International Trade & Compliance Alert
It has been an active last week in the world of the Committee on Foreign Investment in the United States (“CFIUS”). In addition to CFIUS’s publication of proposed regulations that would impose filing fees for parties’ submission of notices of transactions to CFIUS (see our alert), President Trump exercised rarely-used authority under the CFIUS authorizing statute to formally instruct a Chinese company to divest its interest in a U.S. company; and separately, CFIUS cleared an acquisition of a U.S. semiconductor company by a German company with connections to China.
In several respects, these outcomes are instructive about current U.S. government practice in connection with authority accorded to the President by the “Exon-Florio” statute, as amended by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”), to “suspend or prohibit” covered foreign investment transactions.
First, the StayNTouch transaction confirms that U.S. presidents are increasingly willing to invoke the extraordinary authority granted by Exon-Florio to block or reverse foreign investment for national security reasons. During the 23 years after the law was enacted in 1988, a president officially acted under Exon-Florio only one time. In the last eight years, presidents have exercised this authority five times.
Second, treatment of the StayNTouch and Infineon transactions reinforces that CFIUS is unyielding in ensuring that foreign investment transactions do not lead to what it views as national security exposure—even when there is no traditional or obvious security threat. The StayNTouch transaction shows the acute sensitivity that CFIUS attaches to sensitive personal data, even when in the hands of a commercial, consumer hotel business. In 2019, as we described in a prior alert, CFIUS reportedly required two Chinese companies to sell their stakes in two U.S. companies that collect sensitive personal information: Grindr, an online dating app, and PatientsLikeMe, an online service that links individuals suffering similar health issues in an effort to improve disease detection and treatment. Beijing Kunlun Tech Co Ltd-Grindr and iCarbonX-PatientsLikeMe were both non-notified transactions. These cases and the StayNTouch order also demonstrate that CFIUS is not deterred by substantial passage of time following closing of a transaction that was not notified to it.
The Infineon transaction takes CFIUS’s longstanding and intensifying concerns about foreign investment in the semiconductor sector to a new level. Infineon is based in a NATO ally (Germany). Nonetheless, backed by the president’s willingness to act under Exon-Florio, CFIUS appears to have exercised its leverage to scrutinize and elicit commitments from the parties for more than eight months.
Third, at the same time, CFIUS treatment of the Infineon transaction provides reassurance that the United States is open to foreign investment even in an industry that is as sensitive as semiconductors.
1 Separately, in 2017, Infineon failed to secure clearance for, and then abandoned, a proposed acquisition of North Carolina-based Cree, Inc.’s Wolfspeed Power and RF Division, which makes devices using gallium nitride that are used in the defense industry for radar systems.