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One in Four US Firms Exposed to Trade Theft: Cyber Expert

Barry Seward | E+ | Getty Images

One in four U.S. businesses are vulnerable to having their trade secrets stolen, according to Pavan Duggal, president of India-based cyber law consultancy cyberlaws.net and an advocate in the Supreme Court of India, who said the ongoing threat could cost the U.S. economy "billions rather than millions".

"There are no documented scientific figures but given the incidents that are being reported in the public domain, one out of four U.S. companies could be potentially exposed to this kind of problem," Duggal, told CNBC.

"This is a huge figure considering the size of the U.S. economy and considering the level of innovation in the US. This is not a millions game but a billions game," he added, referring to the economic impact of trade secret thefts s on the U.S. economy.

Duggal's comments follow criticism from the U.S. Trade Representative's (USTR) office that China has failed to tackle the growing theft of American trade secrets, first voiced at an advance briefing of the agency's annual report on countries with the worst records of protecting U.S. intellectual property rights.

(Read More: US Presses China to Stop Growing Trade Secret Theft)

Acting U.S. Trade Representative Demetrios Marantis told CNBC on Thursday that growing theft of U.S. trade data by China was a "real and growing concern" for U.S. businesses.

"There has been a rise of misappropriation of trade secrets which is a real and growing concern," he said.

"We have been urging China to step up its enforcement of [the protection of] trade secrets and in some ways it is doing that…our concern is that it is not happening fast enough and we want to see more action both on the civil and the criminal side to ensure this issue is addressed properly," added Marantis.

Reports of cyber hacking and theft of trade secrets from U.S. companies and news organizations have escalated in recent months, now some experts say the USTR's decision to publicly speak out against China demonstrates the gravity of the situation.

(Read More: Chinese Hacking Defense 'Hard to Believe': Security Expert)

"I think this is getting a bit more serious now," said Frederic Neumann, co-head of Asian economics at HSBC. "The cyber-crime developments have received a lot of attention in the U.S. and the U.S. government needs to be seen to be doing something. So watch this space there could be more announcements. Rightly or wrongly the U.S. will probably take a firmer stance on these particular issues."

Although the focus has been on U.S. companies being victim to trade secret theft, this is also a concern for a large number of other developing economies, including those which are seen as directly competing with China, such as India, said Duggal.

"This economic espionage is part of a broader cyber warfare that has emerged without countries being aware of such dimensions," said Duggal. "It is an important trend and it will continue to grow. Very soon, not just the U.S. but a large number of nations are quickly going to have to tighten their belts and come up with appropriate response mechanisms to deal with these kind of challenges, " he added.

(Read More: Cyber Espionage: The Chinese Threat)

Duggal was skeptical over how effective the U.S. government's approach to tackling the issue would be, but said it was a step in the right direction.

"Many countries choose to keep quiet. The U.S. has in the past, but recently in the past few years started being more vocal about it. It is a good idea…but will it create a revolution is far-fetched. China is likely either to not respond or deny the proposition," he added.

Further Action?

The move by the USTR to speak out against China has prompted speculation over whether it will eventually lead to more serious measures such as sanctions being imposed on Chinese goods.

(Read More: AP Twitter Hack Shows It's Time for the Post-Password Era)

At the end of March two senior Democrats called for the USTR to designate China as a "priority foreign country," according to reports. A designation which marks the lowest classification given to foreign countries who deny protection of intellectual property rights, and normally precedes sanctions.

Companies in the U.S. that have had their trade secrets stolen include General Motors, Ford, DuPont, Dow Chemical, Motorola, Boeing and Cargill amongst others, according to Reuters.

Investigations Inc.: Cyber Espionage

  • When a person enters information on a website, like an email or credit card, it gets stored in that company’s data base. Those web-based forms are a simple tool for users, but they are also another way hackers can exploit a company’s system. Instead of inputting a name into the website, cyber spies can put in a specially crafted text that may cause the database to execute the code instead of simply storing it, Alperovitch said. The result is a “malicious takeover of the system,” he said.

    By attacking business computer networks, hackers are accessing company secrets and confidential strategies and creating huge losses for the overall economy.

  • China is working feverishly to counteract its slowest GDP growth in recent years, and one of the ways it’s doing so, say U.S. officials, is through the theft of American corporate secrets.

  • US businesses are enduring an unprecedented onslaught of cyber invasions from foreign governments, organized crime syndicates, and hacker collectives, all seeking to steal information and disrupt services, cybersecurity experts say.

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