International Entrepreneurs: Welcome to America (Visa Waiver / Parole)

We promised you a final update. Here it is.

The Final Rule on the U.S. International Entrepreneur Visa Waiver (Parole) was published this past Tuesday, January 17, 2017. Applications can be submitted on July 17, 2017 and anytime thereafter. Get ready! Bring on your STEM, IoT, SaaS, cybersecurity, DRaaS, fintech, blockchain, edutech, healthtech, Big Data and Cloud Computing!

Summary.  Under the new Rule, the USCIS may authorize a foreign “entrepreneur” to work in the U.S. for a U.S. “startup entity."

• The entity must have been formed not more than five years before the filing date of the application.
• The entrepreneur must own a “substantial percentage” of equity in the “startup entity,” being 10% at the time of the application and being diluted to not less than 5% after subsequent additional funding. 
• “Qualified” U.S. investors must have made a minimum “qualified investment” of $250,000 in acceptable securities (convertible debt, equity or contracts for such securities). The investment must have been made within 18 months before the foreign entrepreneur’s application.
• If qualified, the foreign entrepreneur can remain for up to five years, divided between two periods of up to 30 months each.

This is good news for U.S. startups and high-growth innovative companies and U.S. private equity investors.

Implications for Foreign Startups Coming to America. Foreign startups might use the rule too by converting to American startups! Globalizing foreign startups could take their teams to the U.S. for some functions but not others. Maybe this Rule could be a tool for globalizing high-growth companies that already have begun their development and growth abroad, but want to have the leadership located in the U.S. The Rule supports foreign entrepreneurs despite:

• the original location of some business operations and assets outside the U.S., such as R&D, product testing, marketing, sales or administrative support; 
• the conversion of a foreign startup to a U.S. startup (through a little gymnastic flip using tax-free corporate restructuring); and
• the existence of some foreign capital investment. 

Since the Rule was not intended for such scenarios, the Trump Administration might interpret the policy basis to focus on U.S. job creation. Foreign startups that contemplate using this visa approach might wish to limit the relative importance or the growth of foreign jobs.

Comparative Benefits. As with any innovative governmental program, the International Entrepreneur Visa Waiver (Parole) Rule is not an “open floodgate.” The USCIS estimates that only a total of 2,940 entrepreneurs will be able to qualify in this initial year of the Final Rule.

Given this focus and orientation on growing local American startups, this Rule may be more difficult to comply with, both initially and upon renewal, than a H1-B, L1-A, L1-B or E-1 or E-2 visa for foreign high-growth companies coming to the United States.

Update on U.S. Visa Waivers for "International Entrepreneur"

Are you a foreign entrepreneur/innovator wanting to come work and grow your business in the U.S.?  The Visa Waiver for International Entrepreneurs is “almost” ready.

In August 2016, the U.S. Customs and Immigration Service, a division of the Department of Homeland Security, published a Proposed Rule that would enable the USCIS, on a discretionary basis, to admit foreign entrepreneurs of startup companies for temporary stays in the U.S. in order to grow their businesses.  Qualifying entrepreneurs would need to meet stringent requirements. The duration would be for an initial two years, with the possibility of renewal. 

The Proposed Rule was open to public comments until October 17, 2016.  After reviewing hundreds of comments, the USCIS issued a final International Entrepreneur Rule, with changes from the Proposed Rule.   This final Rule went to the Office of Management and Budget (OMB) for review on December 29, 2016.  The OMB’s Office of Information and Regulatory Affairs (OIRA) evaluates a final rule, typically within 90 days.  However, this OIRA review was completed very quickly by January 5, 2017, we think in anticipation of the expiration of the Obama Presidency on January 20, 2017.  Therefore we expect the final rule to be published shortly in the Federal Register.  It is likely that this Rule will be effective under the forthcoming Trump Administration.  However, pending actual publication, details of the final Rule remain confidential.

While President-Elect Trump might take steps to invalidate this “rule by executive penmanship,” we think President-Elect Trump will not object to this new rule.  His opposition to immigration has been focused on illegal immigrants, while he promotes entrepreneurship, jobs in America, tax-paying business operations and innovation.  Whatever its configuration, the new International Entrepreneur rule will be good for global startups as well as the American innovation eco-system.

Once we know more, we will keep you informed. 

DHS Proposes New Rule for International Entrepreneurs Seeking to Enter the U.S.

On August 26, 2016, the Department of Homeland Security (“DHS”) released a proposed rule which would allow it to use its existing discretionary statutory parole authority to enable eligible entrepreneurs of startup entities to gain temporary stays in the United States. In the past, this authority has been used to admit individuals on a discretionary case-by-case basis either for urgent humanitarian reasons or for significant public benefit to the U.S. The DHS is now considering extending this authority to admit entrepreneurs of startup enterprises whose stay in the U.S. could provide significant public benefit by directly managing their companies in the U.S. for rapid business growth and job creation. The approach will impact foreign-based and U.S.-based startups, business angels, venture capital and mature U.S. businesses that rely upon startups for new product development.

Why adopt a discretionary approach? For years, U.S. politicians have proposed special visas or “lawful permanent resident” status for foreigners who earn U.S. Ph.D.’s in sciences, technology, engineering and math. But immigration policy has become politicized. So the Obama administration is adopting a creative approach by administrative relief, without seeking new legislation. So this will not be a “visa,” but rather an administrative waiver of visa rules.

The good news, I believe, is that the DHS is adopting a more proactive role in encouraging foreign entrepreneurs to locate and grow their businesses in the U.S. Many locally established U.S. startups are affiliates of foreign startups. Such relationships reflect the role of the U.S. in global innovation. First, at the stages of product development and proof of concept, startups can serve as a supplement to larger corporate domestic R&D and for development of market-ready products (e.g., bio tech, fintech, adtech). Second, once proof of concept has been confirmed, the U.S. economy serves as a key location for marketing disruptive technologies and services. Third, American jobs are created by hiring of American local employees to localize, adapt, re-sign, market and sell foreign-originating technologies.

The bad news is that the restrictions on the qualifications to be granted an entrepreneur parole are stringent and prohibitive, likely limiting the number of qualified individuals to a very small pool. Perhaps DHS can be persuaded to be more competitive with other countries that offer entrepreneur visas with more assurance of successful implantation of foreign know-how and entrepreneurship.

Wary of taking away jobs and growth from homegrown U.S. businesses, the DHS has proposed some pretty tough restrictions on the qualifications of these applicants. To get the visa waiver, entrepreneurs must have:

• a significant ownership interest in the startup (at least 15 percent) and have an active and central role to its operation 
• a startup was which was formed in the United States within the past three years before the filing date of the application; and
• a startup which has substantial and demonstrated potential for rapid business growth and job creation, as evidenced by: 

• receiving significant investment of capital (at least $345,000) from certain qualified U.S. investors with established records of successful investments;
• receiving significant awards or grants (at least $100,000) from certain federal, state or local government entities; or 
• partially satisfying one or both of the above criteria in addition to other reliable and compelling evidence of the startup entity’s substantial potential for rapid growth and job creation.

• No more than three individuals from the same startup can qualify for parole under this rule.

If approved, the applicant may stay in the U.S. for up to an initial period of two years and must then re-apply (under different qualifications, but just, if not more, stringent) for a renewal of up to three additional years. One benefit of approval is that the entrepreneur will be authorized to work immediately for the startup enterprise, without having to apply for employment authorization as well.

This notice is now published in the Federal Register for public comment until October 17, 2016, after which the USCIS (U. S. Citizenship and Immigration Services) will address comments received. (That’s just in time for the Presidential election in early November.)

We will be monitoring the situation and give you an update.

Cross-Border Data Flows after EU Invalidation of EU-US Safe Harbor Agreement

Stop the presses!  On October 6, 2015, the European Court of Justice invalidated the July 26, 2000 international agreement between the European Union (EU) and the United States called the “Safe Harbor” agreement.  The case, Schrems v. Facebook, Inc., arises from a complaint by an Austrian national concerned about the protection of his personal data held in the U.S. by Facebook in the wake of the 2013 disclosures by Edward Snowden regarding the sharing of personal data stored by Facebook and others with U.S. intelligence.

This decision could have a huge impact on all U.S. Internet-based businesses, all multinational businesses that collect data from EU individuals.  It may require reworking and new contracts for data center management, collection and data analytics that uses EU Big Data, social and mobile websites.

Under the Safe Harbor Agreement, U.S. companies and their EU affiliates could freely exchange EU “personal data” (concerning individuals residing in the EU), even if the U.S. did not have “adequate protection” to comply with the EU Data Protection Directive of 1995.  The Safe Harbor only required that the U.S. companies enter into an agreement with their foreign affiliates to comply with EU Data Protection mandates and to file the agreement with the U.S. Department of Commerce.

The EU Court invalidated the Safe Harbor Agreement for several reasons. The Safe Harbor Agreement fails to comply with the EU Data Protection Directive’s rules that:

• the transfer of personal data to a third country may, in principle, take place only if that third country ensures an adequate level of protection of the data;
• The EU Commission has not made a finding that the U.S. ensures an adequate level of protection by reason of its domestic law or its international commitments; and
• The U.S. has not designated any public authorities (“data protection authority”) responsible for monitoring the application within its territory of the local “national provisions” adopted on the basis of the EU directive.

Considering a potential conflict of laws between the U.S. and the European Union, in the Court’s press release No. 117/15:

the Court observes that the scheme is applicable solely to the United States undertakings which adhere to it, and United States public authorities are not themselves subject to it. Furthermore, national security, public interest and law enforcement requirements of the United States prevail over the safe harbour scheme, so that United States undertakings are bound to disregard, without limitation, the protective rules laid down by that scheme where they conflict with such requirements. The United States safe harbour scheme thus enables interference, by United States public authorities, with the fundamental rights of persons, and the Commission decision does not refer either to the existence, in the United States, of rules intended to limit any such interference or to the existence of effective legal protection against the interference.

As a result, cross-border data transmission from the EU to the US could be prohibited without new U.S. federal legislation equivalent to the EU Data Protection Directive.   This will prevent social media like Facebook, data brokers, credit card companies, and consumer goods websites from storing EU personal data in the U.S.  Data stored in computers in the EU will be under the jurisdiction of EU courts.

This decision underscores the importance of a strong digital compliance program to cover not just personal data, but also digital business records.  It’s time to review your policies, procedures, roles and responsibilities, and business models.  It’s a whole new digital world!

Protecting Company Intellectual Property: Simple Moves against In-house Theft of Trade Secrets and IP

Intellectual property (“IP”) is the elephant in the valuation of a company at sale or financing, but can be undervalued on the balance sheet.  Major enterprises have compliance officers, legal departments and major law firms and tech consultants to help secure their intellectual property?  What about small to mid-sized enterprises or small multinationals?  

Leadership.   First, appoint a person responsible for managing intellectual property.  This usually requires someone with a broad overview of the company’s business strategies, methodologies and competitive positioning.   In a smaller company, this could be the CEO or a deputy. 

Training and Managing Your Employees and Value Chain.   Every person in the company’s “value chain” should be trained in the basics of intellectual property.   These include (1) the differences between a trade secret and a patent, (2) the limited but potentially valuable scope of protection of copyrights, (3) the value of trademarks and related goodwill and how such value can be protected or lost, and (4) the rules defining who owns intellectual property in the absence of a contract.  The “value chain” includes the company’s employees and contractors, and employees of corporate contractors.  

Adopting and Highlighting Policies to Your Employees and Value Chain.    Written policies and procedures on IP protection can serve as references for education, swords against wrongdoers and shields against competitors and other adversaries.   Such policies can be included in employment contracts, employee handbooks, sales manuals (to guide sales personnel), template contracts, joint venture agreements, licenses, IP assignment agreements, website “Terms of Use” and other handy everyday documents.    Without good policies and procedures, the company’s shareholder value risks dilution.

Data Security.   The Healthcare industry lives under federal regulations governing logical, administrative, legal and technological barriers to unauthorized data access.   Your business should apply the wisdom of such practical protections.

Transition Management.    Change management refers to adaptive behaviors.   Transition management relates to a company’s procedures for transitioning relationships (onboarding or termination) with individual employees, contractors, suppliers and others in the value chain.   Checklists, coordination among IT and HR departments and Sales can help avoid or mitigate litigation costs.  Make sure your trade secrets and other IP do not leave the company when the individuals “in the know” leave the company.

IP Risk Prioritization.   Sure, every person in a business has some knowledge of trade secrets that could help a competitor.  But, as in George Orwell’s Animal Farm, certain people are more equal than others, by reason of having broader scope and deeper knowledge of trade secrets.  The Board needs to ensure surveillance and even forensic analysis in relation to high-risk positions such as heads of R&D, scientists, product developers and new business developers. 

Business Modeling in Outsourcing, Licensing and Joint Ventures.  In the early days of outsourcing, companies gladly gave up their employees to the external service provider without charging a headhunter fee or a training fee, and without getting the right to re-hire them, or to get some knowledge management tool to capture the company’s implicit knowledge so it can be restored upon termination of the outsourcing.   The same applied to joint ventures.   This was pretty astounding.   Over time, business models have evolved to incorporate knowledge management.   When outsourcing a process, think about how to keep some residual knowledge for effective management of service providers and integration of the supply chain.   See www.outsourcing-law.com for more.

Spoliation of Evidence.   If business owners and managers have learned anything in the last 10 years, it’s “e-discovery” and “spoliation of evidence.”   Policies and procedures should be adopted to ensure against insider theft of trade secrets and spoliation of evidence of theft.   There are software tools and IT procedures for network administration that can help manage this increasingly costly risk to IP owned by or licensed to the company.  When a high-profile IP person leaves, the company should conduct a quick forensic review.  Evidence lost when hard drives are overwritten can be irreplaceable.

Legal Audit.   When you suspect a loss of IP, call the lawyers.  An internal investigation supervised by lawyers is entitled to confidentiality protections in court under the attorney-client privilege and the attorney work-product doctrine.  Put the lawyer in charge as Maestro, and let the IT, HR, security, forensic analysts and other joint the orchestra.   Even if you don’t suspect any problems, attorneys with Maestro batons can elicit better-protected music for your IP.   And consider legal audits on a regular basis, not just before the time you sign up for an intellectual property rights insurance policy.

Are we feeling innovative yet?