itar, export controls & intellectual property: the...

ITAR, EXPORT CONTROLS & INTELLECTUAL PROPERTY: THE KEYS TO FDI SUCCESS

IN THE US MARKETSUCCESS

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OUR CASE STUDY: PIERRE & THE TEXAS COWBOY

> Toulouse Super Composites (TSC) is the

principal supplier of the Landing Gear Doors

in France for French military jets and civilian

aircraft.

> TSC sells only outside the USA.

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OUR CASE STUDY: PIERRE & THE TEXAS COWBOY (cont.)

> In 2016, JR Ewing, CEO of Modern Aircraft,

Inc., a Dallas, Texas company, calls up

Pierre Dupont at Toulouse to discuss a

business proposal.

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> J.R. Ewing asks TSC to design landing gear doors for

a new regional jet, the “MA 878 Sonic Liner,” to be

manufactured at the Modern Aircraft factory in Dallas.

– The new doors must be lighter and stronger than

existing commercial models and made out of the

latest, state-of-the-art composites.

– TSC would use some of the advanced composite

technology that it incorporates in the doors made for

its French customers.

OUR CASE STUDY: PIERRE & THE TEXAS COWBOY (cont.)

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> Toulouse signs a supply contract for $50 million with

Modern Aircraft and plans to open its first office in the

United States, a technical design office near the Dallas

campus of Modern Aircraft.

> So far so good. Pierre Dupont is delighted with his

negotiations with J.R. and Modern Aircraft and cannot

wait for the dollars to start flowing.

> Are there any concerns?

OUR CASE STUDY: PIERRE & THE TEXAS COWBOY (cont.)

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> Are there any concerns?

– RTBC*: The Supply Agreement was 50 pages long,

and Pierre didn’t read all the details.

• He did not study a provision granting Modern

Aircraft an Exclusive, Royalty-Free License to all

of the TSC composites to be used in the landing

gear doors.

• Pierre also reads that he must indemnify Modern

Aircraft if the TSC products infringe on patents

held by other aircraft manufacturers or

competitors. TSC itself relies on its 10 years of

trade secrets in perfecting the doors and holds

no patents.

*RTBC is an old English expression: It means READ THE

BLOODY CONTRACT!!

OUR CASE STUDY: PIERRE & THE TEXAS COWBOY (cont.)

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> Pierre calls JR and asks, “Hey, can we change those

provisions?”

– JR’s Response:

OUR CASE STUDY: PIERRE & THE TEXAS COWBOY (cont.)

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FORTUNATELY, PIERRE HAS A FRIEND:

> He calls Josh Brady: his IP/Software

Licensing Lawyer

– [See Josh’s TOP 5 in the handout]

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KEY QUESTIONS FOR MARKET SUCCESS

IP Questions for Josh

Brady:

> What elements make up

Pierre’s IP?

> Why should he have

stopped and reviewed

his

IP Portfolio before selling

into the US?

> Did he do his diligence

and conduct an internal

IP audit?

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THE TYPICAL US PATENT

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TRADE SECRET VS. PATENT

> IP and the Supply

Agreement

> How should TSC handle

new IP and existing IP

under its agreements

with US companies like

Modern Aircraft?

> How does he document

his background IP so

Modern Aircraft cannot

claim a royalty-free

license to

use it?

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ASK JOSH

> Why does he need a “Freedom to Operate”

Assessment to make sure his products avoid

violations of third-party IP rights in the United

States?

> How much does it cost?

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JOSH ON THE TOP 5

1. Stop and Review before selling or licensing

into the USA.

2. Do your due diligence. Conduct an internal

audit and get legal advice on how your IP

can be protected in the U.S.

3. Register important trademarks, copyright

your source code.

4. Avoid violating competitors’ IP. Americans

like to go to Court.

5. Come up with your own IP Compliance and

Security Plan.

You can read the full article at: williamsmullen.com/news/fdi-

usa-news-december-2015 p.5. Or see the Top 5 Handout.

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PROGRESS! NOVEMBER 2017:

> Toulouse Super Composites (TSC) opens its

facility in the USA

– TSC does the design work in France and resolves

its contract and IP issues thanks to Josh Brady.

– In 2017 Pierre opens that design and engineering

office in Dallas, staffs it, and starts earning

revenues in the USA.

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CORPORATE QUESTIONS

> Corporate Formation

– Pierre wants to know: How does he best repatriate

his profits out of Texas and back to France?

– What about this LLC type company (Limited

Liability Company)?

– He has heard that an LLC pays ZERO TAXES. Is

this too good to be true?

– What about incorporating instead as Super

Composites USA Inc.?

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LEGAL LIABILITY

> Liquidated Damages for Late Deliveries of Software

– Toulouse falls 100 days behind on the delivery of

the prototype. JR says: pay me my penalty of

$2,000 a day. Pierre argues that there was no

damage to JR since the 878 Sonic Liner is behind

production and the

Landing Gear is not ready.

– JR: “Show me the money”

– Who wins?

• Will the Texas Judge apply

his blue pencil and amend

the contract?

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OPERATIONAL ISSUES

> Global Mobility

– Pierre Dupont wants his two sons, Jean-

Pierre and Francois , to fly over from France

to help finalize and test the design for 2

months.

• Do they really need a work visa?

– Jean-Pierre just came back from a sales trip

with AIRBUS to Iran.

• Any problems with using Visa Waiver?

– What about Pierre, Jr.: how can he best

come over and run the office for his father?

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JOSH: PROTECTING YOUR IP

> Employment Contracts and IP

– Pierre wants to hire Joe Smith as VP

Business Development: What confidentiality

and

non-solicitation provisions should go into his

contract to protect the IP?

– Can TSC USA enforce a

non-compete?

– What state law applies?

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MORE IP ISSUES:

> IP Licensing

– What if TSC’s technology is based upon a license

from one of its Suppliers, 3D Technology, supplier in

France?

– How does this complicate things?

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THE FUNDAMENTAL BUSINESS ISSUE:

PIERRE

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TRADEMARKS: THE KEY TO BRANDING

> Trademarks

– TSC wants to do business with Gulfstream,

Boeing, Bombardier, and Lockheed Martin: Can it

register “Toulouse” or “TSC ” in the USA?

– Does it have to register, or can it use the name

and rely on the French trademark?

> What about its Logo

Toulouse

Super Composites

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THREE YEARS LATE: 2019 STORM CLOUDS?

> It is 2019

– JR has major cost overruns

at Modern Aircraft on the 878

Sonic Liner.

– JR stops paying and doesn’t

have the same old bounce in

his step. JR looks years

older.

– Now Pierre is really worried.

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MORE QUESTIONS?

> New Patents or Trade Secrets

– Toulouse wants to patent the modified design that it

developed in the USA and sell it to other aircraft

manufacturers. Does TSC have issues?

> IP Contract Remedies

– What are Super Composites’ Remedies? Who owns all that IP that went into the design if the contract is terminated and Modern Aircraft defaults on payments?

> Resolving the Dispute

– Arbitration, Mediation, Federal or State Court?

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WHAT IF THERE IS A DISPUTE?

> Problem: JR proposes arbitration before onearbitrator in Texas or local state court in Dallas.

> Problem: local jury or arbitrator and expensive.

> Consider alternative dispute resolution solutions:

– Mediation.

> Your Solution: Propose U.S. District Court (Federal).

– WHY?

> Also, it is often far less expensive and much faster to resolve disputes before the Federal U.S. District Courts.

– Will compel mediation

– Will help compromise disputes

– The 6 month rule

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PIVOT?

> Can Pierre Pivot?

– Can Toulouse move on after Modern Aircraft?

> Sure it can …..

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THE KING 350 AND TSC

> Leveraging its success providing landing gear doors

for civilian aircraft, TSC wins a contract with a prime

U.S. Government contractor.

> TSC will design the landing gear doors for a King Air

350 that has been enhanced with military intelligence,

surveillance and reconnaissance capabilities (the

“KA350 ISR”).

> The aircraft manufacturer will be selling the aircraft to

the U.S. Air Force.

> With this new contract, TSC has some

export compliance issues to consider.

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ITAR/EXPORT CONTROLS COMPLIANCE?

> How can Pierre determine if the aircraft is controlled

by the International Traffic in Arms Regulations

(“ITAR”)?

> Is the landing gear door ITAR controlled?

> Is TSC required to register with the Department of

State?

> Does the company have drawings/specifications

of the KA350 ISR for

purposes of designing

the landing gear door?

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MORE ON ITAR

> Are French employees working in TSC’s Texas

design center and will they have access to the

technical specifications of the KA350 ISR?

– Are there “Deemed Export” Issues? How best to

resolve?

> Do employees travel between Texas and the French

parent company to discuss the design features, or

hold telephone discussions? What if TSC uses the

Server in France?

> What are the compliance requirements if TSC is

asked to ship spare parts to a U.S. air base in

Germany?

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HOW TO SET UP PIERRE’S COMPLIANCE PROGRAM FOR ITAR & EXPORT CONTROLS?

> What are the major steps in implementing

an export control compliance program?

– 5 takeaways on Export Controls

1. Management commitment to compliance.

2. Know the export control jurisdiction of the

products, technical data or software.

3. Develop compliance procedures that focus

on identified risk areas.

4. Provide awareness training to employees.

5. Conduct compliance monitoring and periodic

compliance assessments.

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CONCLUSION ON ITAR: ROSANNE

> Compliance with the U.S. export controls is

not complicated. It just takes an awareness

of the requirements, commitment and

operating procedures that will promote

compliance.

Rosanne Jacuzzi

+1.202.293.8134

rjacuzzi@williamsmullen.com

williamsmullen.com/practice/itar-export-controls-ofac-sanctions

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CONCLUSION ON IP: JOSH

> A well-defended IP portfolio is a key to success

when entering U.S. markets and establishing a

competitive position. Get advice early on your IP

before you sign that supply contract and invest in

the USA. Set up your IP Security Plan to maximize

your profits and growth in one of the world’s most

dynamic and advanced marketplaces. Plan Ahead

and you Can Succeed.

Joshua B. Brady

+1.703.760.5249

jbrady@williamsmullen.com

williamsmullen.com/practice/intellectual-property

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Consult IP Counsel Early and Often

>Why?

– Identify risks early

– Develop mitigation strategies early

– Example:

• One-hour phone call with IP counsel: < $400

• Defend U.S. patent infringement: > $$$$ !!!!

>When?

– Before deciding to compete?

– Before developing/launching a product?

– Before signing a software license?

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CONCLUSION– Williams Mullen.

> CELENA, WE NEED

> graphic with ARTWORK AND BIZ IS NOT

COMPLICATED IN BLACK ON THE BOTTOM.

> and then put in lingo from the one page Ad copy.

DOING BUSINESS IN THE U.S. DOESN’T HAVE TO BE COMPLICATED

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QUESTIONS?

Joshua B. Brady

+1.703.760.5249

jbrady@williamsmullen.com

Eliot Norman

+1.804.420.6000

enorman@williamsmullen.com

Rosanne Jacuzzi

+1.202.293.8134

rjacuzzi@williamsmullen.com

williamsmullen.com/fdi