Court Rulings Reinforce Limitations on Sweeping Executive Orders Based on IEEPA

While Presidents have often turned to IEEPA to impose economic sanctions in furtherance of U.S. foreign policy and national security objectives, the Trump administration’s reliance on IEEPA authority for its TikTok EO appears to be having a rough time getting past the courts.  Similarly, the impact of the Trump Administration’s designation of XPCC as a Specially Designated National (“SDN”) might be mitigated by the requirements of the Trade Sanctions Reform and Export Enhancement Act of 2000 (“TSRA”), which generally prohibits the President from using his IEEPA authority to unilaterally restrict commercial sales of agricultural commodities, food, medicine, and medical devices.

Background of IEEPA

Passed in 1977, IEEPA provides the President broad authority to regulate a variety of economic transactions following the declaration of a national emergency pursuant to the National Emergencies Act (“NEA”).  Since its enactment, IEEPA has become an important means to impose economic sanctions, and has been used with growing frequency in recent years.  As of July 2020, Presidents had declared 59 national emergencies, 33 of which were still ongoing. Despite such broad powers, Congress has never attempted to terminate a national emergency invoking IEEPA.

The IEEPA contains several important exceptions.  These include:

1. “any postal, telegraphic, telephonic or other personal communication, which does not involve a transfer of anything of value;”
2. certain donations, “by persons subject to the jurisdiction of the United States, of articles, such as food, clothing, and medicine, intended to be used to relieve human suffering”
3. the importation or exportation, “regardless of format or medium of transmission,” of information or informational materials “including but not limited to, publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds.”
4. “any transactions ordinarily incident to travel to or from any country, including importation of accompanied baggage for personal use, maintenance within any country including payment of living expenses and acquisition of goods or services for personal use, and arrangement or facilitation of such travel including non-scheduled air, sea, or land voyages.”

TikTok EO

In August 2020, President Trump issued an EO imposing restrictions on U.S. persons’ activities involving TikTok, which relied on the earlier authority of the 2019 Executive Order on Securing the Information and Communications Technology and Services Supply Chain.  The EO did not specify the precise scope of the restrictions – that was later promulgated in prohibitions published by the Department of Commerce (“Commerce”) in September 2020.  The rules were originally scheduled to go into effect on September 20, but were subsequently delayed until September 27 by Commerce in light of the ongoing negotiations by ByteDance to sell its US TikTok assets pursuant to a separate August EO requiring their divestment

In general terms, the restrictions would prohibit US persons from doing the following with respect to the app:

1. Hosting the app on app stores (like the Google Play or Apple App stores);
2. Providing internet hosting services;
3. Providing content delivery network services;
4. Providing internet transit or peering services; and
5. Utilizing the app’s constituent code, functions, or services in the functioning of other software or services.

While the restrictions contained exceptions for personal and business users of the app, and Commerce described the restrictions as being aimed at service providers rather than individual users, the effect of these restrictions would have been to degrade TikTok’s functionality and eventually make it unusable in the US.

This understanding was largely embraced by the courts, which considered the restriction in several different cases across the country, which we describe below.  In general terms, the courts have taken the position that the restrictions unduly infringe upon personal communications, and run afoul of certain exceptions in IEEPA, which is one of the sources of statutory authority for these various EOs.

The Berman Amendment

In 1988 and 1994, IEEPA amendments introduced by Rep. Howard Berman (D-CA), collectively referred to as the “Berman Amendment,” expanded the list of protected rights under IEEPA to include the importation and exportation of informational materials in a variety of formats, including electronic media.  Under the Berman Amendment, transactions involving “information and informational materials” are generally exempt “regardless of format or medium of transmission” from the purview of Presidential regulation.

TikTok v. US (D.D.C.)

On September 27, 2020, the U.S. District Court for the District of Columbia (D.D.C.) granted TikTok a preliminary injunction with respect to the app store prohibitions scheduled to go into effect on September 27, but not the other restrictions scheduled to go into effect on November 12.  The injunction was granted on the basis that IEEPA explicitly excludes the authority to regulate the importation or exportation of information or informational materials, or personal communications, which do not involve a transfer of anything of value.  The court agreed that TikTok had shown it was likely to succeed with its claim that the order violated IEEPA’s informational materials exception and the personal communications exception because the ban would have prevented any U.S. user from sharing or receiving any TikTok content, and the court was not convinced of the government’s argument that TikTok communications held economic value.  The court found TikTok to be a “medium of transmission,” and primarily a “conduit of informational materials” that fell under the Berman Amendment carveout.  The DOJ appealed this injunction to the U.S. Court of Appeals for the D.C. Circuit (D.C. Cir.).

On December 7, 2020, D.D.C. granted TikTok’s motion for a preliminary injunction regarding all the other prohibitions in the EO.  The court looked to the President’s TikTok EO and the Commerce Department’s related decision memorandum to discern the regulatory objects of the Secretary’s prohibitions on TikTok, and found that they constituted efforts to control the flow of informational materials, or pictures, art, and film as included in the statutory definition itself.  The court also rejected the  argument that there was a cyber-espionage exception to the informational materials provisions.

Marland v. Trump (E.D.Pa.)

Separate from TikTok’s own challenge, a group of TikTok content creators have also challenged the prohibitions of the TikTok EO in the U.S. District Court for the Eastern District of Pennsylvania (E.D.Pa.). On October 30, 2020, the judge there granted a nationwide injunction against the prohibitions in their entirety.  The judge similarly found the ban violated the informational materials exception of IEEPA, finding that the prohibition’s effect of stopping the exchange of informational materials is “in no way tangential.”  The DOJ also appealed this ruling to the U.S. Court of Appeals for the 3rd Circuit.

Approach to Medical Supplies for XPCC

XPCC was designated as an SDN on July 31, 2020 pursuant to the Executive Order Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption (EO 13818).  As previous EOs have done, EO 13818 finds that the “making of donations” to any person blocked pursuant to that EO would seriously impair the President’s ability to deal with the national emergency declared in that order, and that such donations are prohibited per section 203(b)(2) of IEEPA (50 U.S.C. 1702(b)(2)).

However, under section 7202(a) of the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), 22 U.S.C. 7202, a complete prohibition on all sales of food, agricultural commodities, medicine, and medical devices would constitute a “unilateral medical sanction,” which is prohibited by TSRA.  Similar activities involving SDNs or sanctioned countries have been previously authorized by OFAC, either through a general license or on a case-by-case basis through the issuance of specific licenses.  However, certain differences in agency action has taken place in the context of China, and what the future holds in this case is uncertain.

Next steps

It remains to be seen whether the various U.S. Courts of Appeal will uphold the District Courts in enjoining enforcement of the TikTok EO.  If they do so, this would represent a significant reining in of the President’s ability to use IEEPA, with potentially broad implications for internet and communication services more generally.

With time running out for the Trump Administration, it is also possible that the Courts of Appeal will not issue any rulings prior to January 20.  After his inauguration, it will be up to President Biden to determine whether or not to continue this EO, or to terminate it.  If he were to do so, that would potentially render these disputes moot, and leave the scope of the President’s IEEPA authorities untouched, for now.

Authored by Adam Berry and Barbra Kim