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Business Worries About Cost of Homeland Security

Wednesday, 27 November 2002 12:00 AM

Businesses and their lawyers are already taking steps to make sure regulators don't trample on American businesses and their rights in the name of security.

The U.S. Chamber of Commerce made sure that the newly formed Department of Homeland Security will include a special assistant to the secretary responsible for looking out for proposed regulations that could hurt businesses.

And to deal with the onslaught of new security-related rules promulgated by agencies, Washington, D.C., law firm Venable is hanging out its shingle as a specialist in complying with those rules.

Businesses will need to not only comply with new regulations, said Venable co-chairman John Pavlick, but companies that want government contracts will have a new set of hoops to jump through.

First of all, companies need to find out whether any given rule applies to them, he said.

"A lot of people don't think of themselves as covered by some of these restrictions," said Pavlick, who added, "We've broadened our definition of what has to be covered...because terrorists...can infiltrate any number of places."

For example, he said, one of his clients sells what he would describe only as "anti-terrorist technology," for which they now need a government license to sell abroad.

The trouble was, the company didn't know that until an overseas embassy inquired about the status of their licensing request for proposed purchases of the product.

According to Pavlick, running afoul of an agency rule often results in a fine. But sometimes the consequences can be much worse. For instance, an agency could preclude the offending company from participating in competing for government contracts, the lifeblood of many corporations.

Other problems can arise for American companies that re-locate out of the country.

Section 835 of the Homeland Security Bill, inserted by Sen. Chuck Grassley (R-Iowa), includes a provision on "ex-patriot companies," defined as U.S. companies that move their corporate base offshore for tax purposes. Such companies are now forbidden from government contracting.

"This is the first time we have ever seen any law that debars or prohibits a company from doing business with any part of the government because they did something that was perfectly legal," said Pavlick. "It's not illegal to incorporate overseas."

Intellectual property rights in the form of copyrights and patents will also be vulnerable to new homeland security rules, according to Pavlick.

Particularly vulnerable are small businesses competing for government contracts. "If they're not careful, they'll find that they might lose some of their intellectual property rights and potentially have restrictions on where they can sell their technology," he said.

That's because the government can legally take the rights to a product and use it for its own purposes and even give it to a larger company to incorporate in products already contracted by the federal government.

Another potential pitfall could crop up if a company fails to indicate that it wants to affirmatively designate copyrighted software as protected and retain intellectual property rights.

"While the general policy of the government is to take only the intellectual property rights that they need, a lot of times down at the individual contracting officer level, they'll just grab what they can take," said Pavlick.

"If you don't protect it, when you're selling it to the government, the government can take it and develop it on its own or give it to somebody else, a larger company, let's say, to develop it as part of a larger suite of software or a larger database," he explained.

On behalf of his clients, Pavlick often submits an "unsolicited proposal" to an agency to establish contractual limits on what the government can take.

Randy Johnson of the U.S. Chamber of Commerce is hoping the private sector advocate within the Department of Homeland Security will be able to thwart some of those potential pitfalls.

Though agencies will still be limited by current statutes in their rulemaking power, "there is a concern about what this new agency is going to be doing, and who's going to be impacted, and it's going to be hard to follow," said Johnson.

"It's hard enough to figure out a bureaucracy even when it's a much smaller one," he said. "It's going to be harder to figure this one out."

Small business groups like the National Federation of Independent Businesses (NFIB) and the Small Business Survival Committee (SBSC) say they're in wait-and-watch mode.

"You've got an administration [that's] sensitive to the concerns of small business," said SBSC President Darrell McKigney. "But you're talking about massive agencies of people. It seems unlikely that political appointees are going to get to manage all this stuff, so let's keep an eye on them."

But many banking, retail, chemical manufacturing and nuclear power businesses have reportedly been taking the offensive by opposing bills and proposed agency rules that require security-related expenditures or wrest private sector activities out of private sector control.

For example, the Nuclear Regulatory Commission (NRC) reportedly blocked legislative efforts to federalize security operations at 103 commercial nuclear power plants.

"It's our belief that the nuclear power plants are probably the best-defended civilian facilities in the United States," NRC spokesman William Beecher told the Washington Post in September. "We've taken security seriously for more than 25 years."


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Businesses and their lawyers are already taking steps to make sure regulators don't trample on American businesses and their rights in the name of security. The U.S. Chamber of Commerce made sure that the newly formed Department of Homeland Security will include a special...
Wednesday, 27 November 2002 12:00 AM
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