In an effort to further combat the international theft of intellectual property, the U.S. government has taken multiple steps to restrict certain companies’ ability to operate within the United States and to prevent those companies from profiting off of their illegal activities. The governmental activity also underscored the increasingly important role that tech companies have in the administration’s national security policies.
Earlier this year, the President signed into law. H.R. 4998, the Secure and Trusted Communications Networks Act of 2019 (‘the Legislation”), which prohibits certain Federal subsidies from being used to purchase communications equipment or services from Huawei and other providers that are deemed to pose a risk to national security.
The legislation followed the U.S. Government’s indictment of Huawei and two of its subsidiaries for federal racketeering and conspiracy to steal trade secrets from six American companies. As explained in a previous blog post, Huawei was accused of recruiting employees from rival companies or using proxies such as professors working at research institutions to access intellectual property. According to the Justice Department, the charges “relate to the alleged decades-long efforts by Huawei, and several of its subsidiaries, both in the U.S. and in the People’s Republic of China, to misappropriate intellectual property, including from six U.S. technology companies, in an effort to grow and operate Huawei’s business.”
In addition to the Legislation, Huawei (and a separate company named ZTE) were both placed on the Entity List. The Entity List is administered by the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) and identifies entities and other persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States. Both Huawei and ZTE are two major Chinese tech companies. Huawei is the world’s largest telecommunications equipment company, second-largest manufacturer of smartphones, and only trails Samsung and Apple in annual semiconductor purchases.
With respect to Huawei, BIS specifically states, “that Huawei has been involved in activities contrary to the national security or foreign policy interests of the United States.” This means that to conduct business with Huawei, ZTE, or any entity on the Entity List, an entity must have a license granted by the U.S. government through BIS. Importantly, the license requirements cover both tangible goods and deemed exports, which generally include the release or transfer of controlled technology to a foreign person. Intellectual property, trade secrets, and other information and data transfers are considered deemed exports—therefore subjecting certain exports of intellectual property and trade secrets to export controls.
Not surprisingly, an increased control on tech comes with increased regulatory oversight. BIS on January 6, 2020, issued the first of a series of regulations controlling the export of “emerging technologies.” The new rule imposes a license requirement for the export and reexport of software specially designed to automate the analysis of geospatial imagery to all countries, except Canada.
 ZTE was added to the BIS entity list because ZTE planned and organized a scheme to establish, control, and use a series of “detached” (i.e., shell) companies to illicitly reexport controlled items to Iran in violation of U.S. export control laws.