Take heed of technology exports
While sharing technological advancements across borders in a global economy can be positive in theory, the free flow of information also implicates serious national security concerns.
In response to the risks associated with technology transfers, the U.S. Commerce Department’s Bureau of Export Administration (BXA) has set forth export administration regulations (EARs) to regulate the exportation of both “non-use” and “dual-use” (commercial and military) products and information.
Under the EARs, any entity that engages, or may inadvertently engage, in the cross-border sharing of technology or information may be subject to fines or other penalties. At a time when the rate of technological development and information-sharing is increasing exponentially, every business engaged in cross-border transactions should be conscious of the EARs.
What types of transactions can result in a violation? Specifically, you may not “sell, export, reexport, finance, order, buy, remove, conceal, store, use, loan, dispose of, transport, forward or service, in whole or in part,” any technology subject to the EARs. Making compliance even more complicated is the expansive definition of “export.” In fact, the EARs define this term broadly to include visual inspection by, or oral exchange with, a foreign national located either in the United States or abroad. Under this expansive definition, many activities, which might not be considered “exportation” under the common meaning of the word, are governed by the EARs.
As a result, it is especially important for companies owning subsidiaries in foreign countries to ensure compliance as the sharing of information with that subsidiary may be considered an “export” to that country.
Unfortunately, determining whether the type of the transaction subjects it to the EARs does not end the inquiry. Among the factors that may affect whether the EARs apply in a given situation are: the nature of the product or technology being exported; the end-use and end-user of the exported technology; and the foreign countries receiving the exported technology, either directly from the United States or indirectly through an intermediary.
With respect to the technology involved, the Commerce Control List sets forth the technologies that are governed by the regulations. The list is organized into the following 10 categories:
0: Nuclear materials, facilities and equipment and miscellaneous
1: Materials, chemicals, “microorganisms” and toxins
2: Materials processing
5: Telecommunications and information security
6: Lasers and sensors
7: Navigation and avionics
9: Propulsion systems, space vehicles and related equipment
Each of these 10 categories is broken into the following five groups:
A: Equipment, assemblies and components
B: Test, inspection and production equipment
For guidance regarding particularized compliance, exporters must refer to the Commerce Control List to classify the technology to be exported by determining the category and group into which the technology falls.
The end-use — how the exported technology will be used and for what purpose — and the end-user also affect whether the EARs apply and require a license. In fact, the regulations not only prohibit certain uses of specific technologies — typically those that implicate national security concerns — but also identify individual end-users, often foreign entities, that trigger the licensing requirement.
Lastly, the destination country can be one of the most conclusive factors. First, and perhaps most obvious, the EARs prohibit the exportation of any technology to embargoed nations and those deemed sponsors of terrorism, including Cuba, Iran, Libya, Sudan, Syria and North Korea. Perhaps less obvious, the EARs require licenses for exportation to a long list of less volatile nations as well. In fact, depending on the technology, the EARs may even require a license for exports to allies of the United States, including Canada, the United Kingdom and Australia.
Even if the EARs apply, a transaction may still be processed so long as the exporter applies for and is granted a license. In circumstances involving multiple transactions, a special license also may be required — this is especially true for businesses that frequently engage in the exportation of sensitive technology or information.
The application stage is critical for a business seeking to continue its exportation of sensitive information, since the Department of Commerce may, in its discretion, deny an application for a license, subject to an appeals process.
With the increasingly global market and the appreciating costs of non-compliance, it has become critical that entities engaged in “exportation” protect themselves against violations of the EARs by adopting compliance measures.
Paul C. Remus is chair of the Patent, Trademark & Licensing Group of Devine, Millimet & Branch, Manchester. Ned Mulligan, a third-year law student at Indiana University Maurer School of Law–Bloomington is a summer associate at the firm.