FCC Proposes Revised Equipment Authorization Rules to Benefit Manufacturers and Consumers

Wilkinson Barker Knauer, LLP

Robert D. Primosch, Esq.
Rachel S. Wolkowitz, Esq. 

Late last year the Federal Communications Commission (FCC) issued a Notice of Proposed Rulemaking in which it proposes to give manufacturers greater flexibility to market or import radiofrequency (RF) devices before receiving equipment authorization.  Supporters of the proposal believe that, if adopted, it will permit manufacturers to gather key information about consumer demand, improve supply-chain management, deliver new technologies to consumers sooner, and better prepare for new product launches.

What Does the FCC Equipment Authorization Program Currently Require?

The FCC’s equipment authorization program is intended to ensure that RF devices comply with the Commission’s technical requirements before they are marketed in or imported into the United States.  In this context, “marketing” is defined very broadly to include “sale or lease, or offering for sale or lease, including advertising for sale or lease, or importation, shipment, or distribution for the purpose of selling or leasing or offering for sale or lease.”

There are two approval procedures for equipment authorization—Certification and Supplier’s Declaration of Conformity (SDoC).  Certification is the more rigorous process and is reserved for devices that are most likely to cause harm.  Certified devices must be tested by an FCC-recognized accredited testing laboratory and reviewed by an FCC-recognized Telecommunications Certification Body (TCB).  The SDoC process only requires that the party responsible for compliance (who must be located in the United States) ensure that equipment meets the FCC’s technical standards.

What is the FCC Proposing to Change?

             While the FCC’s current rules generally prohibit marketing of RF devices prior to equipment authorization, they include a limited exception that permits pre-authorization conditional sales to wholesalers and retailers (in a conditional sale, actual delivery of the product to the buyer is postponed).  The FCC now proposes to expand this exception to include conditional sales to consumers.  Prospective buyers would still have to be advised at the time of marketing that the equipment is subject to the FCC’s rules, and that delivery to the buyer is contingent upon compliance with the applicable equipment authorization and technical requirements.

The FCC asked a variety of questions to tease out how the proposal would work in practice and whether it might have any unintended consequences.  For example, should the FCC require manufacturers to include a label on device packaging noting that the device shall not be delivered to consumers prior to obtaining equipment authorization?  Should manufacturers be required to provide notice to the FCC or retain records if equipment authorization ultimately is not granted?  What if any role should the FCC have when a conditionally sold RF device cannot be delivered and consumers may be entitled to a refund or similar remedy under the relevant sales agreement?

Notwithstanding these questions, the FCC suggests that expansion of the conditional sales exception “is well suited for the highly competitive communications market, where the development and life cycle of new devices is short,” and may be helpful to small companies in need of capital, as paid preorders can demonstrate interest in a device to potential sources of funding.  The FCC also notes statements in the record indicating that “marketplace and consumer experience have changed such that there is good reason to modify our rules to allow for conditional sales [to consumers].”  To that point, commenting parties have observed that  consumers become “confused about why they cannot pre-order our devices in the same way they can pre-order the latest automobile, album, video game, book, or fashion.”

What Else is the FCC Proposing?

The FCC asks for comment on whether it should allow a manufacturer to import up to 4,000 RF devices prior to Certification (the FCC is not proposing to adopt a similar rule for devices subject to the SDoC process).  The new rule would permit specified pre-sale activities, including imaging, packaging, and delivery to retail locations (but not marketing or operation). The FCC is also considering whether to include the following conditions in the new rule:  (1) manufacturers must have a reasonable basis to believe authorization will be granted within 30 days of importation; (2) devices must have temporary labels indicating that they cannot be displayed or advertised prior to authorization; (3) devices must remain under the ownership of the manufacturers (meaning possession, alone, would be transferred prior to authorization); and (4) manufacturers must have processes in place to retrieve the equipment from retailers in the event that authorization is denied.

The FCC finds that this proposal would have multiple benefits, given the number of devices made internationally, the prevalence of shortened product cycles, and the importance of quickly familiarizing consumers with new electronic devices.  Moreover, the FCC believes that the proposal would assist sales associates who need to become familiar with the features associated with mobile 5G devices, Internet of Things devices, and augmented reality and virtual reality devices once those devices are Certified and operated.  “Facilitating an accelerated rollout of such devices is an important way [that the FCC] can maintain the United States’ global leadership in these industries.”

Again, the FCC seeks comment on the proposal’s potential effects.  For instance, are specific controls needed to ensure that manufacturers cannot exceed the numerical limit (e.g., by making separate 4,000-unit shipments through multiple ports of entry)?  If so, what controls would be needed?  The proposed rule would also allow manufacturers to exceed the numerical limit if they receive written approval from the FCC’s Chief Engineer.  Should this written approval be made public? Does the numerical limitation, with a provision for allowing importation of a greater number of devices, provide a suitable balance between meeting manufacturer and importer needs and limiting the number of unauthorized devices in circulation?

The FCC could issue its final decision on all of the above later this year.  We will report further on this matter when that decision is released.