- The Washington Times - Thursday, September 29, 2011

The Pentagon is asking the nation’s 16 spy agencies to investigate the cost of theft of commercial secrets by foreign computer hackers, a loss some analysts say could be costing the U.S. economy hundreds of billions of dollars a year.

“We expect it is very substantial — substantial in monetary terms, substantial in security terms,” said James N. Miller, principal deputy undersecretary of defense for policy. “The nation has a substantial interest in protecting intellectual property.”

The Pentagon’s request for an estimate went to the National Intelligence Council, which produces National Intelligence Estimates (NIEs), said Deputy Secretary of Defense William J. Lynn, adding that its report will likely be classified when the assessment is complete.

Security specialists say that hackers, many thought to be operating on behalf of communist China, are stealing vast quantities of proprietary data from U.S. defense, energy and other firms every year, compromising the nation’s security and economic advantage.

“It is a massive transfer of wealth,” said Phyllis Schneck, chief technology officer for public-sector business at computer security firm McAfee Inc. “Things that would have created money and jobs for one company in one country are instead creating them for other companies in another country.”

“Trade-secret theft is a national security threat,” said Mary Landesman, senior security researcher with computer network provider Cisco.

Ms. Landesman said a large part of the cost is a result of counterfeiting of trademarked U.S. manufactured goods.

“That’s what they’re doing with [some of] the intellectual property they’ve stolen,” she said, noting that the Commerce Department estimated in 2004 that counterfeiting costs U.S. companies between $20 billion and $24 billion annually.

One series of cyber-intrusions, aimed at half a dozen companies in the petrochemical, oil and gas sector, was dubbed “Night Dragon” by McAfee, which concluded that the hackers were almost certainly based in China and working office hours there.

The hackers were able to take over computers in the target companies after employees downloaded e-mail attachments loaded with a special malicious software program — “malware” — called a Trojan horse.

McAfee said in a report this year that the intrusions occurred over many months and targeted energy companies and their executives in Kazakhstan, Taiwan, Greece and the United States “to acquire proprietary and highly confidential information.”

In Britain, the Office of Cyber Security and Information Assurance estimated the annual cost to British industry of cyber-espionage and theft of intellectual property to be more than $25 billion.

“In all probability, and in line with our worst-case scenarios, the real impact … is likely to be much greater,” the British report warned.

The U.S. economy is about seven times the size of Britain’s, but “no one [in the U.S.] has put a figure on it yet,” said Ms. Schneck.

In May 2009, President Obama cited one estimate that a trillion dollars worth of intellectual property is stolen worldwide every year.

But some are skeptical about efforts to estimate the scale of the problem.

Martin Libicki of the Rand Corp., a California-based think tank, said much theorizing about losses seems to be “predicated on a zero-sum idea of international trade and the global economy … ‘anything that you earn makes me poorer’” that economists debunked long ago.