On April 28, 2022, Covington convened experts across our practice groups for the Covington Robotics Forum, which explored recent developments and forecasts relevant to industries affected by robotics.  The global robotics market has been experiencing a significant transformation, with robotics growing beyond traditional industrial uses and taking on an ever-increasing amount of new roles, such as personal assistants, surgical assistants, connected and automated vehicles, delivery vehicles, lawnmowers, and autonomous aircraft.  In 2021, the global robotics market was valued at $55.8 billion—by 2026, it is expected to grow to $91.8 billion.

            David Fagan, Co-Chair of Covington’s Cross-Border Investment and National Security Practice Group, and Steve Bartenstein, Partner in Covington’s International Trade Controls Practice Group, discussed the national security issues raised by foreign investments in robotics transactions, highlights of which are captured here.  A full recording of the Robotics Forum is available here until May 31, 2022.

CFIUS Reviews of Robotics and Artificial Intelligence Transactions

            As a quick primer, the Committee on Foreign Investment in the United States (“CFIUS”) is an interagency committee chaired by the U.S. Department of Treasury charged by statute with reviewing foreign investments in U.S. businesses to determine any impairment to U.S. national security.  CFIUS includes nine executive branch agencies that are full-time voting members and several other agencies in advisory or ex officio capacities.  Historically, CFIUS review is triggered if a “foreign person” acquires “control” over an existing “U.S. business” and there is a nexus to “U.S. national security.”  “National security” is not precisely defined, and CFIUS decides it on a case-by-case basis.  Amendments in 2018 expanded CFIUS’s authority over certain types of non-controlling but non-passive investments in certain U.S. businesses, which can include emerging technology areas such as robotics and AI.  All transactions are now being examined by CFIUS through the lens of U.S.-China military and industrial competition and how that impacts U.S. national security, and CFIUS is actively monitoring transactions in the robotics and AI areas in particular.

            In our experience, the following technologies are of particular interest in CFIUS reviews:

  • Autonomous vehicles (on-road, off-road, aerial);
  • Industrial robots;
  • Service robots;
  • Industrial automation (warehousing and packaging); and
  • Supporting technologies, including software (AI, decision-making, and sensor integration) and hardware (control systems, sensors, motors, actuators, and power systems).

            Within these areas, CFIUS is likely to focus on whether the transaction implicates any of the following issues (in addition to considering whether the transaction presents any nexus to a country of concern): 

  • Technology Transfer – whether the U.S. business at issue includes technology that is sensitive from a U.S. national security standpoint, including taking into consideration that “robotics” has been identified as an area of emerging technology that could be subject to enhanced export control protections under the Export Control Reform Act of 2018 (“ECRA”), companion legislation to the 2018 CFIUS reform legislation. 
  • Protection of Data – whether the transaction includes intellectual property that was developed jointly with the U.S. government or funded in part by the U.S. government, and similarly whether there is any customer data, including data from government customers, that could be sensitive from a national security standpoint.
  • Industrial Policy/Security and Supply Chain – the extent to which the transaction includes capabilities in the United States that are important to U.S. national security, and how the government can maintain access to those capabilities in the United States, while denying those capabilities to potential adversaries.
  • Supply Assurance – whether the U.S. business is an important supplier to the U.S. government or government contractors, and whether it is necessary to seek commitments to maintain that supply.

Trade Controls and Robotics

            Robotics companies operating globally face a range of trade control risks, including:

  • Existing export control restrictions on certain robotics-related hardware, software, and technology;
  • New emerging technology controls on the horizon for robotics, AI/ML, and IC technologies;
  • Broad restrictions on access to U.S. technologies for end-users and end-uses of concern (military applications and parties on the Entity List); and
  • Increasing use of sanctions, which create compliance challenges.

            It is important for companies to be attentive to these risks, including but not limited to the context of M&A and investment transactions.  In the M&A/investment context, trade controls due diligence by buyers and investors can reduce compliance risks (including successor liability), and identify issues that may be “deal-killers” or impact transaction value.  Trade controls may also impact post-closing integration and technology transfer efforts and other business activities.  Monitoring these issues creates an opportunity to identify and correct ongoing compliance issues. 

            We will provide additional updates about the 2022 Covington Robotics Forum and other developments related to robotics on our blog.  To learn more about the work discussed in this post, please visit the Technology Industry, CFIUS, and Trade Controls pages of our web site.  For more information on developments related to AI, IoT, connected and autonomous vehicles, and data privacy, please visit our AI Toolkit and our Internet of Things, Connected and Autonomous Vehicles and Data Privacy and Cybersecurity websites.

Tags: Artificial Intelligence (AI), CFIUS, Internet of Things (IoT), national security
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Photo of David Fagan David Fagan

David Fagan co-chairs the firm’s top ranked practices on cross-border investment and national security matters, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS), and data privacy and cybersecurity.

David has been recognized by Chambers USA and Chambers…

David Fagan co-chairs the firm’s top ranked practices on cross-border investment and national security matters, including reviews conducted by the Committee on Foreign Investment in the United States (CFIUS), and data privacy and cybersecurity.

David has been recognized by Chambers USA and Chambers Global for his leading expertise on bet-the-company CFIUS matters and has received multiple accolades for his work in this area, including twice being named Dealmaker of the Year by The American Lawyer. Clients laud him for “[seeing] far more matters than many other lawyers,” his “incredible insight,” and “know[ing] how to structure deals to facilitate regulatory reviews” (Chambers USA).

David’s practice covers representations of both foreign and domestic companies before CFIUS and related national security regulators. The representations encompass matters in which the principal assets are in the United States, as well as those in which there is a smaller U.S. nexus but where solving for the CFIUS issues—including through proactive mitigation and carve-outs—is a critical path for the transaction. David has handled transactions for clients across every sector subject to CFIUS review, including some of the most sensitive and complex matters that have set the template for CFIUS compliance and security agreements in their respective industries. He is also routinely called upon to rescue transactions that have run into challenges in CFIUS, and to negotiate solutions with the U.S. government that protect national security interests, while preserving shareholder and U.S. business interests.

Reflecting his work on U.S.-China investment issues and his experience on complex U.S. national security matters intersecting with China, David is regularly engaged by the world’s leading multi-national companies across a range of industries to advise on strategic legal projects, including supply chain matters, related to their positioning in the emerging competition between the U.S. and China, as well as on emerging legal issues such as outbound investment restrictions and regulations governing information and communications technologies and services (ICTS). David also has testified before a congressional commission regarding U.S. national security, trade, and investment matters with China.

In addition, in the foreign investment and national security area, David is known for his work on matters requiring the mitigation of foreign ownership, control or influence (FOCI) under applicable national industrial security regulations, including for many of the world’s leading aerospace and defense companies and private equity firms, as well as telecommunications transactions that undergo a public safety, law enforcement, and national security review by the group of agencies known as “Team Telecom.”

In his cybersecurity practice, David has counseled companies on responding to some of the most sophisticated documented cyber-based attacks on their networks and information, including the largest documented infrastructure attacks, as well as data security incidents involving millions of affected consumers. He has been engaged by boards of directors of Fortune 500 companies to counsel them on cyber risk and to lead investigations into cyber attacks, and he has responded to investigations and enforcement actions from the Federal Trade Commission (FTC) and state attorneys general. David has also helped clients respond to ransomware attacks, insider theft, vendor breaches, hacktivists, state-sponsored attacks affecting personal data and trade secrets, and criminal organization attacks directed at stealing personal data, among other matters.

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Photo of Stephen Bartenstein Stephen Bartenstein

Steve Bartenstein advises companies on the application of international trade controls, including export controls, sanctions, and antiboycott laws and regulations. 

In his international trade controls practice, Steve counsels clients on U.S. trade controls regulations administered by the State Department, Commerce Department, and Census…

Steve Bartenstein advises companies on the application of international trade controls, including export controls, sanctions, and antiboycott laws and regulations. 

In his international trade controls practice, Steve counsels clients on U.S. trade controls regulations administered by the State Department, Commerce Department, and Census Bureau; economic sanctions programs administered by the Treasury Department; and compliance with U.S. antiboycott laws and regulations.

He has counseled clients in the defense, energy, pharmaceutical, medical device, and financial services sectors, among others.

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Photo of Trevor Bernardo Trevor Bernardo

Trevor Bernardo is an associate in Covington’s Washington, DC office. As a member of the White Collar Defense and Investigations Practice Group, Trevor represents corporations in multi-jurisdictional internal and government investigations. His practice focuses on advising clients on the Foreign Corrupt Practices Act…

Trevor Bernardo is an associate in Covington’s Washington, DC office. As a member of the White Collar Defense and Investigations Practice Group, Trevor represents corporations in multi-jurisdictional internal and government investigations. His practice focuses on advising clients on the Foreign Corrupt Practices Act (“FCPA”) and other bribery-related enforcement matters and risk assessments. He also maintains an active pro bono practice. Before joining Covington, Trevor worked on various state and federal campaigns across the country.

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