On August 20, 2008, a company formed to commercialize technology developed by the University of Tennessee (UT) pleaded guilty in federal court to 10 counts of violating U.S. export control laws and could face up to $10 million in fines. John Reece Roth, a UT Professor Emeritus, faces related criminal charges and reportedly is scheduled to stand trial beginning the week of August 25.
A grand jury indicted Atmospheric Glow Technologies, Inc. (AGT) and Roth in May 2008 for unauthorized releases of export-controlled technology to foreign nationals in connection with a research and development contract funded by the Department of Defense. Although the University of Tennessee itself has not been implicated in wrongdoing, this criminal enforcement case presents a number of important lessons for universities regarding technology commercialization and the use of university resources to perform advanced development work. This case also raises significant questions regarding the extent to which universities should seek to impose restrictions on the “outside” or “non-university” activities of faculty members, particularly when students and university facilities may be involved.
Summary of Activities Leading to Criminal Indictment
AGT is a for-profit company formed solely to commercialize certain plasma technology originally developed at UT’s Knoxville campus. The University of Tennessee Research Foundation owned patents covering the plasma technology and had granted to AGT the exclusive right to use, develop, and market the technology. Beginning in 2004, AGT entered into research and development contracts with the U.S. Air Force for the development of plasma actuators for supersonic flight control in munitions systems, including Unmanned Aerial Vehicles. AGT, in turn, entered into a subcontract with Professor Roth, Director of the UT Plasma Sciences Laboratory (Plasma Lab), to assist with the Air Force contracts. Roth was also one of the original shareholders of AGT. Although AGT subcontracted with Roth in his individual capacity, the statement of work submitted to the Air Force specifically envisioned the use of university resources, including the Plasma Lab and its graduate students, to conduct the work.
In the course of performing work under the Air Force contracts, Roth allegedly arranged for several foreign nationals, including a Chinese graduate student at UT, to participate in the project. Despite submitting project plans to the Air Force stating that foreign nationals would not be involved, AGT and Roth allegedly transferred export-controlled information to the foreign nationals in violation of the Arms Export Control Act (AECA). In May 2006, Roth also allegedly traveled to China in his capacity as a university employee and carried with him documents containing export-controlled technical data.
As a result of these activities, a grand jury charged both Roth and AGT with multiple criminal violations of the AECA, the authorizing statute for the State Department’s International Traffic in Arms Regulations, and other federal laws. Specifically, Roth is charged with one count of conspiracy to defraud the U.S. Air Force and violate the AECA, 15 counts of violating the AECA, and one count of wire fraud for defrauding the UT. AGT also was charged with most of the same violations.
On August 20, 2008, AGT pleaded guilty to 10 counts of violating AECA and agreed to assist prosecutors in their case against Roth. (One employee of AGT already pleaded guilty earlier this year to charges of conspiring with Roth and AGT to commit the alleged acts.) Roth reportedly is scheduled to stand trial on the charges against him beginning the week of August 25. AGT and Roth face maximum penalties of up to $1,000,000 in fines for each violation of the AECA, and the individuals involved could face up to 10 years in prison per count (but under the Federal Sentencing Guidelines, the actual sentence likely would be significantly lower than these maximums). Additional fines and prison sentences could be imposed for the wire fraud and conspiracy charges.
Lessons for Universities
One of the most difficult and important questions raised for universities by the AGT/Roth indictments is not specific to the export control laws and relates broadly to a wide range of contexts – namely, whether and to what extent a university should attempt to exercise control over the outside business activities of faculty.
In this case, AGT was an outside entity not affiliated with and certainly not controlled by UT. The conduct at issue occurred under AGT’s federal contracts, and AGT’s subcontract to Roth. UT was not a party to the contracts or the subcontract. At the same time, UT was linked to AGT’s activity by Roth’s status as a UT faculty member, by UT’s license to AGT, and by the contemplated use of a UT lab and UT graduate students to carry out the work. The links between UT and the alleged conduct were close enough that it would have been in UT’s interest to ensure, if it was capable of doing so, that the work performed by AGT and Roth was compliant with United States export laws.
But that observation begs many difficult questions: Was UT capable of exercising such control? Was AGT permitted to submit to such control? Would UT have been well advised to attempt to exercise such control, not knowing whether it would be successful? Does a university’s attempt to assert control over outside business activities of faculty create potential university liability exposure that would not otherwise exist? These and other difficult questions relating to faculty members’ compliance with law in connection with their outside business interests are beyond the scope of this update.
That having been said, this case, together with the increased enforcement of export control laws and other recent developments (including the recent amendment to the Defense Federal Acquisition Regulations requiring export control clauses to be included in Defense Department contracts) present a number of important lessons for universities and faculty with respect to sponsored research.
- Understand the limits of the fundamental research exemption when conducting sponsored research with the objective of advanced technology development. It is critical for university personnel to understand the scope and limitations of the so-called “Fundamental Research Exemption” from the export control regulations. Although “basic and applied research” generally is exempt from such controls (provided that the research results are intended for publication), sponsored research with the objective of developing advanced technologies for specific applications remain subject to export controls. In addition, the scope of the exemption under the ITAR is significantly narrower than the corresponding exemption under the commercial/dual-use export controls (the Commerce Department’s Export Administration Regulations).
- Implement specific export control policies and procedures. Universities engaging in government- and corporate-sponsored research should have detailed export compliance policies and procedures. Those policies should govern not only university research, but also any use of university facilities or involvement of students in connection with a faculty member’s private consulting activities. As noted above, even though doing so would raise very difficult questions, a university might even consider extending its export control policies more broadly, to other outside faculty activities that do not involve use of university resources. The indictment against Roth and AGT in this case cited the fact that UT has specific policies requiring faculty and personnel to comply with export control laws. Those policies may well have saved the university itself from receiving greater scrutiny in this case.
- At a minimum, establish clear rules defining the conditions and procedures under which faculty may use university resources for non-university work. Universities should establish explicit guidelines and procedures that faculty must follow before using university facilities, students, and other resources for research to which the university is not a party (e.g., as grantee or subcontractor). For example, a university may wish to permit use of university laboratories, equipment, or students in a private project only to the extent authorized in an agreement between the university and the organization responsible for the research, or by written approval to the responsible faculty member after full disclosure of the circumstances and review by the academic department and the university compliance office. Such reviews could include, among other things: specific assessment of provisions affecting the applicability of export controls; limitations on, or representations made concerning the involvement of foreign nationals; and the sensitivity of the subject matter. Other institutions may prefer not to investigate non-university projects in detail, but to make it clear that the faculty member and the entity for which the work is performed are responsible for compliance with all applicable laws and regulations. Either approach entails risks. There may be other important non-regulatory issues to consider, such as the ownership of intellectual property created by faculty when acting in a consulting capacity or using university resources.
- Offer export compliance training, particularly for faculty engaged in advanced technology development and sponsored research in science and engineering. The UT case demonstrates that universities have a strong interest in providing opportunities for export compliance training, even for faculty members whose only apparent exposure to the export control regulations derives from private business activities. Such training is a key to increasing awareness and ensuring compliance by faculty.