Extreme export control clauses, round 2

Ding! Ding!  Round 2.

In our last posting, we commented on US export control clauses.  This prompted two of our (so far) loyal US readers to weigh in with reasons why such clauses are desirable and even, in the case of licensing US technology, inevitable.  IP Draughts welcomes comments that challenge his views, particularly when they are thoughtful as these comments were.

To keep the debate going, IP Draughts would like to know what readers think of the following wording, which appears in a software licence agreement that IP Draughts was recently asked to review on behalf of a small UK licensor.  With some minor editing, the wording comes from the prospective licensee’s draft agreement.

  1. The Licensor undertakes to advise the Licensee, whether all or part of the Licensed Product is or is not subject to any regulations whatsoever concerning export controls.
  2. The Parties acknowledge and agree that the Price is based on the assumption that the Licensed Product is not subject to export control regulations.
  3. The Licensor represents and warrants that the information provided to the Licensee is true and accurate, and shall inform the Licensee in writing, as soon as it becomes aware, of any change to the information that might affect the export control rules applicable to the Licensed Product. If such rules become more restrictive, the Licensee reserves the right to terminate this Agreement without notice and to have the price of the Licensed Product as specified in the Order refunded by the Licensor.
  4. Where exportation and/or re-exportation of the Licensed Products is subject to obtaining a licence from governmental authorities, the Licensor represents and warrants that at the time of entry into force of this Agreement, it has obtained said licence or it has made or will make the applications required to obtain said licence. In any event, the Licensor undertakes to communicate a copy of the licence to the Licensee as soon as it is received. If said licence is not obtained in the given time, this Agreement may be terminated.
  5. The Licensor shall indemnify the Licensee and its customers and hold them harmless against any liability and damage resulting from the Licensor’s non-compliance with any of its obligations described in this Article.

IP Draughts is particularly interested in the situation where it is not clear whether the export control regime applies.  Where it clearly does apply, then the above wording is unlikely to appear in its current form.  Where the regime clearly does not apply, then the above wording presents no risk to the licensor.

Where the legal position is unclear, the above wording takes a diametrically opposite approach to the one discussed in our last posting.  This wording seeks to place the commercial risk on the licensor.  (There may be a separate risk of breach of criminal laws, and conventional wisdom has it that indemnifying someone against criminal liability may not be legally effective on public policy grounds.)

Over to our readers: what do you think of the above wording, and in what circumstances would you accept it on behalf of a technology licensor?

2 Comments

Filed under Contract drafting, General Commercial, Licensing

2 responses to “Extreme export control clauses, round 2

  1. chuck till

    I believe you’ve reversed the identities of Patron and Supplicant.

    [You’re right – I used the terms Licensor and Licensee to try to avoid confusing people with who is the Supplicant/Patron, but yes they are the other way around in this wording, compared with the previous posting.]

  2. Vance Koven

    I hope this makes you feel better.

    Where a US LicensEE is insisting on this language when it is obvious that the technology is being imported into the US, then I would consider the proposed wording farcical, although I would strive to keep a poker face in direct discussions.

    Obviously, for something to be imported to the US requires that it be exported from somewhere else, so if the UK or EU or other technologically active source jurisdiction has a comprehensive export control regime, then it goes without saying that the law will apply at some level. My suggestion at that point would be that the licensor represent that it is not, after due investigation, aware of any preventive legal obstacle to the exportation to the US of the technology (tariffs being another matter). Alternatively, a representation that the direct export of the technology to the US does not contravene any applicable export control law is a reasonable thing to ask of a licensor; a requirement to notify the licensee if the licensor becomes aware of any change in that response seems inoffensive as well.

    In commercial terms, I would certainly reject the refund requirement as such, and treat a subsequent prohibition on export from the UK as a force majeure. Anything that has already been exported wouldn’t be affected, and there’s no reason to refund any license fees or royalties if the licensee can continue using the technology it already has (which at that point is a matter of US law, not UK).

    As to the subsequent re-export of the technology from the US to somewhere else, I would oppose any burden-shifting, since it is the US party who is in the best position to identify the applicable governing law and comply with it. On behalf of the licensor I would merely offer its cooperation with the licensee in describing the technology and filing whatever papers are needed for compliance purposes. One is tempted, of course, to apply the same position on the UK technology that a US licensor applies to transactions in the other direction, in which case turnabout is fair play. I’m sure that for a reasonable fee, your firm can supply a US licensee with a potted memorandum on the requirements of UK export control regulation.

    Bottom line, it is reasonable to require someone to comply with the laws of his/her/its own jurisdiction. The special case of a law that travels with an item (a covenant running with the land, as it were) does require some additional action but it is reasonable to ask the person from the regulating jurisdiction to make the first assessment.

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