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Case number 22-1054, Pacific Networks Corp and Connet USA LLC petitioners versus Federal Communications Commission and United States of America.

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Mr. Wright for the petitioners, Mr. O'Neill for the respondents.

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Mr. Wright, good morning.

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I'm Christopher Wright representing Pacific Networks and Connet.

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Those two companies do not pose national security threat

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under Team Telecom's 14-factor test.

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It was not applied to them, but was applied with respect to every other Chinese-owned entity so far.

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Under what test?

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I just didn't hear you.

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So Team Telecom has a 14-factor test that was not applied in our case.

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And it is not possible to conclude that my clients, both the National

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security threat under that test.

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That's because prior to the revocation of their authorizations, their primary business was selling prepaid calling cards.

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Team Telecom's test sensibly focuses on domestic communications network, and you just can't use calling cards to harm networks.

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Again, in fact, the FCC did not so conclude.

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What's missing here is the analysis that you'll find in JA 59 to 69 of China telecoms, the order relating to the team telecom recommendation relating to them.

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Now, we agree that they should get a hearing, but

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But it's just, in that case, Team Telecom, the real national security experts, explained at some length that you could misroute traffic from Google and Facebook, and Verizon traffic has been misrouted.

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There's allegations about great in and attacks on entities.

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None of that applies to us.

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Nobody has alleged anything.

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That's one of the national security concerns, but the same group of national security experts tells us we should be worried about China having access to the customer records and that the calling cards implicate that concern.

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So no, Team Telecom declined to make a recommendation when the FCC asked.

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Team Telecom has not endorsed this espionage, blackmail and espionage theory.

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The FCC completely disowned the Team Telecom test here, which we consider unreasonable decision-making, and instead went off on its own test, unlike, again, all of the other cases involving China.

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And it ultimately said, relying on an NBC News report, rather than anything Team Telecom said,

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that you could use information like the phone numbers people call to blackmail them into spying for China.

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You're right.

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They stopped short.

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They were less definitive than they could have been in the time they had.

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But there's a lot of concern in the submission that they made to the FCC about

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Inherent national security risks attached to telecom companies owned or controlled by the Chinese government, and they have increased significantly in recent years.

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The environment has changed since the 2014 authorizations.

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With respect to Team Telecom's letter here, one thing we know is that three members of Team Telecom, which are Justice, Homeland Security, and Defense,

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constructed the Chief's Council of NTIA to respond to the SDC's request by declining to make a recommendation.

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That's in the first paragraph.

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The next eight pages are all cut and pasted from other orders.

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None of them explain how prepaid credit calling cards pose a national security threat.

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And I suppose the Chief's Council felt

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She had authority to cut and paste these things.

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But the only thing we know from the real national security experts is that they declined to make a recommendation.

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They have a test.

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The FCC didn't apply it.

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And again, what's missing is you'll look at factors eight through 12.

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They're just not in that team telecom order.

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What's that?

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Pages 59 to 69, the China telecoms appendix.

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Nothing like that in our case.

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I hear you, but they are saying that there's a heightened risk involving China and telecommunications.

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And why can't the FCC take that premise and then build on it a little bit using their expertise about calling cards?

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So, Your Honor, I would say they're subtracting from it, not building.

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because they're just not applying the guts of the test.

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And they've come up with their own.

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They talk about risks from calling cards, which I assume is not completely unrelated.

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The entire risk from calling cards is that somebody could figure out, and these are their own examples, that you have bad credit history or that you've been calling alcoholics anonymous or something like that, or that you have a mistress.

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That's another of their examples.

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And then the blackmail.

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That's and that's the FCC's analysis would have been easy for team telecom to say we agree if they agree.

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They didn't do that.

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So that's what's really missing.

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They didn't disagree though, right?

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Pardon?

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They didn't disagree.

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They made no recommendation.

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You know,

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I mean, what you're what you're describing, sure, it's a little bit speculative.

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We don't know for sure, but sounds a little bit like what the U.S.

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government does every day in adjudicating security clearances.

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Ask about all that kind of stuff.

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I'm sorry, but team telecom tests the test.

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Again, I'm not saying it's correctly applied to anyone else, but it's a sensible test.

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Can you can you disrupt traffic and you

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get into other people's computers.

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That's just silly with respect to prepaid telecards.

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That's why I think they didn't do it.

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You talked about them having a short amount of time.

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My goodness, if Team Telecom had said, jeez, we'd like a little more time to answer your question, would the FCC have said no?

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Team Telecom sent another letter six months later.

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You know, they could have said revoke their authorizations if they thought it was warranted.

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And actually, if I could pivot to talk about the procedural issue for a moment and address the questions that you and Judge Edward asked, from our client's perspective, what we want but didn't get, two things, a neutral adjudicator and an opportunity to cross-examine.

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they would have made a huge difference here.

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If we had an adjudicator who could not be transferred by the chair of the SDC, that adjudicator would have felt free to conduct a really fair hearing, in our view, and would have asked questions like, oh, come on, black male people,

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and have them spy for China because they have poor credit history or mistress, you know, do you have anything more than an NBC News report?

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And secondly- This is the ALJ point.

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Yeah, that's the ALJ part.

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Would have been hugely important to have an ALJ.

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And the same thing- The same ALJs that under free enterprise fund

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might be unconstitutionally insulated from presidential control.

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A due process requires what Article 2 might prohibit.

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Well, it's pretty tough.

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An ALJ would be way different than a bureau chief at the FCC, who the chair can, you know, send to the tariff provision, the tariff office, if the chair will.

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An ALJ can't be punished in that way.

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A neutral adjudicator would have made a huge difference.

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And they would have asked hard questions.

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And again, you know, we didn't even get a paper explanation the way the other companies had, you know, applying what we think is proper test the SEC should have applied.

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And, you know, it sure would have been great if some real national security expert had testified before a neutral adjudicator.

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And the neutral adjudicator, first of all, could have asked, you know, unbiased questions.

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And we could have, of course, examined sort of, you know, tell us how prepaid calling cards really pose any threat.

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Has anybody else ever thought that this blackmail message?

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Well, it isn't the calling cards per se.

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It's access, possible access to U.S.

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data on shared databases.

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Isn't that what we're really talking about here?

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I'm sorry, Your Honor.

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It isn't the mere presence of the calling card.

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It's the possible access to data on shared databases.

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Isn't that what we're talking about?

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Because of China's ultimate ownership interest and the access to data.

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Isn't that what we're talking about?

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We don't dispute that any carrier learns information about

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things like the numbers that people call.

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We don't, what we don't have here is a real national security expert saying that- No, no, no, wait.

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Stay with my question.

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Don't we have the shared, what we do have is an assertion that, and I don't think it's reputed, that there is access to US data on shared databases and China is the ultimate owner here.

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Just as in the other case, right?

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So, there are privacy, obviously there are privacy interests of individuals involved here.

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No, no, no, wait.

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I really, you can add whatever you want.

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I just want to make sure I have this straight in my head.

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I don't see you contesting the assertion that there is access to US data on shared databases

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And China is ultimately the owner here, just as in the other cases, and that's the concern that's being expressed.

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They therefore have access by virtual ownership, the data that the US is asserting here.

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We don't want them to have access to it, right?

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Is that wrong that they have access or not?

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I think you're not fully understanding the limited amount of data there is in order to.

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No, I'm not expressing any understanding one way or the other.

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I want you to know what's in my mind based on what I've heard from the other side and hear what your response is.

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My understanding is their concern is greatest concern in this case.

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because of the way the case has been laid out, is the possibility of access to databases which they should not have access to.

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So all telecom carriers have to keep records of what numbers are called in order to build.

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All carriers do not have China as the ultimate owner.

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So a couple of points here, Your Honor.

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The FCC ultimately decided this on a national security basis.

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Right?

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And so, unless you agree with their blackmail and espionage theory, which again, no expert has endorsed, the fact that data... Why do I have to go that far?

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You're avoiding my assertion on behalf of the government.

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I don't know whether it's right or wrong, but you're not even responding, which makes me suggest that you are not disagreeing.

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Their arguments, I thought was, look, China has

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access, by virtue of their position with this company, China has access to U.S.

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data on shared databases, and we don't want that.

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That's their claim.

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So I don't know that they're shared databases.

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They're the company's own databases, basically, for billing.

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I don't disagree that

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The owner, and it would be great to tell them at ALJ why this wouldn't happen, but could the owner of the company violate the law and do something like find out that the caller has called alcohol synonymous or can't pay their bill and therefore might have bad credit?

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Yes, that could happen.

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That's the FCC's theory.

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No, I think their theory, we'll hear from, I think their theory embraces more than what you're doing itself servingly.

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And if I were in your position, I would do, but I think they're asserting more.

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The access to the databases in their view is not insignificant because China's in play and China's the owner.

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Now you're not just from my point, you're not giving me

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healthy robust answer that serves you well.

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I'm not sure I understand your answer.

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So let me try again.

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So again, Team Telecom's more sensible test would tie what the services are to ways of misrouting traffic or ways of conducting cyber attacks and getting data out of somebody else's database, you know, trying to find out

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how a case is going to come out from this court.

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Nothing like that.

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Nothing like that at all.

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Specific networks in ComNet have got caught up with a lot of much larger companies with different service lines.

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And again, I think they ought to be able to argue before an ALJ as to why they don't present a problem.

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But we certainly do.

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And again, in addition, neutral ALJ, the second thing procedurally that's really important here and that would make a difference is to cross-examine a real national security expert.

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And the FCC says, well, that's too big a burden.

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I don't think cross-examining, having one expert

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explain to an ALJ why they see a national security problem and allowing us to cross-examine them.

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That's all we really need.

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All right.

[00:16:26] Speaker 01:
Thank you.

[00:16:28] Speaker 01:
Mr. Nobitt.

[00:16:50] Speaker 01:
Good morning again, Your Honors.

[00:16:52] Speaker 05:
I think that any suggestion that the executive branch agencies here didn't support the FCC's actions is thoroughly lied by the record.

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I would commend the court to simply read the executive branch filings here.

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I think it's clear that they support the FCC's actions.

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And you'll find those in the joint appendix in this case at pages 109 to 121, pages 265 to 267.

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And as I think Judge Katz has recognized,

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Those recommendations explain that the executive branch agencies think the company's authorizations raise serious national security concerns that couldn't reasonably be mitigated.

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I think that it's also, I disagree with my friend's submission that the executive branch agencies have somehow purported to adopt some single overarching exclusive tests for everything that might constitute a possible national security threat

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I think first of all, and I understand this is based on the recommendation of China Telecom.

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If you take a look at that recommendation, first of all, it makes clear that the factors outlined there are illustrative, not exclusive or exhaustive.

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It says that the factors include but aren't limited to those that are listed.

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And factor 12, one of them referenced by Mr. Wright, is a catchall for all other activities with potential national security implications.

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On top of that, I think even if you look just at the factors expressly discussed in the China Telecom recommendation, you'll see that the threats posed by the company services here are covered.

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That recommendation discusses risks of communications intercepts, risks of covert monitoring, risks of economic espionage.

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Those are the same risks that were identified by the commission here in its replication order.

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There is a lot of concern expressed in these letters of

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Team Telecom responses, not a question about it, but they do have a level of generality to them.

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This is just about China and telecommunications.

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And there is this express reservation right up front that this response is not offered as a recommendation.

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These are factual questions and we haven't had time to assess.

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And you have an argument on the other side that even if we accept all the general concerns about national security, these companies are selling products that don't really implicate them.

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So what are we to make of that?

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Yes.

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So let me first take your comment about the express reservation at the start and then turn to the generality issue in terms of the express reservation.

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I think that,

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Fairly read, what it says is that this isn't a formal recommendation under the process set forth under a particular executive order, but explains that for two reasons.

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That's number one, because the executive agencies here were being asked to weigh in on a relatively short time period, and the process to do a formal comprehensive recommendation can be fairly cumbersome.

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And number two, unlike in the China telecom case, where the executive branch agencies were asking the FCC to start a novel proceeding

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Here, the FCC was already on the case.

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We had their recommendation in China Telecom.

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We had issued an institution order.

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The process was already underway.

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And I think that given the other pressing demands on national security officials, it wouldn't have been a prudent use of the government's limited time and resources to then go through and produce a more comprehensive recommendation when the process was already going and the FCC was on the case.

[00:20:38] Speaker 05:
So could we have gone back and said,

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You know, we'd like a formal recommendation with all the T's crossed and the I's dotted.

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The FCC could have done so, but it wasn't required to do so.

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And I don't think it would have been prudent to do so.

[00:20:52] Speaker 03:
The FCC is required to give support in the record, substantial evidence to support the revocation.

[00:21:00] Speaker 03:
So what you're saying now just isn't really true.

[00:21:03] Speaker 03:
They have to support their own order.

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Would it have been prudent?

[00:21:06] Speaker 03:
Sure, it would have been prudent.

[00:21:07] Speaker 03:
You did it in the other two cases.

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In the other case, why wouldn't you do it here?

[00:21:11] Speaker 03:
Because I don't understand what is it, flipping the questions I was asked in co-counsel, what is it that you're particularly concerned about?

[00:21:20] Speaker 03:
Can this be read to mean that anyone who has a connection with China and China has some kind of ownership interest, poses a national security interest and you can revoke whatever license it is they're holding?

[00:21:36] Speaker 03:
Your honor, I'll say first, they have a computer and you could use their computer in their business and maybe do mischief.

[00:21:43] Speaker 03:
And China's the owner.

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Is that the test?

[00:21:47] Speaker 05:
No, your honor.

[00:21:47] Speaker 05:
In each one of these instances, in each one of these orders, the FCC did a comprehensive company specific and service specific analysis of what the risks were.

[00:21:57] Speaker 05:
So I appreciate it.

[00:21:59] Speaker 03:
I think my colleague was at least alluding to the question I'm trying to raise even more explicitly.

[00:22:05] Speaker 03:
I can understand what you're arguing in the other case.

[00:22:08] Speaker 03:
This is pretty clear.

[00:22:09] Speaker 03:
I don't know what you're arguing here.

[00:22:12] Speaker 03:
What is the potential risk?

[00:22:15] Speaker 03:
And what you said so far in 10 minutes hasn't filled that gap for me.

[00:22:21] Speaker 03:
What's the concern?

[00:22:23] Speaker 05:
The concern here is explained by the order.

[00:22:25] Speaker 05:
And this touches on the FCC's communications expertise about calling cards and what they allow the companies to do, which is why this comes from the FCC, not the executive branch agency.

[00:22:35] Speaker 03:
Oh, come on.

[00:22:35] Speaker 03:
That's awful.

[00:22:39] Speaker 03:
Give me an answer in terms of what is the evidence.

[00:22:42] Speaker 03:
The other cases are clear.

[00:22:45] Speaker 03:
What evidence you're relying on, the FCC is relying.

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And here your answer is, well, we didn't have time to put it all together.

[00:22:53] Speaker 03:
So just trust us.

[00:22:53] Speaker 03:
We think this is worrisome.

[00:22:55] Speaker 03:
So the first thing that occurred to me when preparing this case is, well, does that mean that anytime a company has a lot?

[00:23:03] Speaker 03:
China has a large ownership interest in a company.

[00:23:06] Speaker 03:
They may have their license revoked.

[00:23:08] Speaker 03:
Is that the test?

[00:23:09] Speaker 03:
You know, maybe that's permissible.

[00:23:11] Speaker 03:
I don't know.

[00:23:11] Speaker 03:
But is that what you're saying here?

[00:23:13] Speaker 05:
I want to make clear, I'm not saying that we, the FCC,

[00:23:16] Speaker 05:
didn't have time to put it together.

[00:23:18] Speaker 05:
I think we did.

[00:23:19] Speaker 05:
There's an extensive order here.

[00:23:20] Speaker 05:
The executive branch responds here.

[00:23:23] Speaker 03:
Okay, we've got the executive branch.

[00:23:25] Speaker 03:
What is it you think is the compelling case that the FTC itself has presented to make it clear there is a serious national security risk, which is what they're relying on?

[00:23:37] Speaker 03:
Serious national security risk because what?

[00:23:40] Speaker 03:
What's the Picard?

[00:23:42] Speaker 05:
Because telecommunications carriers, including in the calling card context,

[00:23:46] Speaker 05:
by virtue of their position and the service they're providing.

[00:23:50] Speaker 03:
Can you limit it to the calling card comp?

[00:23:52] Speaker 03:
That's all this case is about.

[00:23:54] Speaker 03:
So let's start the because again.

[00:23:56] Speaker 05:
Sure.

[00:23:57] Speaker 05:
So when you use these companies calling card services, they know who you call, when you call them, how often you call them, how long you speak with them.

[00:24:08] Speaker 05:
They often also have your personal identifying information.

[00:24:11] Speaker 05:
So they often know who you are, where you live,

[00:24:14] Speaker 05:
often what your credit card number is, sometimes your credit history.

[00:24:18] Speaker 05:
And they can cross reference all of this information with other data sources, with public records, with commercial databases, with hacked data, and in this instance, with any information collected by Chinese intelligence services.

[00:24:32] Speaker 05:
So I think if you take a look at page five of the executive branch response here, they talk about the Chinese government uses all available levers to steal sensitive U.S.

[00:24:42] Speaker 05:
person data and trade secrets.

[00:24:44] Speaker 05:
I think the theory here is that the Chinese government has at every opportunity been vacuuming up any potentially sensitive information it can collect on U.S.

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citizens and can combine that in ways that can be exploited by a foreign adversary.

[00:24:58] Speaker 05:
And I think you don't just have to take the FCC's word for it.

[00:25:01] Speaker 05:
Congress has recognized the dangers posed by these calling records and congressional findings behind the Telephone Records and Privacy Protection Act of 2006.

[00:25:10] Speaker 05:
The executive branch agency filings here, I think, warn that

[00:25:13] Speaker 05:
the Chinese government could use these companies to conduct or increase economic espionage and collect intelligence against the United States.

[00:25:21] Speaker 05:
And other courts, like the second circuit decision we cite, have referred to the startling amount of information that telecommunications providers have access to.

[00:25:30] Speaker 05:
So, you know, I think even if the court were to look at this, say, through the Youngstown framework, here you have all three branches of government warning there are real dangers with this sort of information falling into the wrong hands.

[00:25:42] Speaker 05:
especially in combination with other information that may be in the hands of a foreign intelligence service.

[00:25:48] Speaker 05:
And I think there's no basis here then to second guess the government's considered national security judgments in this context.

[00:25:55] Speaker 03:
The problem is you don't have the other branches of the government weighing in as you did in the other case.

[00:26:02] Speaker 03:
It would be very compelling if you had that picture and you're glossing over that.

[00:26:07] Speaker 03:
I mean, I want you to know I'm paying attention.

[00:26:09] Speaker 03:
You're glossing over that as if it's so.

[00:26:11] Speaker 03:
It isn't so.

[00:26:13] Speaker 03:
It's exactly what Judge Casas said.

[00:26:15] Speaker 03:
They kind of gave it a, well, you know, we didn't have enough time.

[00:26:20] Speaker 03:
And as a court that refused administrative stuff all the time, our first instinct in that kind of a situation is to say, oh, we can get you more time.

[00:26:29] Speaker 03:
We'll send it back to you.

[00:26:30] Speaker 03:
Take all the time you want.

[00:26:32] Speaker 03:
Do what you should have done in the first place.

[00:26:35] Speaker 05:
Your Honor, I want to resist that a little bit.

[00:26:37] Speaker 03:
I would expect that you would.

[00:26:39] Speaker 03:
That doesn't surprise me.

[00:26:40] Speaker 05:
I mean, so I think the executive branch agencies came to us and gave us what they have from their standpoint.

[00:26:46] Speaker 05:
And then the commission adds something which the other agencies don't have, which is the communications lens of understanding what by virtue of the services they provide, in particular these calling card services, the companies can do.

[00:26:59] Speaker 05:
Now, I suppose you could envision a pre-step process where the commission then goes back to the agencies

[00:27:04] Speaker 05:
and says, hey, okay, taking what you told us earlier from your expertise, and now taking what we've told you from our expertise, and you put those two together and button this up into a comprehensive explanation where everything appears in one piece of paper from the other executive branch agencies, rather than us giving you something where everything is stapled together in the FCC's order here.

[00:27:28] Speaker 05:
Now, I don't think anything requires that extra process, and I do think it would be problematic

[00:27:33] Speaker 05:
particularly the national security context, to add that sort of extra delay.

[00:27:39] Speaker 05:
There's always a risk during that time that malicious activities could take place.

[00:27:45] Speaker 05:
And I think also given the number of other pressing concerns on the plate of national security officials, there'd be another risk that you were diverting the government's limited resources from other national security concerns to undertaking extra process here that isn't necessary in this

[00:28:03] Speaker 05:
So I think that what we've given you is sufficient.

[00:28:05] Speaker 05:
I think it's particularly sufficient given the national security gloss in this case.

[00:28:11] Speaker 01:
Am I correct?

[00:28:12] Speaker 01:
You mentioned delay in the other case, China telecom that it took 19 months for the commission to issue the order.

[00:28:22] Speaker 05:
Depends a little bit on what your measurement points are, your honor, but I think the easiest answer there is that as is reflected in the first case argued this morning,

[00:28:30] Speaker 05:
The FCC had FISA information in front of it in that case and was awaiting the district court's ruling on the invisibility to that information.

[00:28:38] Speaker 05:
That came in, I believe, September of that year, and the commission adopted its order the following month in October and released it a few days later in November.

[00:28:48] Speaker 05:
So I don't think that there's any plausible suggestion here, the commission or the government wasn't acting with appropriate dispatch in this context.

[00:28:56] Speaker 05:
And I will say finally to Judge Edwards' question, if the court

[00:29:00] Speaker 05:
does have any concerns that something further should have been done to button this up, to dot extra I's and cross out for T's, or maybe that's what we're talking about, dotting the J's and crossing the X's.

[00:29:11] Speaker 05:
I think at most, that would call for a remand without vacatur.

[00:29:14] Speaker 05:
For the additional process, I do want to stress would be significant national security dangers were there to be a remand in the interim that would allow some of these services to restart if this is simply a paperwork issue.

[00:29:29] Speaker 05:
Thank you, John.

[00:29:31] Speaker 01:
Does Mr. Wright have any time?

[00:29:34] Speaker 01:
All right, why don't you take a minute?

[00:29:43] Speaker 04:
Thank you, Your Honor.

[00:29:46] Speaker 04:
Especially with respect to your questions, Judge Edwards, about the storage of data, I should have pointed out that, you know, Team Telecom has overseen

[00:29:59] Speaker 04:
these companies since 2009 when they entered into a letter of assurance.

[00:30:04] Speaker 04:
If you look at JA71 to 73, you'll see evidence of lots of back and forth between Team Telecom and the companies.

[00:30:14] Speaker 04:
And specifically, Team Telecom has known about the data practices and has an objective.

[00:30:23] Speaker 04:
The companies have offered

[00:30:26] Speaker 04:
to the FCC, tell us what you want as mitigation for us to do with the record, and we'll do it.

[00:30:35] Speaker 04:
But the FCC sort of shifts position and doesn't have an answer here.

[00:30:43] Speaker 04:
If the companies would do what they said, if it's at all reasonable, I'm sure.

[00:30:51] Speaker 04:
I hope the court will vacate the order

[00:30:54] Speaker 04:
If the court, so the companies, our state was denied.

[00:30:58] Speaker 04:
So the companies have ceased providing these services.

[00:31:03] Speaker 04:
So if you remand, I would add, without vacating, I would ask that, as in many other cases, you ask the FCC to act within 90 days or six months, or you'll vacate the order because there'd be a real danger of the city.

[00:31:24] Speaker 04:
Thank you.