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Export of computer software and hardware

Export of computer software and hardware
A General Primer

The United States government has the statutory right to regulate the export of certain controlled classes of products. This regulation is performed by the requirement to obtain a license prior to the shipment of certain types of goods. All products can be classified under the federal statute and accompanying regulations.

Under the Export Administration Regulations, each product can be classified into categories known as Export Control Classification Number (ECCN). Based upon a product’s, ECCN, certain restrictions are imposed based upon the type of product and the country to which it is being shipped. Unless restrictions are placed on a product in a given ECCN, companies are free to ship that product without a license. If restrictions are in place, a license must be obtained before the product can be shipped. Civil and criminal penalties for violation exist and financially begin at approximately Ten Thousand Dollars ($10,000.00) per prohibited transaction.

Computer software has generally been determined to be controlled technical data by the United States government. The most restrictive components of the government controls govern encryption technology. Software containing encryption technology should be carefully scrutinized, and application applied before the first shipment.

Even certain types of computer software not containing encryption are controlled as exports. Most software can be categorized in ECCN 4D001. This ECCN appears to cover general software exports. (The restrictions on the software for missile technology, anti-terrorist and crime control reasons do not apply to most software based upon its intended or reasonable use.) The national security restrictions do apply, which, without an exception would require one to obtain a license before shipment.

Reviewing the ECCN further, there are license exceptions available to the national security controls. One such license exception TSR (Technology and software under restriction) could apply and would allow shipments of computer software to certain countries listed in the EAR Country Group B, without a license. The Group B countries generally include North America and European Union Countries. The countries listed on Country Group B are subject to change at the discretion of agencies of the United States Government.

Under license exception, TSR you may ship to member states of Country Group B, provided you receive written assurance from the product the recipient (consignee), before exporting the software, that they will "neither re-export or release the software or the source code for the software to a national of a country in Country Groups D:1 or E:2, nor export to Country Group D:1 or E:2 the direct product of the software, if such foreign produced direct product is subject to national security controls as identified on the CCL". This written assurance may take the form of a letter or be included in a contract of sale and may be received by facsimile, but must clearly state that the obligation is continuing even after the termination of any licensing agreement.

Assuming that your software meets the license exception listed above, you must list on each shipper’s export declaration the EAR license exception symbol. In the case of the software, the exception symbol would be "TSR". You must maintain records related to your shipments, including the contract correspondence, invoices, bills of lading, items shipped, date, and destination for a minimum of five (5) years.

Assuming that the ECCN for the software is correct, you must report shipments to countries other than those on the list of Wassenaar Arrangement Member Countries on a semi-annual basis in a notice for the periods January 1 through June 30 and July 1 through December 31. If deliveries are made by U.S. Postal Service then send the notice to Bureau of Export Administration, U.S. Department of Commerce, P.O. Box 273, Attn: "Wassenaar Reports", Washington, D.C. 20044. If deliveries are made by courier then send the notice to Bureau of Export Administration, U.S. Department of Commerce, Attn: "Wassenaar Reports", Room 2705, 14th Street and Pennsylvania Ave., N.W., Washington, D.C. 20230. The notices must include the ECCN, number of units shipped and the country of destination. Two copies of the notice must be sent.

As a general recommendation the following amendment to existing contracts and the insertion of this language in any future contracts involving exports is recommended by our firm:

REQUIRED ASSURANCE FOR EXPORT OF SOFTWARE. Licensee hereby represents and warrants to ________________ that neither the Licensee (or Distributor as the case may be), nor any Affiliate of the Licensee:

(i) will reexport or release the software or the source code for the software (if made available) to a national of a country in Country Groups D:1 or E:2 (see 15 CFR Part 740, Supplement 1 of the Export Administration Regulations [EAR] established by The Bureau of Export Administration U.S. Department of Commerce); or

(ii) export to Country Groups D:1 or E:2 the direct product of the software, if such foreign produced direct product is subject to national security controls as identified on the Commerce Control List. (15 CFR §§736.2(b)(3)).

In addition, Licensee further represents and warrants that neither Licensee, nor any Affiliate of Licensee, is now, or will become in the future, a "Denied Person" within the meaning of 15 CFR Part 764, Supplement 2 of the EAR. If Licensee becomes a Denied Person within the meaning of the EAR, Licensee shall: (i) immediately inform _______ of such status; and (ii) cooperate with _______ in obtaining a license for export of the Software. If _______ is unable to obtain a license or to otherwise be authorized to have exported the Software to Licensee, this License Agreement (Distributorship Agreement) shall immediately terminate, and ______ shall not be obligated to return any paid license fees.

Computer hardware and components are also controlled exports. We suggest that you contact the manufacturer of the components and obtain the ECCN for each component. The manufacturer should have this information on file. With this information, we can review your export license requirements for each component. For full workstations, CTP (Composite Theoretical Performance) is the measure of determining the necessity for a license in most circumstances. Again, this information would be helpful and should be available from the manufacturer.

Notwithstanding this analysis and classification of ECCN for the software as stated above, we recommend that you seek a formal ECCN classification from the Bureau of Export Administration. Only their official classification can guarantee that you are in compliance with the export regulations as to your product, software or hardware.

For more detail, see:

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