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IP loss in China

IP (Intellectual Property) loss in China; 6 most common mistakes SMEs & entrepreneurs make.

This article is about IP loss landscape in mainland China. We did a summary analysis of the 6 more common mistakes companies make. here are the results, therefore let’s just get to it.

1. First let’s understanding the IP Legal Landscape and why IP loss happens.

IP landscape
IP landscape.

Many of the “complaints” are made by senior executives who actually do not clearly understand the complexities of IP. Aside they also do not know the mistakes their own companies may have made in protecting it. For example, filling a weak patent application or failing to register their IP at all ( an all-too-common mistake)*

We are interested IP loss because At Sesame Disk by Nihao Cloud one of our main goals is to keep the information safe at all times. Second we have had our selves living in china for many years a lot of experiences with IP protection and theft attempts. As a result we created NiHao Cloud in part because of this.

2. Not preparing the way in advance.

IP theft in action
Who are you?

Well known IPR lawyer in China, Dan Harris, in his article Protect Your IP From China: It Is Possible? He states that your IP has value, and if it can be copied with minimum effort, it will be copied. This means you must, therefore, prepare for this reality in advance.

3. Wrong assumptions about china.

Believing that since the company has done what is necessary to secure its rights in North America and Europe, there is nothing special they need to do in China. This is a BIG mistake.

Companies can win in china
Can you really win in China?

When we asked former lawyer Dan Harris, what’s the most common mistake regarding IP loss in China. Mentioning apart from legal issues, he answered that biggest and most frequent mistake lawyers see. Is on the IT side where foreign companies/start-ups hire a bunch of people in China to write code. These foreign companies do not form a company in China and do not hire coders as employees. In other words, everything these companies do is illegal. Then, years later when the software is done, Chinese partners just walk off with it. At this point there is nothing the foreign company can do about it. This is because the entire operation was illegal in the first place.

4. Not knowing how to keep your trade secrets safe.

Protect you data and intellectual property
Good business are based in secrets – Peter Thiel

A- What is a Trade SECRET?

Be non-public – it must not be known by the general public or by competitors;

B- What is a Trade SECRET?

Have actual or potential commercial value. As in it must give the owner a competitive advantage or be capable of generating economic benefit.

C- What is a Trade SECRET?

It is information that your competitors would want to know and would give them a commercial advantage.

Guarded by confidentiality measures – the owner must take reasonable measures to protect the confidentiality of the information.

Trade secrets may have many forms. include recipes or formulas, know-how, the status of products. Also services under development, valuable business information. This information or data might be in the form of:

  • customer lists
  • cost and price information
  • suppliers and contractors
  • contract terms
  • marketing strategy and plans
  • etc.

What you need to know about Trade Secrets in Mainland China:

Find it in China
The Asian Red GIANT

China, like most other countries, provides a legal framework for the protection of trade secrets. As such the law provides for remedies in the case that your trade secrets are unlawfully disclosed. This being said you might know some other forms of IP rights such as patents and copyrights that have a finite term. Otherwise trade secrets can theoretically enjoy an infinite term of protection as long as the trade secret remains just that – a secret. However, once the information becomes public information, it no longer enjoys any legal protection. Therefore prevention is the golden rule when it comes to protecting your trade secrets. This is because once the secret is out, there is usually very little that can be done. In addition keeping trade secrets safe involves using a combination of physical, technical and contractual barriers.

Furthermore “Many firms choose to keep their competitive edge by opting not to patent their inventions and trying instead to keep them as trade secrets”

5. Not adopting preventive measures to protect IP loss.

Ip preventive measures
IP Secrets Security

6. Underestimating the importance of proper IT systems to protect IP loss in China.

Bigger companies have their own established IT teams overseas that might be or may not familiar with IT challenges in China. As a matter of fact and especially with the GFW (the Great Firewall of China). Moreover your company should also choose a right IT company in China for services you might need. For example setting up new IT infrastructure in China tends to be complicated as compared to many other places.

According to Niels-Uwe Behrens, an IT expert long established in the Chinese IT sector; underestimating the importance of the role of IT in IP protection is a very common mistake:

“ I have been working in IT in China for more than 20 years. For instance it never stops surprising me how many companies have completely unsecured and open IT systems.”

Also we asked Niels about the current state of IT security awareness in China.

In my experience, I would say that roughly 80% of SMEs in China have at least one or more serious security issues. What’s more in many cases this breaches could be exploited by amateur opportunistic hackers. Not to mention in most cases it is not the hackers to be worried about. Even when 50-80% of the world’s IP hacks are traced back to China.

Mr. Niels

SMEs in China

In my experience, there are 2 types of SMEs in China: The first type take security seriously. This means their IT infrastructure is set up properly and in a secure way. Additionally their corporate culture prevents any IP leaks.

The second type of organization is less concerned and chooses not to pay much attention to a proper IT set-up since it works as it is. These companies usually adopt the attitude of; “real hackers go after big corporations, not small SMEs like us”, or “we don’t have any data of such importance. Therefore there is no need to encrypt and be overly concerned about security”.

When we think of IP theft we all tend to imagine that there must be some secret hacker organizations that go inside servers rooms and steals secret data in an action movie like fashion. But in reality, everything is much more simple than that. In most cases, especially in China, most trade secrets are stolen by the employees, former or current, who have access to corporate emails or even data server on their personal laptops. In most cases these laptops are not encrypted and can be easily stolen or hacked. Once someone has access to your corporate email or access to the main server, all your important data are at risk of getting out in the open.

This kind of data leaks can be used and will be used to publish your trade secrets or even out-compete your business. Eventually, this event will be registered as one of IP theft cases that are growing ever since 2005.

Stats on IP cases
Civil courts IP cases US vs China

Some additional facts of crucial importance about China

In China employee fluctuation can sometimes reach up to 75% annually, therefore, tendency of data leakage is very high. In Chinese mentality, it is very common that once employees get fired, they feel some sort of ownership of the work they have been doing for the company, and sometimes even devices like laptops or computers have been taken from the workspace. It’s is also very common that entire databases are copied to USB flash drives and later on used to start new businesses and compete with a former employer.

For security reasons bigger foreign companies tend not to use Chinese social media, such as Wechat, Baidu Cloud or QQ, for file sharing or chatting, since these are constantly monitored by the Chinese government. It is better to keep your most important IP and communications isolated securely in your own private server, maintained by yourself or a trusted third party.

Take a look
Insider IP theft

To maintain safe and reliable IT systems many SMEs are turning to managed service arrangements. From HR point of view, it is much cheaper and more effective to outsource most of the technology hassles to dedicated foreign IT experts, rather than looking for own IT specialists. For an economical monthly fee, these SMEs get a whole IT team responsible for maintaining and updating their systems with the latest security patches.


Regardless of your approach to IT security, keep in mind that organizations are increasingly dependent on technology, and it is, therefore, important to be as proactive as possible to keep technologies up to date and secure important data from both external and internal threats that tend to increase every year.

Do you have a story about China IP loss? Please share your experience in the comments below.

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GFW; How does it work?

Great wall like the GFW
Chinese Great wall inspired the GFW.

GFW or the Great Firewall of the China is the subject of this article. As you might guess we will discuss the basics you need to understand of how it works. After reading this you should be able have a discussion about the GFW. Aside you will be able to continue a deeper research on how to avoid colliding with it head on.

Update: June 8, 2021

How do you know about this GFW thing?

If you are from the western world or anywhere but china mainland. Likes are that you never dealt much with anything similar to the GFW. Well unless your employer wanted to block social media or something like that. Saving the differences.

I as a “young and naive” engineer moved to China. Then the firs thing I did at landing time was try to message my family and friends using a regular western Social media App. To my surprise It was “not possible”. Then after a day or two I figured it out. The Chinese Governement created this BEAST they call the GFW (The great firewall of China), the job of this “machine” is to block stuff that they do not want Chinese people to access.

What is blocked by the Chinese GFW?

Well, if you had the control freak boss trying to get you not to use FB during work. You know more or less what the GFW is, it differs from the the regular little bit controlling employers wanting to block some website(s). Meaning that I later learned many things about how the Chinese networks and internet policies work. In fact it has the full power and resources of the Chinese government behind. There are researchers and security engineers working full-time, has current AI algorithms to adapt and figure out where people are going why and make decisions on the fly. Finally not to make it too long it’s a sophisticated machine.

What is blocked by the GFW?

A few million websites, but more most known include the following; Facebook, Google, Twitter, Youtube, Netflix, ALL The biggest international newspapers in the world that are not controlled and protected by the Chinese government. This includes part of our cloud storage, file sharing and collaboration systems and more even when we are no youtube and well OOOH!!! SO MUCH MORE…

This post

To be clear in this article, I would like to explain how Chinese Mainland is controlling their Internet. As I would call it, Chinese Mainland is running a “Mainland Intranet” which is protected by The Great Firewall of China (GFW).

At Sesame Disk / Nihao Cloud we have had a long history of dealing with this “Beast” called the GFW. Give us a try.

Mini Office Firewall

We can compare this with your office or home where your router protects your computers. Meaning the router has local “Parental” like settings that gives access to the Internet. Aside it also controls or blocks websites with possible harmful content for your kids. At least that’s how some companies block Facebook during office hours as well.

Bigger Router- Bigger Wall

The GFW works similar but on a much larger scale. Instead of just dealing with your small office, the GFW is filtering much of the traffic going in and out of Chinese Mainland.

here I will explain how Internet Traffic works in a short and simple way. By the way you don’t need to be a geek to understand it :).

Understanding Internet Traffic Rules.

Traffic on internet
Cities in China

Question like. So how does an actual E-Mail gets sent or received over the Internet? Furthermore, how can we browse websites or stream movies?

What happens is more or less the following. First when you request a site or service or movie to load; the data to travel fast back and forth it has to follow Internet traffic rules. Second, using these rules all the data gets divided then sent and delivered in “little” IP packets. Where IP is like a packaging mechanism for internet communications. For instance, lets imagine we want to look at a funny cat video on Youtube. Right away we click to load the video. Internally Youtube server dissembles that video into thousands of little packets and sends it to your laptop, PC or mobile. Then these packets get reassembled back into a video again. This happens very fast, that is why you normally do not notice.

All you need to know from this, that all Internet Traffic travels in little packets.

IP Address
local host joke
IP Addresses

So how did Youtube know where to send those little packets? On the Internet every destination: computer, website or cellphone has to have an IP Address to send and receive data on the Internet. Google for “my IP” and you can see your own IP address. IP addresses are a bunch of numbers because computers can then convert them into 1’s and 0’s but we need domain names so we can memorise it.

Otherwise, instead of, you would see Not the most memorable web address right?

Whats is DNS?

DNS systems
DNS – Domain Name Server

For the “Internet” to understand those Domains names, we have Domain Name Service (DNS). DNS servers translate domain names back into an IP addresses.

Meaning ( → There are thousands of those DNS Servers that translate Domain Names into IP Addresses. How it works internally is not that important now.

OK, enough of dry and boring theory and back to how does the Great Firewall of China and how it works.

DNS Spoofing

The first and most efficient way to block websites is by DNS spoofing or “Domain name system poisoning”.

DNS poisoning
DNS Poisoning

So let’s go back to our cat video. When we type on the browser, DNS Server receives a request to check what means and send you to the right IP address. This process happens to any Internet communication like web browsing etc.

Now, DNS requests for websites outside of Chinese Mainland will be taken to a Deep Package Inspection (DPI) by the GFW. This means, that each little IP Package will be opened and checked for the content like a customs control.

If any pattern found in that Package matches unwanted content, domains like the list of services provided before. Then the GFW returns a bogus IP Address and therefore the Website will not open.

That’s why if you are in China and try to reach you will receive this website:

Result of the GFW in action
Result of the DNS poisoning done by the GFW.

What they do in many cases is that they take your request for let say and resend it to another IP that is also in their list of DNS poisoning like Facebook, then the FB site tells you that this is not there.
This is a very simplified way to explain it, but it has the basics.

VPN & Encrypted Traffic

VPN technology
VPN Technology

Even though GFW knows that this traffic is encrypted but it can only can guess what is inside. Here lies one of the biggest opportunity to get the traffic across the GFW. Now, GFW is UNCERTAIN, whether this is a simple Youtube access which can be blocked, or this is the most important connection for the financial transactions where by cutting this connection could cause huge damage to the economy. Sometimes they get happy trigger and just block much of what is encrypted, but then they have to relax it afterwards for the economy. This tends to happen when there are protests, commemorations of historical events that are not to be talked about in China, etc.

In other words you need an encryption that is good enough not to be penetrated by current algorithms, as the GFW has deep inspection algorithms. Uses AI to “guess” what is inside packages, etc.

UNCERTAINTY- that’s the biggest headache for the GFW.

The keyword here is “Collateral Damage” which could be caused by blocking encrypted packets. This Collateral Damage has to be kept to a minimum.

  • understand collateral damage as the term invented by the Americans to describe questionable things that happened under their watch in the Middle East.

So what is the GFW is doing with this?

As we can imagine the staff behind the GFW are not stupid and came up with an “Active Probing” mechanism. The GFW is now looking for the encrypted traffic and guessing the encryption / VPN Protocols.

Then a Probing Servers at GFW takes encrypted packets and forwards the Package to the receiver then waits for the reply. From those replies, the GFW can decide what to do with that Package, drop it or let it go through. This decisions are sometimes evaluated with historical data, response data, volumes and many other metrics. Later on all the data is taken and analyzed in some cases by an AI algorithm that decides what is to be done ultimately.

So to sum it up the GFW is working in 2 ways:

DNS Poisoning

Active Probing

One more interesting thing to know is that different networks in Chinese Mainland are running through different filtering. While public Networks like China Unicom or Telecom have strongest filters, Networks for Universities (eg the CERNet – China Education and Research Network) is filtered less harshly.

We should keep in mind that the GFW is a very dynamic Beast. It is always trying to find the optimal balance between Collateral Damage and efficiently blocking the Internet. So some Services can be blocked today, but not tomorrow and again blocked the day after.

After word

Those who live in Chinese Mainland know that during big public events or holidays the GFW is controlling much tougher than usual. Also, the GFW is learning and being constantly developed and improved. So what we understand today might change tomorrow. The Chinese Government invests on it as if their lives dependents on it. At the end… Who knows?

All we know can be found by research and testing but nobody will explain how it really works. I would also like to mention that this article is not only based on our accumulated years IT experience in Chinese Mainland but also on a Research, presented at the annual Conference of the CCC –Chaos Computer Club Hamburg

So there will be always a battle between the GFW and VPN Providers and there will always be the problem of Collateral Damage and nobody wants to hurt the economy. Notice that is valid to mention that the GFW has also created an alternative economy that grows year after year.

The GFW is well prepared and will always be as far as the Chinese government is concerned. Also, do not forget that Chinese Mainland also has placed legal notices to fight this battle offline. 

UPDATE: Sesame Disk / NiHao Cloud was interviewed by BBC Business daily, about China’s Internet Privacy Clampdown. You can listen to the full episode here

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