What Companies Need to Know: CFIUS Review Required Before Initiating IP Transactions with Foreign Companies | Houston Harbaugh, CP

On August 13, 2018, President Trump signed into law the Foreign Investment Risk Review Modernization Act (FIRRMA), which expanded the oversight scope of the Committee on Foreign Investment in the United States (CFIUS). 31 CFR § 801.205. This was a direct reaction to the increasing globalization of the world we live in, which has created the opportunity for foreign state actors to acquire American intellectual property (IP) under the guise of mundane research behavior. profit. .

As developing nations – like China – strive for the level of economic and military dominance achieved by the United States, they engage in economic and intellectual espionage through traditional commercial means. or others. Recently, foreign nationals allegedly employed by U.S. academic institutions have stolen U.S. government-funded research and patented it overseas, and foreign states have used cyberattacks to acquire confidential U.S. corporate data for a myriad of uses abroad. By expanding the scope of CFIUS, the government has simply responded to what is arguably a viable threat to national security.

What is CFIUS?

CFIUS was first established by Executive Order of President Gerald Ford to review and study foreign direct investment in the United States. Its power was heightened in the 1980s in its ability to reject deals on national security grounds, when Fairchild Semiconductor sought to be sold to Japanese firm Fujitsu and was denied by CFIUS. Even before FIRRMA, CFIUS maintained a mandate to force divestment by US companies when it finds that foreign direct investment increases US national security risks. This was evident in the stalled acquisition of US semiconductor company Qualcomm by Singaporean chipmaker Broadcom in 2018.

Further, prior to FIRRMA, the scope of CFIUS was limited to reviewing investments in which the foreign entity would obtain majority voting rights or a controlling interest in US corporations. Today, the scope of CFIUS has extended even to non-controlling interests, certain real estate transactions, and other transactions that appear to indicate an attempt to circumvent CFIUS review.

What does FIRRMA mean for companies

What this development means for American companies is that mergers and acquisitions, venture capital, trade secrets and other intellectual property transactions – even in bankruptcy court – could have national security implications if foreign entities are involved and require additional legal review by the companies involved. Government contractors aren’t the only companies that need to be vigilant about this issue. Many technology and manufacturing companies possess trade secrets and intellectual property that are best for CFIUS to keep out of the hands of foreign states. Importantly, companies cannot assume that a company is not foreign because of a US address or “principal place of business”. A lawyer should assess the transaction to see if there are foreign ties to companies outside the United States

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