Huawei Techs. USA, Inc. v. United States

Decision Date18 February 2020
Docket NumberCivil Action No. 4:19-CV-159
Citation440 F.Supp.3d 607
Parties HUAWEI TECHNOLOGIES USA, INC. and Huawei Technologies Co., Ltd. v. UNITED STATES of America, et al.
CourtU.S. District Court — Eastern District of Texas

Clyde Moody Siebman, Elizabeth Siebman Forrest, Siebman Forrest Burg & Smith LLP, Sherman, TX, Glen D. Nager, Ryan J. Watson, Karl Michael Remon Thompson, Michael A. Carvin, Shay Dvoretzky, Jones Day, Andrew D. Lipman, Russell M. Blau, Morgan Lewis & Brockius LLP, Washington, DC, Eric C. Tung, Jones Day, Los Angeles, CA, Michael Charles Smith, Siebman Burg Phillips & Smith, LLP, Marshall, TX, Steven Mark Geiszler, Futurewei Technologies, Inc., Plano, TX, for Huawei Technologies USA, Inc. and Huawei Technologies Co., Ltd.

Emily Sue Newton, United States Department of Justice, James Ryan Powers, U.S. Department of Justice, Civil Division, Washington, DC, James Garland Gillingham, United States Attorney's Office, Tyler, TX, Joshua M. Russ, Reese Marketos LLP, Dallas, TX, for United States of America.

MEMORANDUM OPINION AND ORDER

AMOS L. MAZZANT, UNITED STATES DISTRICT JUDGE

Pending before the Court are Plaintiffs' Motion for Summary Judgment (Dkt. #27) and Defendants' Motion to Dismiss or, in the Alternative, for Summary Judgment and Opposition to Plaintiffs' Motion for Summary Judgment (Dkt. #33). Having considered the motions and the relevant pleadings, the Court finds that Plaintiffs' motion should be denied and Defendants' motion should be granted.

BACKGROUND

The dispute in this case surrounds Section 889 ("Section 889") of the John S. McCain National Defense Authorization Act for Fiscal Year 2019, Public Law 115-232, ("2019 NDAA"). However, the history of the case starts far earlier than the enactment of Section 889.

Plaintiff Huawei Technologies Co., Ltd. ("Huawei Technologies") is a limited liability company organized in Shenzhen, Guangdong Province in the People's Republic of China. (Dkt. #1 ¶ 9). Huawei Technologies is a global telecommunications company that provides both products and services within the field of telecommunications. (Dkt. #1 ¶ 29). Its subsidiary and/or affiliate, Plaintiff Huawei Technologies USA, Inc., ("Huawei USA") (collectively "Huawei" or "the Huawei Entities") is a corporation organized under Texas law. (Dkt. #1 ¶¶ 3, 8). Huawei USA provides telecommunications equipment and services to eighty-five active United States wireline and wireless carriers and numerous enterprise customers, which include corporations, schools, and other institutions. (Dkt. #1 ¶ 32). Huawei produces, markets, and sells, among other things, products—including routers and layer 3 switches—that are capable of routing and redirecting user data traffic. (Dkt. #1 ¶ 34). The Huawei Entities are "wholly-owned subsidiaries of Huawei Investment & Holding Co. Ltd. ("Huawei Investment")." (Dkt. #1 ¶ 10). Huawei Investment is a private company wholly owned by its 97,000 employees and Huawei's founder. (Dkt. #1 ¶ 12).

While Huawei is a privately owned company based on its registrations, in 2011, the U.S.-China Economic and Security Review Commission identified Huawei as a privately owned company subject to Chinese influence based on favorable government policies, which aim to support Huawei's development and pose obstacles to foreign competition. (Dkt. #34, Exhibit 4 at p 4). Around the same time, the U.S.-China Economic and Security Review Commission reported that "[n]ational security concerns have accompanied the dramatic growth of China's telecom sector" with "large Chinese companies—particularly those ‘national champions’ prominent in China's ‘going out’ strategy of overseas expansion" posing a threat as they "are directly subject to direction by the Chinese Communist Party." (Dkt. #34, Exhibit 3 at p. 4).

These concerns resulted in a year-long investigation into "the counterintelligence and security threat posed by Chinese telecommunications companies doing business in the United States." The investigation was led by the House Permanent Select Committee on Intelligence ("HPSCI") in November 2011, which published its findings in a report dated October 8, 2012 ("HPSCI Report"). (Dkt. #34, Exhibit 2). The investigation primarily focused on Huawei and ZTE Corporation ("ZTE")1 because they were "the two largest Chinese-founded, Chinese-owned telecommunications companies seeking to market critical network equipment to the United States" and thus posed the greatest threat. (Dkt. #34, Exhibit 2 at p. 14). After the investigation, the HPSCI determined that "Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States and to our systems"; although, there was no explicit finding of wrongdoing. (Dkt. #34, Exhibit 2 at pp. 5, 30). The HPSCI made recommendations for excluding Huawei and ZTE's products and services from sensitive United States systems, including government systems and government contractors. The HPSCI further encouraged private-sector entities and United States network providers and system developers to seek telecommunications businesses other than Huawei and ZTE. (Dkt. #34, Exhibit 2 at p. 30). Similar concerns were echoed by various government committees, officials, and agencies from 2012 through 2018. (See generally Dkt. #27; Dkt. #33; Dkt. #36; Dkt. #40) (citing supporting documentation).

In December 2017, Congress enacted the National Defense Authorization Act for Fiscal Year 2018 ("2018 NDAA"). Section 1656 of the 2018 NDAA reads as follows:

SEC. 1656. SECURITY OF NUCLEAR COMMAND, CONTROL, AND COMMUNICATIONS SYSTEM FROM COMMERCIAL DEPENDENCIES
(a) CERTIFICATION.—Not later than 180 days after the date of the enactment of this Act, the Secretary of Defense shall certify to the congressional defense committees whether the Secretary uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system, to carry out—
(1) the nuclear deterrence mission of the Department of Defense, including with respect to nuclear command, control, and communications, integrated tactical warning and attack assessment, and continuity of government; or
(2) the homeland defense mission of the Department, including with respect to ballistic missile defense.
(b) PROHIBITION AND MITIGATION.—
(1) PROHIBITION.—Except as provided by paragraph (2), beginning on the date that is one year after the date of the enactment of this Act, the Secretary of Defense may not procure or obtain, or extend or renew a contract to procure or obtain, any equipment, system, or service to carry out the missions described in paragraphs (1) and (2) of subsection (a) that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.
(2) WAIVER.—The Secretary may waive the prohibition in paragraph (1) on a case-by-case basis for a single one-year period if the Secretary—
(A) determines such waiver to be in the national security interests of the United States; and
(B) certifies to the congressional committees that—
(i) there are sufficient mitigations in place to guarantee the ability of the Secretary to carry out the missions described in paragraphs (1) and (2) of subsection (a); and
(ii) the Secretary is removing the use of covered telecommunications equipment or services in carrying out such missions.
(3) DELEGATION.—The Secretary may not delegate the authority to make a waiver under paragraph (2) to any official other than the Deputy Secretary of Defense or the co-chairs of the Council on Oversight of the National Leadership Command, Control, and Communications System established by section 171a of title 10, United States Code.
(c) DEFINITIONS.—In this section:
(1) The term "congressional defense committees" has the meaning given that term in section 101(a)(16) of title 10, United States Code.
(2) The term "covered foreign country" means any of the following:
(A) The People's Republic of China.
(B) The Russian Federation.
(3) The term "covered telecommunications equipment or services" means any of the following:
(A) Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities).
(B) Telecommunications services provided by such entities or using such equipment.
(C) Telecommunications equipment or services produced or provided by an entity that the Secretary of Defense reasonably believes to be an entity owned or controlled by, or otherwise connected to, the government of a covered foreign country.

(Dkt. #28, Exhibit 1 at pp. 4–5).

Early in 2018, bills entitled "Defending U.S. Government Communications Act" were introduced into both the House of Representatives ("House") and the United States Senate ("Senate"). Those bills were identified as: H.R. 4747 and S. 2391. The bills provided that:

The head of an agency may not procure or obtain, may not extend or renew a contract to procure or obtain, and may not enter into a contract (or extend or renew a contract) with an entity that uses any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component of any system, or as critical technology as part of any system.
.....
The term "covered telecommunications equipment or services" means any of the following:
(A) Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation (or any subsidiary or affiliate of such entities). .....

(Dkt. #28, Exhibit 2; Dkt. #28, Exhibit 3). Both bills contain substantially similar findings:

(1) In its 2011 "Annual Report to Congress on Military and Security Developments Involving the People's Republic of China", the Department of Defense stated that, "China's defense industry has benefited from integration with a rapidly expanding civilian economy and science and technology sector, particularly elements that have access to foreign
...

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