If you think digital corporate espionage is a myth, think again. A U.S. security software firm is claiming that the Chinese sold all or part of the source code that makes up the Web filtering application being mandated by Beijing for use in all PCs sold in China.

According to a report in the Wall Street Journal, Solid Oak Software says they’ve found pieces of its CyberSitter application in the code that makes up the Web filtering technology published by Jinhui Computer Systems Engineering Company of China. The application is being mandated by the Chinese government to protect Web users from pornography and other objectionable content.

Solid Oak tells the Wall Street Journal that it plans to seek a court injunction to prevent U.S. computer manufacturers from installing the application on their machines sold in China. The Chinese government’s mandate for the application goes into effect in July.

The founder of Jinhui Computer Systems Engineering, Bryan Zhang, denied any wrongdoing, telling the Wall Street Journal, “That’s impossible.” Nevertheless, researchers at the University of Michigan say they have also found evidence that the Jinhui code—the name of which in English is “Green Dam-Youth Escort”—mirrors that of Solid Oak.

Even if Solid Oak proves that its code was stolen or copied by the Chinese company, legal analysts in published reports say it may face an uphill battle in getting any judgment enforced by Chinese courts. However, legal recourse in U.S. courts could prove troublesome for U.S. PC makers, such as Hewlett-Packard and Dell, since they could be barred from using the Jinhui software. China is the second largest PC market and has the world's largest population of Internet users.

The Chinese mandate for the Jinhui software installation all PCs in China has sparked controversy around the globe. Human and privacy rights groups complain that the software could be used to censor free speach and access to information. Some groups claim that the software blocks access to sites such as those by Falun Gong, which the Chinese Communist government considers a dissident movement.Security researchers say the software could make it easier for hackers to compromise and control PCs, allowing for easier creation of botnets.

Compromised data is one of the more worrisome problems facing businesses, according to recent studies. However, business management is often focused on user error and accidental leaks. The state of the art data loss prevention technology is often good for capturing static data sets, such as Social Security numbers and credit card numbers, but often proves ineffective in dealing with dynamic data that is often only identifiable in context—such as design plans and contracts.

While the security world buzzed with the prospects of Chinese and other foreign operatives infiltrating the U.S. electricity grid, the Solid Oak case could (and should) spark awareness of the threat - both foreign and domestic—of corporate espionage. Solution providers should use Solid Oak’s and similar cases to alert their clients to the need for security vigilance, network monitoring and post-event forensic analysis.