A Conversation on Export Controls

I met the other day with Vince Canzoneri, a specialist in export compliance.  Vince has a background in both IP and export controls and he works with IPEngine’s clients in helping to ascertain whether patent prosecution can be outsourced without a license.

The issue comes up when a company wants to retain an offshore vendor to assist with patent prosecution.  By electing to work with a vendor who employs non-U.S. citizens, a company is subjected to a variety of export controls that are administered by the Department of Commerce, the State Department and even the Treasury.

As Vince Canzoneri explains on his website:

…disclosures of most US-origin technology to non-US persons anywhere in the world ~ are subject to a complex array of governmental controls, requiring governmental export licenses in some circumstances and due diligence/record-keeping in virtually all circumstances.  Some of the control regimes are administered by the Commerce Department’s Bureau of Industry & Security (BIS), others by the State Department’s Office of Defense Trade Controls (ODTC), and still others by the Treasury Department’s Office of Foreign Assets Control (OFAC), among a number of other US agencies.

To make a long story short:  If you export from the US, or disclose proprietary US-origin technology to non-US persons (including employees working in the US on H-1B visas), or re-export  any of the above from abroad, you are at the very least required to determine whether licenses are required and whether you are barred from doing export business with certain potential trading partners.  Failure to do so can give rise, not only to violations of Sarbanes-Oxley and other disclosure obligations, but also to criminal penalties and fines ~ which rose in late 2007 from a maximum of $50,000 per violation to $250,000 per violation.

I was eager to speak with Vince because the issue comes up when I speak with patent lawyers about IPEngine’s services.  As these patent lawyers correctly assert, the sharing of invention disclosures clearly triggers this complex web of regulation.  Even sharing an invention disclosure with IPEngine prior to determining whether or not an export license is needed could itself be a violation.

With potentially large monetary penalties and criminal liability looming in the background, clearly this is not an area to be ignored.  In fact I met with Vince thinking that I might try to co-author an article with him outlining the issues.

But I quickly realized that it actually boils down to a simple analysis:  clients who want to use IPEngine to leverage their patent prosecution resources need to hire an expert like Vince to do a quick review of their technology.   If a license is required to “export” the technology, then it probably does not make sense to work with IPEngine (i.e. the cost and delay associated with procuring the license will erase any efficiencies and cost savings that IPEngine can bring).

If the technology relates to items that are specifically designed/modified for military use, a license is almost certain to be required for disclosure to any non-US person (including Indian nationals, yes, but citizens of our closest allies – Canadians, Brits, Frenchmen, Japanese and Aussies – as well).  Encryption technology is similarly subject to very stringent controls.

According to Vince, in the vast majority of cases, there is no bar to exporting technology to India and no license is needed.  To be prudent, though, a company needs to document that the review was done prior to divulging the disclosures to IPEngine (or some other LPO).

Furthermore, this review does not need to be done when public information is disclosed to a foreign national.  So patent intelligence work (freedom to operate, invalidity studies, landscape studies, etc.) can be off-shored without triggering any of these regulations.

I could write a more detailed analysis; but that would probably not be helpful to anyone.  The classification of technology under these regulations can only be carried out by a highly trained expert.