Trouble in the Solar System: CFIUS Blocks Jupiter Acquisition Five Years After the Fact

On July 8, President Trump issued an Executive Order (EO) blocking the acquisition of Jupiter Systems, LLC and its subsidiaries in Hong Kong and China — a provider of video wall processors and displays — by Suirui International Co., Limited, a Hong Kong company majority-owned by China’s Suirui Group Co. (together, the “Purchasers”).

The EO and accompanying statement published by CFIUS contain only limited details underlying the president’s decision to prohibit the acquisition, describing the transaction as presenting “a national security risk … relating to the potential compromise of Jupiter’s products used in military and critical infrastructure environments.”

The EO prohibits the acquisition, which was completed over five years ago, in February 2020. It requires that the Purchasers and their affiliates divest all interests and rights in Jupiter and Jupiter’s tangible or intangible assets and property, including its intellectual property, non-public source code associated with Jupiter products, and customer contracts (other than the assets and operations of the Jupiter subsidiaries in China and Hong Kong that were acquired or created after completion of the transaction in 2020). The Purchasers and Jupiter are also required to ensure that Jupiter hold no interests or rights in any assets or operations of Jupiter’s Chinese subsidiaries, which were acquired or created after the completion of the acquisition. This divestment must be completed within 120 days unless an extension of time is granted by CFIUS.

Pursuant to the EO, the Purchasers, their affiliates, and respective personnel must also immediately cease accessing Jupiter’s non-public source code, non-public technical information, information technology systems, products, parts and components, books and records, and facilities in the United States, unless approved by CFIUS. The EO requires that the access restrictions be implemented no later than seven calendar days after the date of the order.

Under the EO, the Purchasers must notify CFIUS of the sale or transfer of its interests in Jupiter and further requires that the Purchasers and Jupiter certify to CFIUS on a weekly basis that they and their affiliates are in compliance with the EO, until the Purchasers and Jupiter provide a certification of their divestment to CFIUS.

While prohibitions of transactions long after the fact were once vanishingly rare, they have become increasingly frequent as CFIUS has become more muscular and aggressive. The EO is a clear example of the importance of conducting a thorough review of CFIUS considerations in transactions involving foreign investment, particularly where such investment involves countries of interest like China, or where the acquired business collects sensitive personal data, has critical technology or exposure to critical infrastructure. Investors must be sure to understand the risks of declining to seek and obtain CFIUS clearance for such transactions.

US businesses and foreign investors must keep in mind the following best practices and considerations:

• A foreign entity or foreign-controlled entity acquiring or investing in a US business receiving investments from or being acquired by a foreign entity, or a foreign-controlled entity, should carefully review whether CFIUS has jurisdiction. This jurisdiction can arise from the acquisition of control, certain CFIUS-triggering rights in a US business, or interests in certain real estate.
• Just because a CFIUS filing is not mandatory does not mean you are off the hook! Even if a CFIUS filing is not mandatory, transaction parties should consider whether to submit one to protect themselves from future CFIUS scrutiny in the event of future US policy changes.
• Although any foreign investment or acquisition can trigger review where CFIUS has jurisdiction, investments and acquisitions by China and other sensitive jurisdictions are especially likely to trigger CFIUS scrutiny.
• CFIUS maintains jurisdiction over transactions in perpetuity. Technology that may appear benign at the time of a transaction may in future be more closely scrutinized. When in doubt, especially with transactions involving sensitive jurisdictions, a CFIUS filing is often advisable. A CFIUS filing is the only way to seek safe harbor for a transaction over which CFIUS has jurisdiction.