Interim Final Rule Changes How Standards Organizations Make Determinations About Participation for Huawei and other Companies on the U.S. Entity List (Updated 08/14/2020)
The new Interim Final Rule (the “Rule”), entitled “Release of ‘Technology’ to Certain Entities on the Entity List in Context of Standards Organizations”, was published June 18, 2020, by the U.S. Dept. of Commerce, Bureau of Industry and Security (“BIS”). The Rule provides for changes in the way standards organizations make available nonpublic technical information to Huawei and its foreign affiliates, and potentially to additional companies listed on the U.S. Entity List (if BIS were to update its Entity List designation to expand the scope of permitted exports and the need for any license).
On August 19, 2019 BIS posted a General Advisory Opinion on prohibited activities in the standards setting or development context when an Entity List company is involved. This new Rule rescinds the August 19, 2019 General Advisory Opinion, without providing new general guidance for prohibited activities. For example, one of the prohibited activities was that Entity List companies could not participate in electronic exchanges within standards bodies. Perhaps the reason for rescinding the August 19, 2019 General Advisory Opinion is because BIS had globally restricted the involvement by Entity List companies unless they obtained a license; and with rescinding the Aug. 19, 2019 General Advisory Opinion, BIS cleared the way to permit involvement in standards organizations by individual Entity Listed companies by updating their Entity List designation, for example, as BIS did in the new Rule with Huawei.
Before permitting full involvement by Huawei and its foreign affiliates under this new Rule, a standards organization must determine all of the following: (1) the organization falls within the definition of a “Standards Organization” as defined under the new Rule; (2) the export or release of technology within their organization to members is material that would fall under EAR99 or is otherwise covered under the U.S. classification codes but with low-level controls, i.e., controlled only for anti-terrorism (AT); and (3) the technology is being released to members of standards organizations for the purpose of contributing to the revision or development of a Standard, as such term is defined in the new Rule.
It is our understanding that much of the technology currently included in specifications of standards development organizations and consortia would fall within the category of EAR99 or be covered under classification codes with low-level controls, meeting the second qualification in the list above. However, if an organization has not performed an export classification code analysis of the technology included in their specifications, they may want to consider having this analysis performed.
Is my organization considered a Standards Organization under the new Rule?
The new Rule defines a “Standards Organization” as equivalent to the definition of the term “voluntary consensus standards body” set forth in the Office of Management and Budget Circular A-119 (Rev. 2016) (81 FR 4673 (Jan. 27, 2016)), “Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities” (“Circular A-119”). Generally, using the definition found in Circular A-119, a Standards Organization means an organization or association that develops “standards” by following a process that includes elements of openness, balance, due process, appeals, and consensus. Circular A-119 also notes that these organizations often have IPR policies to require owners of standards essential patents, or otherwise patented technology incorporated into a standard, to license their IP on reasonable and non-discriminatory (or similar) terms. As the particular details and activities can vary by organization, you should contact an attorney if you need assistance determining whether your organization is considered a standards organization under the new Rule.
What is considered a Standard under the new Rule?
Similar to the definition of “Standards Organization” discussed above, the new Rule adopts as the definition of “Standard” the meaning of the terms “standard” or “technical standard” as defined in Circular A-119. The definition includes three groups of standards, which are described in full in Circular A-119, but in essence are those related to (i) common guidelines or characteristics for products, including their related processes and production methods; (ii) specifications describing components, processes, design, quality, materials, and testing, among other items; and (iii) packaging, marking, or labeling requirements applicable to products, as well as processes and production methods. Where a Standard contains patented technology, it must meet certain other requirements related to an IPR policy, accessibility, and licensing in order to qualify as a Standard as defined. Since neither the new Rule nor Circular A-119 discusses whether a specific technology or activity qualifies as a Standard, an organization should work with its attorney if it needs assistance with making such a determination.
What does it mean for technology to be designated “EAR99,” and how can I determine if my organization’s technology is designated EAR99?
EAR99 is a catch-all Export Control Classification Number (“ECCN”) designation for items that are subject to Commerce Department jurisdiction but do not fall within the scope of a specific ECCN on the Commerce Control List (“CCL”). Prior to the effective date of the new Rule, a license was also required to export any items designated EAR99 to parties on the US Entity List. To determine whether there are any license requirements for an item to be exported it first needs to be analyzed against the CCL to determine its ECCN. The organization should consult with an attorney to discuss any specific questions related to determining the ECCN designation of its technology.
Following the new Rule, can my organization permit Entity List companies to access its online repository of documents?
Maybe. Upon its effective date, the new Rule revises the U.S. BIS Entity List to authorize the release of information designated as EAR99 or controlled on the CCL for Anti-Terrorism reasons only, without a license, to Huawei and its foreign affiliates, and potentially to additional companies listed on the U.S. Entity List (if BIS were to update its Entity List designation to expand the scope of permitted exports and the need for any license) if (i) the company is a member of a standards organization, and (ii) the release of information is for the purpose of contributing to the revision or development of a standard. Whether the organization can permit an Entity List company to access its online repository will depend on the ECCN designation of the items to be accessed, as well as the purpose for permitting the Entity List company to access the items, and the specifics of that company’s entity list designation. The organization should contact an attorney to discuss any specific questions related to determining whether it may permit an Entity List company to access its technology or information.
Ivan Bilaniuk, Partner
Dinsmore & Shohl LLP