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The Department Of State Seeks To Narrow The ITAR Definition Of "Defense Service"

On April 13, 2011, the Department of State (the “Department”) issued proposed amendments to various sections of the International Traffic in Arms Regulations (“ITAR”) regarding the definition of “defense service.” See International Traffic in Arms Regulations: Defense Services, 76 Fed. Reg. 20590-93 (amending 22 C.F.R. Parts 120 and 124). 

The Department reviewed the current definition of “defense service” in ITAR section 120.9 with an eye toward “enhancing support to allies,” “improving efficiency in licensing, and reducing unintended consequences,” and determined that the definition is “overly broad.” To address these concerns, the Department issued proposed amendments in an attempt to narrow the definition, and thereby reduce the scope of services for which companies must obtain approval from the Directorate of Defense Trade Controls (“DDTC”) under the ITAR.

Requirement That Assistance Use “Other Than Public Domain Data”

The Department first seeks to narrow the definition of defense service by mandating that the “assistance (including training)” captured in section 120.9(a)(1) falls within the definition only if it uses “other than public domain data.” ITAR section 120.11 defines “public domain” data as information that is published and generally accessible or available to the public in the following ways: 

  1. Through sales and newsstands or bookstores;
     
  2. Through subscriptions available without restriction to any individual who wishes to obtain or purchase the information;
     
  3. Through second-class mailing privileges granted by the U.S. government;
     
  4. At libraries open to the public or from which the public can obtain documents;
     
  5. Through patents available at any patent office;
     
  6. Through unlimited distribution at a conference or other meeting generally accessible to members of the public in the U.S.;
     
  7. Through public release in any form after approval by the cognizant U.S. government department or agency; or
     
  8. Through fundamental research in science and engineering at accredited institutions of higher learning in the U.S. where the resulting information is ordinarily published and shared broadly in the scientific community.

This should come as a welcome amendment to all companies that perform defense services. As a result of this proposed change, an activity that would otherwise qualify as a defense service under ITAR section 120.9(a)(1) that is based solely upon the use of public domain data would not in fact constitute a defense service. Companies would therefore not be required to obtain a license, technical assistance agreement or manufacturing license agreement to provide such a service to a foreign person. Importantly, companies would have to exercise diligence in confirming that all data used in connection with the service is in fact in the “public domain” as defined by ITAR section 120.11.

Addition of the “Integration” of Certain Items into Defense Articles to the Definition of Defense Service

The Department also seeks to add to the definition of defense service in ITAR section 120.9(a)(2) the “integration” of controlled items (whether controlled by the U.S. Munitions List (“USML”) or the Commerce Control List of the Export Administration Regulations) into USML controlled defense articles, even if ITAR controlled “technical data” is not provided to a foreign person in the provision of such services. The proposed rule does not include a definition of “integration,” but the Department has clarified that “integration” means “the systems engineering design process of uniting two or more things in order to form, coordinate, or blend into a functioning or unified whole, including introduction of software to enable proper operation of the device.” 

In other words, under this proposed amendment, even where the specific item being employed is controlled only by the EAR (but not the ITAR), a company may be required to obtain DDTC approval before assisting a foreign person in integrating the item into a defense article that is itself controlled by the ITAR. Though the Department seeks to narrow the definition of defense service by way of these amendments, this particular change could be a trap for the unwary, as DDTC approval could be required in a situation where the company itself transfers neither an ITAR controlled defense article nor ITAR controlled technical data.

Clarification of Defense Service Involving Training of Foreign Units and Forces

The Department further seeks to amend ITAR section 120.9(a)(3) to provide that training “or providing advice to” foreign units and forces will be considered a defense service only if the training involves “the employment of defense articles,” and “regardless of whether technical data is transferred to a foreign person.” Under ITAR section 120.6, a “defense article” is any item or technical data that appears on the USML, including technical data recorded or stored in any physical form, models, markups or other items that reveal technical data directly relating to items on the USML.

This proposed change adds to the current open-ended definition in ITAR section 120.9(a)(3) which neither expressly requires the employment of defense articles nor expressly states that technical data need not be transferred to a foreign person for the training to fall within the definition. As such, companies should welcome this amendment as clarification on their ITAR obligations. If this amendment goes into effect, however, companies must remain mindful that technical data need not be transferred to any foreign person for training of foreign units and forces to be deemed a defense service. All that would be required is that the service involve the employment of a defense article.

Addition of Certain Combat Operations and Intelligence Services to Definition of Defense Service

The Department additionally seeks to add a subsection (a)(4) to ITAR section 120.9 that would include in the definition of defense service “conducting direct combat operations for or providing intelligence services to a foreign person directly related to a defense article.” Companies that engage in these services would therefore be required obtain DDTC approval before engaging in such activities.

Examples of Activities That Are Not Defense Services

The Department’s last proposed amendment to ITAR section 120.9 is the addition of subsection (b), in which the Department seeks to specify the following examples of activities that do not constitute defense services: 

  1. Training in the basic operation (functional level) or basic maintenance of a defense article;
     
  2. Mere employment of a U.S. citizen by a foreign person;
     
  3. Testing, repair, or maintenance of an item subject to the EAR that has been incorporated or installed into a defense article;
     
  4. Providing law enforcement, physical security or personal protective training, advice or services to a foreign person using only public domain data; or
     
  5. Providing assistance (including training) in medical, logistical (other than maintenance) or other administrative services to a foreign person.

In connection with this amendment, the Department seeks to add a section 120.38 to the ITAR, in part to set forth a definition of “basic maintenance” (also referred to as organizational-level maintenance) – a term used in the first example of activities that do not constitute a defense service under the proposed ITAR section 120.9(b). The Department’s proposed definition of “basic maintenance” can be summarized as the first level of maintenance performed by an end-user unit or organization directly on the defense article or support equipment assigned to the inventory of the end-users. This includes inspecting, testing and/or repairing equipment, as well as replacing minor parts.

This amendment would be beneficial for many companies, as it would provide added peace of mind for companies performing the specific services listed in the proposed ITAR section 120.9(b). Before relying on this proposed subsection in determining that DDTC approval is not needed, however, companies must take all measures necessary to ensure that their specific service is covered by one of the five enumerated activities.

Conclusion

If these amendments take effect, they have the potential to have a significant impact on U.S. companies. Companies that perform defense services using solely data that is already in the public domain will be able to rest assured that their activities do not require DDTC approval. Companies will also benefit from the clear examples of activities that do not constitute defense services. While the amendments will confer the above-stated benefits on U.S. companies, they will also create new risks as the ITAR would now include as “defense services” some activities that do not involve the transfer or use of technical data. Comments on the proposed regulations are due on June 13, 2011.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

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