H.R. 3961: To prohibit the Secretary of Defense from entering into software source code contracts with entities with certain relationships with China, and for other purposes.

This bill aims to restrict the Department of Defense (DoD) from entering into contracts for software source code with specific entities that have ties to a country deemed as a "covered country," which primarily refers to China. Below are the main components of the bill:

Prohibition Details

The Secretary of Defense is prohibited from:

• Entering into new contracts for the provision of software source code.
• Renewing or extending existing contracts.

Criteria for Prohibition

The prohibition applies to entities that meet any of the following criteria:

• Own or operate a facility in a covered country focused on researching or developing artificial intelligence (AI).
• Have allowed a covered country access to the software or the source code, enabling possible reverse engineering of that software.
• Operate a data center in a covered country related to the software source code, including those managed by a parent or affiliate of the contracting entity, or run on behalf of the contracting entity by a covered country.

Waiver Provision

The Secretary of Defense can waive these prohibitions if considered necessary for the national security interests of the United States.

Timeframe of Applicability

This prohibition applies to contracts that are:

• Entered into, renewed, or extended within three years after the law comes into effect.

Definitions

Key definitions in this bill include:

• Covered Country: Defined as per the existing law regarding covered foreign entities.
• Material Interest: Refers to a financial or other interest significant enough to influence a person's decisions or actions.

Relevant Companies

• TCEHY - Tencent Holdings Limited may be impacted since it has operations in AI and technology. Any contracts engaged with the U.S. government related to software may be affected due to these restrictions.
• BABA - Alibaba Group Holding Limited might see a direct impact on its software contracts if it has any dealings with the U.S. military or defense contracts due to its connections and operations in the AI field.