Huawei Tech USA v. FCC

Case: 19-60896 Document: 00515905664 Page: 1 Date Filed: 06/18/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
June 18, 2021
No. 19-60896
Lyle W. Cayce
Clerk
Huawei Technologies USA, Incorporated; Huawei
Technologies Company, Limited,
Petitioners,
versus
Federal Communications Commission; United States of
America,
Respondents.
On Petition for Review of an Order of the
Federal Communications Commission, No. 19-121
Before Elrod, Duncan, and Wilson, Circuit Judges.
Stuart Kyle Duncan, Circuit Judge:
An FCC rule bars using government subsidies to buy equipment from
companies designated security risks to communications networks. See
Protecting Against National Security Threats to the Communications Supply
Chain Through FCC Programs, 85 Fed. Reg. 230-01 (Jan. 3, 2020). We
consider a challenge to that rule by Huawei Technologies Company and its
American affiliate, Huawei Technologies USA.
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Introduction
The federal government annually distributes billions of dollars to
promote telephone and Internet service across our nation. These subsidies,
called “universal service funds,” are administered by the Federal
Communications Commission (“FCC”). Last year, that agency issued a rule
barring recipients from using the funds to buy equipment or services from
companies designated “national security risks” to communications networks
and supply chains. Under the rule, the FCC designated Huawei, a Chinese
telecom provider, and its American affiliate as national security risks. The
companies now level myriad challenges, both statutory and constitutional, to
the rule and to their designation.
Their most troubling challenge is that the rule illegally arrogates to the
FCC the power to make judgments about national security that lie outside
the agency’s authority and expertise. That claim gives us pause. The FCC
deals with national communications, not foreign relations. It is not the
Department of Defense, or the National Security Agency, or the President.
If we were convinced that the FCC is here acting as “a sort of junior-varsity
[State Department],” Mistretta v. United States, 488 U.S. 361, 427 (1989)
(Scalia, J., dissenting), we would set the rule aside.
But no such skullduggery is afoot. Assessing security risks to telecom
networks falls in the FCC’s wheelhouse. And the agency’s judgments about
national security receive robust input from other expert agencies and
officials. We are therefore persuaded that, in crafting the rule, the agency
reasonably acted within the broad authority Congress gave it to regulate
communications. Additionally, having carefully considered the companies’
other challenges under the Administrative Procedure Act and the
Constitution, we find those unavailing as well.
We therefore deny the petition for review.
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Table of Contents
Background .................................................................................................. 4
Procedural History...................................................................................... 11
Standard of Review ..................................................................................... 12
Discussion .................................................................................................. 14
I. Ripeness ................................................................................................ 14
II. Statutory Authority ............................................................................. 17
A. Lack of Express Prohibition in Act ................................................... 17
B. Chevron Analysis ............................................................................... 18
1. “Public Interest” Provisions ........................................................... 19
2. “Quality Services” Provision ........................................................ 25
C. Additional Arguments ..................................................................... 30
1. Lack of National Security Expertise ............................................... 30
2. Conflict with Presidential Authority ............................................... 31
3. Secure Networks Act ..................................................................... 32
III. Substantive Challenges....................................................................... 37
A. Adequacy of Notice .......................................................................... 37
B. Arbitrary and Capricious Review ...................................................... 41
1. Consideration of Relevant Evidence and Arguments ...................... 41
2. Cost-Benefit Analysis .................................................................... 46
3. Rejection of Risk-Based Approach .................................................. 51
C. Vagueness ........................................................................................ 54
D. Due Process ..................................................................................... 58
IV. Conclusion ......................................................................................... 61
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Background
Huawei Technologies Company (“Huawei”) is a global provider of
telecommunications equipment and services established and headquartered
in China. It supplies smart device, cloud, and 5G broadband cellular
technology to commercial entities and consumers. Huawei-USA launched in
2001 and maintains its U.S. headquarters in Plano, Texas.
As early as 2011, Huawei began attracting the U.S. government’s
attention as a potential security risk to American telecommunications
networks.1 In October 2012, the U.S. House Permanent Select Committee
on Intelligence (“HPSCI”) published a report finding, “Huawei . . . cannot
be trusted to be free of foreign state influence and thus pose[s] a security
threat to the United States and to our systems.” HPSCI Report, at vi–vii. The
HPSCI admonished U.S. government systems operators and contractors to
exclude Huawei equipment and encouraged private entities to reconsider
Huawei-associated security risks and “seek other vendors.” Id. at vi.
In late 2017, members of Congress expressed apprehension about
“Chinese espionage” and “Huawei’s role in [it]” to then-Chairman of the
FCC, Ajit Pai.2 Pai’s reply conveyed “share[d] . . . concerns about the
security threat that Huawei and other Chinese technology companies pose to
our communications networks.”3 He promised “to take proactive steps” to
1
Mike Rogers & C.A. Dutch Ruppersberger, HPSCI,
Investigative Report on the U.S. National Security Issues Posed by
Chinese Telecommunications Companies Huawei and ZTE iv (2012),
https://tinyurl.com/yyp5muou [hereinafter HPSCI Report].
2
Letter from Tom Cotton et al., Members, U.S. Congr., to Ajit Pai, Chairman &
Commiss’r, FCC (Dec. 20, 2017), https://tinyurl.com/yx6xp217.
3
Letter from Ajit Pai, Chairman, FCC, to Tom Cotton, Sen., U.S. S. (Mar. 20,
2018), https://tinyurl.com/u2verd9.
4
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“ensure the integrity of the communications supply chain . . . in the near
future.” Id.Around this time, Congress passed, and the President signed into law,
the National Defense Authorization Act for Fiscal Year 2018 (“2018
NDAA”), which barred the Defense Department from procuring
telecommunications equipment produced by Huawei.4 The 2019 NDAA
went further, prohibiting all executive agencies from obtaining Huawei
equipment, contracting with entities that use it, or using loan or grant funds
to obtain it.5 Sharing these concerns, then-President Donald Trump issued
executive orders addressing the issue in 2019 and 2020.6
Against this backdrop, the FCC issued an April 2018 notice of
proposed rulemaking (“NPRM”), “In the Matter of Protecting Against
National Security Threats to the Communications Supply Chain Through
FCC Programs.”7 The notice concerned “universal service funds” (or
“USF funds”), a pool of money the FCC dispenses to certain providers to
promote “universal service.” See 47 U.S.C. § 254(e); see also Alenco
Commc’ns, Inc. v. FCC, 201 F.3d 608, 617 (5th Cir. 2000).8 USF funds foster
affordable telephone and internet access in high-cost areas, subsidize rates
4
See Pub. L. No. 115-91, § 1656(b)(1), (c)(3)(A), 131 Stat. 1283, 1762 (2017).
5
See Pub. L. No. 115-232, § 889(a)–(b), (f)(3)(A), 132 Stat. 1636, 1917–18 (2018).
6
Exec. Order No. 13,873, 84 Fed. Reg. 22,689 (May 15, 2019); Exec. Order No.
13913, 85 Fed. Reg. 19,643 (Apr. 4, 2020).
7
Notice of Proposed Rulemaking in the Matter of Protecting Against National
Security Threats to the Communications Supply Chain Through FCC Programs (“Supply
Chain Rulemaking”), FCC 18-42, WC Docket No. 18-89, 33 FCC Rcd. 4058 (released Apr.
18, 2018).
8
Universal service is defined as “an evolving level of telecommunications services
that the Commission shall establish periodically . . . , taking into account advances in
telecommunications and information technologies and services.” § 254(c)(1).
5
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for rural health care facilities, and support services for schools and libraries.9
The NPRM sought comment on a proposed rule that would prohibit using
USF funds “to purchase equipment or services from any communications
equipment or service providers identified as posing a national security risk to
communications networks or the communications supply chain.” 33 FCC
Rcd. at 4058. The NPRM also solicited comment on “how to identify
companies” that pose such threats and proposed several approaches.10 Id. at
4064. Comment was also sought on other steps the FCC could take, waivers
for USF applicants, costs and benefits, and sources of legal authority for the
rule. Id. at 4068–70. The NPRM drew extensive comments, including from
Huawei.11
9
See 47 U.S.C. § 254; Tex. Off. of Pub. Util. Couns. v. FCC, 183 F.3d 393, 406, 407–
08 (5th Cir. 1999) [hereinafter TOPUC I]. The USF fund’s annual budget is about $8
billion. Universal Service Administrative Co., 2020 Annual Report 5
(2021), https://www.usac.org/wp-content/uploads/about/documents/annual-
reports/2020/USAC_Annual_Report_2020.pdf. In 2020, about $800 million of those
funds were allocated to the FCC’s Lifeline Program, which “supports telecommunications
companies that offer discounted phone and broadband services to eligible consumers,”
while just over $5 billion were allocated to the High Cost Program, which subsidizes the
expansion of broadband networks in rural communities. Id. at 5, 12, 14.
10
For instance, one suggested approach was to define a covered company as one
“from which any agency of the Federal Government has been prohibited by Congress from
procuring or obtaining any equipment, system, or service that uses telecommunications
equipment or services provided by that company . . . .” 33 FCC Rcd. at 4064–65; see also
id. at 4065–66 (suggesting other approaches).
11
Some commenters argued the proposed prohibition went “too far” by including
end-user devices like smartphones. Others commented the rule would “cause substantial
harm” to small rural carriers without “corresponding benefits.” Still others advocated the
FCC employ “a more targeted approach” than a “blanket prohibition on the use of any
equipment provided by a blacklisted vendor.” Huawei argued the proposed rule would
exceed the Commission’s statutory authority, would be arbitrary and capricious under the
APA, and would violate covered companies’ due process rights.
6
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Ultimately, the FCC released a final rule (the “USF Rule”) barring
use of USF funds to buy equipment or services provided by a company
“posing a national security threat to the integrity of communications
networks or the communications supply chain.” 47 C.F.R. § 54.9(a). The
USF Rule also adopted a process for designating covered companies that
involves an initial designation by the Public Safety and Homeland Security
Bureau (“Bureau”), a comment period, and a final designation. Id.§ 54.9(b).12
In the cases of Huawei and ZTE Corporation, another Chinese
telecommunications company, the FCC found the rulemaking record, as well
as additional classified information, sufficient to initially designate both
companies.13 Thus, in the Report and Order (“USF Order”) accompanying
the USF Rule, the Commission announced Huawei’s and ZTE’s initial
designations and directed the Bureau to “implement the next [designation]
steps.” 34 FCC Rcd. at 11440, 11449. The FCC also used the USF Order to
explain its legal authority to adopt the rule, describe the designation standard,
justify the rule’s scope, provide a cost-benefit analysis, and otherwise
respond to commenters.
12
The Bureau is “the FCC’s primary expert on public safety and homeland
security matters.” Public Safety and Homeland Security, FCC, https://www.fcc.gov/public-
safety-and-homeland-security (last visited June 17, 2021). When the Bureau determines a
company poses “a national security threat,” it issues a notice of initial designation.
§ 54.9(b)(1). Interested parties may file comments opposing or otherwise responding to the
initial designation. § 54.9(b)(2). If opposed, a final designation takes effect only upon the
Bureau’s determination the company should be designated. Id. The Bureau may reverse a
final designation if it finds the entity no longer poses a threat. § 54.9(b)(3). The Bureau may
also revise the designation process or adopt a new one. Id. § 54.9(b)(4).
13
Report & Order in Supply Chain Rulemaking, FCC 19-121, WC Docket No. 18-
89 & PS Docket Nos. 19-351, 19-352, 34 FCC Rcd. 11423, 11439–40 & n.124 (released Nov.
26, 2019).
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First, as to its legal authority, the FCC explained that 47 U.S.C.
§ 254(e) permits it “to specify what a USF recipient may or must do with
[universal service] funds.”14 Id. at 11434 (citation omitted). The FCC drew
additional authority from various provisions in Title 47 empowering the
agency to use USF funds to promote the public’s interest in quality services
and network security. Id. at 11434–37.15
The FCC also stated it would consider “all available evidence to
determine whether an entity poses a national security threat.” Id. at 11438.
Such evidence might include findings by the Commission, Congress, the
President, or other executive agencies that an entity “poses a national
security threat” or “other available evidence, . . . open source or classified,”
supporting such an assessment. Ibid. The FCC said it would “seek to
harmonize its determinations” with those of other Executive Branch
agencies and Congress “[w]here appropriate.” Id. at 11438–39.
Addressing the rule’s scope, the FCC explained the rule applies to
“any and all equipment or services, including software, produced or provided
by a covered company.” Id. at 11449. This “blanket prohibition” would
14
Specifically, section 254(e) provides that a carrier that receives USF funds “shall
use that support only for the provision, maintenance, and upgrading of facilities and
services for which the support is intended.” 47 U.S.C. § 254(e).
15
See id. § 254(b)(1) (directing FCC to base universal service policies on six
principles including promoting “[q]uality services . . . at just, reasonable, and affordable
rates”); id. § 201(b) (Commission “may prescribe such rules and regulations as may be
necessary in the public interest to carry out” the Communications Act); id. § 254(c)(1)(A),
(D) (FCC and Joint Board must “consider the extent to which such telecommunications
services” are “essential to . . . public safety” and “consistent with the public interest,
convenience, and necessity”). The agency also cited § 105 of the Communications
Assistance for Law Enforcement Act (“CALEA”), 47 U.S.C. § 1004, which permits
carriers to authorize “interception of communications or access to call-identifying
information effected within its switching premises” pursuant to “a court order or other
lawful authorization.” We discuss these provisions in greater detail, infra.
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“best promote[] national security, provide[] the most administrable rule, and
ease[] compliance for USF recipients.” Ibid. While admitting a broad rule
would “impose attendant costs on providers” and rural consumers, the
Commission estimated the rule’s benefits, though hard to quantify,16 would
“significantly and substantially outweigh” its costs. Id. at 11449–53, 11466.17
Finally, the Commission discussed and rejected various constitutional
considerations raised during the comment period, some of which Huawei
advances here. Id. at 11457–65.18
On January 3, 2020, the FCC published a summary of the USF Order
in the Federal Register that provided for a thirty-day comment period on the
16
The agency assumed the rule would prevent economic harm by thwarting attacks
on national communications networks. 34 FCC Rcd. at 11465. Given a national GDP of
$20.5 trillion in 2018 (and a growth rate of 2.9%), the agency estimated that preventing even
a 0.005% disruption to the economy or a 0.162% disruption to annual growth would
outweigh estimated costs. Ibid. Similarly, given the digital economy’s $1.35 trillion size,
benefits would outweigh costs if the rule foiled a disruption of 0.072% of the digital
economy. Id. These benefits were realistic, the FCC suggested, because malicious
cyberactivity cost somewhere between $57 and $109 billion in 2016. Ibid. The FCC
projected similar benefits from reducing identity theft. Id. at 11465–66. Moreover, the rule
would produce additional benefits even harder to quantify, such as preventing threats to
the national defense, public safety, homeland security, military readiness, and critical
infrastructure. Id. at 11466.
17
Costs would “not exceed $960 million” and were “likely to be much lower.” 34
FCC Rcd. at 11465. The agency took the average cost of replacing Huawei/ZTE equipment
(pegged at $40–$45 million based on estimates from seven carriers), multiplied by the
number of firms using the equipment that “rely on universal service support,” but reduced
to account for carriers’ decisions to use other funding to purchase or maintain the
equipment. Id. at 11466–67. Based on a cost-stream estimate over twenty years and product
price differential estimates of 10% and 25%, the FCC then estimated the lower and upper
cost bounds as $160 million and $960 million, respectively. Id. at 11468–69. We consider
the agency’s cost-benefit analysis in greater detail infra.
18
In brief, the FCC rejected arguments that the USF Rule and its applications
would violate the Fifth Amendment’s Due Process Clause, amount to an unconstitutional
bill of attainder, and constitute a regulatory taking. 34 FCC Rcd. at 11457–65.
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initial designations of Huawei and ZTE.19 Huawei submitted comments
arguing the Bureau should reject its initial designation.20 On June 30, 2020,
the Bureau issued a “final designation” of Huawei as a company covered by
the USF Rule, which was “effective immediately upon release.”21 Huawei
appealed the Bureau’s determination to the full Commission a month later.
On December 11, 2020, the FCC affirmed Huawei’s final designation.22
Shortly after the USF Rule was published, Congress enacted related
legislation, the Secure and Trusted Communications Networks Act of 2019,
Pub. L. No. 116-124, 134 Stat. 158 (2020) (codified at 47 U.S.C. § 1601 et seq.)
[hereinafter “Secure Networks Act” or “SNA”]. Among other things, the
SNA directs the Commission to publish a list of “covered communications
equipment or services”—specifically, those posing national security risks as
determined by “any executive branch interagency body with appropriate
national security expertise,” the Department of Commerce pursuant to
Executive Order No. 13873, the 2019 NDAA, and/or “an appropriate
national security agency.” § 1601(a), (c). The SNA bars using Commission-
administered subsidies to obtain or maintain any covered equipment or
service. § 1602(a).
19
Final Rule in Supply Chain Rulemaking; Huawei Designation; ZTE Designation,
85 Fed. Reg. 230-01 (Jan. 3, 2020) (to be codified at 47 C.F.R. pt. 54).
20
Comments of Huawei Technologies Co., Ltd., and Huawei Technologies USA,
Inc. on Supply Chain Rulemaking — Huawei Designation, PS Docket No. 19-351 (Feb. 3,
2020).
21
Designation Order in Supply Chain Rulemaking — Huawei Designation, PS
Docket No. 19-351, 35 FCC Rcd. 6604, 2020 WL 3566005, at *23 (released June 30, 2020)
[hereinafter Final Designation Order].
22
FCC Memorandum Opinion and Order in Supply Chain Rulemaking — Huawei
Designation, FCC 20-179, PS Docket No. 19-351, 2020 WL 7351129 (released Dec. 11,
2020) [hereinafter Designation Affirmance].
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A few weeks after Huawei’s final designation, the FCC released a
declaratory ruling “integrat[ing] provisions of the . . . [SNA] into [the
Commission’s] existing supply chain rulemaking proceeding.”23 The
Declaratory Ruling found the USF Order fulfilled the FCC’s duty under
SNA § 3 to prohibit using Commission-administered subsidies to obtain
covered equipment or services. Id. About six months later, on the same day
it affirmed Huawei’s final designation, the FCC released a second report and
order further integrating the SNA’s requirements into the supply chain
rulemaking that began with the USF Order.24 Congress later amended the
SNA via the Consolidated Appropriations Act of 2021 to incorporate the
USF Rule’s definition of covered equipment and services for the purpose of
reimbursing providers for replacing covered equipment or services.25
Procedural History
This case comes before us on Huawei’s petitions for review of the
USF Order. See 47 U.S.C. § 402(a); 28 U.S.C. § 2342(1); see also Fed. R.
App. P. 15(a); Alenco, 201 F.3d at 614.26 Huawei seeks review on the grounds
that the Order (1) exceeded the FCC’s statutory authority; (2) was arbitrary,
capricious, and an abuse of discretion under the APA; (3) was adopted in
23
Declaratory Ruling and Second Further Notice of Proposed Rulemaking in
Supply Chain Rulemaking, FCC 20-99, WC Docket No. 18-89, 2020 WL 4046643, at *1
(released July 17, 2020).
24
Second Report and Order in Supply Chain Rulemaking, FCC 20-176, WC
Docket No. 18-89, 2020 WL 7351126 (released Dec. 11, 2020).
25
Pub. L. No. 116-260, 134 Stat. 1182, 2120 (Dec. 27, 2020) (to be codified at 47
U.S.C. § 1603).
26
Both of Huawei’s petitions state they seek review of the entire document
released on November 26, 2019, which included a Further Notice of Proposed Rulemaking
and an Information Collection Order. But Huawei’s subsequent briefing addresses only the
Report and Order (which we refer to collectively as the “USF Order”).
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violation of the notice-and-comment requirements of 5 U.S.C. § 553; (4) was
void for vagueness and retroactive in violation of the Constitution and the
APA; (5) violated the Constitution’s Appointments Clause and statutory and
constitutional due process protections; and (6) was otherwise contrary to
law. The parties’ briefing and oral arguments clarified that Huawei’s appeal
presents independent challenges to two parts of the USF Order: the USF
Rule and Huawei’s initial designation.
As noted, the FCC affirmed Huawei’s final designation after oral
argument in this case. Designation Affirmance, 2020 WL 7351129. Huawei
timely petitioned for review of the final designation order. We granted a stay
in that case pending disposition of this one.
Standard of Review
“The court of appeals . . . has exclusive jurisdiction to enjoin, set
aside, suspend (in whole or in part), or to determine the validity of . . . all final
orders of the Federal Communication Commission made reviewable by [47
U.S.C. § 402(a)].” 28 U.S.C. § 2342. We review such orders in two ways.
See Alenco, 201 F.3d at 614, 619.
First, we consider whether the agency’s action exceeded its statutory
authority under the Chevron framework. Acosta v. Hensel Phelps Constr. Co.,
909 F.3d 723, 730 (5th Cir. 2018); see also Chevron U.S.A., Inc. v. Nat. Res.
Def. Council, Inc., 467 U.S. 837, 842–44 (1984). At step one, we ask whether
“Congress has directly spoken to the precise question at issue,” in which
case we must “give effect to the unambiguously expressed intent of
Congress” and reverse an agency’s interpretation that fails to conform to the
statutory text. Alenco, 201 F.3d at 619 (quoting Chevron, 467 U.S. at 842–43);
see also Sw. Elec. Power Co. v. EPA, 920 F.3d 999, 1024 (5th Cir. 2019) (“The
question for the court [at step one] is whether the agency’s construction of
the language is within the range of meanings that could be plausibly attributed
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to the relevant statutory language.” (quoting 1 Richard J. Pierce, Jr.,
Administrative Law Treatise § 3.6, at 215 (5th ed. 2010))). We rely
on “authoritative Supreme Court decisions” and “conventional standards of
statutory interpretation,” looking to “text, structure, and the overall
statutory scheme.” Chamber of Com. v. U.S. Dep’t of Lab., 885 F.3d 360, 369
(5th Cir. 2018).
If the statute is silent or ambiguous as to the specific issue, we proceed
to step two and ask whether “the agency’s answer is based on a permissible
construction of the statute.” Alenco, 201 F.3d at 619 (quoting Chevron, 467
U.S. at 843). If the agency’s construction is “arbitrary, capricious, or
manifestly contrary to the statute,” we reverse. Id. (quoting Chevron, 467
U.S. at 844). But “[i]f a statute is ambiguous, and if the implementing
agency’s construction is reasonable,” we defer to the agency’s construction.
Acosta, 909 F.3d at 730 (quoting Elgin Nursing & Rehab. Ctr. v. U.S. Dep’t of
Health & Hum. Servs., 713 F.3d 488, 492 n.3 (5th Cir. 2013)).
Second, we will set aside agency action that is arbitrary and capricious,
an abuse of discretion, or otherwise unlawful. 5 U.S.C. § 706(2)(A). Agencies
“are required to engage in ‘reasoned decisionmaking.’” Sierra Club v. EPA,
939 F.3d 649, 664 (5th Cir. 2019) (quoting Michigan v. EPA, 576 U.S. 743,
750 (2015)); see also FCC v. Prometheus Radio Project, 141 S. Ct. 1150, 1158
(2021) (“The APA’s arbitrary-and-capricious standard requires that agency
action be reasonable and reasonably explained.”). “Not only must an
agency’s decreed result be within the scope of its lawful authority, but the
process by which it reaches that result must be logical and rational.”
Michigan, 576 U.S. at 750 (quoting Allentown Mack Sales & Serv., Inc. v.
NLRB, 522 U.S. 359, 374 (1998)). The agency must “articulate a satisfactory
explanation for its action including a ‘rational connection between the facts
found and the choice made.’” Sierra Club, 939 F.3d at 664 (quoting Motor
Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)).
13
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However, we cannot “substitute [our] judgment for that of the agency.” Id.(quoting 10 Ring Precision, Inc. v. Jones, 722 F.3d 711, 723 (5th Cir. 2013)).
Our role is to determine whether the agency’s decision “was based on a
consideration of the relevant factors and whether there has been a clear error
of judgment.’” Id. (quoting State Farm, 463 U.S. at 43).
We review constitutional issues de novo. Tex. Off. of Pub. Util. Couns.
v. FCC, 183 F.3d 393, 419 n.34 (5th Cir. 1999) [hereinafter TOPUC I]; see also
5 U.S.C. § 706.
Discussion
I. Ripeness
The FCC contests the ripeness of Huawei’s challenges to the USF
Rule and to the initial designation.27 The ripeness doctrine “prevent[s] the
courts, through avoidance of premature adjudication, from entangling
themselves in abstract disagreements over administrative policies.” Abbott
Lab’ys v. Gardner, 387 U.S. 136, 148 (1967), overruled on other grounds,
Califano v. Sanders, 430 U.S. 99 (1977). It also “protect[s] the agencies from
judicial interference until an administrative decision has been formalized and
its effects felt in a concrete way by the challenging parties.” Id. at 148–49.
We apply a two-part test, balancing “the fitness of the issues for judicial
decision” with “the hardship to the parties of withholding court
consideration.” Id. at 149; see also Texas v. United States, 497 F.3d 491, 498
(5th Cir. 2007).
Here, the FCC originally argued that neither Huawei’s challenges to
the USF Rule nor its challenges to the initial designation were ripe because
27
We assess ripeness claim by claim. See John Corp. v. City of Houston, 214 F.3d
573, 585–86 (5th Cir. 2000).
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Huawei’s asserted injuries—financial and reputational fallout from the
“exclusion of its products from the federal USF program”—“w[ould] not
materialize unless the Commission issue[d] a final designation of Huawei.”
In other words, the FCC never disputed the rule’s fitness for review but only
Huawei’s showing of hardship. Now that Huawei has received a final
designation and the full Commission has affirmed it, making the rule
conclusively effective against Huawei, the FCC cannot assert its challenges
to the USF Rule are unripe.28
By contrast, the initial designation is not ripe for review because it is
not a final order and thus fails the fitness prong. See Abbott Lab’ys, 387 U.S.
at 148–150 (considering finality of agency action in evaluating fitness); Texas,
497 F.3d at 498–99 (same). We have authority to review only “final orders”
of the FCC under the Hobbs Act, 28 U.S.C. § 2342(1). A Hobbs Act “final
order” is analytically identical to “final agency action” under the APA, 5
U.S.C. § 704. See US West Commc’ns, Inc. v. Hamilton, 224 F.3d 1049, 1055
(9th Cir. 2000); Am. Trucking Ass’n, Inc. v. United States, 755 F.2d 1292, 1296
(7th Cir. 1985). Agency action is “final” under § 704 if two conditions are
met: (1) “the action must mark the consummation of the agency’s
28
“[Ripeness] is ‘peculiarly a question of timing.’” Opulent Life Church v. City of
Holly Springs, 697 F.3d 279, 286 (5th Cir. 2012) (quoting Reg’l Rail Reorganization Act
Cases, 419 U.S. 102, 140 (1974)). Thus, we must evaluate it based on “the situation now
rather than the situation” when the claims were first presented. Reg’l Rail Reorganization,
419 U.S. at 142–43; see also DM Arbor Ct., Ltd. v. City of Houston, 988 F.3d 215, 219–20 (5th
Cir. 2021). Huawei presented undisputed declaration testimony of “huge financial losses”
and workforce reductions resulting from the mere threat of designation. The FCC does not
dispute that these injuries include permanent loss of business from USF recipients who
would have used those funds to purchase Huawei equipment and the loss of future
contracts with USF recipients, injuries sufficient to establish hardship. See, e.g., Miss. Valley
Gas Co. v. FERC, 659 F.2d 488, 498–99 (5th Cir. 1981) (FERC order ripe where it would
have a “direct and immediate impact” by denying petitioner right to charge rates at agreed
amount).
15
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decisionmaking process”; and (2) it “must be one by which rights or
obligations have been determined, or from which legal consequences will
flow.” Bennett v. Spear, 520 U.S. 154, 177–78 (1997) (quotation marks
omitted) (citation omitted).
Fatally, Huawei fails to show the initial designation is the
“consummation” of the FCC’s decisional process. The rule describes the
initial designation as the Bureau’s “proposed” designation that triggers a
comment period. 47 C.F.R. § 54.9(b)(1)–(2). An initial designation is, by
definition, a tentative step: when opposed, it only takes effect once the
Bureau decides to issue a final designation. Id. § 54.9(b)(2).29 That is what
happened here: opposed by Huawei, the company’s initial designation took
effect only upon the Bureau’s issuing a final designation. See Final
Designation Order, 2020 WL 3566005, at *1. Thus, Huawei’s initial
designation is not a final order, and we cannot review it. See, e.g., Luminant
Generation Co. v. EPA, 757 F.3d 439, 442 (5th Cir. 2014).
Huawei contends that the initial designation was not tentative or
interlocutory because: the Commission, not the Bureau, initially designated
Huawei; it did so based on determinative findings, expressed with
confidence; it provided that the initial designation would become final absent
objection; and it assumed in its cost-benefit analysis that Huawei would be
finally designated. While these assertions suggest the initial designation is a
29
See La. Real Estate Appraisers Bd. v. FTC, 976 F.3d 597, 605 n.7 (5th Cir. 2020)
(agency order not final where party’s injury contingent on future agency action); Luminant
Generation Co. v. EPA, 757 F.3d 439, 442 (5th Cir. 2014) (EPA notice of violation not final
action where it “mark[ed] only the beginning of a process designed to test the accuracy of
the agency’s initial conclusions” (quoting Sierra Club v. EPA, 557 F.3d 401, 408 (6th Cir.
2009))).
16
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significant step, one supported by initial findings and analysis, they do not
transform a proposed determination into a final one.
Thus, Huawei cannot satisfy the first prong of the finality test as to
the initial designation, and its challenges to that part of the order are unfit for
judicial review.30 Accordingly, we must dismiss its claims related to the initial
designation for lack of jurisdiction.
II. Statutory Authority
We address Huawei’s argument that the FCC lacked statutory
authority to adopt the USF Rule.
A. Lack of Express Prohibition in Act
As a threshold matter, the FCC claims we must defer to the agency’s
construction of § 254 unless the statute explicitly withholds authority to
adopt the USF Rule. But our circuit has repeatedly rejected “[t]his nothing-
equals-something” argument. Gulf Fishermens Ass’n v. Nat’l Marine Fisheries
Serv., 968 F.3d 454, 460–62 (5th Cir. 2020); see also Texas v. United States,
809 F.3d 134, 186 (2015) [hereinafter The DAPA Case]. We do not jump to
Chevron step two “any time a statute does not expressly negate the existence
of a claimed administrative power.” The DAPA Case, 809 F.3d at 186
(quoting Ethyl Corp. v. EPA, 51 F.3d 1053, 1060 (D.C. Cir. 1995)). “[O]nly
legislative intent to delegate such authority . . . entitles an agency to advance
its own statutory construction for review” under Chevron’s “deferential
second prong.” Gulf Fishermens, 968 F.3d at 461 (quoting Ethyl Corp., 51 F.3d
at 1060).
30
We need not consider the second finality prong because agency action must
satisfy both prongs to be final. See Nat’l Pork Producers Council v. EPA, 635 F.3d 738, 756
(5th Cir. 2001). Nor need we consider whether Huawei can satisfy the burden prong of the
ripeness test as to the initial designation. Unsuitability for review is determinative. Id.17
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Relatedly, the FCC argues, citing TOPUC I and Alenco, that “so long
as the Commission does not violate an express statutory command, it may
use the universal-service mechanism to achieve policy objectives contained
elsewhere in the Act.” The agency misreads these cases, which teach only
that the FCC has “broad discretion” to balance the statutory goals of
achieving universal service and promoting local competition. Alenco, 201
F.3d at 615; TOPUC I, 183 F.3d at 406.31 Neither case supports the argument
that the FCC may deploy the universal-service mechanism to accomplish any
non-prohibited purpose in the Act.
B. Chevron Analysis
We therefore proceed to Chevron. At step one, we ask whether
Congress has “directly spoken to the precise question at issue.” Alenco, 201
F.3d at 619 (quoting Chevron, 467 U.S. at 842). Here, we want to know
whether Congress has plainly granted the authority the FCC wields in the
rule—authority to designate companies a “national security threat” to
telecom networks and to prohibit USF funds from being spent on their
equipment. See 47 C.F.R. § 54.9. Huawei does not dispute that the FCC may
restrict using USF funds for specific purposes; rather, it contests the FCC’s
power to “make national security determinations” in allocating those funds.
The FCC responds that the Communications Act provisions it cites—47
31
For example, in TOPUC I, we upheld under Chevron step two the agency’s
interpretation of the ambiguous term “sufficient” in § 254(e), based on its “reasonable
determination” that support would remain sufficient “during the transition period from
one [less competitive] universal service system to another [more competitive system].” 183
F.3d at 437. The FCC found “little chance” of competition eroding the previous support
system during the transition. Id. at 436–37. In other words, we upheld the FCC’s action
because it concluded that promoting competition would not undermine its obligation to
achieve sufficient service. Similarly, in Alenco, we stated that, although the FCC must
promote both universal service and competition in local communications markets, it
“cannot . . . sacrifice[ one] in favor of the other.” 201 F.3d at 615.
18
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U.S.C. §§ 201(b), 254(c)(1)(D), 254(b)(1), and 254(e)—are ambiguous on
this point and that we must therefore proceed to Chevron step two.32 By
contrast, Huawei contends the USF Rule fails at Chevron step one because
the cited provisions unambiguously withhold the FCC’s claimed authority.
We examine in turn each of the statutory provisions on which the FCC relies,
first under Chevron step one and then under step two.
1. “Public Interest” Provisions
We turn first to 47 U.S.C. §§ 254(c)(1)(D) and 201(b), which we refer
to together as the “public interest” provisions. Section 254(c)(1)(D)
provides that the FCC, in “defin[ing]” services supported by universal
service funds, “shall consider the extent to which such telecommunications
services . . . are consistent with the public interest, convenience, and
necessity.” Section 201(b) similarly authorizes the Commission to
“prescribe such rules and regulations as may be necessary in the public
interest to carry out” the Act. The FCC argues these are capacious grants of
authority, which—along with the “quality services” provision, see infra—
reasonably encompass “considering foreign threats to the integrity of
domestic communications networks in distributing federal subsidies.”
As the Supreme Court has noted with respect to other sections of the
Act, the term “public interest” gives the FCC authority that is “supple” and
“comprehensive,” but not “unlimited.” FCC v. Pottsville Broad. Co., 309
U.S. 134, 138 (1940) (§ 319); Nat’l Broad. Co. v. United States, 319 U.S. 190,
216, 217 (1943) (§ 303).33 The term is both broad and vague. See FCC v.
32
The agency also argues the USF Rule “directly implements” § 105 of the
CALEA, but as explained below we need not address this point.
33
The “‘public convenience, interest, or necessity’” was the touchstone for the
exercise of the Commission’s authority” under the 1934 Communications Act. Pottsville
Broad. Co., 309 U.S. at 137–38. For instance, in §§ 307 and 319 of the original Act, Congress
19
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WNCN Listeners Guild, 450 U.S. 582, 593 (1981) (noting the Act does not
define “public interest” in § 303). Consequently, while § 254(c)(1) plainly
“authorizes the FCC to define ‘periodically’ the types of
telecommunications services that are encompassed by ‘universal service,’”
In re FCC 11-161, 753 F.3d 1015, 1046 (10th Cir. 2014) (quoting § 254(c)(1)),
“consistent with the public interest,” § 254(c)(1)(D), how much latitude the
agency has in defining the “public interest” is less clear.
Neither the term nor its context explicitly limits the FCC’s authority
to constrain USF funds based on a “national security” assessment. See 47
C.F.R. § 54.9(a); cf. In re FCC 11-161, 753 F.3d at 1046 (concluding “nothing
in [§254(c)(1)] expressly or implicitly deprives the FCC of authority to direct
that a USF recipient” use USF funding to provide broadband internet access
services). Indeed, Congress’s use of such an open-textured term suggests
“an express delegation of authority to the agency to elucidate [the] . . .
provision.” Chevron, 467 U.S. at 843–44.34 For purposes of Chevron step one,
then, we would be hard-pressed to say these provisions unambiguously
exclude the authority exercised in the USF Rule.
Huawei counters with several related points. It argues that § 201(b) is
not an independent source of authority to regulate in the “public interest,”
authorized the Commission to grant station licenses and construction permits “if public
convenience, interest, or necessity w[ould] be served thereby.” Communications Act of
1934, Pub. L. No. 416, §§ 307(a), 319(a), 48 Stat. 1064, 1083, 1089 (codified as amended at
47 U.S.C. §§ 307, 319). The Act also provided that the FCC would exercise certain powers
“as public convenience, interest, or necessity requires.” § 303, 48 Stat. at 1082 (codified
as amended at 47 U.S.C. § 303).
34
See also Anniston Broad. Co. v. FCC, 668 F.2d 829, 832 (5th Cir. Unit B 1982)
(“[T]he Commission’s judgment regarding how the public interest is best served is entitled
to substantial judicial deference.”); Caleb Nelson, Statutory
Interpretation 78 (2011) (“Vagueness often reflects a deliberate decision by
[Congress] to transfer various important decisions to the courts or agencies . . . .”).
20
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and that § 254(c)(1)(D) “requires Joint Board participation, which did not
occur here.”35 It also argues that § 254(c)(1)(D) uses “public interest” in
reference to the “evolving level of telecommunications” service and so does
not delegate to the FCC authority to make independent national security
judgments. There is force in these arguments. We would be troubled if the
FCC were trying to leverage its “public interest” authority over networks
into the power to make freewheeling national security judgments. But we are
persuaded that Huawei overstates the scope of the national security authority
the FCC claims in the USF Rule.
The FCC does not ask us to read § 201(b) as a stand-alone font of
regulatory authority. Instead, the agency reads it alongside its power in
§ 254(c)(1)(D) to “defin[e]” and “establish” universal service “consistent
with the public interest,” as well its duty in § 254(b)(1) to develop universal
service policies in accord with certain principles, including promoting
“quality services.” Moreover, as we explain below, the agency has
reasonably defined “quality services” to include services that are secure
against foreign cyberattack. See infra pp. 25–29. Seen in that light, the FCC
does not seek to grasp the expansive and independent national security
authority Huawei fears. Instead, the FCC asserts only the authority to
consider national security concerns in the narrower sphere of regulating USF
“support mechanisms.” See § 254(c)(1).36
35
Congress created the Federal-State Joint Board, inter alia, to make
recommendations to the FCC “regarding the jurisdictional separation of common carrier
property and expenses between interstate and intrastate operations.” 47 U.S.C. § 410; see
also § 254(a); TOPUC I, 183 F.3d at 406.
36
Huawei cites no authority for its argument that the FCC can exercise its §
254(c)(1)(D) authority only in coordination with the Joint Board. Section 254(c)(1)(D)
states, “[t]he Joint Board in recommending, and the Commission in establishing, the
definition of [universal service] services . . . shall consider” certain factors. It does not state
the FCC may only define universal services upon a Joint Board recommendation. Indeed,
21
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In sum, given the breadth of the term “public interest,” we find
neither § 201(b) nor § 254(c)(1)(D) unambiguously grants or withholds the
FCC authority to adopt the USF Rule.
Turning to Chevron step two, we consider whether the FCC
permissibly construed the public interest provisions. Alenco, 201 F.3d at 619
(citing Chevron, 467 U.S. at 843). The FCC has properly framed the inquiry:
we ask whether it reasonably “construed its public interest obligation to
encompass considering foreign threats to the integrity of domestic
communications networks in distributing federal subsidies.” We conclude it
did and therefore defer under Chevron.
As noted, the Supreme Court has interpreted the public interest
provisions of the Communications Act expansively. See Pottsville Broad. Co.,
309 U.S. at 138; WNCN Listeners Guild, 450 U.S. at 593; Nat’l Broad. Co.,
319 U.S. at 217–18. Section 201(b)’s similar provision was added just four
years after §§ 303 and 319.37 The FCC reasonably presumed the provisions
should be interpreted consistently. See Antonin Scalia & Bryan A.
Garner, Reading Law 170, 322–24 (2012) (discussing the presumption
of consistent usage). Huawei does not argue otherwise.
the FCC is required to consult with the Board only under specified circumstances not
present here. See id. § 410(c) (stating the Commission “shall refer any proceeding
regarding the jurisdictional separation of common carrier property and expenses between
interstate and intrastate operations” to the Joint Board) (emphasis added); cf. TOPUC I,
183 F.3d at 416–17 (finding agency fulfilled § 410(c)’s “consultation requirement” as to
FCC’s adoption of “new jurisdictional separations rules”). The FCC alone is entrusted
with “establish[ing the definition of universal service] periodically” under § 254. See id. §
254(c)(1); see also USF Order, 34 FCC Rcd. at 11435 (making this argument).
37
Compare § 201(b), 48 Stat. at 1070, with Communications Act of 1934,
Amendment, Pub. L. No. 561, § 201(b), 52 Stat. 588, 588 (May 31, 1938) (codified at 47
U.S.C. § 201(b)) (adding “[t]he Commission may prescribe such rules and regulations as
may be necessary in the public interest to carry out the provisions of this Act” to § 201(b)).
22
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Additionally, § 254(c)(1)(D) appears to borrow from
Communications Act provisions such as § 303, using similar phrasing.
Compare § 254(c)(1)(D) (“consistent with the public interest, convenience,
and necessity”), with § 303 (the FCC shall undertake its duties “as public
convenience, interest, or necessity requires”). We presume Congress was
aware of earlier glosses on “public interest,” making reasonable a similarly
broad reading of § 254(c)(1)(D). See Scalia & Garner, supra, at 323
(“[W]hen a statute uses the very same terminology as an earlier statute—
especially in the very same field . . . —it is reasonable to believe that the
terminology bears a consistent meaning.”); see also Smith v. City of Jackson,
544 U.S. 228, 233 (2005) (similar).
Huawei counters that public interest is “not a broad license to
promote the general public welfare” but must “take meaning from the
purposes of the regulatory legislation.” See NAACP v. Fed. Power Comm’n,
425 U.S. 662, 669 (1976). In other words, the FCC cannot conjure national
security authority out of thin air. This is true, but as the FCC argues, the
Act’s purposes include “mak[ing] [communication] available . . . for the
purpose of the national defense” and “promoting safety of life and property
through the use of wire and radio communications.” § 151. The agency
reasonably read “public interest” in light of these larger goals to encompass
secure networks. See NAACP, 452 U.S. at 669; cf. Scalia & Garner,
supra, at 218 (“[T]he prologue . . . can shed light on the meaning of the
operative provisions that follow.”).
Indeed, the FCC’s considering national security under the public
interest umbrella is not a new phenomenon.38 See, e.g., Hawaiian Tel. Co. v.
38
See Joan M. McGivern, U.S. Int’l Telecomm. & Inf. Policy: Congress Considers
Reorganizing Policymaking, 15 L. & Pol’y Int’l Bus. 1297, 1305 (1983) (noting the
FCC’s authority to regulate foreign commerce in communications and stating that,
23
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FCC, 589 F.2d 647, 657 (D.C. Cir. 1978) (noting FCC review of
“considerations of national security” under public interest standard in
adopting satellite policy).39 For example, in regulating foreign participation
in the U.S. telecom market in the late 1990s, the FCC recommitted to
considering “national security” and “foreign policy” concerns when
granting licenses under § 310(b)(4) and service certificates under § 214(a),
stating it would also continue to “accord deference” to expert Executive
Branch views on these issues that would inform its “public interest analysis.”
In the Matter of Rules & Policies on Foreign Participation in the U.S.
Telecomm. Mkt., 12 FCC Rcd. 23891, 23919–20 (1997).40 The agency
continues to consider national security concerns “in the public interest” in
applying § 214(a) today. See In the Matter of China Mobile Int’l (USA) Inc.,
“[a]lthough the FCC is not specifically required to consider foreign policy, trade, and
national security concerns, these concerns are deemed to be incorporated within its broad
‘public interest’ mandate” (citing Nat’l Telecomm. & Inf. Agency, Long
Range Goals in Int’l Telecomm. & Inf.: An Outline for U.S.
Pol’y, Printed for the Use of the Senate Comm. on Com., Sci. & Transp., 98th Cong.,
1st Sess. 83 (1983) (Sen. Print 98-22)).
39
See also U.S. Gen. Acct. Off., The FCC’s Int’l Telecomm.
Activities Rep. to the Chairman, Subcomm. on Gov’t Info. &
Individual Rts., House Comm. on Gov’t Operations, at 10 (1982)
(observing that the FCC had “consider[ed] foreign affairs, national security, and U.S. trade
policy” in several recent proceedings, including in considering whether AT&T should
award a contract to a Japanese firm); In the Matter of Amendment of Subpart H, Part 1 of
the Commission’s Rules and Regulations Concerning Ex Parte Communications and
Presentations in Commission Proceedings, 2 FCC Rcd. 3011, 3018 (1987) (“recogniz[ing]
. . . the Commission’s need to confer with officials from other agencies on communications
matters of international import, either because [the agency] share[d] jurisdiction with these
other agencies or because consultation with them contribute[d] to the conduct of this
country’s foreign affairs policies and practices”).
40
See also In the Matter of Mkt. Entry & Regul. of Foreign-Affiliated Entities, 11
F.C.C. Rcd. 3873, 3888 (1995) (“We believe our public interest analysis [of foreign carrier
applications] will benefit from . . . the Executive Branch[’s input on foreign policy and
national security].”).
24
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34 FCC Rcd. 3361, 3372, 3376–77, 2019 WL 2098511, at *7–11 (2019)
(denying China Mobile § 214 authorization to provide telecom services due
to “serious national security and law enforcement risks” identified by
Executive Branch agencies).
Against this backdrop, the USF Rule accords with the FCC’s previous
consideration of national security concerns in the communications realm.
Under the rule, the FCC makes initial and final designations based on “all
available evidence,” including determinations by Congress, the President,
and other executive agencies, as well as classified information, and it “seek[s]
to harmonize its determinations” with those of other agencies and Congress.
34 FCC Rcd. at 11438–39. Thus, as in granting licenses under § 310(b)(4) and
service certificates under § 214(a), the FCC’s designation of an entity as a
national security risk consistent with the public interest is informed by the
views of expert agencies. We therefore conclude that the agency reasonably
interpreted the public interest provisions, especially in light of its coincident
authority under § 254(b)(1), to allow it to adopt the rule. See infra p. 29.41
2. “Quality Services” Provision
We turn next to 47 U.S.C. § 254(b)(1), which we refer to as the
“quality services” provision. It states that “[t]he Joint Board and the
Commission shall base policies for the preservation and advancement of
universal services on” various “principles,” including that “[q]uality services
should be available at just, reasonable, and affordable rates.” 47 U.S.C.
§ 254(b)(1) (emphasis added). The parties debate the meaning of “quality
41
Although the USF Order also invoked § 254(c)(1)(A) in support of its statutory
authority to adopt the rule, 34 FCC Rcd. at 11435, and Huawei addresses that argument in
its brief, the FCC does not urge that argument on appeal, so we do not address it. We also
find it unnecessary to address the FCC’s arguments that § 254(e) or § 105 of the CALEA
provide authority to adopt the rule.
25
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services.” As Huawei sees it, this is a telecom term of art that refers only to
technical specifications such as a service’s accuracy, reliability, and speed,
thus excluding the USF Rule’s concern for network security. The FCC
counters that “quality services” is not a term of art but an ambiguous phrase
that reasonably encompasses network security.
It is true, as Huawei points out, that “quality of service” is an industry
term that refers to “performance specifications” like call clarity and
bandwidth.42 See also 47 U.S.C. § 641(12) (defining “quality of service,” with
respect to internet access, as “the download and upload speeds (and, for
relevant services, latency) with respect to that service”). So, a telecom
insider might say, “Quality of Service is more easy to define in digital circuits,
since you can assign specific error conditions and compare them.”
Newton’s at 912. Had Congress used this industry term in § 254(b)(1), a
court would correctly read it according to its specialized meaning.43
But Congress knows how to write “quality of service” in telecom
statutes,44 and it did not do so in § 254(b)(1). Instead, it chose a different
42
See, e.g., Harry Newton, Newton’s Telecom Dictionary 912 (25th
ed. 2009) [hereinafter Newton’s] (explaining “quality of service” or “QoS” is “a
measure of the telecommunications . . . quality provided to a subscriber” and includes
factors such as call clarity, delay, bandwidth, and latency control); Quality of Service,
Alliance for Telecommunications Industry Solutions Telecom Glossary,
https://glossary.atis.org/glossary/quality-of-service-qos/ (last visited June 14, 2021) (QoS
refers to “[t]he performance specification of a communications channel or system,” or to
“[a] subjective rating of telephone communications quality in which listeners judge
transmissions by qualifiers, such as excellent, good, fair, poor, or unsatisfactory”).
43
See, e.g., La. Pub. Serv. Comm’n v. FCC, 476 U.S. 355, 372 (1986) (explaining a
term of art “should be interpreted by reference to the trade or industry to which [it]
appl[ies]”); Corning Glass Works v. Brennan, 417 U.S. 188, 201 (1974) (“[W]here Congress
has used technical words or terms of act, it is proper to explain them by reference to the art
or science to which they are appropriate.” (cleaned up)).
44
See, e.g., 47 U.S.C. § 643 (making it unlawful to submit inaccurate data
concerning “the quality of service with respect to broadband internet access service”); id.26
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term: “quality services.” This makes us doubt that Congress intended the
special meaning conveyed by the industry term.45 Moreover, the context of
§ 254(b)(1) does not compel us to read “quality services” that way. To the
contrary, it is awkward to read the provision to say that “[Certain
performance specifications] should be available at just, reasonable, and
affordable rates,” which would follow from substituting “quality of service”
for “quality services.”
Congress instead chose a phrase, “quality services,” whose ordinary
meaning is broad. See, e.g., Quality, adj., Oxford English
Dictionary (“of high quality; excellent”); see also Schindler Elevator
Corp. v. United States ex rel. Kirk, 563 U.S. 401, 407–08 (2011) (relying on the
“ordinary meaning” of statutory terms). Recall also that the phrase appears
not in a narrow, technical part of the Act, but in a section laying out broad
“principles” guiding formulation of universal service policies.46 This gives
§ 214 (requiring Commission certificates for construction or extension of new lines, but
providing exceptions for certain alterations “which will not impair the adequacy or quality
of service provided”); id. § 1442(e)(3)(D)(iii) (requirements for obtaining grant funds and
spectrum capacity leasing rights include “that the State has . . . comparable security,
coverage, and quality of service to that of the nationwide public safety broadband network”
(emphases added)).
45
See Scalia & Garner, supra, at 170 (“[W]here [a] document has used one
term in one place, and a materially different term in another, the presumption is that the
different term denotes a different idea.”); cf. Gulf Fishermens Ass’n, 968 F.3d at 466
(“[W]here Congress includes particular language in one section of a statute but omits it in
another, it is presumed that Congress acts intentionally and purposely.” (quoting Russello
v. United States, 464 U.S. 16, 23 (1983) (cleaned up)).
46
See, e.g., Deal v. United States, 508 U.S. 129, 132 (noting “fundamental principle
of statutory construction (and, indeed, of language itself) that the meaning of a word cannot
be determined in isolation, but must be drawn from the context in which it is used”)
(citations omitted); see also Scalia & Garner, supra, at 167 (“The text must be
construed as a whole.”).
27
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us further reason to give the phrase a flexible reading, as opposed to a
specialized, technical one.
We therefore disagree with Huawei that the “quality services”
provision unambiguously excludes the authority exercised in the USF Rule,
and so we proceed to Chevron step two. See TOPUC I, 183 F.3d at 412.
At step two, we consider whether the FCC’s construction of
§ 254(b)(1) is “reasonable” or is instead “arbitrary, capricious, or manifestly
contrary to the statute.” Acosta, 909 F.3d at 730 (citations omitted). The
agency has construed the term “quality services” to encompass network
security, so that policymaking to promote “quality services” includes
ensuring “USF funds [are] spent on secure networks and not . . . on
equipment and services from companies that threaten national security.” 34
FCC Rcd. at 11434. In other words, as the FCC puts it, “providing a secure
service is part of providing a quality service.” Id. We conclude this is a
reasonable construction of the Act to which we therefore defer.
As the agency points out, the security of communications technology
has been a perennial concern. Industry experts routinely listed security as one
of “the most important dimensions of quality [for telecommunications]” in
the years leading up to the enactment of § 254.47 Thus, the FCC reasonably
concluded that Congress intended the agency to promote the availability of
47
See, e.g., Vivian Witkind Davis et al., Telecommunications
Service Quality iii, 19–23, 27 (1996) ; see also Eli M. Noam, The Quality of Regulation
in Regulating Quality: A Proposal for an Integrated Incentive Approach to Telephone Service
Performance, in Price Caps & Incentive Regulation in
Telecommunications 168 (Michael Einhorn ed., 1991).
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secure services when it directed the Commission to “base [universal service]
policies” on the principle of advancing the availability of “quality services.”48
This understanding accords with the FCC’s previous conclusions that
network security is a key component of quality service.49 And we give the
Commission considerable deference in applying § 254(b)’s “aspirational,”
generally-worded goals. See TOPUC I, 183 F.3d at 421; see also id. at 411(“Rather than setting up specific conditions or requirements, § 254(b)
reflects a Congressional intent to delegate these difficult policy choices to
agency discretion[.]”). Thus, it was reasonable for the agency to conclude
that advancing the availability of “quality services” under § 254(b)(1)
comprehends promoting the availability of secure services.50
We therefore conclude the agency reasonably read the term “quality
services” in § 254(b)(1) to support its limited exercise of national security
judgment in defining universal service. Accordingly, we defer to the agency’s
construction under Chevron step two. See, e.g., TOPUC I, 183 F.3d at 412.51
48
See Nelson, supra, at 946 (noting “information about the policy preferences
that prevailed at the time of enactment may well support reading the statute to establish”
a directive consistent with that policy); cf. Antonin Scalia, Judicial Deference to
Administrative Interpretations of Law, 1989 Duke L.J. 511, 515 (“Policy evaluation is . . .
part of the traditional judicial tool-kit” at Chevron step one “before deferring to agency
judgment . . . .”).
49
See, e.g., 2015 Broadband Progress Report, 30 FCC Rcd. 1375, 1348 (2015)
(“[P]rivacy and network security are among the factors that can affect the quality and
reliability of broadband services.”); Order in the Matter of Tech. Transitions, 29 FCC Rcd.
1433, 1441, 1448 (2014) (requiring participants in service-based experiments in
transitioning to new technologies to “maintain[]” “[n]etwork security”).
50
Cf. TOPUC II, 265 F.3d 313, 322 (5th Cir. 2001) (declining to “arrogate to
ourselves [the] policy-making function [under § 254(b)], merely because we (or the
Petitioners) believe” the FCC should balance competing goals differently).
51
Arguing against this construction of “quality services,” Huawei points only to
another provision, § 254(b)(3), which articulates the general principle that “low-income
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C. Additional Arguments
Huawei urges several additional reasons to doubt the FCC’s authority
to adopt the rule. We consider each in turn.
1. Lack of National Security Expertise
Huawei asserts we must reject the FCC’s reading of the pertinent
provisions because the FCC lacks the relevant national security expertise to
support a presumption of congressional delegation. It contends Congress
would not have delegated “such significant authority through modest,
general terms like ‘quality services,’ let alone to an inexpert agency.”
Once again, Huawei levels powerful arguments against a vision of the
agency’s authority that empowers it to make broad, independent national
security judgments. Nonetheless, we are persuaded that the agency’s
authority under the USF Rule has a narrower scope. As the FCC argues, the
rule requires the agency to make a more focused determination based on its
“routine[] evaluat[ion of] evidence (including classified intelligence) [related
to] foreign access to U.S. Communications networks” and its
“participat[ion] in inter-agency working groups” on this topic.52 That is, the
consumers and those in rural, insular, and high cost areas” should have access to
“telecommunications and information services” that are “reasonably comparable” to
those in “urban areas.” But Huawei does not explain, and we do not see, how this access
principle in § 254(b)(3) somehow excludes network security from “quality services” in
§ 254(b)(1).
52
See also 47 U.S.C. § 310 (providing the Commission may refuse or revoke certain
licenses in the “public interest” if a corporation is “directly or indirectly controlled” by a
foreign government or a foreign corporation); Information and Communications Technology
(ICT) Supply Chain Risk Management (SCRM) Task Force, Cybersec. & Infrastructure Sec.
Agency, https://www.cisa.gov/ict-scrm-task-force (last visited Mar. 19, 2021) (listing the
FCC as a participant in a task force of national security agencies and others to “identify[]
and develop[] consensus strategies that enhance ICT supply chain security” against
“foreign” cyberthreats); Exec. Order No. 13913, 85 Fed. Reg. 19643, at § 3(a)–(b)
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FCC’s judgments under the rule are informed by agencies with much more
expertise than the FCC on these matters. See 47 C.F.R. § 54.9; USF Order,
34 FCC Rcd. at 11438. Thus, as the agency contends, the authority it
exercises under the rule closely resembles the kind of national security
authority it has exercised for decades—limited, communications-focused
judgment informed by expert agencies and deferential to their views. See
supra pp. 23–25.
2. Conflict with Presidential Authority
Huawei points to other provisions in the Communications Act that
vest national security judgments “exclusively in the President.” Specifically,
it cites 47 U.S.C. §§ 305(c), 308(a), and 606(c)–(d). Drawing a negative
inference from these provisions, Huawei argues the Act therefore did not
delegate similar authority to the FCC. We disagree.
As the FCC argues, none of these provisions conflicts with Congress’s
intent to allow the FCC to exercise limited national security judgment in
applying the USF Rule. For instance, § 305(c) empowers the President to
authorize foreign governments to operate radio stations near their American
embassies if he deems it consistent with “national security.” This accords
with the President’s traditional role as the nation’s “sole representative with
foreign nations.” United States v. Curtiss-Wright Export Corp., 299 U.S. 304,
319 (1936) (quoting John Marshall, Annals, 6th Cong., col. 613 (Mar. 7,
1800)). Similarly, § 606(c)–(d) addresses the President’s authority to
suspend communications rules during wars or other exigencies, reflecting the
President’s authority “in military and national security affairs.” Dep’t of
Navy v. Egan, 484 U.S. 518, 530 (1988). These provisions are not at odds with
(establishing committee of defense department heads “to assist the FCC in its public
interest review of national security . . . concerns”).
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Congress’s giving the FCC authority to make certain national security
decisions concerning communications networks. After all, Congress created
the FCC in part “for the purpose of the national defense,” § 151, and
assigned the Commission duties requiring it to exercise limited judgment
related to that purpose. See, e.g., § 310(b)(4) (empowering FCC to refuse or
revoke the license of certain foreign corporations in the “public interest”).53
3. Secure Networks Act
Finally, Huawei points to a statute enacted after the rule—the Secure
Networks Act or SNA—which, it argues, confirms that Congress could not
have intended to grant the FCC the authority asserted in the rule. See supra
pp. 10–11 (discussing the SNA). We disagree.
Similar to the USF Rule, the SNA prohibits using FCC-administered
subsidies for certain purposes based on an assessment of “unacceptable risk
to . . . national security.” 47 U.S.C. § 1601(b)(1). Unlike the rule, however,
the SNA delegates responsibility for making that assessment “exclusively”
to entities other than the FCC, relegating the FCC to a ministerial role. Id.§§ 1601(a), 1601(b)(1), 1601(c). Moreover, the SNA authorizes prohibitions
53
For similar reasons, we disagree with Huawei that constitutional avoidance
principles require us to reject the FCC’s construction of its authority under the Act.
Huawei contends that permitting an independent agency like the FCC to “make
independent judgments about national security and foreign affairs” would
unconstitutionally prevent the President from carrying out his role as the nation’s “sole
organ” in external relations and communication with foreign nations. We disagree that the
FCC’s exercise of authority in applying the rule risks the separation-of-powers problem
that Huawei fears. As we have explained, in applying the USF Rule, the FCC does not
purport to make an entirely “independent judgment[] about national security and foreign
affairs.” Rather, the rule permits the agency to consider the expert national security
judgments of other Executive Branch agencies and Congress while exercising its own
judgment “within the agency[’s] core area[] of expertise.” 47 C.F.R. § 54.9(a)–(b); USF
Order, 34 FCC Rcd. at 11438.
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only of particular equipment or services, not entire companies like the rule.
§ 1601(b). Thus, Huawei argues, the SNA speaks more specifically to the
topic and in a way inconsistent with the rule. See FDA v. Brown & Williamson
Tobacco Corp., 529 U.S. 120, 133 (2000) (explaining a statute’s meaning “may
be affected by other Acts, particularly where Congress has spoken
subsequently and more specifically to the topic at hand”). Based on those
inconsistencies, Huawei contends we should infer from the SNA’s
enactment that the FCC’s construction is unreasonable.54
The FCC correctly responds, however, that the USF Rule is not
fatally opposed to the SNA. First, the “national security authority”
exercised by the FCC in the rule is similar to the agency’s role under the
SNA. The SNA directs the FCC to list covered equipment or services based
on determinations by (1) interagency bodies with national security expertise,
(2) the Commerce Secretary pursuant to Executive Order 13,873, see supra
note 6, (3) Congress in the 2019 NDAA, and (4) “an appropriate national
security agency.” § 1601(c)(1)–(4). Under the USF Rule, the FCC similarly
designates companies based on “all available evidence,” including the kinds
of sources listed in the SNA.55 As appropriate, the Commission “will [also]
seek to harmonize its determinations” with those of other executive agencies
and of Congress. 34 FCC Rcd. at 11438–39. Thus, while the FCC’s judgment
is more constrained under the SNA, its assessments under the USF Rule rest
on the same kind of sources in the SNA. Contrary to Huawei’s argument,
54
The FCC contends Huawei waived its SNA argument by raising it for the first
time in its reply brief. We need not decide this question because we find the argument
unpersuasive regardless.
55
See 47 C.F.R. § 54.9(a); USF Order, 34 FCC Rcd. at 11438 (providing the
Commission may consider determinations by the FCC, Congress, the President, and other
executive agencies, as well as classified information).
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then, the SNA’s allocation of authority to make national security judgments
does not rule out the FCC’s construction of its authority in the rule.
Second, the SNA’s coverage only of equipment or services, rather
than entire companies, reflects Congress’s policy choice and does not fatally
undermine the FCC’s authority in the USF Rule. As noted, the FCC
considered and rejected a rule of narrower scope based on its conclusion that
a broad rule would “best promote[] national security, provide[] the most
administrable rule, and ease[] compliance for USF recipients.” USF Order,
34 FCC Rcd. at 11449–50. By contrast, Congress determined that the SNA’s
distinct objectives would be better achieved by a narrower prohibition
covering only equipment or services. As the FCC argues, although the SNA
includes a prohibition provision like the USF Rule, § 1602(a)(1), the SNA
goes beyond the scope of the rule in various ways concerning equipment and
services.56 Congress’s decision to orient these additional actions around an
equipment-based prohibition does not suggest that the FCC lacked the
authority under the Act to craft a different design for the rule.
Third, the Brown & Williamson principle Huawei invokes—that
subsequent laws can affect a statute’s meaning—looks to the entire body of
relevant law. In addition to the SNA, that body of law now includes a statute
showing Congress’s approval of the FCC’s assertion of authority in the rule.
In the 2021 Consolidated Appropriations Act, Congress changed the SNA’s
definition of “covered communications equipment or services” for whose
56
Specifically, the SNA (1) orders the Commission to a create a list of covered
equipment and services that it would use in part to determine eligibility for reimbursement
funds, (2) instructs the FCC to develop a list of suggested replacement equipment,
(3) creates a fund to reimburse carriers who remove covered equipment, (4) directs carriers
to report and justify their new purchases and continued use of covered equipment, and
(5) provides enforcement mechanisms. §§ 1601(a), 1603(a)–(c), (d), 1604, 1606.
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removal or replacement a USF recipient could be reimbursed.57 While
recipients under the original SNA could be reimbursed for removing
equipment or services “on the initial list published under § 1601(a),”
§ 1603(c)(1)(A), recipients under the amended SNA can be reimbursed for
removing equipment or services “as defined in” the USF Order or “as
determined to be covered” by the USF Order and Huawei/ZTE designation
orders, § 901(1)(B), 134 Stat. at 2120. In other words, Congress replaced the
original definition based on the “exclusive[] . . . determinations” of certain
expert agencies with a definition based on the challenged exercise of
authority described in the USF Rule.
Huawei counters that these amendments are merely “definition-
borrowing” provisions that “neither rel[y] on nor support[] [the USF
Rule’s] validity.” It speculates “[t]he appropriations law’s incorporation of
the USF rule’s definition likely reflects Congress’ attempt to make whole
small carriers who tried to replace all equipment in the wake of the USF
rule.” And it contends the specified amendments cannot satisfy the standard
for ratification of the USF Rule, pointing to Congress’s failure to amend the
SNA’s prohibition or non-revisitation provisions or to use express
ratification language.
Huawei’s rejoinder loses sight of the key question, which is whether
the SNA “shape[s] or focus[es]” the meaning of the relevant
Communications Act provisions, rendering the FCC’s constructions
unreasonable. In Brown & Williamson, the FDA’s construction of its
authority to regulate tobacco “plainly contradict[ed] congressional policy”
as revealed in six distinct pieces of legislation over almost four decades. 529
57
See Pub. L. No. 260, § 901(1)(B), 134 Stat. 1182, 2120 (2020); see also 47 U.S.C.
§ 1603(c)(1)(A)–(C).
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U.S. at 126, 137–39, 143–44, 146. Here, by contrast, we have one statute that
is not flatly inconsistent with the agency’s assertion of authority, followed by
a second statute amending the first statute to make it more consistent.58
In sum, contrary to Huawei’s argument, the SNA does not show that
the FCC’s asserted authority in the USF Rule was unreasonable. 59
***
In sum, we conclude that the FCC reasonably interpreted its authority
under the Communications Act in formulating the USF Rule. Specifically,
we find the agency reasonably interpreted the Act’s “public interest”
provisions (§ 254(c)(1)(D), in coordination with § 201(b)), to authorize
58
Because we disagree with Huawei’s interpretation of the SNA, we do not address
the argument it raises in a Rule 28(j) filing that the “SNA Rule,” 86 Fed. Reg. 2904 (Jan.
13, 2021), confirms the USF Rule is inconsistent with the SNA. However, we note that the
FCC concluded in its rule implementing the SNA that that rule and the USF Rule “are
intended to complement each other,” 86 Fed. Reg. at 2918–19, which is consistent with the
interpretation of the SNA the FCC advances here.
59
Huawei levels two additional challenges to the FCC’s authority that need not
long detain us. First, Huawei contends the FCC may make universal service policies only
in accord with § 254(b)’s six enumerated principles, none of which involves national
security. Our decision in TOPUC I forecloses this argument. See 183 F.3d at 412 (finding
FCC could use the universal service mechanism to promote the unlisted goal of
competition, provided it also advanced a § 254 command). Second, Huawei argues the rule
“undermines” the § 254(b) principles by “denying USF recipients access to . . . cost-
effective and high-quality equipment and services.” This argument assumes the agency
cannot balance conflicting aspects of quality, which is not so. The language “should” in §
254(b) “indicates a recommended course of action, but does not itself imply the obligation
associated with ‘shall.’” Qwest Corp. v. FCC, 258 F.3d 1191, 1200 (10th Cir. 2001); see also
TOPUC I, 183 F.3d at 421 (describing § 254(b)’s principles as containing “aspirational
language” and not “constitut[ing] a series of specific statutory commands”); Alenco, 201
F.3d at 621 (describing “predictability” in § 254(b)(5) as “only a principle, not a statutory
command”). Thus, the “FCC may exercise its discretion to balance [§ 254(b)’s] principles
against one another when they conflict.” Qwest Corp., 258 F.3d at 1200; Alenco, 201 F.3d
at 621 (holding “[t]o satisfy a countervailing statutory principle, therefore, the FCC may
exercise reasoned discretion to ignore [§ 254(b)(5)’s principle]”).
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allocation of universal service funds based on the agency’s exercise of limited
national security judgment. We also hold that it reasonably interpreted the
“quality services” provision in § 254(b)(1) to support that exercise. We
therefore defer to the agency’s interpretation under Chevron and reject
Huawei’s argument that the agency lacked statutory authority for the rule.
III. Substantive Challenges
Huawei raises numerous challenges to the lawfulness and
constitutionality of the USF Rule, which we treat as follows. Part A considers
whether the NPRM provided adequate notice. Part B considers whether, as
Huawei claims, the USF Rule was not the result of reasoned decisionmaking
because the FCC (1) ignored relevant legal arguments and evidence;
(2) engaged in a flawed cost-benefit analysis; and (3) failed to consider a more
effective alternate approach for advancing national security. Part C examines
Huawei’s argument that the rule violates the APA because it is vague and
standardless. Finally, Part D considers whether the rule must be vacated
because it fails to provide adequate process before an initial designation.
A. Adequacy of Notice
First, we consider Huawei’s argument that the NPRM failed to give
adequate notice of the designation process adopted in the USF Rule.
Under the APA, an agency must publish notice of the legal authority
for a proposed rule and of the rule’s substance or subject matter, 5 U.S.C.
§ 553(b)(2), (3), and must also provide an opportunity for interested persons
to participate in the rulemaking, § 553(c). Notice suffices if it is a “logical
outgrowth” of the proposed rule, meaning the notice must “adequately
frame the subjects for discussion” such that “the affected party ‘should have
anticipated’ the agency’s final course in light of the initial notice.” Nat’l
Lifeline Ass’n v. FCC, 921 F.3d 1102, 1115 (D.C. Cir. 2019) (internal citations
omitted). If a party “should have anticipated” that course, it “reasonably
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should have filed [its] comments on the subject during the notice-and-
comment period.” Tex. Ass’n of Mfrs. v. U.S. Consumer Prod. Safety Comm’n,
989 F.3d 368, 381 (5th Cir. 2021) (citing Am. Coke & Coal Chems. Inst. v. EPA,
452 F.3d 930, 938-39 (D.C. Cir. 2006)).
Huawei identifies five aspects of the designation procedure that, it
claims, appeared for the first time in the final rule without “any” notice.
These are: (1) an initial designation process without pre-deprivation process;
(2) a thirty-day response period for written comments, absent which the
initial designation becomes final; (3) delegation to the Bureau of authority
“to make both initial and final designations” and “to reverse prior
designations”; (4) delegation to the Bureau of authority “to revise th[e]
process”; and (5) independent FCC review before judicial review. Huawei
argues these procedures were not a “logical outgrowth” of the notice
because “[s]omething is not a logical outgrowth of nothing.”
We agree that if the FCC had failed to provide any notice of these
changes, the NPRM would have violated § 553. See, e.g., Kooritzky v. Reich,
17 F.3d 1509, 1514 (D.C. Cir. 1994) (holding agency violated § 553 where
proposed rulemaking “contain[ed] nothing, not the merest hint, to suggest”
it would amend a regulation). But that is not what happened. As the FCC
argues, the notice satisfied the requisite standard by “fairly appris[ing]
interested persons of the subjects and issues the agency [was] considering.”
Chem. Mfrs. Ass’n v. EPA, 870 F.2d 177, 203 (5th Cir. 1989); see also United
Steelworkers of America v. Schuylkill Metals Corp., 828 F.2d 314, 317 (5th Cir.
1987) (identifying this as “[t]he proper test” and collecting cases).
Specifically, the NPRM sought comment on the ultimate subject of
§ 54.9(b)—identifying companies posing a national security threat to
networks—and apprised interested parties of the related issues under
consideration by offering designation proposals and inviting alternatives.
NPRM, 33 FCC Rcd. at 4064–66. This was “all the APA demands.” Chem.
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Mfrs. Ass’n, 870 F.2d at 203. The agency was not required to “specifically
identify ‘every precise proposal which [the agency] m[ight] ultimately
adopt,’” and it permissibly implemented changes in the final rule “instigated
by . . . comments” during the rulemaking. Chem. Mfrs. Ass’n, 870 F.2d at 203(quoting United Steelworkers of America, 828 F.2d at 317).
Consequently, the NPRM should have enabled—and in fact, did
enable—Huawei to anticipate those aspects of the final rule it claims were
not properly noticed. See Tex. Ass’n of Mfrs., 989 F.3d at 381–82. For
example, by proposing to define a covered company as one already subject to
agency or congressional prohibitions, see NPRM, 33 FCC Rcd. at 4064, the
FCC signaled it was considering designating companies without pre-
designation process. Indeed, Huawei objected that the absence of “notice”
and “a meaningful individualized hearing” violated due process. The FCC
also proposed allocating designation authority to itself, another federal
agency (including one that “regularly deals with national security risks”), or
the Universal Service Administrative Company (“USAC”) under the
FCC’s supervision.60 NPRM, 33 FCC Rcd. at 4065. In response, Huawei
commented that the agency could not itself designate companies given its
lack of expertise, that assigning the task to another agency “would constitute
an unlawful subdelegation,” and that if the agency subdelegated authority at
all, it must be to “a subordinate.” Thus, the initial notice and subsequent
comments alerted Huawei to the issues it flags here—e.g., whether pre-
designation process should be provided, and whether (and to whom) the
agency could delegate its designation authority.
60
The Universal Service Administrative Company is an independent not-for-profit
organization designated by the FCC that administers the universal service fund with FCC
policy guidance. About USAC, Universal Serv. Admin. Co.,
https://www.usac.org/about/ (last visited Mar. 31, 2021).
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Indeed, the new designation processes adopted by the USF Rule
responded directly to Huawei’s comments, confirming the rule is a “logical
outgrowth” of the rulemaking. See Chem. Mfrs. Ass’n, 870 F.2d at 203 (final
rule changes “were instigated by industry comments” and so grew out of
comment process). The final rule adopts the kind of process Huawei
commented was absent from the proposed rule. See 47 C.F.R. § 54.9(b)(1)–
(2) (providing notice of initial designation and a thirty-day comment period);
see also supra note 12. A company that opposes its initial designation is finally
designated only after receiving, as Huawei advocated, opportunity to
“review and respond to the evidence against it” and a “meaningful
individualized hearing.” Id. And the rule similarly responds to Huawei’s
comments about designation authority by delegating not to the Commission
or another agency but to a subordinate entity that “regularly deals with
[homeland] security risks,” an expertise closely related to national security.61
NPRM, 33 FCC Rcd. at 4065.
In sum, while the NPRM did not specify the precise procedures the
agency ultimately adopted, the rulemaking fairly acquainted Huawei with the
subject and issues delineated in § 54.9(b), which is all § 553 demands. Chem.
Mfrs. Ass’n, 870 F.2d at 203; see also Hodge v. Dalton, 107 F.3d 705, 711–12
(9th Cir. 1997) (regulation adopted in reaction to comment adequately
noticed where “in character with the original proposal” (citation omitted)).
61
As noted, the Public Safety and Homeland Security Bureau is “the FCC’s
primary expert on public safety and homeland security matters.” Public Safety and
Homeland Security, FCC, https://www.fcc.gov/public-safety-and-homeland-security (last
visited June 17, 2021); see also Cybersecurity & Comm’ns Reliability Div., Public Safety and
Homeland Security Bureau, FCC, https://www.fcc.gov/cybersecurity-and-
communications-reliability-division-public-safety-and-homeland-security-bureau (last
visited June 17, 2021) (describing Bureau’s work to “identify and reduce risks” to network
reliability).
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And the final rule’s adoption of changes responsive to Huawei’s comments
underlines that the rule logically emerged from the rulemaking.
B. Arbitrary and Capricious Review
Next, we turn to Huawei’s arguments the FCC acted arbitrarily and
capriciously in adopting the USF Rule. We consider in turn: (1) whether the
agency ignored relevant evidence and legal arguments, (2) whether its cost-
benefit analysis was irrational, and (3) whether it failed to explain its rejection
of a narrower approach that would have more effectively advanced its stated
objective. In each case, we find the agency “acted within a zone of
reasonableness.” Prometheus Radio Project, 141 S. Ct. at 1158.
1. Consideration of Relevant Evidence and Arguments
First, Huawei contends the FCC failed to consider relevant evidence
and legal arguments. See State Farm, 463 U.S. at 43. Although the FCC could
have done more, under our “narrow and highly deferential” standard of
review, it did enough. Sierra Club, 939 F.3d at 672.
Arbitrary-and-capricious review requires that an agency “has
reasonably considered the relevant issues and reasonably explained the
decision.” Prometheus Radio Project, 141 S. Ct. at 1158; see also Carlson v. Postal
Regul. Comm’n, 938 F.3d 337, 344 (D.C. Cir. 2019) (agency violates the
arbitrary-and-capricious standard “if it fails to respond to ‘significant points’
and consider ‘all relevant factors’ raised by the public comments” (citation
omitted)). Comments are “significant,” and thus require response, only if
they raise points “which, if true . . . and which, if adopted, would require a
change in an agency’s proposed rule.” City of Portland v. EPA, 507 F.3d 706,
714–15 (D.C. Cir. 2007) (emphasis removed) (citation omitted).
Huawei identifies five categories of evidence-based comments it says
the FCC “ignored or largely disregarded without explanation.” First, it
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argues the FCC failed to meaningfully consider economic reports that the
rule would harm rural communities by eliminating a low-cost market
competitor, as well as rural carrier declarations that Huawei’s exclusion
could produce ruinously higher costs. But as the FCC argues, it did respond
to those arguments. The agency acknowledged evidence that the USF Rule
could “widen the digital divide” and drive certain rural providers out of
business, but it deemed those costs outweighed by the security risk to
national networks associated with a partial ban.62 The agency also suggested
it viewed rural carrier costs as overstated, explaining that “[n]o provider
ha[d] yet offered the detailed financial records” necessary to show an
inability to “maintain its existing network without violating [the] rule.” USF
Order, 34 FCC Rcd. at 11453. Elsewhere, it noted that the carriers who
provided cost estimates represented only 0.15% of mobile carrier end-user
revenues and suggested they likely had stronger incentives to comment than
similarly situated non-reporting carriers. Id. at 11467. Still, the agency
developed a waiver process “to minimize the [rule’s] economic burden . . .
on small entities” facing exceptional financial straits. Id. at 11454 n.227,
11515. Thus, the FCC “clearly thought about the [commenters’] objections”
and offered “reasoned replies—all the APA requires.” City of Portland, 507
F.3d at 714.63
Huawei next contends the FCC ignored comments from rural carriers
arguing the rule would reduce availability of affordable quality services. But
again, as the FCC points out, it did address the rule’s “potential impact” on
62
USF Order, 34 FCC Rcd. at 11449–50 & n.206, 11453 (citations omitted); see also
id. at 11434 (discussing covered companies’ ability to out-compete more secure
competitors due to foreign government subsidies).
63
See also PSSI Global Servs., L.L.C. v. FCC, 983 F.3d 1, 12 (D.C. Cir. 2020)
(rejecting argument FCC failed to “reasonably respond to [a] concern” where it
“establish[ed] several significant protections against it”).
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this issue. It pointed to record evidence “demonstrat[ing] that [quality]
service [could] be provided” at reasonable rates “without [covered]
suppliers,” and it theorized that the rule would “unleash competition”
among higher quality suppliers that did not pose similar security risks. USF
Order, 34 FCC Rcd. at 11434.64 Huawei replies that the FCC’s first response
“ignores actual evidence about excluding Huawei” and that the second
“does not explain why eliminating a competitor will ‘unleash competition.’”
We disagree. The FCC considered the costs Huawei identified, including
arguments the rule would “drive up rates without a proportionate increase in
quality,” id. at 11434 & n.85 (citation omitted), but it concluded Huawei’s
low-cost equipment came with security—and thus quality—tradeoffs
impossible to tolerate, id. at 11434. And with respect to competition, the
Commission suggested that the presence of foreign-government-subsidized
carriers distorted market costs and that eliminating them would promote
competition among “higher-quality suppliers” for the USF subsidies. Id.
(emphasis added).65 In other words, as with rural carrier costs, the agency
64
The FCC cited the Telecommunications Industry Association (“TIA”)’s Reply
Comments, 34 FCC Rcd. at 11434 & n.86, which contested the argument that “eliminating
the availability of equipment from two problematic vendors” would violate § 254(b)(1)’s
“broad principle” that quality equipment be available at affordable rates “when only a very
small number of companies m[ight] be impacted,” Telecomms. Indus. Ass’n, Reply
Comments on Protecting Against National Security Threats to the Communications
Supply Chain Through FCC Programs, 78 (July 2, 2018) [hereinafter “TIA Reply
Comments”]. Rather, it asserted, “hundreds of USF-companies have been able to provide
quality services at reasonable and affordable rates using other suppliers.” Ibid.; see also 2
Pierce, supra, § 11.6, at 1047 (explaining that courts may consider the “whole record,”
which includes comments received in response to an NPRM (quoting 5 U.S.C. § 706(e))).
65
The FCC cited TIA’s Reply Comments, 34 FCC Rcd. at 11434 & n.87, which
discussed the “preferential financial treatment” of Huawei and ZTE by the Chinese
government, TIA Reply Comments at 62–65. Contrary to Huawei’s and other
commenters’ arguments that Huawei’s presence increased competition, TIA contended
that Huawei’s participation in the market created distortions that “‘breed indiscipline and
overcapacity’” and argued that, “[i]f anything, Huawei’s presence in the market harms
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weighed the evidence differently than Huawei and reached contrary but
reasonable policy conclusions.
Next, Huawei asserts the FCC did not respond directly to arguments
that a company-based approach would “ignore global supply-chain risks,”
i.e., risks arising from other major suppliers operating in or purchasing
materials from China. The FCC counters that it did answer those arguments
by explaining that Huawei and ZTE pose a “unique” threat. We agree with
Huawei that this response is off-point. Pointing to “unique” threats posed
by Huawei and ZTE does not address why a company-based approach might
mitigate global supply chain risks, and the FCC does not direct us to any place
in the record where it addressed these comments. That flaw is not fatal,
however. Huawei fails to show that the agency’s consideration of these
comments would have impacted adoption of a company-based prohibition.
While the comments speak to the difficulty of improving American supply
chain security through a company-based rule—or any other prohibition—
given the global nature of the supply chain, they do not show that an
equipment-based rule would be more effective. Thus, even if the agency
failed to respond to these comments, it was not required to do so because
they were “incapable of affecting” the rule the agency ultimately adopted.
City of Portland, 507 F.3d at 715.
Finally, Huawei argues the FCC failed to consider comments that a
company-based approach would improve network security less effectively
than a narrower approach, such as prohibiting switching equipment.66 The
genuine free-market competition and hurts innovation by driving legitimate competitors
out of business on the strength of its unfair advantages.” Id. at 65 n.209 (citation omitted).
66
From these comments, Huawei argues that “excluding all equipment of covered
companies . . . does not improve network security.” That overstates the matter. The cited
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FCC responds that it did consider such arguments and concluded a company-
based approach would be “safer and more administrable.” Huawei counters
that the FCC’s only safety-related justification for a broader rule was that
malicious actors can build malware and vulnerabilities “directly into
communications equipment,” even non-“flagship equipment.” USF Order,
34 FCC Rcd. at 11450. Yet, the agency failed to address the argument
advanced in comments that the rule could, as Huawei puts it, prohibit “all
dangerous equipment (‘flagship’ or otherwise), regardless of supplier,
without banning safe products.” The FCC has the better argument, if just
barely. The Commission did consider comments warning that prohibiting
“every product from a covered company” would not serve any “material
security purpose.” Id. at 11449. The FCC also considered exempting
products “that cannot route or redirect user data traffic, or which do not
provide visibility into user data.” Id. at 11450 n.209. Nonetheless, the agency
found that the need to guard against the risk associated with any equipment
provided by a covered company outweighed the costs of a broad rule, and it
underscored the importance of preventing “bad actors [from]
circumvent[ing its] prohibitions through clever engineering.” Id. at 11450 &
n.209. It also concluded that “a blanket prohibition” would promote ease of
administration and compliance, a justification amply supported in the record
and one that would apply regardless of an equipment-based approach’s
relative security virtues. Id. at 11449–50.67 Thus, we conclude the FCC did
not fail to offer a “reasonable and reasonably explained” analysis of the
comments argue only that excluding all equipment will cover equipment that is inherently
secure, not that a broad prohibition will fail to reduce security threats.
67
For example, the FCC cited comments from Vermont Telephone arguing the
proposed rule “would eliminate uncertainty and reduce regulatory burdens that fall most
heavily on small operators.” USF Order, 34 FCC Rcd. at 11450.
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relative virtues of a company-based, rather than equipment-based rule, which
is all the APA requires. Prometheus Radio Project, 141 S. Ct. at 1160.
Similarly, we do not find the agency failed to consider any properly-
raised legal arguments that Huawei identifies. To the contrary, the
Commission discussed—and rejected—arguments that the FCC lacks
authority and expertise to make national security judgments, USF Order, 34
FCC Rcd. at 11435–36, as well as arguments that U.S.-based subsidiaries of
Chinese companies are immune from Chinese government control, id. at
11442–43 & nn. 146–47. True, the FCC did not respond to Huawei’s
contention that delegating designation authority to the Bureau violates the
Appointments Clause of the U.S. Constitution, art. II, § 2, cl. 2. But Huawei
does not dispute the FCC’s assertion that the company made this argument
in “a single sentence, buried in a list of ‘additional reasons’” in a submission
focused on the Commission’s citation of CALEA. And the FCC correctly
points out that it “need not sift pleadings and documents to identify
arguments that are not stated with clarity by a petitioner.” New England Pub.
Commc’ns Council, Inc. v. FCC, 334 F.3d 69, 79 (D.C. Cir. 2003) (citation
omitted) (cleaned up).
Thus, we cannot say the FCC acted arbitrarily and capriciously by
failing to consider any relevant and significant comment.
2. Cost-Benefit Analysis
Next, we consider Huawei’s contention that the FCC’s cost-benefit
analysis “ignored important aspects of the problem and is irrational.”
An agency’s decision to rely on a cost-benefit analysis as part of its
rulemaking can “render the rule unreasonable” if the analysis rests on a
“serious flaw.” Nat’l Ass’n of Home Builders v. EPA, 682 F.3d 1032, 1040
(D.C. Cir. 2012). But courts afford agencies considerable discretion in
conducting “the complex . . . economic analysis typical in the regulation
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promulgation process.” Ibid. (quoting Nat’l Wildlife Fed’n v. EPA, 286 F.3d
554, 563 (D.C. Cir. 2002)); see also Charter Commc’ns, Inc. v. FCC, 460 F.3d
31, 42 (D.C. Cir. 2006) (“[C]ost-benefit analyses epitomize the types of
decisions that are most appropriately entrusted to the expertise of an
agency[.]” (citation omitted)). “[C]ourts of review should be mindful of the
many problems inherent in [considering costs] and uphold a reasonable effort
made by the Agency.” Nat’l Wildlife Fed’n, 286 F.2d at 563 (quoting FMC
Corp. v. Train, 539 F.2d 973, 979 (4th Cir. 1976)). Indeed, our job “is not to
undertake our own economic study, but to determine whether the [agency]
‘has established in the record a reasonable basis for its decision.’” Chem.
Mfrs. Ass’n, 870 F.2d at 251 (quoting Kennecott v. EPA, 780 F.2d 445, 456
(4th Cir. 1985)).
Huawei argues the agency unreasonably calculated the rule’s costs
“on the unstated assumption that the rule applies to Huawei and ZTE alone”
and also ignored evidence about the costs of excluding Huawei from the USF
program.68 Additionally, Huawei asserts the agency illogically estimated the
rule’s benefits by calculating the level of benefits necessary to offset the
rule’s $960 million cost and then assuming benefits at that level without
substantiation. We disagree that the FCC’s cost-benefit analysis reflects
unreasoned decisionmaking.
First, as the FCC argues, it was reasonable to calculate the rule’s cost
based on Huawei and ZTE alone: Those were the only companies initially
designated, and the Commission lacked an evidentiary basis to calculate the
68
Specifically, Huawei argues the FCC ignored evidence that: Huawei exerts
competitive pressure on prices; replacing or adapting Huawei equipment would result in
long-term interoperability problems; Huawei’s exclusion would cause some carriers to go
out of business or raise prices; Huawei’s exclusion would result in reduced access to and
quality of services in areas where Huawei is the only provider; and Huawei’s exclusion
would exacerbate the problem of delayed 5G deployment in rural communities.
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rule’s costs based on other companies. See Prometheus Radio Project, 141 S.
Ct. at 1160 (noting the “APA imposes no general obligation on agencies to
conduct or commission their own empirical or statistical studies”). Huawei
counters that it submitted “detailed evidence about similarly situated
companies” and “extensive economic analysis” the Commission failed to
consider. But Huawei does not point us to record evidence about the costs of
excluding similarly situated companies from the USF program, which was
the relevant data for the FCC’s analysis. Rather, the FCC reasonably relied
on “the evidence it had”—extensive data about the costs of excluding
Huawei and ZTE from the market. See USF Order, 34 FCC Rcd. at 11467
(noting seven carriers provided cost data on replacing Huawei or ZTE
equipment);69 see also Prometheus Radio Project, 141 S. Ct. at 1159 (rejecting
argument that FCC’s judgment was arbitrary and capricious because it acted
on the imperfect data it had).
Second, while it is true that the FCC did not consider certain costs
identified by commenters,70 Huawei does not identify relevant cost data the
69
Each of these carriers reported that Huawei or ZTE equipment made up a
significant percentage of their networks and estimated the cost of replacing that equipment.
70
The Commission’s cost-benefit analysis did not mention arguments about three
of the five costs Huawei identifies: (1) the effect of Huawei’s market presence on
equipment costs, (2) the likelihood that some carriers could not comply with the rule and
stay in business, and (3) the absence of comparable providers in rural areas and thus the
probability of reduced access. But as discussed, it considered the second and third costs
elsewhere in the Order. 34 FCC Rcd. at 11434, 11453. Additionally, the Commission
considered and discounted the fifth cost identified by Huawei, delays in 5G deployment in
rural communities. See USF Order, 34 FCC Rcd. at 11470 (noting the “four largest U.S.
mobile carriers do not use and [do not plan] to use Huawei (or ZTE) radio access network
equipment”). It also considered “interoperability” costs or “capital outlays” beyond
replacement costs, such as associated “service and maintenance” costs, incorporating
them into its cost stream estimate. Id. at 11466, 11467 nn.308–09, 11468. Huawei does not
argue the FCC’s capital cost estimate was unreasonable but rather argues that it failed to
consider these costs altogether, which is incorrect.
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agency ignored. For example, a representative comment identified by
Huawei recognized Huawei has “little presence in the U.S. today” but
asserted without evidence that a “small sales share does not by itself indicate
a firm lacks competitive significance.” Another estimated the competitive
effect if Huawei were permitted to enter the market, not its current effect in
reducing prices. A third speculated that “[customer] fees might have to be
raised” and that it would “be a struggle to [stay] afloat.” The FCC was not
required to “conduct or commission [its] own empirical or statistical
studies” to confirm or reject the speculative costs identified by comments
such as these. See Prometheus Radio Project, 141 S. Ct. at 1160; Pub. Citizen,
Inc. v. FAA, 988 F.2d 186, 197 (D.C. Cir. 1993) (an agency “need not respond
at all to comments that are ‘purely speculative and do not disclose the factual
or policy basis on which they rest’” (citation omitted)). Indeed, as noted, the
agency stated elsewhere that “[n]o provider ha[d] yet offered the detailed
financial records . . . necessary . . . to determine whether an individual
provider actually could not maintain its existing network” and comply with
the rule. USF Order, 34 FCC Rcd. at 11453.
Rather, as the agency suggests, it reasonably focused on the most
significant cost suggested by the record—“the cost of replacing Huawei and
ZTE equipment,” USF Order, 34 FCC Rcd. at 11466—and it reasonably
explained its methodology.71 For example, in calculating the replacement
cost, the FCC explained that it considered estimates from the seven carriers
that had reported their replacement costs and based its analysis on the
71
See Charter Commc’ns, Inc., 460 F.3d at 41–42 (finding FCC adequately
explained “why the costs of [an] integration ban were justified” where agency generally
discussed its agreement with some commenters’ initial cost estimates and agreement with
others’ long-term estimates); cf. State Farm, 463 U.S. at 52–53 (agency failed to justify
rescission of passive seat belt rule where “no direct evidence” showed that passive
seatbelts would not substantially increase usage).
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median estimate, discounted by ten to twenty percent, because carriers with
“above average costs” were likely to have the strongest incentives to
comment and because the reporting carriers represented “only 0.15% of
mobile carrier end-user revenues.” Id. at 11467 & n.308. Huawei does not
object to specific cost calculations such as these but to the agency’s failure to
consider additional, difficult-to-measure costs about which the FCC lacked
hard data, such as “the broader economic costs of depriving Americans of
access to Huawei’s market-leading technology.” The agency’s decision to
base its analysis instead on the replacement cost estimates before it does not
render its analysis unreasonable.
Similarly, Huawei does not show the FCC’s calculation of benefits
renders its analysis unreasonable. Huawei argues the agency provided no
hard evidence that the rule’s claimed benefits would accrue. That is true. As
the FCC admits in its brief, it merely “opined that the benefits of the rule
included avoiding network disruption and surveillance, as well as possible
data breaches” and that these benefits were “difficult to quantify” but
“likely to be substantial” based on the digital economy’s size and the current
estimated cost of such disruption. See USF Order, 34 FCC Rcd. at 11465–66,
11481; supra note 16. The agency also explained that the rule would result in
additional benefits even harder to quantify, such as preventing detrimental
impacts to national defense, public safety, homeland security, military
readiness, and critical infrastructure, as well as the resulting loss of life that
could occur if national communications networks were disrupted. Id. at
11466.
But the FCC was not required to support its analysis with hard data
where it reasonably relied on difficult-to-quantify, intangible benefits. For
example, the D.C. Circuit rejected a similar challenge to a cost-benefit
analysis where the FCC identified “benefits likely to flow from a more
competitive and open supply market,” including “potential savings to
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consumers from greater choice among navigation devices,” the “spurring of
technological innovations,” and Congress’s view of the commercial
availability of navigation devices “as a benefit in and of itself.” Charter
Commc’ns, Inc., 460 F.3d at 42. Moreover, the Third Circuit opinion upon
which Huawei principally relies was recently reversed by the Supreme Court
in a decision underlining the deferential nature of our review in this context.
See Prometheus Radio Project v. FCC, 939 F.3d 567 (3d Cir. 2019), rev’d, 141
S. Ct. at 1161. Accordingly, we are limited to considering whether “the FCC
made a reasonable predictive judgment based on the evidence it had,” and
we cannot demand the agency perform its own “empirical or statistical
studies,” especially when it relies on unquantifiable benefits. Prometheus
Radio Project, 141 S. Ct. at 1160.72
In sum, the FCC did not act unreasonably by concluding that hard-to-
quantify benefits, such as protecting national defense and public safety and
preventing potential loss of life, would exceed the rule’s costs, which it
reasonably calculated based on the record evidence. Nor did the FCC
unreasonably estimate that excluding insecure equipment or services from
even a portion of the nation’s communications networks would reduce the
likelihood of a significant disruption to the digital economy and counter the
frequency of malicious cyberactivity.
3. Rejection of Risk-Based Approach
Finally, we turn to Huawei’s contention that the FCC acted arbitrarily
and capriciously by rejecting an alternate approach that would have “served
72
See also FCC v. Fox Television Stations, Inc., 556 U.S. 502, 519 (2009)
(distinguishing State Farm as “set[ting] aside agency action . . . because of failure to adduce
empirical data that can readily be obtained,” as opposed to “propositions for which scant
empirical evidence can be marshaled,” such as “the harmful effect of broadcast profanity
on children,” and refusing to “insist upon obtaining the unobtainable”).
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its putative national security objective more effectively and at lower cost.” In
Huawei’s view, the agency failed to consider its own expert advisors’
recommendations to adopt a risk-based approach,73 rather than a company-
based approach, and failed to explain its ultimate decision to focus on
companies instead. The agency counters that it did explain that a company-
based approach was the “only reliable protection against potential
incursions” because equipment beyond the “company’s flagship
equipment” might contain vulnerabilities. Additionally, a company-based
prohibition would provide “regulatory certainty” and greater ease of
implementation and enforcement, reducing compliance costs. But, counters
Huawei, the agency failed to show that it even considered a risk-based
approach, and regardless, the possibility that flagship equipment might
contain vulnerabilities does not support barring safe equipment. The agency
has the better argument.
First, the FCC did explain why it rejected a risk-based approach.
Responding to a comment advocating for a “testing program that would
allow impacted carriers to submit for government approval their proposed,
but mission-critical, service or maintenance plans,” i.e., a risk-based
approach, the FCC stated that “such a framework would do little to address
the potential for foreign adversaries to intentionally and maliciously access or
exploit equipment within our communications networks.” USF Order, 34
FCC Rcd. at 11449 n.204. In other words, the FCC found, as one commenter
argued, that a risk-based approach like “product testing” less effectively
addressed the “the risk of deliberately compromised products—those that have
73
Huawei uses “risk-based” to refer to an approach that would “focus[] on design
principles and processes.” Huawei cites comments suggesting such an approach might
include permitting voluntary compliance with the NIST Cybersecurity Framework or “an
equipment testing regime.”
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been intentionally altered by a state-sponsored actor to enable future
exploitation—rather than those products that are merely vulnerable to a
future attack due to inherent weaknesses in design or implementation.”
Telecomms. Indus. Ass’n, Comments on Protecting Against National
Security Threats to the Communications Supply Chain Through FCC
Programs, 36 (June 1, 2018).
Second, as discussed, the FCC offered a reasoned explanation for
adopting a company-based approach. USF Order, 34 FCC Rcd. at 11449,
11450 n.209, 11453. Even accepting Huawei’s premise that a risk-based
approach would have more effectively achieved the FCC’s security
objective, we must defer to the agency’s reasoned explanation, supported by
comments in the record, that a company-based prohibition would be “easier
for providers to implement and for the Commission to enforce” and “thus
more cost effective” than alternative approaches. Id. at 11449 & n.204,
11450.74 The agency explained that a blanket prohibition would avoid the
time-consuming and costly administrative burden of making determinations
“on a product-by-product basis.” Id. at 1150. It would also reduce providers’
compliance burden by allowing them to certify their subsidiaries and affiliates
had not used a covered company’s equipment, rather than certifying
compliance “on a product-by-product or even component-by-component
basis.” Ibid. By the same token, a company-based certification would simplify
and make less costly USAC’s auditing responsibilities. Ibid.
Finally, the agency acknowledged that its rule would not “completely
address the risks posed by equipment or services produced or provided by
covered companies” and reasonably concluded that its “targeted rule”
74
See USF Order, 34 FCC Rcd. at 11450 (“We agree with Vermont Telephone . . .
that our rule ‘would eliminate uncertainty and reduce regulatory burdens that fall most
heavily on small operators[.]’” (citation omitted)).
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would be part of “ongoing and incremental” efforts to secure the supply
chain and national communications networks. Id. at 11453. Such efforts could
very well include a risk-based approach in future.
“Nothing prohibits federal agencies from moving in an incremental
manner.” FCC v. Fox Television Stations, Inc., 556 U.S. 502, 522 (2009). And
Huawei does not suggest the agency unreasonably found that a broad
prohibition would cover insecure equipment, just that it covered more
equipment than necessary. Nor does it argue the FCC unreasonably gave
significant weight to the compliance and administrative burden associated
with an alternative approach. “Mindful” that we cannot “substitute [our]
judgment for that of the agency,” we do not find the agency’s action outside
the realm of reasonableness. See Sierra Club, 939 F.3d at 664 (quoting 10 Ring
Precision, 722 F.3d at 723).
C. Vagueness
We next consider Huawei’s claim that the USF Rule violates the APA
because it is vague and standardless.75 As discussed, the rule directs
designation of companies “pos[ing] a national security threat to the integrity
of communications networks or the communications supply chain.” 47
C.F.R. § 54.9; USF Order, 34 FCC Rcd. at 11438. Huawei argues the rule
does not give “meaningful guidance” to affected companies, for instance by
75
The title of the relevant section of Huawei’s opening brief states the USF Rule
also “violates . . . due process,” but the brief itself does not develop this point as a distinct
argument. Instead, it states in passing that the APA’s arbitrary-and-capricious standard
“comports with the Due Process Clause, which likewise requires regulations to ‘give fair
notice’ . . . and to establish intelligible standards.” Further, this section relies entirely on
APA cases in applying vagueness principles to the rule, and Huawei’s reply brief
exclusively discusses APA arguments. Accordingly, we do not address whether the USF
Rule is also vague and standardless in violation of the Fifth Amendment. See Roy v. City of
Monroe, 950 F.3d 245, 251 (5th Cir. 2020) (“Failure adequately to brief an issue on appeal
constitutes waiver of that argument.” (citation omitted)).
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failing to define key terms such as “national security threat,” “integrity,”
and “communications supply chain.” It also claims the rule provides no
“metric” for assessing whether a designation reflects reasoned
decisionmaking, instead relying on the “totality of evidence.” See USF
Order, 34 FCC Rcd. at 11439. For this argument, Huawei cites a line of D.C.
Circuit decisions, beginning with Pearson v. Shalala, 164 F.3d 650 (D.C. Cir.
1999), which, according to Huawei, teach that agency action is arbitrary and
capricious “if it does not articulate a comprehensible standard.” See also
ACA Int’l v. FCC, 885 F.3d 687 (D.C. Cir. 2018); Tripoli Rocketry Ass’n, Inc.
v. Bureau of Alcohol, Tobacco, Firearms, & Explosives, 437 F.3d 75 (D.C. Cir.
2006).
These cases do not support Huawei’s claim. The D.C. Circuit has
rejected the argument that “Pearson stands for the proposition that an
unarticulated standard does not comport with . . . the APA.” PDK Lab’ys Inc.
v. DEA, 438 F.3d 1184, 1194 (D.C. Cir. 2006) (cleaned up). To the contrary,
Pearson holds only that “an agency proceeding on a case-by-case basis must
pour ‘some definitional content’ into a vague statutory term by ‘defining the
criteria it is applying.’” Ibid. (quoting Pearson, 164 F.3d at 660). And a closer
examination of this line of cases reveals they are far afield from Huawei’s
challenge to the USF Rule.
Begin with Pearson itself. Marketers of diet supplements challenged
the FDA’s ruling that health claims on their labels were not supported by
“significant scientific agreement.” 164 F.3d at 652 (quoting 21 C.F.R.
§ 101.14(c)). The court sustained the challenge because the agency “never
explained” why the claims failed to meet the standard. Id. at 654. But the
court did not imply that the standard itself was invalid. To the contrary, it
rejected the notion that “the agency was necessarily required to define the
term in its initial general regulation” or that it was “obliged to issue a
comprehensive definition all at once.” Id. at 661. Instead, the agency could
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give “definitional content” to the standard on a “case by case” basis. Id. at
660, 661; see also id. at 660 n.12 (suggesting APA could be satisfied if agency
“provide[s] guidance in implementation” of the general standard).
Next, Tripoli Rocketry. Rocket enthusiasts challenged the ATFE’s
designating a specific fuel as an “explosive” because it “deflagrates.” 437
F.3d at 77–78, 79 (citing 18 U.S.C. § 841(d)). The court remanded for
reconsideration because the agency “never reveal[ed] how it determines that
a material deflagrates.” Id. at 81. The agency merely stated that deflagration
was “much faster” than burning, thus “articulat[ing] no reasoned basis for
its decision.” Id. at 81, 83. But, again, the court did not suggest the
“deflagration” standard was itself invalid. Rather, it faulted the agency for
failing to “offer a coherent explanation” for “designat[ing] a particular
material” as deflagrating. Id. at 84; see also id. at 77 (“The problem . . . is that
ATFE’s explanation for its determination that APCP deflagrates lacks any
coherence.”).
Finally, ACA International. Petitioners challenged the FCC’s ruling
clarifying the scope of an “automatic telephone dialing system” for purposes
of the federal ban on unwanted robocalls. 885 F.3d at 693–94 (citing 47
U.S.C. § 227(b)(1)(A)(iii); 30 FCC Rcd. 7961 (2015)).76 The court set the
ruling aside as unreasonable because it swept in all “smartphones,” thus
giving the federal ban an “eye-popping sweep” Congress never
contemplated. Id. at 697. Moreover, interpreting the ruling not to include
smartphones would make its standard “[in]comprehensible”: the ban would
then have embraced internet browsers but not smartphones, based on
“[p]recisely the same logic.” Id. at 700. Thus, the court invalidated the
76
See Declaratory Ruling and Order in the Matter of Rules and Reguls.
Implementing the TCPA, FCC 15-72, CG Docket No. 02-278, WC Docket No. 07-135, 30
FCC Rcd. 7961 (released July 10, 2015).
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agency ruling as either grossly overbroad (by sweeping in all smartphones) or
incoherent (by arbitrarily excluding smartphones but not browsers).
Huawei’s attack on the USF Rule is quite different from the
challenges to agency action in those cases. Huawei does not here challenge
the agency’s application of a broad standard to a specific case. Rather, as its
reply brief makes perfectly clear, Huawei challenges the putative vagueness
of the USF Rule “on its face.”77 But that facial attack finds no support in the
cases Huawei relies on. As discussed, those cases involve an agency’s failure
to explain how a broad standard applied to a particular case (Pearson and
Tripoli Rocketry) or an agency’s ruling that rendered a statutory term
incoherent (ACA International). Indeed, those cases support rejecting
Huawei’s claim. An agency is “not ‘. . . obliged to issue a comprehensive
definition all at once.’” PDK Lab’ys, 438 F.3d at 1194 (quoting Pearson, 164
F.3d at 661). Instead, it may “‘proceed case by case’”—as the FCC seeks to
do through the initial designation process—“in fleshing out the contours of
vague statutory terms.” Ibid. (quoting Pearson, 164 F.3d at 661).78 Based on
that standard, the USF Rule falls well within the permissible bounds of
agency decisionmaking.
True, as Huawei suggests, the FCC’s application of its “totality of the
circumstances” test could become “a cloak for agency whim,” but an
77
To the extent that Huawei purports to challenge the FCC’s application of the
rule in the initial designation, we have already explained that its challenge is unripe. See
supra pp. 15–17. But nothing we say here precludes Huawei from bringing a similar claim in
the context of its challenge to the final designation, which has been held in abeyance
pending our decision in this case. See supra p. 12.
78
See also Chippewa & Flambeau Improvement Co. v. FERC, 325 F.3d 353, 359 (D.C.
Cir. 2003) (upholding FERC’s “case-by-case approach to determining whether a reservoir
is ‘necessary or appropriate’” where it “adequately explained its application of that
approach to the facts of this case”).
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agency’s adopting such a standard is not “necessarily arbitrary and
capricious.” PDK Lab’ys, 438 F.3d at 1194 (citation omitted). Rather, the
relevant question for examining the rationality of the “national security
threat” standard is whether the agency adequately explained why it adopted
it. See Prometheus Radio Project, 141 S. Ct. at 1158. We have already
exhaustively examined that question and concluded that the FCC did so. See
supra pp. 41–54.
Accordingly, we reject Huawei’s claim that the rule facially violates
the APA because it is vague and standardless.
D. Due Process
Finally, we turn to Huawei’s contention that the rule must be vacated
because the initial designation process (1) “rests on an error of law,” namely
the assumption the agency could initially designate companies without
process, and (2) fails to provide such procedures consistent with the
Constitution. Both arguments fail.
Agency action shall be set aside if it is unlawful, 5 U.S.C. § 706,
“which of course includes unconstitutional action,” Fox Television Stations,
556 U.S. at 516; see also SEC v. Chenery Corp., 318 U.S. 80, 94 (1943) (“[A]n
order may not stand if the agency has misconceived the law.”). Huawei
argues the rule should be vacated because “the FCC failed to recognize that
‘initial designation’ implicates constitutionally protected interests” and,
thus, erred legally in determining it need not provide due process of law prior
to initially designating a company. See U.S. Const. amend. V.; Mathews v.
Eldridge, 424 U.S. 319, 332–35 (1976). Similarly, Huawei contends the rule
“requires vacatur on constitutional grounds” because the FCC “must
provide adequate pre-deprivation procedural protections.” The FCC
responds that Huawei’s due process challenge to the initial designation
“makes little sense, because the initial designation is how the agency provides
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process.” Huawei counters that the Commission did not “contest [on
appeal] that the USF rule fails to provide pre-deprivation due process,” so
the “rule must be vacated for that reason alone.”
Huawei’s arguments rest on the erroneous premise that the initial
designation is itself a deprivation. Yet, the sole potential deprivation to
initially designated companies is a reputational injury. And “[a]llegations of
damages to one’s reputation” by a state actor’s statements generally “fail to
state a claim of denial of a constitutional right,” unless they are
“accompanied by an infringement of some other interest.” Texas v.
Thompson, 70 F.3d 390, 392 (5th Cir. 1995). Huawei argues that an initial
designation “tangibly alters both designated companies’ ability to compete
and their protected goodwill.” But Huawei does not contend the initial
designation seeks to put designated companies out of business in the same
way the state actors attempted to do in Thompson, where we recognized “a
liberty interest in operating a legitimate business.” 70 F.3d at 392; see also
Phillips v. Vandygriff, 711 F.2d 1217, 1222 (5th Cir. 1983) (finding liberty
interest in ability to pursue specific occupation). Nor can Huawei rely on our
precedent in Marrero v. City of Hialeah, applying state law, for the proposition
that business goodwill represents a “tangible” interest under federal law. See
625 F.2d 499, 514–15 (5th Cir. 1980) (finding Florida could not deprive
plaintiffs of business goodwill without due process of law because “that
interest [was] a protected property interest under Florida law”). Thus, even
if Huawei could establish that an initial designation stigmatizes designated
entities, it fails to show that it deprives the company of “some other interest”
requiring due process protection. See Texas, 70 F.3d at 392.
Moreover, as the FCC argues, the rule affords pre-deprivation due
process through the initial designation procedures, which provide “notice of
evidence in the record and the Commission’s consideration of that
evidence” and “invite[ a company] to be heard on its sufficiency or any
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countervailing evidence.” Only after receiving this process does an entity
face agency action with legal effect, i.e., a final designation. 47 C.F.R.
§ 54.9(b)(2); see supra p. 16. As the agency rightly contends, “[b]y Huawei’s
logic,” if the FCC had provided pre-initial-designation process, “Huawei
would have been entitled to object that that notice should have been preceded
by an even earlier round of notice and a hearing.” That is not what due
process requires. See Goldberg v. Kelly, 397 U.S. 254, 267 n.14 (1970) (“Due
process does not, of course, require two hearings.”); see also Riggins v.
Goodman, 572 F.3d 1101, 1110 (10th Cir. 2009) (“[D]ue process is required
not before the initial decision or recommendation to terminate is made, but
instead before the termination actually occurs.”); Crum v. Vincent, 493 F.3d
988, 993 (8th Cir. 2007) (finding one “meaningful opportunity to be heard”
satisfies due process).
In short, Huawei fails to demonstrate the initial designation would
stigmatize an initially designated company’s reputation in connection with a
“‘more tangible’ interest,” as our precedents require to show a
constitutionally protected reputational interest in pre-deprivation process.
Marrero, 625 F.2d at 513; see also Orton Motor, Inc. v. HHS, 884 F.3d 1205,
1215 (D.C. Cir. 2018) (rejecting petitioner’s argument that “mere issuance
of a warning letter, absent further enforcement action,” where injury was to
“reputation alone,” required due process).79 Accordingly, we do not find the
79
Huawei’s best authority for finding a tangible injury is an out-of-circuit case
holding an airline had a “constitutionally cognizable interest in avoiding the loss of
government contracting opportunities based on stigmatizing charges.” Reeve Aleutian
Airways, Inc. v. U.S., 982 F.2d 594, 598 (D.C. Cir. 1993). But that case is distinguishable.
The agency action challenged there was Reeve’s actual “suspen[sion] . . . from
participation in all military airlifts,” id. at 597, which would be analogous to Huawei’s final
designation. But Reeve did not claim it was entitled to pre-deprivation process before the
notice that the company might be suspended, id. at 596, which would be analogous to
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rule must be vacated, either because it rests on a mistaken view of the law or
because it fails to provide constitutionally required due process.
Conclusion
The petition for review is DENIED.
Huawei’s initial designation. Reeve, therefore, does not stand for the proposition that
Huawei was somehow entitled to process before the initial designation occurred.
61