Trade Law

Washington, D.C. partner Kevin Wolf, London partner Jasper Helder and Emily Kilcrease with the Center for New American Security submitted a detailed comment to U.S. and EU export control authorities to help guide and inform efforts to rationalize U.S. and EU export controls.  It can also be a useful resource for anyone interested in the topic and wanting to understand the history and context to current export control policy issues. They note that the US-EU Joint Statement on the role and purpose of export controls “is far more significant than generally recognized because it is the first time the EU (represented by the EC) or any other US ally has stated so explicitly and publicly since the end of the Cold War an agreement with the US that export controls should be used to achieve country-specific and other policy objectives not directly related to weapons of mass destruction or conventional military items.”

At the end of 2018, the U.S. Court of International Trade (CIT) issued an opinion in One World Techs., Inc. v. United States. In that decision, Judge Choe-Groves concluded that U.S. Customs and Border Protection (CBP) improperly excluded from importation one entry of a redesigned garage door opener imported by One World Technologies, Inc. She determined that One World’s redesigned garage door opener did not infringe U.S. Patent 7,161,319, which formed the basis of an exclusion order issued by the U.S. International Trade Commission (ITC) pursuant to Section 337 of the Tariff Act of 1930 (19 U.S.C. § 1337), because CBP had misconstrued certain claim terms in that patent. In so doing, Judge Choe-Groves construed the claims of the ’319 patent, an exercise rarely undertaken in prior disputes before the CIT. As a result of her conclusion, Judge Choe-Groves issued an injunction preventing CBP from excluding the entry at issue. Our earlier coverage of that decision provides additional details.

Cree Inc. (“Cree”), the U.S.-based LED lighting and semiconductor company, announced last month that it is terminating its agreement to sell its Wolfspeed Power & RF division (“Wolfspeed”) to Infineon Technologies AG of Germany (“Infineon”) for USD $850 million. The decision to terminate the deal came shortly after Cree announced that CFIUS raised objections to the acquisition and that the parties were working within the deal structure to mitigate CFIUS’ concerns. This outcome underscores that CFIUS risk can exist in transactions involving buyers from countries that are closely allied to the United States. 

On February 2, 2017, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Cyber-related General License (GL) 1, a general license that authorizes certain transactions with Russia’s Federal Security Service (Federalnaya Sluzhba Bezopasnosti or FSB).  GL 1 authorizes U.S. persons (i.e., individuals and companies) to request, receive, use, pay for or deal in licenses, permits, certifications, or notifications issued or registered by the FSB for information technology (IT) products in Russia, provided that (i) the relevant IT goods or technology are subject to the U.S. Export Administration Regulations (EAR) and are licensed or otherwise authorized by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS); and (ii) payment of fees to the FSB for such licenses and other authorization or notification does not exceed $5,000 in any calendar year. GL 1 also authorizes transactions or activities that are necessary and ordinary incident to complying with law enforcement or administrative actions or investigations involving the FSB or rules and regulations administered by the FSB.

CFIUS: Account for CFIUS risks in transactions involving non-U.S. investments in businesses with a U.S. presence

Over the past year, the Committee on Foreign Investment in the United States (CFIUS), an interagency committee chaired by the Department of the Treasury, has been particularly active in reviewing and, at times, intervening, in non-U.S. investments in U.S. businesses to address national security concerns. CFIUS has the authority to impose mitigation measures on a transaction before it can proceed. It may also recommend that the President block a pending transaction or order divestiture of a U.S. business in a completed transaction. Consequently, companies that have not sufficiently accounted for CFIUS risks may face significant hurdles in successfully closing a deal. With the incoming Trump administration, there is also the potential for an expanded role for CFIUS, particularly in light of campaign statements opposing certain foreign investments.

Overview of Actions Taken by the United States

On December 29, 2016, President Obama announced that he was sanctioning nine individuals and entities: the Main Intelligence Directorate (aka Glavnoe Razvedyvatel’noe Upravlenie) (GRU) and the Federal Security Service (aka Federalnaya Sluzhba Bezopasnosti) (FSB), two Russian intelligence services; four individual officers of the GRU; and three companies that were stated to have provided material support to the GRU’s cyber operations. In addition, two Russian individuals were sanctioned for using cyber-enabled means to cause misappropriation of funds and personal identifying information. These actions mark the first expansion of the Specially Designated Nationals (SDN) List to include entities and individuals under the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) cybersecurity program since it was established on April 1, 2015. The 2015 client alert can be found here.

On December 23, 2016, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a Final Rule amending the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR) to expand the scope of permissible exports/re-exports of medicine, medical devices and agricultural commodities to Iran. 

On June 3, 2016, the U.S. Department of State, Directorate of Defense Trade Controls (DDTC) and the Department of Commerce, Bureau of Industry and Security (BIS) issued changes to the International Traffic in Arms Regulations (ITAR) and Export Administration Regulations (EAR). The changes are part of the administration’s Export Control Reform (ECR) Initiative to update and harmonize export controls, facilitate compliance and reduce unnecessary regulatory burdens.