Globalization, terrorism and threats of proliferation have led to an increase in the enforcement of U.S. export control laws by the federal government.  These laws provide for severe civil and criminal penalties for the unauthorized disclosure of sensitive technology to foreign citizens.  Technology-related clients of all sizes are increasingly finding themselves in violation of such laws due to, among other things, immigration, widespread foreign travel, outsourcing, and even applying for foreign patent protection.  Any transaction between regulated technology and a foreign national may invoke export control laws.  Compliance is the responsibility of the exporter and it is necessary to be aware of the dangers of disclosing sensitive technology in order to avoid inadvertent violation since some of the penalties are criminal in nature and lack of intent is not a defense.

The two primary sets of export control laws are the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), which together govern the export of both defense-related and commercial products.  ITAR contains the United States Munitions List (USML) of restricted articles and services.  Any manufacturer or exporter of articles or services found on the USML is required to register with the U.S. State Department’s Directorate of Defense Trade Controls, which helps to validate entities engaged in the defense trade. EAR, meanwhile, contains the Commerce Control List (CCL) of regulated commercial items, including “dual-use” items that have commercial, military or proliferation applications.  The CCL regulates a broad array of commodities, software and technologies including, but not limited to, building materials, circuit boards, automotive parts, blue prints, design plans, retail software packages, and technical information.  Each prospective exporter is responsible for determining whether an export license is required under EAR, based on the good or services classification on the CCL, its destination country, the end-user, and its end-use.

In export control parlance, “export” includes not only the shipment of products abroad, but also technical data which is deemed an export by its mere disclosure or transfer to a foreign national, even if within U.S. borders.  With so many foreign nationals employed in the U.S. high-tech industry, it is easy to see how violations may occur.  Even visits to U.S. manufacturing facilities by foreign investors or customers could constitute a violation.  Electronic storage and transfer, particularly for software and technical data, are also problematic, since transfer over the Internet or travel to a foreign country may run afoul of export control laws.  It is worth noting that Customs and Immigration Services can examine or seize any person’s possessions when entering the U.S. from abroad without cause.  Thus, the seizure of a laptop at the border could result in violation if, for example, a sales presentation on the device is found to contain sensitive information.

Export control laws provide for substantial penalties, both civil and criminal.  Failure to comply with ITAR can result in civil fines as high as $500,000 per violation, while criminal penalties include fines of up to $1,000,000 and 10 years imprisonment per violation.  Under EAR, maximum civil fines can reach $250,000 per violation, while criminal penalties can be as high as $1,000,000 and 20 years imprisonment per violation.  Given the ease with which violations can occur, inadvertent violations by unaware companies and their officers can have drastic consequences.

One case highlighting violations of ITAR concerns a professor at the University of Tennessee.  The university was involved with the U.S. Air Force in a contract to research the flight control of Unmanned Aerial Vehicles.  While research done purely for publication is exempt from ITAR registration, this particular research was conducted in partnership with a for-profit spin-off of the university, a common arrangement these days.  The participation of a Chinese national graduate student in the research and the later visit to China by the professor drew the attention of the Federal Bureau of Investigation.  Providing sensitive technology to a foreigner constitutes export, and a violation had occurred because no license was first obtained.  Search warrants issued permitting agents to search the professor’s belongings as well as the university research facility to seize evidence.  The professor and company, including its president, were indicted for federal crimes.

In the field of patent law, the practice of outsourcing has developed into a multi-billion dollar annual business with foreign countries, particularly India.  Inventors, businesses, and even some patent law firms use overseas companies to conduct novelty searches and to assist in drafting and prosecuting U.S. patent applications.  A report released at the end of 2008 indicated that revenue from patent work performed by legal professionals in India was about $46 million in 2007 and could more than quadruple to $206 million by the end of 2012.  The U.S. Patent and Trademark Office (USPTO), having “become aware” of the outsourcing of patent prosecution, published a reminder in the Federal Register in  July of 2008 to comply with export control laws.  The USPTO’s patent web portal now requires certification of compliance before users may log into the system.

Sensitive information is also exported whenever an applicant seeks foreign patent protection.  Jurisdiction is granted to the USPTO under both EAR and ITAR to conduct security reviews and issue foreign filing licenses, which permit the export of technical data for the limited purpose of filing and prosecuting foreign patent applications. See, 37 CFR 5.11(b).  A foreign filing license can be granted after filing a U.S. patent application, and if no Secrecy Order has been imposed within the first six months a license is granted automatically.  This affords the U.S. government sufficient time for national security review of the technology.  Similarly, if a Patent Cooperation Treaty (PCT) application is filed at the U.S. Receiving Office, a security review will be conducted and the application will not be forwarded to a foreign patent office for consideration until the foreign filing license is granted.  See, PCT 1832.  As a result, it is important to monitor PCT applications to make certain a foreign filing is granted before the expiration of time to enter the national stage in foreign countries.  If a patent application covering technology conceived in the U.S. is to be initially filed directly with a foreign patent office, the applicant must first petition the USPTO and receive a foreign filing license prior to filing.  Failure to obtain a foreign filing license may not only invoke export control laws, but may bar U.S. patent protection on the technology.

Foreign filing licenses are very limited waivers of export control laws and their scope is restricted to the subject matter substantially the same as that disclosed to the USPTO for obtainment of the license.  As a consequence, no new matter may be added during prosecution of the foreign patent application unless a new license is first granted for the additional subject matter.  In addition, the license is specifically limited to the filing of foreign patents-it remains the applicant’s responsibility to comply with export control laws for any other use.  For example, reporting the filing of a U.S. patent application to a foreign owner may require a license.

With increased foreign interaction there is greater potential for conduct that constitutes export under the law, whether by hiring foreign nationals, traveling abroad with a laptop, or even giving a sales presentation to potential foreign customers.  Such actions may have drastic consequences.  And while outsourcing has become somewhat of a national trend, outsourcing patent work may also be a violation.  Disclosing sensitive technology to any foreigner, even if within the United States, may violate federal law and the responsibility falls upon the exporter to conform with ITAR and EAR.  Counsel experienced in export control matters can help avoid inadvertent violation and the possibility of criminal and civil sanctions.  In addition to its full-service Intellectual Property/SciTech Group, Burns & Levinson LLP has experience in dealing with export control laws and can help protect your intellectual property in the U.S. and around the world.

by Jacob N. (Jesse) Erlich (jerlich@burnslev.com) and Stephen Ball (sball@burnslev.com)
Burns & Levinson LLP
125 Summer Street
Boston, MA 02110
617.345.3000

Posted on May 14th, 2009 by keeton
Filed under: EAR, ITAR