Will the New US Export Controls Upend Contracts in the Tech Sector?

November 18, 2022 | BY

Susan Mok

Timothy Bickham, Wendy Wysong and Ali Burney of Steptoe & Johnson review the new rules relating to the export of semiconductors from the United States and the impact this will have on tech companies' existing and future business operations and how IP contracts will be affected.

Summary

|
  • The BIS interim final rule is expansive, complex, and nuanced and its already had and will continue to have a significant impact on the Chinese semiconductor industry and the global semiconductor supply chain.
  • The BIS rule prohibits U.S. persons from doing certain activities that may help develop the Chinese IC industry absent authorization from BIS.
  • It is impossible to predict what additional export restrictions the United States will continue to introduce against China in the tech sector so it's critical for companies to negotiate their contracts with the possibility of disruption in mind.

End-uses are now subject to additional export controls including U.S. persons who are also are restricted with respect to certain semiconductor activities in China (including Hong Kong SAR).

On Oct. 7, 2022, in a move described by senior U.S. government officials as a "paradigm shift" in U.S. export controls policy toward China, the Department of Commerce's Bureau of Industry and Security (BIS) issued an interim final rule that amends the Export Administration Regulations (EAR) to implement additional export controls on advanced computing integrated circuits (ICs) and certain semiconductor manufacturing items.  The new rule also restricts transactions for supercomputers, as well as semiconductor manufacturing. End-uses are now subject to additional export controls including U.S. persons who are also restricted with respect to certain semiconductor activities in China (including Hong Kong SAR). Given that the new rule impacts existing (and future) business operations, questions arise regarding how existing tech (IP) contracts will be affected. For example, will force majeure or other traditional contract defenses come into play? It is critical for tech companies to consider these contract issues as they navigate the increasingly complex landscape of U.S. export controls.  Also, what is the advice on future tech (IP) contracts to supply or develop covered products?

Overview of the New BIS Rule

This premium content is reserved for
China Law & Practice Subscribers.

  • A database of over 3,000 essential documents including key PRC legislation translated into English
  • A choice of newsletters to alert you to changes affecting your business including sector specific updates
  • Premium access to the mobile optimized site for timely analysis that guides you through China's ever-changing business environment
For enterprise-wide or corporate enquiries, please contact our experienced Sales Professionals at +44 (0)203 868 7546 or [email protected]