Category: Export Controls

Making Your IP Licenses U.S. Export Compliant

Export regulations have been in the news recently as U.S. officials pledged during the December U.S.-China Joint Commission on Commerce and Trade to relax technology export controls on exports to China, and the Department of Commerce is currently evaluating several export control reforms. Although these developments may allow U.S. businesses to more easily access foreign markets, it also underscores the need for businesses to understand how their exports, and particularly their intellectual property (IP) licensing, is regulated by U.S. export regulations and what steps they should take to ensure export compliance. Beyond avoiding fines and potential criminal charges, ensuring U.S. export compliance can help businesses develop effective IP licensing procedures to reduce challenges to their international operations and realize foreign market opportunities.

Ensuring U.S. export compliance in IP licensing requires an understanding of what U.S. export regulations are and what issues should be evaluated. With the exception of certain goods and technologies, the Department of Commerce’s Bureau of Industry and Security (BIS) establishes U.S. export controls through the Export Administration Regulations (EAR), which provides requirements and restrictions for IP licenses based specifically on a license’s commodity, software, or technology (Items) and the countries to which the items is being licensed. Particularly, the following four issues should be evaluated when licensing IP:

(1) Is your license subject to EAR? Many acts that would not on first glance be considered an export may be subject to EAR. Generally, any Item transmitted from the U.S. to a foreign country or foreign citizen is regulated by EAR. Not surprising, shipments of U.S. Items from the U.S. to foreign countries are subject to EAR. However, as any transmission of Items to foreign countries or foreign citizens is subject to EAR, the licensing of protected content or technology uploaded online for download abroad or by foreign nationals in the U.S. may be subject to these regulations. Such transmissions also include oral briefings, telephone calls, faxes, and e-mails containing Items to foreign countries and foreign citizens both in the U.S. and abroad. By encompassing these multiple activities, your licensing of copyrighted material, patented technology, or even trade secrets, may be subject to EAR.

(2) What is your EAR classification? If your IP license is subject to EAR, determining what your export compliance requirements are depends on the license’s Items. Such Items and their corresponding export requirements are obtained through identifying the Items’ EAR classifications. BIS classifies all Items for EAR through Export Control Classification Numbers (ECCN), which are available on its Commerce Control List. Establishing a licensed Item’s ECCN number helps to determine whether a licensor needs to obtain an export license prior to licensing.

Often, businesses and rights holders determine which ECCN matches their licensed content or technology for export compliance purposes.  However, it is always worthwhile for a licensor to submit a request to BIS to properly classify their licensed content or technology to ensure export compliance.

(3) Where are you licensing to? In addition to a license’s Items, the country to which the license is being made to establishes what restrictions and requirements a IP licensor will subject to. Those well-versed on current world events might find some of EAR’s restrictions self-evident, yet each country provides different sets of requirements and restrictions for IP licenses, often those one may generally not associate with some of the U.S.’ largest trade partners. Not surprisingly, licensing of IP to Canada, arguably the U.S.’ strongest ally, is exempt from most export licensing requirements, while licensing to countries perceived to be a geopolitical security risk or subject to the U.S. embargoes, such as China and North Korea respectively, may be prohibited. However, licensing of content or technology to some of the U.S.’ largest and most dependable trading partners may pose unexpected export requirements. For example, licensing radiation transport calculation and modeling software to Brazil, one of the U.S.’ top 15 trading partners, is subject to export licensing requirements, while relatively smaller trading partners such as Turkey are exempt from some of these licensing requirements.

As a result of EAR’s country-specific and often divergent export control requirements, licensors should consider the export control consequences of where they decide to license their items to when entering into licensing agreements.

(4) Are there any additional considerations? It is important to note that EAR does not regulate all export controls. Foreign embargoes establish export restrictions beyond EAR, which are governed by the Treasury Department’s Office of Foreign Assets Controls (OFAC), and the Department of Defense, Department of State, and Department of Commerce may maintain their own individual export restrictions. As a result, it is important for licensors to work with their counsel and government authorities to determine whether their IP licensing is subject to these additional export restrictions.

What’s the takeaway? So what lessons should licensors take away from examining these export control issues? Being conscious of the type of licensing being conducted, the content or technology being licensed, and where such items are being licensed to can help ensure compliance with U.S. export controls and ultimately realizing foreign market opportunities.

Are there additional export control issues you face in licensing your IP?

Special thanks to Jennifer Jolley for her assistance.