The Deemed Export - keeping a secret

The AIPLA annual meeting this year included a fascinating panel session on emerging IP issues in emerging markets. There were tips and tricks from lawyers on the ground in Israel, Brazil, South Africa and Russia. There was a session on Corporate Strategies for Foreign Filing. But the presenter that fielded all the questions was Roszel C Thomsen II from Thomsen and Burke LLP. He talked about Export Control Issues.

He hit a nerve, as one of my Antipodean colleagues put it. There seemed to be a few law firms in the audience who either hire foreign nationals, or have clients who do.

What is a deemed export?

Release of technology within the United States to a "foreign national" is a "deemed export". In general, exporting from the United States is a privilege and not a protected Constitutional right. It is subject to export control laws and regulations. A licence is required for exports in the same way as you need a licence to drive a car or own a gun.

The laws and regulations are there to stop bad stuff getting into the hands of bad people that can then use the information or technology to do bad things to the United States or her citizens.

A "foreign national" is a person who is not a United States Citizen or a "protected individual". A Green Card holder is a protected individual under the Immigration and Naturalization Act. Anybody with any type of temporary visa is a "foreign national".

Some practical examples

It all depends on how the technology or computer program source code is classified for export. There are a whole bunch of Export Control Classification Numbers (ECCNs) specifying ten categories of hardware, software and technology that are subject to controls.

Encryption is technology for the development, production or use of information security hardware and software. Commonly assigned ECCNs are 5E002 and 5E992. An export licence is required for foreign national employees from Cuba, Iran, North Korea, Sudan and Syria.

A biotech example involves technology for the development or production of the Japanese encephalitis virus. The ECCN is 1E001. No licence is required for foreign national employees from Canada. A Licence Exception is available for a foreign national employee from India. An Export Licence is required for a foreign employee from Russia.

What's the big deal?

Some of the penalties under the Export Administration Act of 1979 and Export Administration Regulations (EAR) are eye-watering. They are certainly a lot more serious than the export controls placed on New Zealand nationals. I talk about these controls in The darker side of patent protection.

In November 2008 Maxim was stung with a civil penalty of US$192,000. The Commerce Department's Bureau of Industry and Security (BIS) accused Maxim of unlawfully exporting integrated circuits and related components to China, Estonia, Russia and the Ukraine. They were also alleged to have released related technical data to Iranian and Chinese foreign national employees within the United States. Maxim had applied for a licence but didn't restrict access before the licence was issued.

In September 2004 Lattice Semiconductor Corporation was pinged for US$560,000 as a civil penalty. BIS alleged that they unlawfully exported certain semi-conductor microchips and related technical data to China and to Chinese national employees in the United States.

There was even a criminal conviction in July 2005. SunTek Microwave pleaded guilty to violating the EAR. There was a criminal penalty of US$339,000. The former president of the company was sentenced to 12 months and one day imprisonment and two years' supervised release.

Photo courtesy of author Jαγ under Creative Commons licence.