David Plotinsky – Technology and Foreign Investment in the US

In this issue of our Spotlight series, we welcome David Plotinsky to discuss key issues that technology lawyers and professionals should keep in mind when it comes to technology transactions, foreign investment, and review by the United States Foreign Investment Committee (CFIUS).

David is a partner in Morgan Lewis ’telecommunications, media and technology practices, advising clients on government national security review processes for foreign investment, including CFIUS. His practice also focuses on trade, information and communication technologies and services, and on critical and new technologies. In his former role as Chief of the U.S. Department of Justice’s Foreign Investment Review Division, which is in the Department of Homeland Security’s National Security Division, David oversaw the work of the CFIUS Affairs Section; cases in the United States Telecommunications Services Foreign Assessment Committee (CAFPUSTSS, better known as Team Telecom); as well as compliance and enforcement issues arising in the CFIUS and Team Telecom cases.

David, we look forward to welcoming you to our Tech & Sourcing blog! CFIUS sounds scary to any technology lawyer, so let’s get straight to the point. How can a technology lawyer determine whether the 2018 Foreign Investment Risk Modernization Act (FIRRMA) will apply to their transaction?

First of all, if the technology lawyer is not also a CFIUS lawyer, he or she should be sure to consult with a colleague who is! Especially since the entry into force of FIRRMA, enforcement regulations have become increasingly complex, and transactions need to be carefully evaluated to determine whether they fall under the extended jurisdiction of CFIUS.

Many people now understand that when a foreign company acquires a controlling stake in American business, potentially leading to CFIUS consideration. But outside the CFIUS there may be less familiarity with FIRRMA’s new provisions, which extend CFIUS’s jurisdiction to some uncontrolled but non-passive investments that may involve joint ventures. Especially if your transaction involves critical technology, critical infrastructure, sensitive personal data or real estate, it will be important to consult with a colleague who can find out if FIRRMA applies.

Another important question to answer at the outset is whether to apply voluntarily or compulsorily, even if the CFIUS has jurisdiction. According to FIRRMA, mandatory filing is required for some critical technology transactions as well as for transactions in which some foreign states have a substantial interest in the buyer. And if the filing is voluntary, the next step is to determine whether the CFIUS is likely to be interested in the transaction, which usually indicates that either a full filing or a brief declaration is reasonable to avoid the CFIUS potentially pulling up a transaction after closing, which can be costly or even catastrophic for a company.

Of course, for transactions involving high-tension countries such as China and Russia, voluntary filing will usually be appropriate. This is not to say that a case involving even Chinese investment cannot be resolved by the CFIUS – and in fact, in the Ministry of Justice, my team and I have worked on a large number of cases that have been resolved even through Chinese investment. However, you should of course expect these transactions to take longer to clear the CFIUS — often need to be revoked and replenished because the 90-day period has expired — and you should also consider fairly stringent mitigation measures, including potentially severe restrictions on governance related to Chinese organizations.

Also, for transactions involving any confidential personal data – and the bar these days is quite low for what US government data considers confidential – CFIUS is more likely to be interested in the transaction and a voluntary application may be justified.

What are the key questions a FIRRMA technology lawyer needs to know?

I’m going to start by emphasizing what I said above: data is a huge thing. I have seen many transactions where the real business of the company was not a problem for CFIUS – these were data that the company accidentally collected in the course of its activities. So if you’re a technology lawyer, just think about all the types of data your company can collect, and imagine how CFIUS can assess that your data could be used by a foreign adversary. A simple example: if you have a technical client, that client may have a mobile app, and if that client has an app, that app will probably locate. Depending on the size and nature of the client base, the U.S. government is likely to be concerned about any possibility that a foreign adversary may be tracking the whereabouts of U.S. individuals.

What else to watch out for if you are a technology lawyer: as part of the definition of “critical technology” FIRRMA has included “emerging and foundational technologies controlled under section 1758 of the Export Control Reform Act 2018”. The Department of Commerce initiated a regulatory process to identify new and foundational technologies, and public comments were to be offered in the fall of 2020, so now that we’re here in 2022, I have to believe that at some point we’ll quickly see what Commerce has come up with, and this will be important for both export control lawyers and CFIUS lawyers.

Finally, it is also important for a technology lawyer to think like a compliance lawyer because, in my experience, CFIUS mitigation agreements are becoming increasingly complex. Especially for data cases, but also for other types of cases, at one time, when I headed the Ministry of Justice’s Foreign Investment Review, I dealt with many cases for which my group needed to come up with new and often complex mitigation measures. to sufficiently address national issues. the security risk we identified with the transaction. For a company signing this type of mitigation can be very worthwhile to make a deal, and that’s okay, but you need to understand – and make it clear to your customers, including at the C-Suite level – that you’re signing up to everyone was ready to allocate the necessary resources for conservation. Otherwise, your client may be ineligible, even by accident, and then you will have to worry about government law enforcement.

We thank David for sharing his thoughts and thoughts on technology transactions, foreign investment issues and CFIUS.

Read more at Tech & Sourcing @ Morgan Lewis


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