The Federal Communications Commission on June 17, 2021, unanimously approved relaxed rules regarding the importation and marketing of a broad range of radiofrequency devices, such as computer equipment, smartphones, wireless audio equipment, Wi-Fi routers, Internet of Things devices, and more.
Traditionally, radiofrequency (RF) device authorization can be completed by one of two processes: (1) certification, involving testing by a Federal Communications Commission (FCC) accredited laboratory, or (2) supplier’s declaration of conformity (SDoC), a self-certification process that allows the manufacturer to self-determine when a product meets the FCC’s equipment authorization requirements. The previous rules required RF device manufacturers to obtain an equipment certification or SDoC, with some narrow exceptions, before marketing and importation to the United States. Under the revised rules, the FCC will expand opportunities to import, market, and conditionally sell RF equipment at an earlier stage of the development process, prior to equipment authorization.
The FCC recognizes that since the 1970s, its rules regarding how RF devices can be imported and marketed in the United States have prohibited innovators from marketing or preselling these devices prior to FCC authorization with the goal to ensure that devices entering the United States comply with relevant rules and technical standards. However, new efficient and cost-effective marketing tools and preselling activities have emerged, such as crowdfunding platforms, creating new opportunities to fund products, optimize production, and match imports to anticipated sales. RF manufacturers are subject to compressed innovation cycles and increasing pressure to launch new products quickly.
To avoid the unintended consequence of slowing the process of developing and deploying new products and services, the FCC amended its rules to (1) add a new condition to allow the importation and marketing of certain RF devices under specific constraints prior to equipment authorization, and (2) revise an existing exception to expand to consumers the limited marketing and conditional sales of certain RF devices.
The most notable change under the new rules is that a maximum of 12,000 RF devices (unless a greater number is approved by the Office of Engineering and Technology chief) with the same FCC ID can be imported for presale activities. For purposes of calculating the maximum import quantity to determine compliance, the FCC decided to assess quantities based on FCC IDs, as opposed to SKUs. To ensure consistent treatment of domestically produced and imported devices, either can be used in presale activities under similar conditions. Presale activities include imaging, packaging, and delivery of devices to distribution centers and retailers under certain circumstances. However, devices may not be delivered or displayed to consumers or operated until equipment authorization has been obtained.
To enjoy the new import numerical limitation and presale rules, the FCC amended the import provisions to impose the following conditions to ensure that unauthorized RF devices do not reach consumers:
The FCC also amended its conditional sales rule that previously allowed, in certain circumstances, manufacturers to market prior to equipment authorization RF devices to retailers, businesses, and commercial, industrial, scientific, or medical users but not to the general public. The FCC recognized that today consumers, through the internet, are made aware of and want to purchase innovative new products directly from manufacturers and developers. This direct contact with consumers creates new investment opportunities and provides smaller entities a chance to enter the competitive marketplace. The FCC decided to expand the conditional sales exception so that conditional sales and advertising of RF devices that have not yet received authorization are now allowed directly to consumers, under conditions similar to those for imported devices, as described above.
To ensure that the FCC retains appropriate control over RF devices, requirements remain in place regarding device delivery and possession, disclosure and labeling, recordkeeping, and retrieval and tracking.
The FCC is now allowing the physical possession of devices subject to certification to be transferred to distributors and retailers prior to authorization. By permitting physical transfer of devices subject to certification procedures, equipment manufacturers can now take full advantage of modern marketing and importation practices. A new rule has been added to establish the requirements applicable to ownership and physical transfer. The rule will allow for the physical transfer of marketed devices while legal ownership is maintained by the first party to initiate a conditional sales contract (i.e., a developer or manufacturer). For imported RF devices, the rule will require the legal ownership maintained by the device manufacturer, developer, importer, or ultimate consignee, or their designated customs broker.
The FCC is not adopting any new reporting requirements, recognizing that it is generally a good business practice to maintain documentations, especially when sellers of RF devices are conducting presale activities through conditional sales contracts. The FCC, however, adopted a recordkeeping requirement for devices imported prior to equipment authorization.
Under the new rules, records must be kept by the party initiating a conditional sales contract or physically transferring devices under the new marketing exception, including the device manufacturer, developer, importer, or ultimate consignee, or their designated customs broker.
The records, which must be maintained for five years and provided to FCC personnel upon request, shall include the following:
In the event that the certification process is not successfully completed but presale activities have already been conducted, the FCC will require the party in legal ownership of the RF devices to maintain and implement a process for retrieval. Because physical transfer is possible under both the importation and the marketing rules, the FCC is adopting the retrieval requirement in both rules, but the language varies slightly to reflect the burden of the party responsible for retrieval.
For marketed devices (i.e., devices transferred through a conditional sales contract), the burden of retrieval is on the first party to initiate a conditional sales contract or to physically transfer devices. For imported devices, the burden of retrieval falls on the device manufacturer, developer, importer, or ultimate consignee, or their designated customs broker.
In conclusion, the relaxed rules will grant early-stage flexibility to innovators and manufacturers to (1) allow manufacturers to better gauge consumer interest and position devices for product launch, sales, and distribution; and (2) allow consumers quicker access to innovative products. Now, small businesses and startups are encouraged to engage in presale activities, such as packaging and shipping devices to retail locations, prior to completing the equipment authorization process.
The FCC expects that this change will help the United States remain innovative and competitive in the quickly evolving market for RF devices, especially given the potential widespread applications of 5G. As Acting FCC Chairwomen Jessica Rosenworcel said, “We are developing technologies that have the potential to transform broad swathes of our economy and [the FCC’s] action today will help fuel these technologies and give more creators more opportunity to bring their innovations to market.”
For further details, please consult the full report and order, released on June 17, 2021.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Summer associate Nicholas Paniagua contributed to this LawFlash.