US Investors Funding China-Based Companies That Steal American IP

WASHINGTON—U.S. investors are funding China-based companies that steal intellectual property from American companies, experts say.

China-based companies that replicate stolen IP in critical technologies like semiconductors are even more likely to be funded by U.S. investors, because they become subsidized by the Chinese Communist Party (CCP), according to Derek Scissors, a senior fellow at the American Enterprise Institute.

“On the Chinese side, if you become successful at stealing IP, you become subsidized and [thus] more attractive to American investors,” Scissors said during a House Indo-Pacific Subcommittee hearing on May 18.

“American money and technology should not be allowed to help [China] become better at coercing our allies and us in harming our interests.”

Scissors cautioned that the United States was effectively encouraging China’s communist regime to become a better “predator” of IP due to its failure to place restrictions on investments in Chinese companies that steal from American companies, including those engaged in the manufacture of products banned from export to China.

The most notable example is Chinese companies that steal the IP necessary to help develop advanced semiconductors. These semiconductors are now banned from being sold to China, Scissors said, but there are no restrictions to prevent Americans from funding Chinese companies that build them in China with stolen technology.

“If we don’t let the Chinese buy it here because we’re protecting the technology, we should not allow American funding to develop it in China,” Scissors said. “That is not a sensible action on our part.”

US Legal System ‘Not Adequate to the Task’

Alon Raphael, CEO of FemtoMetrix, described how his company was victimized by multiple Chinese nationals who infiltrated the company and stole vast troves of proprietary data, with which they then created a new company in China.

The three Chinese who engaged in the scheme included a vice president of the company and another employee who had been hired at his recommendation.

It was later discovered that the three employees had been able to steal thousands upon thousands of files from each of their departments and then combine them to essentially replicate FemtoMetrix’s software, which is used in the creation of advanced semiconductors.

The three formed their own company in China, Weichong Semiconductor, going so far as to use FemtoMetrix’s slides (still featuring the FemtoMetrix logo) during presentations to potential investors.

“I have not done business with China, but apparently China has done business with me,” Raphael said to the committee.

“The American legal system is not designed to address deliberate international thefts of this kind and is not adequate to the task.”

Raphael added that his company is trying to pursue legal action against Weichong. The China-based company, however, suddenly developed very deep pockets and hired one of the world’s most expensive law firms out of Britain. This possibly suggested that it is receiving funding from the Chinese Communist Party (CCP), which rules China as a single-party state.

What’s more, Raphael said, even if FemtoMetrix’s litigation is successful and Weichong is banned from selling their copied products overseas, nothing will prevent the company from continuing to develop the highly sought-after technology for the CCP.

“Weichong is not an outlier but an exemplar for the theft of American intellectual property,” Raphael said.

Scissors suggested that the Biden administration appeared reluctant to use all of the tools at its disposal to counter the threat from China and truly combat the continued theft of American IP.

“The Biden administration has been extremely hesitant in its responses in my view,” Scissors said. “We choose not to respond to Chinese coercion. We have the capability to do so.”