How a US Semiconductor Firm Navigated China’s Restricted Technology List: Technology Licensing Case Study

Executive Summary

In 2023, a mid-cap US semiconductor design company headquartered in Santa Clara, California, faced a complex strategic challenge: how to license its advanced gallium nitride (GaN) power semiconductor technology to a Chinese manufacturing partner while complying with both US export control regulations and China’s Catalog of Technologies Prohibited or Restricted from Import. The company, referred to here as SemiPower Inc., had developed a proprietary GaN-on-silicon epitaxial growth process and a complementary gate-driver integrated circuit design that together enabled power conversion efficiency levels exceeding 98.5 percent in data center power supply applications. China represented approximately 35 percent of the global data center power semiconductor market, making it a strategically critical market for SemiPower’s technology.

This case study examines how SemiPower structured a technology licensing agreement that navigated the overlapping restrictions of the US Bureau of Industry and Security (BIS) Export Administration Regulations (EAR), specifically the Entity List and the Semiconductor Manufacturing Equipment and Technology export controls imposed in October 2022 and expanded in 2023, alongside China’s domestic technology import control regime. The transaction involved a total consideration of USD 28 million, including upfront payments, milestone-based royalties, and a minority equity investment by the Chinese partner in SemiPower’s newly established Hong Kong licensing subsidiary.

The Strategic Dilemma: Dual Regulatory Pressure

The Technology at Stake

SemiPower’s competitive advantage rested on two core technology platforms. The first was a metal-organic chemical vapor deposition (MOCVD) process for growing GaN epitaxial layers on 200mm silicon wafers, achieving a threading dislocation density below 10^8 per square centimeter and a breakdown voltage exceeding 1,200 volts. The second was a proprietary gate-driver integrated circuit that optimized switching characteristics for GaN power transistors, reducing switching losses by approximately 23 percent compared to industry-standard silicon-based solutions. SemiPower held 38 US patents and 12 international patent applications covering these technology platforms.

The Chinese partner, referred to here as SinoFab Semiconductor, operated a 200mm wafer fabrication facility in Wuxi, Jiangsu Province, and was actively expanding its compound semiconductor manufacturing capabilities. SinoFab had existing production lines for silicon-based power management integrated circuits but lacked the epitaxial growth and device design expertise to enter the GaN power semiconductor market independently. The company had secured approximately USD 150 million in government-supported funding to establish a dedicated GaN production line and was seeking technology partners to accelerate the development timeline.

US Export Control Landscape

The US regulatory environment for semiconductor technology exports to China underwent significant tightening during the negotiation period. In October 2022, the BIS published an interim final rule imposing extensive export controls on semiconductor manufacturing equipment, electronic design automation software, and advanced computing chips destined for China. These controls were further expanded in August 2023, adding additional restrictions on advanced-node integrated circuit design and manufacturing technologies. SemiPower’s GaN technology fell into a gray area: while GaN power semiconductors were not explicitly listed in the Commerce Control List (CCL) under the same classification as advanced logic or memory chips, the MOCVD process technology and certain device design parameters could be interpreted as falling within the scope of the expanded controls.

SemiPower engaged a Washington D.C.-based export controls law firm with specialized expertise in semiconductor industry regulations to conduct a jurisdictional analysis. The law firm determined that SemiPower’s GaN epitaxial growth process technology required a classification request to the BIS to determine whether it fell under Export Control Classification Number (ECCN) 3E003 (technology for the development or production of controlled semiconductor devices) or could be classified under the more permissive ECCN 3E992 (technology for the development or production of non-controlled semiconductor devices). This classification would determine whether a BIS export license was required and, if so, what standard of review would apply.

Regulatory Classification and Licensing Strategy

BIS Classification Request Process

The classification request to BIS was submitted in January 2023 and encompassed a detailed technical specification of the GaN epitaxial growth process, including growth parameters, reactor configuration details, and material characterization data. SemiPower’s legal team structured the submission to emphasize the power semiconductor application (as opposed to radio frequency or optoelectronic applications, which are subject to stricter controls) and the 200mm wafer size (as opposed to 300mm or larger substrates associated with more advanced process nodes). The submission also highlighted that the GaN-on-silicon technology was a mature, commercially available process that had been in production in other jurisdictions, including Taiwan and Singapore, since 2018.

The BIS issued its classification determination in April 2023, concluding that SemiPower’s GaN power epitaxial growth process fell under ECCN 3E992, which is subject to a presumption of approval for license applications to China. This classification was a favorable outcome for SemiPower, as it meant that a license would likely be granted provided that certain conditions were met, including restrictions on the use of the technology for military end-use or by military end-users. The classification request process consumed approximately three months and cost approximately USD 85,000 in legal and consulting fees, but it provided the regulatory clarity needed to proceed with the commercial negotiations.

China’s Technology Import Control Assessment

Concurrent with the US regulatory analysis, SemiPower’s Chinese legal advisors assessed whether the GaN technology fell within China’s restricted or prohibited technology import categories. The Catalog of Technologies Prohibited or Restricted from Import (2023 revision) includes certain semiconductor manufacturing technologies under the restricted category, specifically those related to the production of compound semiconductor materials and devices. The applicable regulatory framework is the Administrative Regulations on Technology Import and Export (State Council Order No. 331), which requires MOFCOM registration for restricted technology import contracts and imposes conditions on the scope and duration of such licenses.

The Chinese legal team determined that the GaN epitaxial growth process technology fell within a restricted category because it involved the deposition of compound semiconductor materials (gallium nitride) on silicon substrates, a process that could be classified under the restricted technology category for compound semiconductor epitaxial growth. However, the gate-driver integrated circuit design technology was classified as non-restricted, as it was a circuit design methodology that did not involve the manufacture of controlled semiconductor devices. This bifurcated classification required SemiPower to structure the licensing agreement into two separate but interconnected contracts: one for the restricted GaN epitaxial technology (subject to MOFCOM registration) and one for the non-restricted gate-driver design technology (subject only to standard contract registration requirements).

Contractual Structure and Key Provisions

Dual-Contract Framework

The final transaction was structured through two separate but cross-referenced licensing agreements, each governed by the regulatory framework applicable to its subject matter. The Technology License Agreement A covered the GaN epitaxial growth process technology (restricted), was governed by the laws of the People’s Republic of China, and was submitted for MOFCOM registration. Technology License Agreement B covered the gate-driver integrated circuit design technology (non-restricted), was governed by the laws of Hong Kong SAR, and was registered with the local commerce authorities in Wuxi through the standard technology contract filing process.

Entity List and Red Flag Provisions

A critical consideration in the contractual structure was ensuring that the technology would not be diverted to entities on the US Entity List or to military end-users in China. The licensing agreement included comprehensive end-use and end-user controls, including a contractual representation from SinoFab that it was not listed on any US, EU, or UN sanctions lists and that the licensed technology would be used exclusively for commercial data center power supply applications. SemiPower retained audit rights to verify compliance with these restrictions, including the right to conduct physical inspections of SinoFab’s Wuxi facility upon reasonable notice.

The agreement also included a technology diversion prevention clause requiring SinoFab to implement physical and digital access controls limiting exposure to SemiPower’s proprietary technical documentation to Chinese nationals who were not affiliated with military or state-security institutions. This clause was essential to SemiPower’s compliance with both US export control requirements and China’s data security and anti-espionage laws, which impose severe penalties for technology transfers that threaten national security.

IP Protection and Technology Escrow

Given the sensitivity of the GaN technology and the regulatory complexities involved, the parties established a technology escrow arrangement through a licensed escrow service provider in Hong Kong. Under this arrangement, SemiPower deposited the complete technical documentation package, including MOCVD process recipes, equipment configuration specifications, and quality control protocols, in an encrypted digital vault. SinoFab could access the documentation only under specific conditions: upon achievement of predefined technical milestones (demonstration of baseline epitaxial growth capability), in the event of SemiPower’s insolvency or material breach, or with SemiPower’s express written consent for specific technical troubleshooting purposes.

The escrow agreement addressed the unique regulatory challenges of the dual-regime transaction by requiring SemiPower to maintain the escrowed technology in compliance with both US export control regulations and China’s technology import requirements. The escrow agent was required to obtain approval from both SemiPower and, where applicable, the relevant Chinese regulatory authorities before releasing any restricted technology to SinoFab. This multi-layered access control structure added approximately 2.5 percent to the total transaction costs but provided both parties with significantly enhanced regulatory compliance assurance.

BIS License Application and Approval

Application Preparation and Submission

SemiPower submitted its BIS export license application in May 2023, following the favorable classification determination. The application package included the classification determination letter, the technology description and specifications, end-user and end-use certifications from SinoFab, a technology protection plan describing the physical and digital security measures that would be implemented at the Wuxi facility, and copies of the proposed licensing agreements with the restricted technology components clearly identified. SemiPower also included a detailed market analysis demonstrating that the licensed technology was commercially available from multiple non-US suppliers, a factor that BIS considers in evaluating the competitive impact of license denials.

The BIS review process took approximately seven months, substantially longer than the 30- to 60-day review period that SemiPower had initially anticipated. The extended review period was attributed to two factors: the interagency review process involving the Department of Defense and the Department of Energy, both of which had an interest in GaN technology due to its defense and critical infrastructure applications, and the broader policy review of semiconductor export controls to China that was ongoing at the time. SemiPower’s legal team maintained regular communication with BIS case officers throughout the review period, providing supplemental information and clarifications as requested.

License Conditions and Compliance Requirements

The BIS issued its export license approval in December 2023, subject to several conditions. The license was valid for a period of four years (rather than the standard ten-year validity period for most individual validated licenses), required SemiPower to submit annual compliance reports demonstrating that the technology was being used only for authorized commercial applications, and imposed a restriction on the transfer of the licensed technology to any third party in China without prior BIS approval. The license also required SemiPower to maintain records of all technology transfers, including training sessions, technical documents provided, and electronic communications containing technical data, for a period of five years after the license expiration date.

Implementation Outcomes and Lessons

Technology Transfer and Production Ramp-Up

The technology transfer was executed over a 12-month period, beginning in February 2024 after all regulatory approvals were obtained. SemiPower deployed a team of eight US-based process engineers to the Wuxi facility in three two-month rotations, focusing on MOCVD reactor calibration, process parameter optimization, and operator training. The transfer encountered several challenges, including differences in facility utility specifications (particularly deionized water resistivity and compressed air purity) that required modifications to the process equipment configuration, and the need to qualify alternative precursor material sources after initial shipments of gallium-containing precursors from the US supply chain experienced shipping delays of four to six weeks.

By the end of 2024, SinoFab had achieved a baseline GaN epitaxial growth process capable of producing wafers with device performance characteristics approximately 92 percent of SemiPower’s baseline specifications. The remaining performance gap was addressed through a joint optimization program that continued into early 2025. SemiPower’s royalty revenues from the agreement reached approximately USD 1.2 million in the first full year of production, compared to the projected USD 2.8 million, primarily due to the slower-than-expected ramp-up of SinoFab’s customer qualification process for data center power supply applications.

Strategic Implications for Foreign Semiconductor Technology Holders

The SemiPower case demonstrates that technology licensing into China’s semiconductor market remains feasible under the current US export control regime, but the transaction complexity and cost have increased substantially. Companies pursuing similar strategies should consider several structural approaches. Establishing an intermediate licensing entity in a jurisdiction with robust IP protections and regulatory autonomy, such as Hong Kong, can provide flexibility in contract structuring while maintaining compliance with both US and Chinese regulations. The dual-contract approach employed by SemiPower, which separated restricted and non-restricted technology components into separately governed agreements, proved effective in managing the overlapping regulatory requirements of both countries.

The case also highlights the importance of proactive regulatory intelligence. The US export control landscape for semiconductor technology evolved significantly during the 18-month period from SemiPower’s initial planning through license issuance. SemiPower benefited from having engaged specialized export controls counsel early in the process, which allowed the company to structure the transaction in a manner that anticipated regulatory changes rather than reacting to them after the fact. Companies that delay engaging regulatory expertise until after commercial terms are negotiated often find that their preferred transaction structure is no longer viable under current regulations.

Conclusion

SemiPower’s successful navigation of the US-China dual regulatory framework for semiconductor technology licensing demonstrates that while the barriers have increased, well-structured transactions remain achievable. The keys to success were early and continuous engagement with regulatory experts in both jurisdictions, a flexible transaction structure that could accommodate regulatory changes during the negotiation and approval process, and a committed implementation strategy that recognized the operational complexities of transferring advanced semiconductor manufacturing technology across borders. For companies with strategically important semiconductor technology, China remains a market that cannot be ignored, but the path to accessing that market through technology licensing requires careful regulatory planning, substantial compliance investment, and realistic timeline expectations.