Access to U.S. software and other U.S. technology by foreign nationals

by Fred M. Greguras and Roger M. Golden, Fenwick & West LLP (03/10/1997)

The continuing demand for engineers in the Silicon Valley and elsewhere throughout the U.S. has resulted in many engineers from other countries filling such positions. Immigration law requirements are generally known in order for these foreign nationals to work in the U.S., but the U.S. export controls may also have an impact since such engineers will usually have access to software and other technology in the course of their employment. A person who has permanent resident status (a "green card" holder) is not considered a foreign national, but a person in the U.S. on a nonimmigrant visa such as an L-1 or H-1 is considered a foreign national.

Basic Regulation and Example

The Export Administration Regulations ("EAR") administered by the Department of Commerce provide that the source code (but not the object code) of software may be "exported" without being actually transmitted or shipped out of the U.S. A "release" of source code or other technology to a foreign national in the U.S. is considered an "export" under the EAR to the home country of the foreign national. A "release" occurs through, for example, visual inspection by or oral comments to foreign nationals. Mere use of object code versions of software without access to the source code is not considered an export. The State Department interprets the International Traffic in Arms Regulations ("ITAR") the same way.

For example, if a PRC national is hired to work on a software development project in the U.S. under an H-1 visa, the employer must analyze the export licensing requirements for the software since the employee will have access to the source code in order to do development. If the PRC national will be working on a project to develop relational database software, the source code normally would be exportable to the PRC under No License Required ("NLR"). Therefore, the PRC national's access to the source code in the U.S. would be under NLR. On the other hand, if the PRC national will be working on a project developing integrated circuit CAD software and will have access to source code that simulates the physical layout of a circuit, the employer must obtain a validated export license prior to allowing the PRC national to have access.

Classification of Software

The classification of software generally will depend on the classification of products for which such software is "specially designed." An exception to this general rule is computer-aided design ("CAD") software for integrated circuits. Production CAD software is classified under ECCN 3D003. The source code for production CAD software may be released to foreign nationals from many countries (excluding, significantly, the PRC) under License Exception Restricted Technology and Software ("TSR") provided that a written letter of assurance is obtained prior to the export. On the other hand, general design software normally is classified under NLR with the result that its source code may be released without a license to foreign nationals from all countries except those described below.

Classification of Technology

The classification of technology, as distinguished from software, generally will track the classification of products which are developed, produced or utilized by reason of such technology. Export controls on software and technology frequently will be more restrictive than controls on the related products. For example, the primary classification of controlled integrated circuits is ECCN 3A001. Many but not all 3A001 ICs are eligible for License Exception CIV which authorizes civil end-use exports to most countries including the PRC. The related software (3D001) and technology (3E001) provisions, however, do not authorize utilization of License Exception CIV. As an additional example, the primary classification of controlled telecommunications equipment and components is ECCN 5A001. Most 5A001 items are eligible for CIV, but the related software (5D001) and technology (5E001) are not eligible for CIV.

Encryption software and related technology is a particularly sensitive area and should be carefully evaluated before access by foreign nationals is permitted.

Basis for Strict Export Controls

The policy reason for stricter controls on software source code and technology than on related products is that the U.S. is less concerned about exports of finished products than the "know how" to make such products. The practical effect of this policy is to make it more difficult to transfer source code and technology to foreign national employees without a license. It is possible, however, to apply for a "blanket" license for transfers to all employees, and if granted, the license may be supplemented as new employees are hired.

The Compliance Burden

The export controls requirements create a significant burden on hiring foreign nationals from Iran, Iraq, Syria and other embargoed destinations (Cuba, Libya, North Korea and Sudan), and to a lesser extent the PRC and former Warsaw Pact Countries, to work on a project to develop software or to have access to technology controlled under the EAR. The burden may be prohibitive because the U.S. Government often will not approve license applications authorizing foreign nationals from these countries to have access to controlled source code. The compliance burden is not as great for hiring foreign nationals from other countries. Most controlled software and technology is eligible for export under TSR to foreign nationals from Country Group "B", which excludes, among other countries, the PRC and the countries named above. Therefore, normally all an employer must do is obtain a signed TSR written assurance from the foreign national from a TSR eligible country.

Each hiring situation must be dealt with on a case-by-case basis under both the U.S. immigration and export laws. Appropriate lead time will be needed in order to effectively deal with these requirements when the foreign national is from a sensitive country. In the case of EAR license applications, the entire process can be expedited--and many potential problems avoided or caught early --if the business prepares and has in place an effective internal plan to insure compliance with all U.S. export control requirements.