Secure Equipment Act Accelerates FCC Rulemaking to Prohibit Licenses for Chinese Security and Technology Equipment

One of the few areas where there is strong bi-partisan agreement in Congress is the perceived national security threat posed by China in the area of technology. The Secure Equipment Act of 2021 is the most recent effort to address that threat by imposing a deadline on the Federal Communications Commission (“FCC”) to broadly restrict the domestic use of technology produced by Huawei, ZTE, and certain Chinese security camera companies.

On November 11, 2021, President Biden signed the Secure Equipment Act of 2021, which requires the FCC “to clarify” that it will no longer review or approve any authorization for equipment on the FCC’s “covered list.” The list, first published on March 12, 2021, includes Chinese telecommunications and security camera companies that the U.S. Government has previously identified as national security risks (see prior alert here). Existing restrictions limit the use of such items in the context of government procurement and grants (see prior alert here). The Secure Equipment Act will have a much broader effect, however, as it pushes the FCC to enact rules to prohibit the use of certain Chinese technology by anyone in the United States.

FCC Actions To Date

The FCC is responsible for licensing radiofrequency (“RF”) emitting devices with the potential to interfere with radio communications. Before an RF emitting device, such as a laptop, security camera, or cellphone, can be marketed or imported into the United States, it must receive FCC approval. On June 17, 2021, the FCC published a notice of proposed rulemaking (“NPRM”), “Protecting Against National Security Threats to the Communications Supply Chain through the Equipment Authorization Program,” that sought public comment on whether the FCC should no longer authorize RF equipment from companies the FCC has placed on the “covered list” pursuant to the Secure and Trusted Communications Act of 2019. The companies whose products are currently on the covered list are: (1) Huawei Technologies Company, (2) ZTE Corporation, (3) Hytera Communications Corporation, (4) Hangzhou Hikvision Digital Technology Company, and (5) Dahua Technology Company, as well as their subsidiaries and affiliates. In its NPRM, the FCC also sought comment on whether it should revoke authorizations previously granted to equipment on the covered list.

FCC rulemakings are not generally subject to deadlines and are typically protracted processes where, as here, the restrictions have a potentially significant impact across the private sector. The Secure Equipment Act effectively accelerates the FCC rulemaking process by requiring the FCC to publish a final rule by November 11, 2022.

The exact scope of these restrictions remains to be seen, and it is possible that the FCC may seek to incorporate some degree of flexibility into the final rule. Notably with respect to existing equipment, the Act prohibits the FCC from using the current rulemaking to apply the restrictions retroactively. Consequently, even when the FCC issues its final rule, previously authorized equipment will continue to be able to be marketed, imported, and used in the United States. While the Act does not foreclose the possibility that the FCC will exercise its existing authority to impose retroactive restrictions through a separate rulemaking process, it has shown little interest in launching such efforts independent of a statutory mandate.

The new law, which passed unanimously in the Senate and with a significant majority in the House, is the most recent step in a growing bi-partisan effort to address the perceived threat posed by Chinese technology suppliers to U.S. consumers. Previously, the FCC prohibited U.S. telecom companies from purchasing covered list equipment with government funds and began reimbursing efforts by U.S. businesses to remove installed covered list equipment. Huawei recently lost a Fifth Circuit appeal challenging the funding prohibition.

President Biden signed the law just four days before his digital summit with Chinese President Xi Jinping. While the Biden Administration has taken a more measured tone towards China than the Trump Administration, it has done little to reverse the Trump Administration’s measures targeting China. These include the FCC’s measures, increased restrictions on the export of U.S. technology to China for use by companies of concern like Huawei, and continued restrictions on Chinese technology in government contracting.

Implications

In the event that the FCC takes a hardline in its rulemaking and declines to grant new licenses for equipment on the covered list, companies may need to identify alternative suppliers of new or updated telecommunications or security camera equipment. For now, there are no immediate bans on Chinese technology, but with the Secure Equipment Act, the clock is ticking. This new law accordingly provides strong incentives for companies to evaluate their supply chain to determine whether any equipment on the covered list is being used directly or is integrated into other products that the companies use.

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, and John Dermody, an O’Melveny counsel licensed to practice law in California and the District of Columbia, 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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