U. S. Government Penalizes Company for Alleged "Deemed Export" and Other Technology Export Violations

by Orrick, Herrington & Sutcliffe LLP

In February 2014, the U.S. government imposed a US$115,000 penalty against Intevac, Inc., for alleged export control violations.  The government's enforcement action against Intevac reflects far-reaching positions on circumstances in which mere storage of technical information can violate export controls.  This is particularly true with regard to so-called "deemed exports" of technology and release of technical information to non-U.S. nationals in the United States.

"Deemed Export" Controls

Principal U.S. export controls include the Export Administration Regulations ("EAR"), administered by the Commerce Department's Bureau of Industry and Security, and the International Traffic in Arms Regulations ("ITAR"), administered by the State Department's Directorate of Defense Trade Controls.  The EAR apply to commercial, "dual use" items, and the ITAR generally apply to military-related items.

Unlike the export controls of most other countries, the EAR and the ITAR provide for licensing restraints on "deemed exports" of certain technical information and software to non-U.S. nationals notwithstanding that they are in the United States.  Release of export controlled technical information or software to a non-U.S. national can be deemed to be an export to the individual's home country if the individual is not a lawful permanent U.S. resident.  Deemed export controls are particularly challenging for advanced technology companies as the controls can apply to release of technical information to non-U.S. engineers employed by the companies in the United States.

Intevac Export Control Settlement

Intevac is a California-based supplier of static sputtering systems used to manufacture thin film disks for computer hard disk drives.  The company acquiesced to the civil penalty in the context of a settlement with the Commerce Department under the EAR.

There are three respects in which the Intevac settlement reflects an aggressive Commerce Department approach to enforcement of technology export controls. 

  • Faciltating Access to Stored Controlled Data Can Be Licensable Export :  The Commerce Department identified Intevac's unlawful deemed export as "providing the Russian national employee with a login identification code and password that enabled him to view, print, and create attachments."
  • Prohibition 10 Can Apply to Storage of Technology and Multiply Violations :  The EAR's "Prohibition 10" forbids one to, among other things, use or transfer an item with knowledge that it has been the subject of an EAR violation.  The Commerce Department determined that Intevac violated Prohibition 10 because it "stored" technical information after having provided the Russian national employee access to it.  Three acts of "storage" resulted in three additional charges against Intevac.
  • Commerce Department Authorization Did Not Forestall Claims for Prior Deemed Exports :  That Intevac secured a deemed export license did not insulate Intevac from liability for a lleged deemed exports shortly before receiving the license.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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