Thursday, October 3, 2013

Software product country of origin (COO)

Late last year, US Customs (CBP) issued an advisory ruling regarding how to determine the COO for software products when software is developed partially in a country not listed in the Trade Agreements Act as a designated country. For example, China is not a designated country. A fair description has been written up here. The ruling provides a template for labeling the COO as a designated country despite using source code developed in a non-designated country.

The reason software companies would want to certify their product's COO as a designated country is so they could sell their software to the US Government. The main problem is that competitors (or whistleblowers) can sue under the False Claims Act. Significant damages can be awarded if the court finds the COO is not correct.

Now the companies that want to label their software COO as a designated country can get a better chance at either defending such claims or getting a binding ruling from CBP. These companies are scrambling to hire law firms to determine if the advisory ruling can help, to seek a binding ruling from CBP, and to otherwise gather evidence to use to back COO claims. I consulted for BlankRome LLP to help them with just such a task. In particular, I examined their client's software development processes to help determine whether and how they fit the template, and to see what evidence there is to claim that the software product is "Made in the USA" despite the fact that much of the software, in terms of source code, has been written in China. While the details of my engagement (who, what, how) are covered by an NDA, I can give some high-level intuition on the issue.

At first blush, it seems counter-intuitive that the bulk of software can be written in one country, while the end product claims to be another. The defensible stance, however, is to claim that the creativity and human knowledge required to make the software comes out of the design, requirements specifications, and testing/validation. The key seems to be that experts in the US should be involved in making decisions both about how the software is written and in selecting the code modules to use.

1 comment:

  1. Software outsourcing in Eastern Europe is quite beneficial in terms of an attractive cost-to-quality ratio. Geographically all these countries are in a close proximity to each other and Western Europe. But still they have a range of differences. Learn more about best country for web developers.