Start-ups face export control traps.

• Author: Barton, Joseph
• Position: Viewpoint

A number of today's hottest technologies are brought to market by small U.S. companies colloquially known as "start-ups."

Start-ups tend to rapidly develop scalable business models for their technologies to meet consumer demands that go viral overnight. What happens when the technologies have potential military uses that are not immediately recognized and are therefore subject to U.S. export controls and associated penalties?

President Donald Trump has said that his administration will make national security a top priority. This may signal a coming crackdown on illegal exports. There are some general considerations for start-ups to keep in mind when entering the defense market.

The U.S. maintains two primary sets of export controls to ensure that technologies with military uses do not land in the hands of enemies or in areas of the world where the technologies may be used to compromise regional stability. They are the Export Administration Regulations, EAR, and the International Traffic in Arms Regulations, ITAR. The EAR is administered by the Department of Commerce's Bureau of Industry and Security and regulates exports of certain commercial items that may be useful for military purposes. They are referred to as "dual-use" items.

The ITAR is administered by the Department of State's Directorate of Defense Trade Controls, DDTC, and regulates exports of certain items that are specially designed for military purposes. These items are referred to as "defense articles."

Exports of dual-use items and defense articles to certain foreign countries or foreign nationals require licenses from one of the two offices. Importantly, an "export" extends beyond the physical export of a product outside the United States and includes oral or written exchanges of information related to that product. The latter form is commonly referred to as a "deemed export."

The EAR and ITAR are broad and complex, and they apply to more than just bombs, guns, bullets and other traditional emblems of war. They also apply to technologies with certain computing, encryption, mass notification or real-world training capabilities, among other technologies. For example, in 1999 Commerce determined that it was illegal to ship a video game console to China without an export license because the console contained a powerful processor that could be modified for use in weapons systems.

Violations can result in civil and criminal liability. Companies are subject to fines of $1 million or...