Von: Sylvia F. Jakob
On Thursday, 6th December, 2012, Talend, a global open source software provider, announced a favourable advisory ruling from the U.S. Customs and Border Protection agency (CBP) in relation to the government's ability to purchase open source software that was developed and substantially transformed in a designated country, but also included, or was based upon, source code from a non-designated country.
Whilst every country addresses rules around how its government entities can procure goods and services, the U.S. has particularly complex and unique laws in this area.
The Buy American Act of 1933 (BAA), now contained in Title 41, Subtitle IV, chapter 83 of the United States Code, §§ 8301 – 8305 was designed to boost the economy in the immediate aftermath of the Great Depression by requiring the United States Government to invest in U.S.-made products only.
It was not until the implementation of the Trade Agreements Act of 1979 (TAA), codified in Title 19 U.S.C. chapter 13, §§ 2501 – 2581, which provided the implementing legislation for the Tokyo Round of the General Agreement on Tariffs and Trade, that the Government obtained the authority to waive provisions of the Buy American Act under certain conditions. Guidance on TAA compliance can be found in the Federal Acquisition Regulations (FAR) Subpart 25.4. Waivers may be given to eligible products that are “TAA compliant”. A product is "TAA compliant" if it was made in the United States or a “designated country”. It is worth noting that all 27 countries of the European Union feature in this list; Argentine, Brazil, India, the People´s Republic of China and Russia do, however, not appear - countries with significant software development potential.
While governments around the world have been increasingly embracing open source software, adoption has been slow and inconsistent in the U.S. An important factor of this stagnation may be ascribed to the fact that open source software is frequently an aggregation of development efforts from designated and non - designated countries, which prompts the question of TAA compliance.
According to the TAA, a product is eligible and TAA - compliant, if it was made in the US or a designated country. Title 19 of the United States Code § 2518 (4) provides the definition of when a product can be regarded as having been “produced” in a certain country:
“An article is a product of a country or instrumentality, only if (i) it is wholly the growth, product or manufacture of that country or instrumentality, or (ii) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character or use distinct from that of the from which it was so transformed. “
To clarify when and under which circumstances a product is substantially transformed, Talend asked the CBP to give an advisory ruling in June 2009, 2011, in relation to two categories of imported software products, database management software products (“DM”) and application integration (“AI”) software products.
Talend advised the CBP, that their software was produced in a 7 – step – manufacturing – process:
Research, which entailed developing a roadmap for the next release of the software product - 20 % of the overall workload, carried out in France in relation to DM; carried out in the U.S., Ireland and France and/ or Germany in relation to AI.
Development of the graphical user interface (GUI) - 20% of the overall workload, carried out in France in relation to DM; carried out in France or Germany in relation to AI.
Development and writing of the specification and architecture for the software product -10 % of the overall workload, carried out in France in relation to DM; carried out in France or Germany in relation to AI.
Programming of the source code -15 % of the overall workload, carried out in China in relation to DM, carried out in France, Germany, or China in relation to AI.
The software build, the process of methodically converting source code files into standalone lines, routines and subroutines of software object code files into standalone lines, routines and subroutines of software object code that could be run by a computer - 20% of the overall workload, carried out in France in relation to DM; carried out in France or Germany in relation to AI.
Testing and validation of the software product - 10% of the overall workload, carried out in China in relation to DM; carried out in Germany in relation to AI.
Burning the software product onto the server media - 5 % of the overall workload, carried out in France or the U.S. in relation to DM; carried out in France or the U.S. in relation to AI.
The question was thus, whether DM and AI software could be regarded as having been substantially transformed into a new and different article in a designated country as to become TAA compliant.
The CBP based its decision on the Court’s dicta in Data General v. United States, 4 CIT 182 (1982), in which it was held that the programming of a foreign Programmable Read – Only Memory Chip (PROM) in the U.S. substantially transformed the PROM into a U.S. article. The PROM had no capacity to store and retrieve information until they were programmed in the U.S. by interconnecting the discrete components in a defined logical pattern by experienced production engineers.
In line with this decision the CBP held that the DM software was substantially transformed in France as the primary design and software build occurred in France (step 5). The same reasoning was applied to the AI software, for which the CBP held that it was substantially transformed into a new article where the software build was performed, which was either France or Germany.
Talend’s CEO Bertrand Diard welcomed the decision:"This is great news for everyone in the software industry. While the news is significant for Talend and offers an opportunity for us to address needs in the Federal space, our belief is that many software vendors – whether they are open source-based or not – will benefit from the ruling."