On July 2, 2015, the U.S. Department of State, Directorate of Defense Trade Controls (“DDTC”) published a final rule temporarily modifying Category XI of the United States Munitions List
(“USML”). This final rule revises paragraph (b) of Category XI to clarify the extent of control over “certain intelligence analytics software”. Specifically, DDTC has attempted to prevent exporters from “read[ing] the revised control language [of Category XI(b)] to exclude” such software from the USML. DDTC maintains in its public notice that “intelligence analytics software . . . has been and remains controlled on the USML.”
A year ago on July 1, 2014, DDTC revised USML Category XI (effective December 30, 2014). DDTC or others in the U.S. Government apparently have found that exporters may read the revised Category XI(b) language to exclude certain intelligence analytics software which, in DDTC’s view, should be controlled on the USML. DDTC stated last week that it wished “in the interest of the security of the United States to temporarily revise” USML Category XI(b) pursuant to its emergency powers under Section 126.2 of the ITAR. DDTC asserted that its “clarification is achieved by reinserting the words ‘analyze and produce information from’ and by adding software to the description of items controlled” under Category XI(b). In full, Category XI(b) now reads:
“*(b) Electronic systems, equipment or software, not elsewhere enumerated in this sub-chapter, specially designed for intelligence purposes that collect, survey, monitor, or exploit, or analyze and produce information from, the electromagnetic spectrum (regardless of transmission medium), or for counteracting such activities.”
DDTC has put the revised rule into effect until December 29, 2015 “while a long term solution is developed.”
It is difficult to forecast whether a long term “solution” which would be satisfactory to DDTC and other agencies within the U.S. Government may be readily achieved, given the effect of related aspects of export control reform and deregulation. As a result of DDTC’s definition of the term “specially designed”, software, which includes algorithms and operating systems, is not “specially designed” for intelligence purposes described in Category XI(b) “if it . . . was or is being developed with knowledge that it is or would be for use in or with both defense articles enumerated on the U.S. Munitions List and also commodities not on the U.S. Munitions List.” 22 C.F.R. § 120.41(b)(4).
Assuming that the software is not otherwise enumerated on the USML (e.g., 22 C.F.R. §121.1 Category XIII(b)), the plain terms of the ITAR and Category XI(b) appear to allow a software developer’s own assessment of other future uses for the software (read, “good business imagination and planning”), rather than DDTC, to determine whether certain intelligence analytics software constitutes a “defense article” within the meaning of the ITAR. It appears that a software developer attempting to understand the scope and reach of Category XI(b) reasonably may conclude that DDTC’s definition of “specially designed” allows the software developer’s own assessment and expectation for anticipated uses of the software to control whether the software was “specially designed” and thus a defense article. According to the DDTC’s own definition of “specially designed”, a software developer—with good business imagination, planning, and contemporaneous documentation (aka “defensive data”)—is given a mighty pen to define the scope and reach of the AECA and ITAR over certain intelligence-related software.
We will continue to publish updates as new developments arise.