FCC Bans New Licenses for the Import and Use of Certain Chinese Telecommunications and Video Surveillance Equipment
December 5, 2022
The Biden Administration has taken a significant step to address threats posed by foreign technology to US consumers. On November 25, 2022, the Federal Communications Commission (“FCC”) issued a Report and Order that prohibits the import or sale in the United States of any new Huawei and ZTE products or services, and severely limits the import or sale of new video surveillance and telecommunications equipment produced by Hytera, Hikvision, and Dahua. Because this equipment requires a license to be marketed, imported, and used in the United States, the Order could significantly curtail the importation and use of a wide range of products that are included on the FCC’s list of technologies that raise national security concerns (the “Covered List”). The prohibitions do not apply to currently licensed equipment and services, but the FCC is considering whether it should revoke existing licenses. This new measure supplements steps the US Government has already taken to address perceived threats from foreign technology (see prior alerts here, here, here), but this action is more aggressive and wide-reaching. Companies in the telecommunications and video surveillance supply chain should evaluate the relevance of the technology on the Covered List to their business, and consider measures to account for future restrictions on that technology.
Key Highlights of the Rule
The Order is the culmination of a years-long back and forth between the FCC and Congress that started with the Secure and Trusted Networks Act of 2019 (the “Secure Network Act”). The Secure Network Act directed the FCC to develop a list of communications equipment and services that posed a national security risk (the Covered List), prohibited the FCC from allowing federal subsidies to be used to purchase equipment on the Covered List, and established a program to fund certain providers to rip and replace equipment on the Covered List. Consistent with the FCC’s traditional approach of deferring to the national security expertise of the Executive Branch, the Secure Network Act did not give the FCC discretion to identify national security threats on its own, but directed the FCC to populate the Covered List based solely on four enumerated sources:
- a “specific determination made by any executive branch interagency body with appropriate national security expertise, including the Federal Acquisition Security Council;”
- a “specific determination made by the Department of Commerce pursuant Executive Order No. 13873 ... relating to securing the information and communications technology and services supply chain” [the ICT Supply Chain EO];
- the “communications equipment or service being covered telecommunications equipment or services, as defined in section 889(f)(3) of [the 2019 National Defense Authorization Act (‘NDAA’)];”
- a “specific determination made by an appropriate national security agency.”
The FCC placed a number of technologies on the list, including telecommunications and video surveillance equipment produced by Huawei, ZTE, Hytera, Hikvision, Dahua, and Kasperksy Labs, but did not immediately take further action. Instead, it requested public comment on whether it should restrict licenses for technology included on the Covered List. The Secure Equipment Act of 2021 forced the FCC’s hand, and required the FCC “to clarify” that it “will no longer review or approve any application for equipment authorization for equipment that is on the list of covered communications equipment or services published by the Commission.” The FCC implemented this requirement in the present Order.
Key Provisions of the Order
The Order prohibits the FCC from granting licenses for telecommunications and video surveillance equipment produced by Huawei and ZTE, as well as their subsidiaries and affiliates. Because these technologies were specifically identified by Congress in section 889 of the 2019 NDAA, the FCC was compelled to place them on the Covered List, and thus subject them to the licensing restriction.
With regard to Hytera, Hikvsion, and Dahua, the restrictions on licensing are less direct, but no less significant. Hytera, Hikvsion, and Dahua are also included in section 889 of the 2019 NDAA, but only to the extent their telecommunications and video surveillance products are used for public safety, government facility security, critical infrastructure security, or national security purposes. To account for this “purpose” limitation, the Order creates a process by which the companies can present for FCC approval a plan “to ensure that such equipment will not be marketed or sold” for a prohibited purpose. This plan must include measures to ensure that equipment distributors, dealers, and others in the supply and distribution chain are aware of the purpose restrictions and do not market or sell the covered technology for prohibited purposes.
But the FCC’s interpretation of the purpose limitations may be so expansive that Hytera, Hikvsion, and Dahua could be effectively foreclosed from obtaining licenses. Most significant is the FCC’s interpretation of critical infrastructure security, which encompasses the 16 critical infrastructure sectors identified by the US Government and includes office and apartment buildings, casinos, conference centers, shopping malls, sports stadiums, amusement parks, hospitals, airports, railways, roadways, pipelines, energy production and transportation facilities, chemical production facilities, appliance manufacturing facilities, and much more. Depending upon how strictly the FCC applies its interpretation of critical infrastructure, the market for these security camera manufacturers may be limited to just personal use.
The Order also requires entities named on the Covered List to submit to the FCC, under the penalty of perjury, a complete and accurate list of their affiliates and subsidiaries that produce equipment that requires authorization under the Order. This requirement may illuminate otherwise opaque business relationships, and identify additional entities that are subject to related government procurement restrictions, such as those imposed by section 889 of the 2019 NDAA.
The Order also specifically highlights whitelisting—the practice of repackaging or relabeling a restricted product—as something that the FCC has observed in the market for equipment on the Covered List and notes that such activity is prohibited by the Order.
Finally, the FCC made a number of changes to its licensing process to effectuate these restrictions, including tightening the requirements for its Supplier’s Declaration of Conformity (“SDoC”) process, which allowed suppliers to self-certify that their products were compliant with FCC licensing requirements.
The FCC Order does not impose an immediate ban on the importation or use of already-licensed Huawei, ZTE, Hytera, Hikvision, and Dahua telecommunications and video surveillance equipment, but promises to profoundly shape the domestic market as supply of currently approved equipment dwindles. The FCC could still revoke existing licenses, creating uncertainty for suppliers and users of Huawei, ZTE, Hytera, Hikvision, and Dahua products in the United States. Such retroactive measures could take the form of a ban on the importation of already licensed equipment, or the more draconian approach of banning the use of already imported and installed equipment, which would require users to remove and replace equipment.
In requesting further comment on some of the provisions of the Order, the FCC acknowledges that this is a novel undertaking, and that further revisions of its evaluation, information gathering, and enforcement procedures may be required. Companies in the telecommunications and surveillance technology market should take advantage of this opportunity to share their perspective on the new rules and their practical impact.
Whether or not companies are immediately impacted, the FCC’s enforcement of this Order warrants sustained attention, as it may serve as a bellwether for further US Government action to invoke national security concerns to regulate the use of foreign technology by the American public.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, Sid Mody, an O’Melveny partner licensed to practice law in Texas, John Dermody, an O'Melveny counsel licensed to practice law in the District of Columbia and California, David J. Ribner, an O'Melveny counsel licensed to practice law in the District of Columbia and New York, and Shruti Kannan, an O’Melveny associate licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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