In a development that could cause every advanced reactor startup to reexamine its growth strategy, the US government (USG) yesterday afternoon issued a new framework concerning exports to China, which largely closes the export market to advanced reactor companies.

The framework document, which is available here and was described to a limited audience in a briefing yesterday that we attended, sets forth the following policy regarding exports of technology or technical data subject to the US Department of Energy (DOE) nuclear export control regulations in 10 CFR Part 810, and exports of equipment and materials under the NRC’s nuclear export control regulations in 10 CFR Part 110.

The DOE Part 810 export controls framework is likely of most interest to advanced reactor companies, and is summarized below:

  • Presumption of Denial for the Following Export Authorization Requests:
    • Any exports related of advanced reactor technologies (i.e., light water SMRs and non-light water reactors), and related fuel cycle exports.  It appears that fuel cycle exports that could benefit advanced reactors, even if designed primarily for traditional light water reactors, could get caught up in this “presumption of denial.”
    • Any export of codes or software.
    • Any exports at all to the company China General Nuclear (CGN) or its affiliates.  DOE will not provide a public list of affiliates, but applicants can go check with DOE beforehand.
    • Any “new technology transfers after January 1, 2018” are also presumed to be denied export authorization.  It is unclear exactly what this means, but it is potentially a catch-all to make clear the limited nature of those exports still permissible.
  • Exports for Which Approvals May Still be Attainable (Presumption of Approval, But After Heightened End User Review):
    • Amendments or extensions for existing authorizations “for technology transferred prior to January 1, 2018.”  This does not apply to advanced reactors.  It will also likely be an area of confusion going forward as to how the USG position against “new” technology transfers above will apply to these existing authorizations.
    • Certain technology transfers for operational safety purposes, with a clear operational safety benefit and after heightened review of the end user.
    • Transfers of technology required to support sale of an item that is “commercially available.”  This is likely to be limited in scope.

In case of a conflict, the presumption of denial appears to defeat the presumption of approval—e.g., exports to CGN appear off-limits no matter what.  A few other key points to relate:

  • NRC Export Control Policy Changes:  The changes to NRC export controls mimic those impacting DOE controls.  The key point is that any exports related to “direct economic competition with the United States” are presumed to be denied an NRC license.  Examples provided include sales to support the Hualong One and unique U.S. components for the CAP-1400 reactors.  Likely this would also catch any effort to support a Chinese advanced reactor.  Exports to support the AP-1000, or related projects in China that rely on current-gen technology, can potentially move forward, but will be heavily scrutinized.   In theory, sales of light water SMR or advanced reactors themselves are permitted too, but with no technology transfer above and beyond installation and operation.
  • Implications on Department of Commerce (DOC) Export Controls: Today’s action appears largely limited to 10 CFR Parts 110/810 nuclear export controls, and does not directly impact exports regulated by DOC.  However, we understand that DOC is currently considering potential new restrictions with regarding China.   These may involve changes in licensing policy, including adding licensing requirements for items that previously could be exported without a license.  Considering that DOC hosted this event, it would appear the agency staff at least agree in principle with the strong action taken there.
  • End User Reviews: There will be new, “case-by-case” heightened reviews for exports to non-CGN end users that assess risk of diversion, risk to parties in the deal, and risk to US national and economic security—and balance these risks against the economic and strategic benefits of the exchange.  DOE and the NRC may be able to place conditions on exports to mitigate the above-listed risks.    Exactly how these reviews will be conducted is likely still to be determined, including if DOE and NRC will want to go as far as what some other agencies (such as DOC) do with end user reviews.
  • Application to Chinese Nationals/Partially-Owned Businesses: To also make clear, this policy applies to hiring of Chinese foreign nationals in the United States, and can impact deals with entities that are just partially owned by Chinese nationals or businesses.  The authors asked the USG at the briefing as to whether this policy applied to deemed exports, and the USG panelists confirmed that it did.  They directed that questions related to partial ownership be directed to DOE for review.
  • Other Related Actions:  This policy change also highlights the recent CFIUS and DOC export controls legislation passed by Congress, which was again geared towards China.  To add, USG has started to implement parts of this legislation, including a CFIUS pilot program to implement the sections of that legislation concerning investments in critical technologies, likely including a broad scope of nuclear technologies.

All in all, this is just one more example of a renewed government focus on the national security implications of losing the US civil nuclear industry to foreign competitors, as highlighted in our Back from the Brink paper (which was featured in an event last week at the Center for Strategic and International Studies on Nuclear Energy, Naval Propulsion, and National Security).

Specific to China, since 2017 the USG has been looking at this issue, following a spate of IP theft and diversion cases that have not seemed to stem in recent years.  While the Allen Ho/CGN litigation was certainly a driver, USG panelists noted in their briefing many other examples of China allegedly diverting civilian nuclear resources and technology to military end uses, using a “whole nation” strategy.  This included forcing civilian institutions to do military nuclear work, comingling civil and military nuclear efforts (for example, in the area of floating reactors), diverting IP provided for civilian nuclear use to military end uses, and repurposing US civilian nuclear IP and codes for military end use.  The FBI representative appeared to indicate that there were other, classified examples.

For more information, please feel free to contact the authors.

A recent headline in the energy trade press would not likely have caught the attention of the advanced nuclear industry: “Trump’s DOE punishes Obama-era solar success story.” A casual reader might quickly dismiss the story as indicative of a Trump Administration bias against renewable energy. The details reported in the story, however, convey a far different message—one that is great significance to the many advanced nuclear technology companies that are responding to DOE’s funding opportunity announcement for advanced nuclear development.

The E&E News article reports that a company by the name of 1366 Technologies accepted millions of dollars in DOE funding to develop a process to reduce the cost of producing silicon wafers. In return, it made certain commitments routinely required of recipients of DOE technology funding: to engage in substantial U.S. manufacture of the technology, to disclose to DOE patents produced with DOE financial assistance, to give DOE a royalty-free license for government use, and to give DOE so-called “march-in rights” to license the technology to others if the funding recipient fails to use the technology itself.

According to the published story, DOE has sought to enforce the commitment 1366 Technologies made to build its solar wafer manufacturing plant incorporating the DOE-funded technology in the U.S., specifically in upstate New York. Delays in obtaining a wholly separate DOE loan guarantee are said to account for a decision by 1366 to instead build its first plant in Asia. E&E News reports that DOE has responded with a submission to the United States Trade Representative suggesting that the failure to comply with the U.S. manufacture commitment should be weighed in considering a request by 1366 for exemption from the 30 percent tariff that generally applies to foreign manufacturers of solar panels. DOE is also reportedly evaluating its options with respect to 1366’s failure to disclose patents it filed while it was accepting DOE financial assistance. Under DOE intellectual property (IP) rules, the failure to make a required disclosure could result in a loss of rights in those patents.

This is not fairly characterized as an instance of the Trump Administration attacking the solar industry. Rather, it represents a continuation of the practice that the Obama Administration and others before it pursued (albeit with varying degrees of ardor) of ensuring that the American taxpayer gets the benefit of its bargain for assisting in the advancement of energy technologies. That funding is designed to advance U.S. competitiveness in energy technology and energy manufacturing. In DOE’s view, allowing the IP that results from the taxpayer investment to be shipped abroad for commercialization can defeat the purpose of the taxpayers’ investment. DOE’s views are supported by statute (in particular, this is the intent behind the Bayh Dole Act, 35 U.S.C. §§ 200 – 212).

This is why the advanced nuclear technology industry should be paying close attention to the 1366 case. The FOA for advanced nuclear technology puts great emphasis on the desire to rebuild U.S. nuclear manufacturing capability. DOE has recently announced its first round of awards under the FOA. Additional applicants have submitted in the second round, and many others are preparing to submit one or more applications over the five years that DOE has said the FOA will remain open. The FOA represents a great opportunity to make important advances in nuclear technology prowess and to restore the U.S. nuclear supply chain to its past pre-eminence. That is what DOE expressly seeks to do. Therefore, it is important to understand and to put in place a program to assure compliance with the “strings” that are attached to the DOE money.

More than 10 pages of the lengthy FOA are devoted to the applicable IP rules. The eyes of an enthusiastic applicant might easily glaze over when they get to those 10 pages, but that would be a mistake. The rules reflect the implementation of statutory requirements, and they are unique to government-funded IP. They may be unfamiliar to those schooled in standard IP rules and practices associated with filing for patent rights. The ultimate commercial success of developing a great new technology may depend on understanding the obligations, managing the risks, engaging with DOE candidly when unanticipated challenges arise, and of course internalizing what we all already know: there really is no free money.

Applicants for DOE funding worry a lot about the government royalty-free license and the march-in rights (which the government has never exercised). However, the story about 1366 Technologies shows that those who accept federal funding to develop their technologies should have far greater concern about meeting the commitments they make to manufacture the technology in the U.S. and to disclose the patents they develop with government funds. In our experience, DOE is open to discussion and negotiation, within the constraints of its statutory obligations. However, DOE has demonstrated its willingness to employ at least some of the powerful enforcement tools it has at its disposal to enforce those obligations if it concludes the circumstances warrant such action.

In short, it is important to understand and take seriously the substantial U.S. manufacture and patent disclosure obligations that come with a financial assistance, because DOE does.

For more information, please contact Mary Anne Sullivan.