Economic espionage refers to the covert collection of trade secrets or proprietary information from a company or nation by another entity, with the intent of using it to gain a competitive edge. Read here to learn more.
Economic espionage is conducted not just for the advantage of individual companies, but often with the support or direct involvement of national governments, aiming to bolster their economic interests at the expense of foreign competitors.
In 2017, the Department of Legal Affairs and Legislative Department forwarded a reference to the law commission to examine the possibility of enacting a Trade Secrets and Economic Espionage Act.
Economic Espionage
Economic espionage refers to the act of stealing trade secrets, proprietary information, intellectual property (IP), or confidential business strategies from companies, governments, or institutions to use it to gain a competitive advantage, often for the benefit of another company or country.
This form of espionage is focused on commercial, rather than national security, interests and can involve a wide range of activities, including cyber hacking, surveillance, bribery, and infiltration by corporate spies.
- Targets and Tactics: The primary targets are trade secrets, confidential business plans, innovative technologies, manufacturing processes, and other forms of intellectual property. Tactics can range from cyber hacking and insider threats to surveillance and the exploitation of business relationships.
- Legal Framework: Various countries have enacted laws specifically aimed at combating economic espionage. For example, the United States has the Economic Espionage Act of 1996, which makes the theft or misappropriation of a trade secret a federal crime if the act benefits a foreign government, foreign instrumentality, or foreign agent.
- Impact on Businesses and National Security: The impact of economic espionage can be profound, affecting not just the competitive edge and financial standing of companies but also national security. In sectors like defense, energy, and telecommunications, the theft of proprietary technology can compromise a country’s technological superiority and infrastructure resilience.
- International Relations and Trade: Economic espionage often strains relations between countries, leading to diplomatic conflicts and affecting international trade. Actions taken by governments against suspected espionage, such as sanctions, trade restrictions, or legal action, can have wide-ranging implications for global commerce and diplomacy.
- Cyber Espionage: With the proliferation of digital technology, cyber espionage has become a predominant method for conducting economic espionage. Hackers can infiltrate company networks to steal data, often with sophisticated malware or through social engineering tactics. These cyber activities are increasingly linked to state actors, complicating the international cybersecurity landscape.
- Countermeasures: Companies and governments invest heavily in countermeasures to protect sensitive information. These include cybersecurity defenses, counterintelligence operations, and legal actions. There is also a growing emphasis on awareness and training to mitigate insider threats and safeguard against social engineering tactics.
What are Trade secrets?
Trade secrets are intellectual property rights on confidential information that may be sold or licensed. They derive their value from being kept secret.
Trade secrets are considered a form of intellectual property (IP) and are protected without the necessity of registration, unlike patents, trademarks, and copyrights, which require formal registration for protection under intellectual property law.
- Not Generally Known or Readily Accessible: The information must not be generally known to or readily accessible by the public or others who can obtain economic value from its disclosure or use.
- Economic Value: The secret must provide some sort of economic benefit to its holder, which derives from its secrecy.
- Subject to Reasonable Steps to Keep Secret: The holder of the trade secret must make reasonable efforts to maintain its secrecy. This can include measures such as non-disclosure agreements (NDAs), secure storage, and limited access.
While trade secrets do not expire as long as the secrecy is maintained, protecting them can be challenging, especially in the digital age where information can be easily and quickly distributed. Additionally, if a trade secret is independently discovered, reverse-engineered, or becomes public through legal means (such as a published patent), protection is lost.
Why in the news?
The 22nd Law Commission recommended that new legislation be introduced to protect trade secrets with exceptions relating to whistleblower protection, compulsory licensing, government use, and public interest.
- Currently, India lacks a specific law for the protection of trade secrets. Instead, they are safeguarded under the general laws governing contracts, common law, criminal law, and principles of breach of confidence and equity.
- The 289th Law Commission Report, published on ‘Trade Secrets and Economic Espionage’, states that the reference to the commission arose after deliberations in the government, where the need for legislation on the subject was felt.
The Commission has looked at the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement and India’s obligations arising from it.
- It has also explored the development of laws relating to trade secrets and economic espionage in other jurisdictions like the UK, USA, EU, and Germany while proposing a draft Protection of Trade Secrets Bill, 2024.
- On the subject of economic espionage, the report states that “even trade secrets held by the Government of India have been consistently targeted by foreign governments in acts of active and passive economic espionage”, and hence, there is a need for a single statute to address “all issues related to trade secret leakages and economic espionage”.
Challenges of economic espionage
The increasingly interconnected and digital nature of the global economy presents both opportunities and vulnerabilities.
As companies and nations become more dependent on technology, the incentives and capabilities for economic espionage expand, making it a persistent and evolving threat.
The challenge lies in balancing economic openness and cooperation with the need for security and the protection of intellectual property.
Businesses and governments take several countermeasures to protect against economic espionage, including:
- Implementing robust cybersecurity measures to protect against hacking and cyber theft.
- Conducting thorough background checks on employees and maintaining a strict policy on access to sensitive information.
- Using legal tools like non-disclosure agreements (NDAs) and non-compete clauses to deter and have recourse against espionage by employees or partners.
- Regularly updating and auditing security protocols and training employees on recognizing and reporting potential espionage activities.
Way forward
International cooperation and legal frameworks are crucial in addressing economic espionage, but they face obstacles such as differing national laws, priorities, and capacities for enforcement. The dynamic nature of technology and international trade means that strategies to combat economic espionage must be continually adapted and updated.
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-Article by Swathi Satish
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