Alert November 09, 2020

Commerce Department Proposes New Export Controls On Gene-Editing Software That Will Also Expand The Scope Of Mandatory CFIUS Filing Obligations

On Friday, November 6, 2020, the Commerce Department’s Bureau of Industry & Security (BIS) issued a Notice of Proposed Rulemaking (NPRM) seeking public comment regarding newly-proposed controls on certain software for gene-editing equipment. This proposed rule marks the first biotechnology subcategory to be controlled under the Export Control Reform Act of 2018 mandate to define and control “emerging technologies” (see Goodwin’s prior client alert here).

The proposed rule would add a new Export Control Classification Number (ECCN), 2D352, to control certain software for “the operation of nucleic acid assemblers and synthesizers controlled by 2B352.j that is capable of designing and building functional genetic elements from digital sequence data.” Such software would be controlled if the underlying nucleic acid assemblers and synthesizers are both (1) “partly or entirely automated,” and (2) “designed to generate continuous nucleic acids greater than 1.5 kilobases in length with error rates less than 5% in a single run.”

BIS explains that such software could be exploited for biological weapons purposes because it may be used on certain nucleic acid assemblers and synthesizers to generate pathogens and toxins without the need to acquire controlled genetic elements and organisms — a concern exacerbated by the global coronavirus pandemic. The rule would control such software for reasons of “Chemical & Biological Weapons” (CB Column 2) and “Anti-Terrorism” (AT Column 1). Technology related to the development of the new 2D352 software is controlled under the ECCN 2E001 and likely for the same reasons (i.e., CB Column 2 and AT Column 1).

The proposed new rule will affect U.S. businesses (e.g., universities, research institutes, and biochemical firms) that develop or use the relevant software for automated gene-editing equipment — for example, in connection with CRISPR or gene therapy applications — in several important ways.

First, the export, reexport, or transfer of 2D352 software and/or related 2E001 technology to most countries would require a license from BIS unless the destination is one of the following 42 countries:

Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, Korea, South, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine, or the United Kingdom

Second, except with respect to foreign nationals from the above countries, the new controls will impact research and development activities both in the United States and abroad due to concerns of “deemed exports” (exports to foreign nationals located within the United States) and “deemed reexports” (transfer/release to third-country foreign nationals located in foreign countries). For example, lawful access to this technology by certain foreign students and faculty at U.S. universities or by non-U.S. employees of U.S. biochemical firms will require a deemed export license.

Third, a U.S. business that develops the relevant software and/or technology would be considered a “critical technology” company under the regulations of the Committee on Foreign Investment in the United States (CFIUS). As a result, parties to an investment transaction involving the U.S. business may be required to submit a mandatory declaration to CFIUS prior to closing the investment.

How to Comment
Comments to the ANPR must be submitted within 42 days after publication in the Federal Register, no later than December 21, 2020. Comments may be submitted at http://www.regulations.gov or by email to PublicComments@bis.doc.gov (reference RIN 0694–AI08 in the subject line of the message).

If you would like additional information about the issues addressed in this client alert, please contact Rich Matheny or Jacob Osborn, or the Goodwin lawyer with whom you typically consult.

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