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Technology Transfer Controls:Restrictions on Exchanges of Technical Information

Barry J. HurewitzWaltham, MA May 31, 2012

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Overview

1 Foundations for control

2 Identifying controlled technology

3 Defining exports of technology

4 Determining technology controls

5 Technology control plans

6 Technology control challenges

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Foundations for control

Unique nature of technology

Control regimes attempt to reflect the special character of technology

Intangible Dynamic Collaborative Derivative Foundational

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Regulatory objective

Controls for same reasons for export control as for commodities, equipment, materials and software Deny access to adversaries

Maintain qualitative technical superiority

Heightened concern for technologies conveying development or production capabilities, as opposed to only operation/use

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Sources of technology controls

Classified information: National Industrial Security Program Operating Manual

Defense trade: International Traffic in Arms Regulations

Dual-use technologies: Export Administration Regulations

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Identifying controlled technology

Technology under the ITAR120.10 Technical data

(1) Information required for the design, development, production, manufacture, assembly, operation, repair, testing, maintenance or modification of defense articles E.g., Information in the form of blueprints, drawings,

photographs, plans, instructions or documentation

(2) Classified information

(3) Invention secrecy order

(4) Software directly related to defense articles

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Technology under the ITAR

“Technical data” does not include

General scientific, mathematical or engineering principles commonly taught in schools, colleges and universities

Information in the public domain (e.g., published and which is generally accessible or available to the public)

Basic marketing information on function or purpose

General system descriptions of defense articles

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ITAR defense services

120.9 Defense service

(1) Assistance (including training) to foreign persons, in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of defense articles

(2) Furnishing controlled technical data

(3) Military training of foreign units and forces

Even if services involve public domain data

Subject to licenses or agreements (TAA/MLA)

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Identifying controlled technology ITAR defense services

Proposed revised definition (4/13/11)

Exclude:– Services based solely on public domain data

– Mere hiring of foreign nationals

Include: – Integration of items into defense articles

– Training, but only with respect to employment of defense articles

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Identifying controlled technology Technology under the EAR

Technology: Specific information necessary for the “development,” “production,” or “use” of a product

Technical data may take forms such as blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, manuals and instructions written or recorded on other media or devices such as disk, tape, read-only memories

Technical assistance may take forms such as instruction, skills training, working knowledge, consulting services; may involve transfer of technical data

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Development: All stages prior to serial production, such as: design, design research, design analyses, design concepts, assembly and testing of prototypes, pilot production schemes, design data, process of transforming design data into a product, configuration design, integration design, layouts

Production: All production stages, such as: product engineering, manufacture, integration, assembly (mounting), inspection, testing, quality assurance

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Use: Operation, installation (including on-site installation), maintenance (checking), repair, overhaul and refurbishing

“All six activities in the definition of ‘use’ must be present to trigger a license requirement” 71 Fed. Reg. 30843 (5/31/2006)

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Defining exports of technology

Technology export under the ITAR

120.17 Export

(1) Sending or taking defense article out of the U.S. (except mere travel by a person with personal knowledge that includes technical data

(2) Transfer of controlled aircraft, vessel, or satellite (3) Disclosure via oral or visual disclosure

-- To foreign government, embassy or mission -- To a foreign person

(4) Performing a defense service on behalf of, or for the benefit of, a foreign person

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Defining exports of technology EAR tech transfer & deemed exportExport of technology or (non-encryption) software: Release of technology or software in a foreign country Release of technology or source code to a foreign national (deemed export)

“Release” occurs via: Visual inspection Oral exchanges Application abroad of personal knowledge or technical experience acquired in the U.S.

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Determining technology controls

Limitations on technology controls

Public availability/public domain

Operation and sales technology

“Required” to achieve or exceed regulatory threshold

Intra-organizational disclosures

Limited-purpose disclosures

Disclosures with assurances

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Public domain/publicly availableITAR 120.11 EAR 734.3-734.11

Retail sale Published for general distribution

Subscription without restriction De minimis controlled U.S. origin content

Second class U.S. mail

Libraries open to the public Public or university libraries

Patents Patents and published patent applications

Open conference, meeting, seminar, trade show

Public release with government approval

Educational information (catalog courses & associated teaching

laboratories)

Fundamental research

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EAR operation technology

Operation technology is the minimum technology necessary for the installation, operation, maintenance (checking), and repair

Minimum necessary does not include technology for development or production and includes use technology only to the extent “required” to ensure safe and efficient use

Subject to further restrictions under specific ECCNs

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EAR sales technology Sales technology means data supporting a prospective or actual quotation, bid, or offer to sell, lease, or otherwise supply an item

Of a type customarily transmitted with a prospective or actual

quotation, bid, or offer in accordance with established business practice

Excluding detailed design, production, or manufacture technology, or

the means of reconstruction, of either the quoted item or its product that

the consignee could employ to reduce the technology to production

Subject to further restrictions under specific ECCNs

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Determining technology controls Types of EAR technology controls Unqualified: “Technology” for the “development,” “production,” or “use” of items controlled by [ECCN]

Qualified: “Technology,” according to the General Technology Note, for the “development,” “production,” or “use” of items in [ECCN]

– Also: “Technology” exclusively for the “development” or “production” of [item]

Catchall: ECCN 0E521 will cover “[a]ny technology subject to the EAR that is not listed elsewhere in the CCL, but which is controlled for export because it provides at least a significant military or intelligence advantage to the U.S. or for foreign policy reasons”

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Determining technology controls EAR General Technology Note

The export of “technology” that is “required” for the “development,” “production,” or “use” of items on the Commerce Control List is controlled according to the provisions in each Category

“Technology” “required” for the “development,” “production,” or “use” of a controlled product remains controlled even when applicable to a product controlled at a lower level

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EAR General Technology Note

Required: …that portion of “technology” or “software” which is peculiarly responsible for achieving or exceeding the controlled performance levels, characteristics or functions Example: Product X is controlled if it operates at or above 400

MHz and is not controlled if it operates below 400 MHz.

– If production technologies A, B, and C allow production at no more than 399 MHz, then technologies A, B, and C are not “required” to produce the controlled product X

– If technologies A, B, C, D, and E are used together, a manufacturer can produce product X that operates at or above 400 MHz

– In this example, technologies D and E are “required”…

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EAR General Technology Note

Required technology refers only to that portion of technology which is peculiarly responsible for achieving or exceeding controlled performance levels, characteristics or functions

In classifying technology, granularity matters!

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Options for intra-organizational export

EAR License Exceptions BAG and TMP License Exception STA

Proposed License Exception ICT

Internal-use of encryption technology to U.S. subs and favored-country private-sector end users

ITAR 125.4(b)(9): Allows technical data export by a U.S. person

who is an employee of a U.S. corporation to a U.S. person employed by that corporation outside the United States

124.16 and 126.18: Allows certain exports to dual or third-country nationals who are bona fide regular employees, directly employed by the foreign consignee or end-user

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Technology Control Plans

Topics for technology control planning

Define the stakeholders subject to controls Describe the covered information Designate & empower responsible company officials Physical access control (segregated work areas) Technical/IT security control Administrative safeguards (badging, escorts) Compliance certification Training/indoctrination Monitoring and internal reporting Sanctions Corrective action

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TCP origins in the NISPOM

NISPOM 10-509: A TCP is required to control access by foreign nationals

assigned to, or employed by, cleared contractor facilities…

The TCP shall contain procedures to control access for all

export-controlled information

NISPOM 2-307: A TCP shall be implemented by companies cleared under

FOCI negation measures

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TCPs in the ITAR

126.13(c): TCP required when foreign nationals are employed at or assigned to security-cleared facilities

126.18(c)(2): “Technology security/clearance plan” required as condition of exemption for intra-organizational transfers

124.15(a)(1): “Technology transfer control plan” and “encryption technology control plan” required to support satellite-related licenses

126.5(c)(4): “Technology transfer control plan” to support use of Canadian exemption

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TCPs in BIS practice BIS guidance: TCPs required in cases when foreign nationals are employed at or assigned to … facilities that handle export-controlled items or information

TCP license condition for technology transfer Establish satisfactory procedures to ensure compliance with the

conditions of this license, particularly those regarding limitations on

access to controlled technology by consignee and the requirement to

obtain U.S. government authorization before divulging controlled

technology to other parties.

Consignee shall implement their TCP to ensure compliance with the

conditions of this license. A copy of the TCP must be delivered to

DOC/BIS prior to the export of technology.

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TCPs in BIS practice

TCP license condition for deemed exports Applicant will establish procedures to ensure compliance with

the conditions of this license, particularly those regarding

limitations on access to technology by foreign nationals. The

Applicant’s key export control management officials will

ensure that the foreign national complies with [these license

conditions]. A copy of such procedures will be provided to

DOC/BIS. Minimum necessary disclosures

Non-disclosure notice and certification

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BIS required TCP contents

Statement of corporate commitment

Identification of key export management officials

Training program

Security procedures for preventing access to controlled technology by unauthorized personnel (e.g., badges, access codes) including procedures for visitors and unauthorized employees

Pre-employment screening and non-disclosure agreement

Access restrictions to ensure employees do not received controlled technology until authorized

Distribution restrictions to ensure that controlled technology is not disseminated in an unauthorized manner

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Technology control challenges

Managing access to changing intangible information

Classifying nascent technologies Incorporating export classification into patent process

Controlled technologies developed by foreign nationals

Actual vs. potential access to controlled technology Access to global corporate networks

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Special technology transfer challenges Applying de minimis standards “Reexports of foreign technology commingled with or drawn from

controlled U.S.-origin technology” (EAR 734.4) Valuation of foreign and controlled U.S. origin technology

One-time report for government verification

Technical assistance relating to encryption items … technical assistance, when rendered with the intent to aid in the

“development” or “production” of encryption commodities or software

…, may require authorization under the EAR even if the underlying

encryption algorithm to be implemented is from the public domain or

is not of U.S. origin. EAR 774 Supp. No. 1, ECCN 5E002 License Req. Note

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Special technology transfer challenges

Discerning the purpose(s) of technical assistance pertaining to non-controlled items

Employee travel policies and practices

Technology control in international joint ventures Appointment and reporting by compliance personnel

Contractual safeguards to ensure compliance

Managing deemed export compliance

Managing technology transfer in the “cloud”

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Questions?

Barry J. Hurewitz

Partner, WilmerHale

+1 202 663 6089

[email protected]

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