congress argue that Chinese cyber economic espionage violates World Trade Organization (WTO) rules developed in the early 1990s, (20) when the Internet was still in its nascent stage. If true, this would be significant because it would provide the Obama administration with an effective legal forum to address its complaints. That is, the administration could force litigation on this issue before a neutral international tribunal in Geneva. If it prevailed, the United States would receive authorization from the international community to impose binding sanctions on China in response. Unlike indictments in U.S. courts--which are largely symbolic measures because the United States cannot force Chinese officials to show up in U.S. courts in order to be prosecuted (21)--successful WTO litigation could impose real-world economic consequences on the Chinese government. Moreover, unlike unilateral sanctions against individual Chinese officials, a successful WTO lawsuit could also carry with it the moral judgment of the international legal community against Chinese cyber-enabled hacking. (22) So far, the Office of the U.S. Trade Representative (USTR)--the division of the U.S. government that would actually litigate such an international law claim--remains non-committal, although the top USTR lawyer has said the USTR is considering the merits of asserting such a legal claim. (23)

    Despite all the bluster, however, neither the Obama administration nor supporters in Congress have provided any explanation--in public, anyway--for exactly why cyber-enabled theft of trade secrets by foreign governments violates WTO rules. There is also little academic literature on this subject. (24) Thus, this Note provides an initial look at the likely arguments the United States--or any other WTO Member--would make if it were to pursue litigation in Geneva. Ultimately, this Note demonstrates that, as a legal matter, it would be difficult to prevail on a claim that cyber economic espionage perpetrated by foreign governments violates WTO rules. At the same time, this Note explains why the mere threat of WTO litigation complements other facets of the overall administration response to cyber-enabled hacking by Chinese officials.

    The structure of this Note is as follows. First, it affirms that an act of cyber economic espionage by a government represents a "measure" under WTO rules that could be challenged. Next, it examines arguments that this "measure" violates Articles 2 and 39 of the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Third, this Note explores whether a WTO Member could successfully bring a so-called WTO non-violation complaint or, alternatively, allege that cyber economic espionage violates the general principle of international law known as good faith. Although a successful WTO challenge is unlikely under any of these options, the Note concludes by explaining why the mere threat of WTO litigation-- coupled with other policy measures--nonetheless serves a useful purpose in deterring hacking from China and other foreign governments.


    When considering the viability of any WTO challenge, the first question is defining the scope of the "measure" at issue. This is critical because, under Article 6.2 of the WTO's Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), a WTO Member can only challenge a specific "measure" or "measures" that are maintained by another WTO Member. (25) While it may seem counterintuitive, determining the "measure" being challenged with respect to cyber economic espionage is tricky--and begins to reveal the limitations of using the WTO dispute settlement mechanism to address this issue at all.

    1. Option One: Challenging a Single, Past Cyber Attack

      A WTO complainant would have little difficulty establishing that a single cyber economic attack that has already occurred constitutes a "measure." The WTO Appellate Body has defined "measure" broadly, stating that " [i]n principle, any act ... attributable to a WTO Member can be a measure of that Member for purposes of dispute settlement proceedings." (26) The key is attribution to a foreign government; a "measure" generally refers to "policies or actions of governments," not private parties. (27) Naturally, the "measure" must also be the source of the alleged harm. (28) None of this presents any problem for the current analysis; if a foreign government hacks into a U.S. company's private network, steals trade secrets from that company, and then either uses those secrets to develop its own technology or distributes the trade secrets to its domestic companies, it has taken a "measure" that can be challenged.

      However, defining the "measure" at issue so narrowly is likely a non-starter because it would preclude an effective remedy were the WTO complainant to prevail. The reason is simple. Unlike the U.S. domestic legal system, WTO-authorized remedies are strictly forward-looking, i.e., they compensate for ongoing harm once a case has succeeded on the merits, not harm that occurred in the past and gave rise to the challenge in the first place. (29) In the typical WTO case, if a Member prevails in its claim that a "measure" violates WTO rules, the WTO panel (or Appellate Body, if the case is appealed) will recommend that the violating Member "bring the measure into conformity" with WTO rules. (30) If the offending Member fails to do so (by withdrawing the offending measure or withdrawing and replacing it with a new "measure" that complies with WTO rules), then WTO-authorized sanctions may apply. (31)

      The "prospective" nature of WTO remedies has major implications for a possible challenge of cyber economic espionage. If the "measure" is defined (at the outset of litigation) as a single, past cyber attack, it is unclear how the offending Member could bring that "measure"--the past...

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