Export control clauses in confidentiality agreements

Anina Groh
Anina Groh
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Many companies, particularly American companies, include clauses concerning export control law in their confidentiality agreements as standard. Is it delicate for a Swiss company to sign such clauses? This article examines this question.

Export control law is a complex matter, because export control laws are conceptually relevant across borders, they are very technical and - not least because of the political developments between the USA and China - they are subject to constant change. The following article aims to outline the main features of export control law which can be used to take a closer look at export control clauses in non-disclosure agreements before a corresponding clause is (easily) signed.

Public law

Export control law is public law, i.e. the relevant legal provisions - if factually and locally applicable (see below) - must be observed by private actors. If the provisions are not complied with, the state concerned can initiate proceedings for violation of export control law and impose fines, for example. The exact enforcement and sanction mechanisms vary from country to country.

These obligations under public law cannot be changed by a contract under private law (e.g. a non-disclosure agreement). However, the corresponding clauses in the private agreements can have the effect that one party becomes liable for damages to the other, for example, if it violates export control law provisions. Moreover, the signing of export control clauses in non-disclosure agreements is an indication that the signing company should have known that it would receive at most export-controlled information, which is likely to be disadvantageous in an official procedure.

Geographical scope

In principle, each country regulates for itself what may be carried out in/from/by this country and under what conditions. Example: If a good is transported from Switzerland to China, the Swiss export and Chinese import regulations must be observed (as well as any transit regulations of other countries).

The fact that US export control law has so-called extraterritorial effect is particularly delicate in practice, i.e. US export control law states (in very simplified terms) that all goods originating in the USA are subject to US export control, even if the goods are later exported further, e.g. from Switzerland to China. In addition, so-called "US-persons" are subject to stricter regulations than "non-US-persons". The exact definition is complex, but should definitely be closely examined by companies with US employees.

Material scope

The material scope of application of export control laws varies in detail from country to country, but essentially the following applies to most countries (including Switzerland, EU states and the USA): Materially, goods that are in any way related to armaments / war material fall (again in very simplified terms) under the control provisions. The aim of the export control law of each country is to prevent another country from producing war material with internal resources by means of the appropriate restrictions. The aim of overriding international agreements in this area is also to ensure that no NBC weapons are produced. In practice, it is a delicate matter that so-called "dual-use" goods are also subject to export controls, i.e. goods that can be used for both civil and military purposes. The material scope of application, particularly in the technological area, can be very broad due to these "dual-use" provisions. To gain an impression, it is advisable to take a look at the list of "dual-use" goods under Swiss export control law, which can be found on the website of the State Secretariat for Economic Affairs SECO.

In addition to physical goods, technology (and this includes technological knowledge) used in the production, development or use of the goods in question is also subject to export controls. Export control law can therefore be very relevant in the case of confidentiality agreements. However, technology that is "generally available" (e.g. scientifically published or patented) and "basic scientific research" are excluded from export regulations.

Furthermore, export control laws often do not only refer to specific goods and technologies, but also contain country-specific and personal restrictions.

Proposal for concrete action before signing an export control clause in a confidentiality agreement

If an export control clause is included in a confidentiality agreement or if such a clause is inserted by the contracting party, it should first be considered what information should be obtained from the contracting party. If this could be export controlled, it must be analysed what the receiving company wants to do with the information. Since the information must be kept secret, it can be assumed in a first phase that the information will not be passed on to third parties and thus not be transferred across borders. The risk of a breach of export control regulations is therefore small in the first phase. But it is problematic and practically relevant if the information is to be passed on later. In this case, it must be carefully examined whether export licences are required and what personal and/or country-specific restrictions can be expected.

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