Software companies now on notice that encryption exports may be treated more seriously: $750,000 fine against Intel subsidiary (Goodwin Procter, 15 Oct 2014) – On October 8, 2014, the Department of Commerce’s Bureau of Industry and Security (BIS) announced the issuance of a $750,000 penalty against Wind River Systems, an Intel subsidiary, for the unlawful exportation of encryption software products to foreign government end-users and to organizations on the BIS Entity List. Wind River Systems exported its software to China, Hong Kong, Russia, Israel, South Africa, and South Korea. BIS significantly mitigated what would have been a much larger fine because the company voluntarily disclosed the violations. We believe this to be the first penalty BIS has ever issued for the unlicensed export of encryption software that did not also involve comprehensively sanctioned countries ( e.g. , Cuba, Iran, North Korea, Sudan or Syria). This suggests a fundamental change in BIS’s treatment of violations of the encryption regulations. Historically, BIS has resolved voluntarily disclosed violations of the encryption regulations with a warning letter but no material consequence, and has shown itself unlikely to pursue such violations that were not disclosed. This fine dramatically increases the compliance stakes for software companies – a message that BIS seemed intent upon making in its announcement. Encryption is ubiquitous in software products. Companies making these products should reexamine their product classifications, export eligibility, and internal policies and procedures regarding the export of software that uses or leverages encryption (even open source or third-party encryption libraries), particularly where a potential transaction on the horizon – e.g. , an acquisition, financing, or initial public offering – will increase the likelihood that violations of these laws will be identified.

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Image courtesy of FreeDigitalPhotos.net/StuartMiles

Antigua preparing to move forward with WTO authorized rejection of US copyrights (Patently-O, 31 Oct 2013) – Over the past several decades, the US has been at the forefront of pushing through low international trade barriers and strong intellectual property rights. The current scheme is organized through the World Trade Organization and the vast majority of nations have signed-on as members. The WTO has a dispute resolution mechanism that allows one country to bring another country to task for failing to abide by their trade-related promises. Most of these cases involve either import restrictions placed on certain goods or the “dumping” of goods. Since around 2003, the US has taken fairly effective measures to destabilize the market for cross-border gambling and betting services. In response to those measures, the country of Antigua and Barbuda filed a WTO dispute complaining that the US action was a trade violation and, the WTO panel agreed with Antigua. The particular findings are that “three US federal laws (the Wire Act, the Travel Act and the Illegal Gambling Business Act) and the provisions of four US state laws (those of Louisiana, Massachusetts, South Dakota and Utah) on their face, prohibit … cross-border supply … contrary to the United States’ specific market access commitments for gambling and betting services.” [ Link ] The penalty for a WTO violation typically involves the WTO allowing counter-measures by the injured party – typically their own import quota or restriction. In countries with a strong domestic industry, the import quota can provide a strong, be it temporary, boost. However, those quotas also injure local consumers who typically pay more for lower quality goods or services. Antigua’s particular situation is also unique because the country does not have much of any domestic industry beyond tourism (including Gambling). As such, a typical quota does not make sense as a penalty against the US. At the end of the day, the WTO authorized Antigua to suspend its TRIPs obligations with respect to U.S. intellectual property at a cost to the US. Antigua is now rapidly moving forward with a monetization scheme that would essentially create a local market for copyrighted work owned by U.S. entities, but where no royalties are paid to the U.S. copyright holders. Antiguan legislation is expected in the upcoming weeks followed by bids from private contractors to build-out the online marketplace.

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Image courtesy of FreeDigitalPhotos.net/Stuart Miles.