Robotics Highlight: Nationwide Safety Issues in International Funding and M&A Involving Robotics

On April 28, 2022, Covington convened specialists throughout our follow teams for the Covington Robotics Discussion board, which explored latest developments and forecasts related to industries affected by robotics. The worldwide robotics market has been experiencing a major transformation, with robotics rising past conventional industrial makes use of and taking over an ever-increasing quantity of latest roles, resembling private assistants, surgical assistants, related and automatic autos, supply autos, lawnmowers, and autonomous plane. In 2021, the worldwide robotics market was valued at $55.8 billion—by 2026, it’s anticipated to develop to $91.8 billion.

David Fagan, Co-Chair of Covington’s Cross-Border Funding and Nationwide Safety Follow Group, and Steve Bartenstein, Associate in Covington’s Worldwide Commerce Controls Follow Group, mentioned the nationwide safety points raised by overseas investments in robotics transactions, highlights of that are captured right here. A full recording of the Robotics Discussion board is obtainable right here till Could 31, 2022.

CFIUS Evaluations of Robotics and Synthetic Intelligence Transactions

As a fast primer, the Committee on International Funding in the US (“CFIUS”) is an interagency committee chaired by the U.S. Division of Treasury charged by statute with reviewing overseas investments in U.S. companies to find out any impairment to U.S. nationwide safety. CFIUS consists of 9 government department businesses which might be full-time voting members and a number of other different businesses in advisory or ex officio capacities. Traditionally, CFIUS evaluate is triggered if a “overseas particular person” acquires “management” over an current “U.S. enterprise” and there’s a nexus to “U.S. nationwide safety.” “Nationwide safety” is just not exactly outlined, and CFIUS decides it on a case-by-case foundation. Amendments in 2018 expanded CFIUS’s authority over sure forms of non-controlling however non-passive investments in sure U.S. companies, which may embrace rising know-how areas resembling robotics and AI. All transactions are actually being examined by CFIUS by means of the lens of U.S.-China army and industrial competitors and the way that impacts U.S. nationwide safety, and CFIUS is actively monitoring transactions within the robotics and AI areas particularly.

In our expertise, the next applied sciences are of explicit curiosity in CFIUS critiques:

• Autonomous autos (on-road, off-road, aerial);
• Industrial robots;
• Service robots;
• Industrial automation (warehousing and packaging); and
• Supporting applied sciences, together with software program (AI, decision-making, and sensor integration) and {hardware} (management programs, sensors, motors, actuators, and energy programs).

Inside these areas, CFIUS is prone to give attention to whether or not the transaction implicates any of the next points (along with contemplating whether or not the transaction presents any nexus to a rustic of concern):

• Expertise Switch – whether or not the U.S. enterprise at problem consists of know-how that’s delicate from a U.S. nationwide safety standpoint, together with bearing in mind that “robotics” has been recognized as an space of rising know-how that might be topic to enhanced export management protections beneath the Export Management Reform Act of 2018 (“ECRA”), companion laws to the 2018 CFIUS reform laws.
• Safety of Knowledge – whether or not the transaction consists of mental property that was developed collectively with the U.S. authorities or funded partially by the U.S. authorities, and equally whether or not there may be any buyer knowledge, together with knowledge from authorities clients, that might be delicate from a nationwide safety standpoint.
• Industrial Coverage/Safety and Provide Chain – the extent to which the transaction consists of capabilities in the US which might be necessary to U.S. nationwide safety, and the way the federal government can preserve entry to these capabilities in the US, whereas denying these capabilities to potential adversaries.
• Provide Assurance – whether or not the U.S. enterprise is a vital provider to the U.S. authorities or authorities contractors, and whether or not it’s crucial to hunt commitments to take care of that offer.

Commerce Controls and Robotics

Robotics corporations working globally face a spread of commerce management dangers, together with:

• Present export management restrictions on sure robotics-related {hardware}, software program, and know-how;
• New rising know-how controls on the horizon for robotics, AI/ML, and IC applied sciences;
• Broad restrictions on entry to U.S. applied sciences for end-users and end-uses of concern (army purposes and events on the Entity Listing); and
• Growing use of sanctions, which create compliance challenges.

It is necessary for corporations to be attentive to those dangers, together with however not restricted to the context of M&A and funding transactions. Within the M&A/funding context, commerce controls due diligence by consumers and traders can scale back compliance dangers (together with successor legal responsibility), and determine points that could be “deal-killers” or affect transaction worth. Commerce controls may additionally affect post-closing integration and know-how switch efforts and different enterprise actions. Monitoring these points creates a possibility to determine and proper ongoing compliance points.