Unlike most civilian goods and services regulated by the Department of Commerce, exports of military defense services, technical data and defense articles are subject to detailed licensing requirements on design, marketing and demonstration activities prior to the sale and permanent export. These requirements are found in the International Traffic in Arms Regulations (“ITAR”). Failure to comply with ITAR licensing requirements can result in self-disclosure to the Department of State, civil fines and even criminal enforcement actions.
Many presale activities involve the delivery of technical information. As a general rule, technical information will fall into one of the following three categories:
No License Required. This category is limited to public domain and publicly available information. It is information that a company would display on its web site, deliver at a trade show, and would not care if its competitor had the information.
License Required. The most common Department of State licenses are the DSP-5 (for permanent export of hardware or information), the DSP-73 (for temporary export of hardware), and the DSP-83 (a license executed by the foreign entity to ensure hardware or information is not re-exported without a license). Information that requires a DSP-5 license is information that consists of non-public trade secrets but is not Technical Data, as defined in the ITAR. Delivering technical information under a DSP-5 license enables a company only to deliver the information and confirm with the recipient the contents of the information. It does not permit a company to clarify, provide analysis of, or otherwise relate the technical information to other data. A DSP-5 may be used for a single disclosure of limited Defense Services provided the scope is adequately described in the DSP-5.
Technical Assistance Agreement. When the level of disclosure constitutes a Defense Service, a Technical Assistant Agreement (“TAA”) is used. A Defense Service is defined as the furnishing of assistance in the design, development, engineering, manufacture, production, assembly, testing, repair, maintenance, modification, operation, demilitarization, destruction, processing or use of Defense Articles.
It is important to remember that an export may occur within the United States. These “deemed exports” might occur to a foreign employee, foreign contractor, a plant tour, over the telephone, or on the Internet. Thus, it is important to know who will receive technical information.
Listed below are significant pre-sale activities that may require Department of State licenses.
1. Design and Development Activities. These activities probably necessitate a TAA since there will probably be on-going discussions over a period of time that go beyond mere disclosure of information and include clarification conversations. Moreover, these activities may constitute a Defense Service. If a TAA is required, it should be drafted broad enough for the parties to use it for all their contemplated activities. DSP licenses are usually valid for four years and TAA's are valid for ten years. If the information constitutes Significant Military Equipment under the ITAR, (SME) then the company would also need to file a DSP-83 which is required to be executed by the foreign party to ensure that the SME technical data will not be re-exported without a license.
2. Marketing Activities. Marketing activities, including trade shows, may not require a license if the technical information is in the public domain or constitutes hardware subject to the ITAR trade show exemption.
3. Plant Visits. Plant visits can be especially difficult to categorize. No license may be required if the information disclosed is in the public domain. Disclosure of trade secret information will require a DSP-5 and clarification conversations will require a TAA. If any of the foregoing constitute SME, a DSP-83 is required to prevent re-export. A DSP-5 may be used for a single disclosure of limited Defense Services provided the scope is adequately described in the DSP-5.
4. Demonstrations. A DSP-73 is required for the temporary export of hardware. As discussed above, if technical information will also be discussed, a DSP-5 or TAA may be required, depending upon the level of discussions.
5. Manufacturing. Manufacturing, where a foreign person is granted the right to manufacture, will require a Manufacturing License Agreement (“MLA”). In addition, in instances where the manufacturing is of SME, a DSP-83 is required.