By Julia Edwards

WASHINGTON (Reuters) – Leading U.S. universities are pushing back against a proposed State Department rule that would bar foreign students from more research projects and classes involving information seen as vital to national security.

The proposal by the administration of President Barack Obama reflects growing worries in Washington over a rise in intellectual property theft from foreign adversaries such as China.

Research related to defense technology such as munitions, nuclear engineering and satellite technology would be particularly affected by the rule, which is still in the proposal process and has not been widely reported.

Defense contractors such as Northrop Grumman, Boeing and Lockheed Martin regularly sponsor university research, but did not respond to requests for comment.

The new rule, which largely applies to company-sponsored research, threatens to shrink the pool of research opportunities available for U.S. colleges, which have grown strongly in popularity among high-paying foreign students in recent years.

Some top U.S. schools do not accept any research grants that restrict participation by foreign citizens because it runs counter to their policies of academic freedom and non-discrimination.

In a letter to the State Department, Stanford University said it joined The Association of American Universities (AAU), Massachusetts Institute of Technology (MIT) and the University of Pennsylvania in criticizing the rule, citing “disastrous consequences.” The AAU represents 62 leading research institutions, including Harvard, Duke University, and the University of Chicago.

The universities say the rule would tip the balance too far in favor of national security against academic freedom.

“We wouldn’t be able to perform the same basic foundational research that we do,” said Stanford’s director of export compliance Steve Eisner. “Stanford has a policy of conducting research openly regardless of citizenship. We’re not going to tell our Chinese students that they can’t participate.”

No current cases of industrial espionage involve university research, though government officials told Reuters they suspect university faculty are violating loosely defined research rules.

A 2011 FBI report said “foreign adversaries and competitors take advantage” of the openness of information on college campuses and a small percentage of students, researchers and foreign professors are “working at the behest of another government.”

There were just under 1 million foreign students at U.S. colleges in the 2014-2015 school year, 31 percent of whom were Chinese, according to the Institute of International Education. That has grown from fewer than 100,000 in the 1960s when the United States began regulating their access to research.

In 2015, the number of intellectual property cases investigated by the FBI rose 53 percent from the previous year.

The FBI says China is the main culprit. It has accused Chinese nationals of attempting to export technology from the United States, including genetically modified corn seed and sensitive military information stored on Boeing computers.

The Department of Justice said in a statement that “we know that some foreign spies and criminals target students and faculty alike to steal valuable technology and intellectual property.” It added it was working with universities and laboratories to raise awareness of the threat.

A spokesman for China’s Ministry of Foreign Affairs, Hong Lei, said the United States should be improving cooperation with China instead of adding restrictions on foreign students.

“China’s scientific and technological developments have been achieved through the hard struggle of the Chinese people,” Lei said at a ministry briefing on Thursday.

SHRINKING RESEARCH CHOICES The proposed rule comes as universities face shrinking federal funding for research, forcing many to rely more on industry-sponsored projects.

State Department officials told Reuters they are aware of universities’ opposition to the rule, but have received no complaints or advice from companies that sponsor university research.

Experts in counterterrorism and counter nuclear proliferation told the State Department tighter restrictions on research access are necessary because universities are “a soft target,” said Tony Dearth, director of defense trade controls licensing at the State Department.

In the first case of its kind, University of Tennessee electrical engineering professor John Reese Roth was convicted in 2008 of exporting “defense articles” without a license, and of wire fraud and conspiracy and sentenced to four years.

Roth used foreign students in research on plasma-based flight-control devices for drone aircraft under a U.S. Air Force contract. He let two foreign students illegally gain access to sensitive information and export it to China, said the FBI.

The proposed rule would expand the definition of research classified as “technical” to any project that undergoes a pre-publication review by a private sponsor.

Unlike less-sensitive “fundamental” research, technical research is regulated in a variety of ways including a requirement that foreign students must apply for a license. Students from China, Iran and North Korea are usually denied licenses, said university officials.

The State Department argues that if a company wants to take a second look at research because it may be sensitive to its economic interests, foreign student involvement should be regulated.

Stanford told the State Department in a public letter that the new rule would affect a broad portion of industry-backed research because universities “routinely” allow sponsors to review results for up to 90 days.

Colleges that object to the government’s foreign-student restrictions have long avoided technical research and focused solely on projects classed as fundamental. The new rule would force them to either loosen their policies or give up defense-related research.

Schools with fundamental research-only policies are already in the minority. A Reuters survey of the top 35 research universities, ranked by R&D expenditures, found only 11 were still adhering to such a position.

Federal funding for research still dwarfs business funding, but the two are trending in opposite directions.

Over 2011-2014, federal funds for university research fell to $37.9 billion from $40.8 billion, according to the National Science Foundation. Over the same period, industry-sponsored university research grew to $5.9 billion from $4.9 billion.

“As federal funds have become scarcer and the competition has increased, I think we see a lot of universities expanding their partnerships with industry,” said Bob Hardy, director of intellectual property management at the Council on Government Relations, an association of research universities.

(Reporting by Julia Edwards; Editing by Kevin Drawbaugh and Stuart Grudgings)