NSIA bites: first transaction blocked

On 20 July 2022, the Secretary of State for Business, Energy and Industrial Strategy (SoS) issued the first-ever order blocking a transaction on grounds of national security under the National Security and Investment Act (NSIA). The order provides some interesting insights into the practical application of the NSIA. 

The transaction was between the University of Manchester and Beijing Infinite Vision Technology Company Ltd. (Beijing Infinite), a Chinese technology company specialising in 3G rendering technologies. The parties entered into a licence agreement relating to the SCAMP-5 and SCAMP-7 vision sensing technology developed at the University of Manchester. The technology revolves around a 'vision chip' which could enable the next generation of autonomous robots with both civilian and military applications. Under the license agreement, Beijing Infinite could use the technology to develop, test and verify, manufacture, use and sell licensed products.  

The transaction amounted to the acquisition of control over a qualifying asset within the meaning of the NSIA. The qualifying asset was the technology cutting across several sensitive areas of the economy protected by the NSIA (advanced robotics, military and dual use, potentially artificial intelligence). Despite asset transactions not being subject to mandatory notification under the NSIA, the University of Manchester is understood to have decided to make a voluntary notification of the transaction to the UK government. 

The SoS prevented the transaction from proceeding on the ground that the technology has dual-use applications and can be used to build defence or technological capabilities which may present national security risk to the UK. The SoS considered that the order is necessary and proportionate to mitigate the risk to national security.

The NSIA is predominantly aimed at acquisitions of qualifying entities the notification of which is mandatory (as opposed to acquisitions of qualifying assets which can be notified on a voluntary basis). From that perspective, the fact that the first order preventing an acquisition under the NSIA pertains to assets rather than entities can be surprising, considering that the government itself, in its guidance, states that intervention in the case of assets is likely to be rare. The order clearly confirms that a voluntary notification can result in the underlying transaction being blocked if it poses a national security risk to the UK.