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There has been a lot of news lately about governments and individuals stealing intellectual property (IP) from U.S. companies and taking that IP outside the U.S. In those news reports, very little is usually said about the law and why such activities are illegal.

The United States government has numerous laws and regulations governing the export of sensitive information, including trade secrets and IP. Compliance is crucial for your client to operate internationally while dealing with sensitive information. To avoid all sorts of resultant mischief, your client needs to comply with U.S. export laws relating to trade secrets and IP.

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What are Trade Secrets and Intellectual Property?

Trade secrets are a form of IP that refers to confidential and proprietary information that a company uses to gain a competitive advantage over its business rivals. This information could include anything from customer lists and marketing strategies to technical specifications and formulas.

IP refers to any creations of the mind such as inventions, literary and artistic works, designs, and symbols, words and images used in the marketplace.

Why is Compliance Important?

First, it is a legal requirement, and the failure to comply can result in severe consequences, including fines, imprisonment and loss of business.

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Second, compliance with these laws and regulations help to protect U.S. national security interests by preventing the unauthorized transfer of sensitive technologies to foreign adversaries. The U.S. government has identified certain technologies and information as critical to national security and has implemented export controls to prevent the transfer of such technologies and information to unauthorized parties.

Finally, compliance with export laws is essential for maintaining the integrity of your client’s IP. The failure to protect trade secrets and other proprietary information can lead to significant financial losses and damage to a company’s reputation, and even legal penalties.

Some U.S. government laws and regulations that must be considered include:

  • The Export Administration Regulations (EAR) are administered by the Bureau of Industry and Security (BIS) which governs the export of sensitive items, including technology and software (see 15 CFR § 730);
  • The International Traffic in Arms Regulations (ITAR) are administered by the Directorate of Defense Trade Controls (DDTC) which governs the export of military items, defense articles and related services (see 22 CFR § 120);
  • The Economic Espionage Act which criminalizes the theft and misappropriation of trade secrets (see 18 USC § 90); and
  • The Defend Trade Secrets Act (DTSA) provides a federal private civil cause of action for trade secret misappropriation (see 18 USC § 1836).

Tips for Client Compliance

No. 1: Your client should develop a compliance program that includes written policies and procedures, training for employees, and regular monitoring and auditing of its export activities.

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No. 2: The first step in complying with U.S. export laws and regulations is to classify your client’s products, since U.S. laws and regulations classify items based on their sensitivity and necessary level of export control. These regulations include the EAR and ITAR noted above, and also the Office of Foreign Assets Control (OFAC) regulations which govern trade with countries under U.S. sanctions.

No. 3: If your client’s products require an export license, one must be obtained before exporting those products. The U.S. government has several agencies responsible for granting export licenses, including the BIS and the DDTC.

No. 4: Before sharing any sensitive information or exporting products, it is essential that your client screen its partners thoroughly. This includes conducting background checks and ensuring that your client’s trading partners are not on any U.S. government blacklists.

No. 5: To protect proprietary IP, secure storage and transfer methods must be employed. This includes implementing access controls, encryption and other security measures to prevent unauthorized access and transfer.

No. 6: Regular monitoring and auditing of your client’s export activities is crucial for identifying and addressing compliance issues before they become significant problems.

Choosing not to comply with export laws is like playing a game of Russian Roulette – one may get lucky once or twice but eventually, the consequences will catch up.

Z. Peter Sawicki and James L. Young

Mr. Sawicki and Mr. James L. Young are shareholders at Westman, Champlin & Koehler. Pete and Jim both have over 30 years of experience obtaining, licensing, evaluating and enforcing patents. Each has also developed an extensive practice regarding the clearance, registration, licensing and enforcement of trademarks. They work closely with clients to understand their values and business plans and provide customized and effective strategies for intellectual property asset procurement, growth, management and protection. To contact Z. Peter Sawicki, call (612) 330-0581 or call James L. Young at (612) 330-0495. Please email them directly at either [email protected] or [email protected].

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