Initiative to Designate “Emerging and Foundational Technologies” – Export Control and CFIUS Implications for Technology Companies

Key Points

• The U.S. government has launched its initiative to identify and impose export controls on "emerging and foundational technologies" essential to the national security of the United States.
• The U.S. government has not yet expanded export controls, but it has requested comments on how best to identify emerging technologies that warrant export controls.
• This initiative could affect technology companies in two ways:
  
  
  
  • New export controls could limit or prevent exports of designated equipment, software and technical information to China and elsewhere.
  • Items that are designated emerging or foundational technology will generally be deemed "critical technology" under the Foreign Investment Risk Review Modernization Act of 2018 ("FIRRMA").  Consequently, parties to a foreign investment in a U.S. company that develops or designs emerging or foundational technology may be required to notify the transaction to the Committee on Foreign Investment in the United States ("CFIUS").

Request for Public Comment on Designation of Emerging Technologies

On November 19, 2018, the U.S. Commerce Department's Bureau of Industry and Security ("BIS") published a notice of proposed rulemaking requesting public comment on the U.S. government's process for identifying "emerging technologies."

This is the first step in an initiative mandated by the Export Control Reform Act of 2018 ("ECRA") as described in our August 3, 2018 alert.  ECRA instructs the U.S. government to identify and impose export controls on "emerging and foundational technologies," with a particular focus on export restrictions with respect to China.  And BIS is expected soon to publish an analogous notice seeking comments on designation of "foundational technologies."

The U.S. government has not yet designated or imposed export controls on any emerging or foundational technologies as a result of ECRA.  But the November 19 notice characterizes the categories listed in the Annex to this alert as representative general categories of technology that BIS will assess to identify emerging technologies.  These categories include, among others, artificial intelligence, advanced computing technology and microprocessor technology.  The U.S. government is unlikely to designate, for example, all artificial intelligence technology.  But, given the difficulties involved in identifying sensitive technology emerging from industry, it is likely to take a broad view of the technology that should be controlled.

Comments are due by December 19, 2018.  In particular, BIS has requested comments on: (1) how to define emerging technology to assist with identification of such technology in the future; (2) criteria for determining whether there are specific technologies within the representative general categories that are important to U.S. national security; (3) sources to identify such technologies; (4) other general technology categories that warrant review to identify emerging technology that are important to U.S. national security; (5) the status of development of these technologies in the United States and other countries; (6) the impact specific emerging technology controls would have on U.S. technological leadership; (7) any other approaches to the issue of identifying emerging technologies important to U.S. national security, including the stage of development or maturity level of an emerging technology that would warrant consideration for export control; and (8) treating emerging and foundational technologies as separate types of technology. 

Large and small U.S. technology companies should evaluate their exposure in connection with the emerging and foundational technology initiative and decide whether it is advisable to comment in light of two considerations:

1. New Export Controls:  Designated equipment, software and technical information must, under ECRA, be export licensable to China, among other nations.  Apart from conventional exports of items out of the United States, these controls will apply to so-called "deemed exports" of source code and technical information to individuals, including employees, in the United States who are not U.S. citizens or lawful permanent residents.
   
   
2. CFIUS Implications:  Under FIRRMA, designated emerging and foundational technology will probably be "critical technology."  As explained in our October 15, 2018 alert, parties to foreign investment transactions must notify those transactions to CFIUS where the U.S. target company designs, tests, develops or produces "critical technology" and other factors are present.  As a general matter, CFIUS will tend to restrain foreign investments in U.S. critical technology companies, particularly if the investment is from China.

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Annex

Representative Technology Categories

(1) Biotechnology, such as:

(i) Nanobiology;

(ii) Synthetic biology;

(iv) Genomic and genetic engineering; or

(v) Neurotech.

(2) Artificial intelligence (AI) and machine learning technology, such as:

(i) Neural networks and deep learning (e.g., brain modelling, time series prediction, classification);

(ii) Evolution and genetic computation (e.g., genetic algorithms, genetic programming);

(iii) Reinforcement learning;

(iv) Computer vision (e.g., object recognition, image understanding);

(v) Expert systems (e.g., decision support systems, teaching systems);

(vi) Speech and audio processing (e.g., speech recognition and production);

(vii) Natural language processing (e.g., machine translation);

(viii) Planning (e.g., scheduling, game playing);

(ix) Audio and video manipulation technologies (e.g., voice cloning, deepfakes);

(x) AI cloud technologies; or

(xi) AI chipsets.

(3) Position, Navigation, and Timing (PNT) technology.

(4) Microprocessor technology, such as:

(i) Systems-on-Chip (SoC); or

(ii) Stacked Memory on Chip.

(5) Advanced computing technology, such as:

(i) Memory-centric logic.

(6) Data analytics technology, such as:

(i) Visualization;

(ii) Automated analysis algorithms; or

(iii) Context-aware computing.

(7) Quantum information and sensing technology, such as

(i) Quantum computing;

(ii) Quantum encryption; or

(iii) Quantum sensing.

(8) Logistics technology, such as:

(i) Mobile electric power;

(ii) Modeling and simulation;

(iii) Total asset visibility; or

(iv) Distribution-based Logistics Systems (DBLS).

(9) Additive manufacturing (e.g., 3D printing)

(10) Robotics such as:

(i) Micro-drone and micro-robotic systems;

(ii) Swarming technology;

(iii) Self-assembling robots;

(iv) Molecular robotics;

(v) Robot compliers; or

(vi) Smart Dust.

(11) Brain-computer interfaces, such as

(i) Neural-controlled interfaces;

(ii) Mind-machine interfaces;

(iii) Direct neural interfaces; or

(iv) Brain-machine interfaces.

(12) Hypersonics, such as:

(i) Flight control algorithms;

(ii) Propulsion technologies;

(iii) Thermal protection systems; or

(iv) Specialized materials (for structures, sensors, etc.).

(13) Advanced Materials, such as:

(i) Adaptive camouflage;

(ii) Functional textiles (e.g., advanced fiber and fabric technology); or

(iii) Biomaterials.

(14) Advanced surveillance technologies, such as:

Faceprint and voiceprint technologies.