June 18, 2021 – The United States Court of Appeals for the Fifth Circuit has denied a legal challenge to a Federal Communications Commission rule prohibiting the use of universal service fund (USF) support to purchase equipment and services from companies deemed to pose a threat to U.S. national security and communications networks. Ultimately, the Court concluded that the FCC has authority “to designate companies a ‘national security threat’ to telecom networks and to prohibit USF funds from being spent on their equipment.” The petition for review was filed by Huawei Technologies Company, Limited and its American affiliate Huawei Technologies USA, Incorporated.

In November 2019, the FCC adopted a rule that prospectively prohibits the use of USF support to purchase or obtain any equipment or services produced or provided by a covered company posing a national security threat to the integrity of U.S. communications networks or the U.S. communications supply chain. Thereafter, the FCC designated Huawei as a “covered company” that poses a national security threat and established a process for designating additional covered companies in the future. Accordingly, communications service providers “may not use USF funds to maintain, improve, modify, operate, manage, or otherwise support” Huawei equipment or services in any way.

In its petition for review at the Fifth Circuit, Huawei advanced a number of statutory and constitutional challenges to the FCC’s USF blacklist rule and to the FCC’s decision to designate Huawei as a national security threat. Huawei asked the Fifth Circuit to declare the FCC’s Order unlawful for a number of reasons, including the following arguments:

• The Order exceeds the FCC’s statutory authority because the FCC does not have authority to make national security judgments or to restrict use of USF funds based on such judgments.

• The FCC’s Order is arbitrary and capricious because the Commission failed to address multiple legal arguments and material facts presented in comments on the proposed rule.

• The rule is unlawfully vague and inconsistent with Due Process because the Order states no standard or criteria for identifying a company as a genuine threat to the integrity of U.S. communications networks or supply chains.

In short, the Court rejected all of these arguments, finding the FCC acted within its scope of authority:

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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