PHILIP R. KARN, JR ) ) Plaintiff, ) ) v. ) Civ.A. No. 95-1812 (LFO) ) U.S. DEPARTMENT OF STATE, et al ) (Judge Oberdorfer) ) Defendants. ) ORAL ARGUMENT REQUESTED )
Kenneth C. Bass, III D.C. Bar #: 52985 Venable, Baetjer, Howard & Civiletti, LLP 1201 New York Avenue, N.W. Suite 1000 Washington, D.C. 20005 (202) 962-4890 Thomas J. Cooper D.C. Bar #: 213215 Venable, Baetjer, Howard & Civiletti, LLP 1201 New York Avenue, N.W. Suite 1000 Washington, D.C. 20005 (202) 962-4857 Counsel for Plaintiff Date: April 20, 1998
Introductory Statement 1
I. All Issues Raised in the Complaint Are Reviewable 5
II. The Export Control Regulations Are Facially Invalid 13
A. The Export Administration Regulations Are Unauthorized Executive Legislation Because They Lack Any Statutory Foundation or Authorization 14
1. The President Cannot Constitutionally Amend the Expiration Date of a Statute Beyond the Date Established by Congress 15
2. Even if The President Could Constitutionally Extend the Expired EAA, He Cannot Do So By Invoking His IEEPA Authority 17
B. The Export Administration Regulations, At Least When Invoked To Regulate Cryptographic Source Code, Are An Unconstitutional Prior Restraint of Pure Speech 21
III. The Failure to Permit Export of This Particular Cryptographic Source Code Violates Statutory As Well As Constitutional Rights 22
A. The Department of Commerce Failed to Consider the Specific Facts of This Application and Simply Invoked the Provisions of Executive Order 13026 Without Any Effort to Exercise the Discretion Which That Executive Order Permits the Department to Exercise 22
B. The Refusal to Permit Export of This Source Code Is Arbitrary and Capricious in Violation of the Administrative Procedure Act and the Due Process Clause 24
1. The Refusal is Arbitrary and Capricious Because There is No Rational Basis for Permitting Export of This Source Code in the Form of Printed Text While Prohibiting Export of the Identical Information in the Form of Text Files on a Diskette 25
2. The Refusal is Arbitrary and Capricious Because The Exact Same Source Code Is Readily Available in Digital Form on Foreign Internet Distribution Sites 27
C. The Refusal to Permit Export of This Source Code Denies Mr. Karn Equal Protection Because the Department Has Permitted At Least One Other Applicant to Export Digital Source Code for Some of the Same Cryptographic Algorithms 27
D. Prohibiting Export of This Source Code Violates the Specific Provision of IEEPA Prohibiting Imposition of Export Controls On Software 30
IV. The Absence of Any Administrative Hearing Coupled With the Fact-Intensive and Technical Nature of The Contention that Export of this Source Code Would Endanger National Security Requires an Evidentiary Hearing In Order to Ensure A Record Adequate for Judicial Determinations, Including Appellate Review 32
Conclusion 34
Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 87 S.Ct. 1507, 18 L. Ed. 2d 681 (1967) 9
Bartlett v. Bowen, 816 F.2d 695, 699 (D.C. Cir. 1987) 10
Bernstein v. Dept. of State, 922 F. Supp. 1426 (N.D. Cal. 1996) (Bernstein I) 3
Bernstein v. Dept. of State, 945 F. Supp. 1279 (N.D. Cal. 1996) (Bernstein II) 3
Bernstein v. Dept. of State, 974 F. Supp. 1288 (N.D. Cal. 1997) (Bernstein III) 3,4
Bernstein v. U.S. Dept of State et al., 974 F. Supp. 1288 (N.D. Ca. 1997) 4
Bowen v. Community Nutrition Inst., 476 U.S. 667, 670, 106 S.Ct. 2133, 90 L. Ed. 2d 623 (1986) 9
Chamber of Commerce v. Reich, 74 F.3d 1322 (D.C. Cir. 1996) 12
Dames & Moore v. Regan, 453 U.S. 654 (1981) 18
Dart v. United States, 848 F.2d 217 (D.C. Cir. 1988) 8,9
Freeman Engineering Assoc., Inc., et al., v. F.C.C., 103 F.3d 169, 182, 322 U.S. App. D.C. 263 (D.C. Cir. 1997) 29
Independent Petroleum Ass'n of American v. Babbitt, 92 F.3d 1248, 320 U.S. App. D.C. 34 (D.C. Cir. 1996) 29
K N Energy, Inc. v. F.E.R.C., 968 F.2d 1295, 1303, 297 U.S. App. D.C. 13 (D.C. Cir. 1992) 7
Lincoln v. Vigil, 508 U.S. 182, on remand Vigil v. Rhoads, 2 F.3d 1161 (10th Cir. 1993) 10
Paradyne Corp. v. United States Department of Justice, 647 F. Supp. 1228, 1235 (D.D.C. 1986) 10
S.E.C. v. Chenery Corp., 318 U.S. 80, 88, 87 L. Ed. 2d 626, 63 S. Ct. 454 (1943) 6
Turner Broadcasting System, Inc. v. FCC, ___ U.S. ___, 114 S.Ct. 2445 (1994) 22,23
United States v. American Telephone & Telegraph, 567 F.2d 121 (D.C. Cir. 1977) 11
Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952) 15,20
Arms Export Control Act, 22 U.S.C. § 2778, ("AECA") 2
Export Administration Act of 1979, 50 U.S.C. App. §§ 2401 et seq., ("EAA") 2
H.Rep.No. 482, 103rd Cong., 2d Sess. 238, 1994 USCCAN 302, 482 32
International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1706, ("IEEPA") 2
50 U.S.C. § 1701(a) 18
50 U.S.C. § 1701(b) 18
50 U.S.C. § 1702(a)(1)(B) 19
50 U.S.C. § 1702(b) 32
50 U.S.C. § 1702(b)(3) 31
U.S. Const. Art. I, § 1 15
Applied Cryptography 10
Karn Declaration 4,25
Tuthill Declaration 25
PHILIP R. KARN, JR ) ) Plaintiff, ) ) v. ) Civ.A. No. 95-1812 (LFO) ) U.S. DEPARTMENT OF STATE, et al. ) (Judge Oberdorfer) ) Defendants. ) ORAL ARGUMENT REQUESTED )
Plaintiff Philip R. Karn, Jr., by counsel, respectfully submits this Memorandum in Opposition to the Defendants' Motion to Dismiss and in Support of Plaintiff's Cross-Motion for Partial Summary Judgment. Pursuant to Local Rule 108(f) and in light of the substantial questions presented, oral argument is requested.
This proceeding follows the February 27, 1997, remand from the Court of Appeals after the December 31, 1996, transfer of export control responsibility for cryptographic products from the Department of State to the Department of Commerce. That transfer significantly altered the legal issues raised by this case. When regulatory authority rested with the State Department, it was based on the Arms Export Control Act, 22 U.S.C. § 2778, ("AECA") which expressly precluded judicial review of agency action. When the President transferred cryptographic export controls to the Department of Commerce, he did so by invoking the authority of the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-1706, ("IEEPA"), a statute that does not preclude judicial review of agency action.
The 1996 transfer of regulatory responsibility changed the nature of this case in two significant ways: 1) judicial review under the Administrative Procedure Act is clearly available since the statutory bar under the AECA no longer applied; and 2) a new issue arose as to President's authority to invoke IEEPA to perpetuate a system of domestic export controls when the statute that had authorized the creation of those controls [1] had expired. The existence of those two new issues led the Court of Appeals to remand the case without a decision on the merits of Judge Richey's conclusions on the constitutional issues presented in the original complaint. [2]
In addition to the new issues raised by the transfer of regulatory authority, there have been two additional developments since Judge Richey's decision that are relevant to the disposition of the Defendants' Motion for Summary Judgment. The first is the issuance of three opinions by Judge Patel in a similar case litigated in the Northern District of California. In that proceeding, styled Bernstein v. U.S. Department of State, [3] a professor challenged the cryptography export control regime on First Amendment grounds. Judge Patel, reaching conclusions contrary to those of Judge Richey, concluded that the application of the ACA regime to cryptographic source code constituted an unconstitutional prior restraint. 945 F. Supp. 1279, 1290 (N.D. Ca. 1996). After regulatory authority was transferred to the Department of Commerce, a Supplemental Complaint was filed and Judge Patel then ruled that the same constitutional infirmity exists under the Department of Commerce system. Bernstein v. U.S. Dep't of State et al., 974 F. Supp. 1288 (N.D. Ca. 1997) ("Bernstein III"). An appeal from that decision has been argued and is now pending before the Ninth Circuit.
The second new development is the decision of the Department of Commerce on June 4, 1997, to allow another individual to export, in digital form, source code for some of the same cryptographic algorithms that Commerce refused to allow Mr. Karn to export. [4] That clearly inconsistent action not only raises a new constitutional issue of Equal Protection, it casts serious doubt on the integrity of Commerce' decision-making process and the asserted rationality and reasonableness of the decision under review.
In Plaintiff's view the issues presented in this case fall into two distinct categories: 1) issues that transcend the specific administrative decision under review and relate to the legality of the entire regulatory scheme regulating export of cryptographic source code; and 2) issues that relate only to the specific administrative refusal to permit Mr. Karn to export the diskette containing cryptographic source code. We believe the first category of issues are ripe for summary determination and are accordingly filing a Cross-Motion for Partial Summary Judgment. We also believe, however, that a decision on the legal issues that are specific to this diskette will rest on certain factual determinations that should only be made after an evidentiary hearing. Accordingly, we oppose the Defendants' Motion for Summary Judgment. This memorandum will serve as both our Opposition to that Motion and our Memorandum in Support of our own Cross-Motion for Partial Summary Judgment.
The Defendants assert a variety of "non-reviewability" arguments. (Def. Memo at 18-21, 28-31) Those arguments are flawed. The law of this Circuit establishes that all of the issues raised in the Complaint are properly before the Court for judicial review. There is no barrier to review because of national security or presidential involvement.
The Defendants contend that our APA claim is unreviewable because it involves "delicate considerations of national security and foreign policy that are beyond the purview of the judicial branch." (Def. Memo. at 18) While this argument invokes the concept of Executive privilege, no formal claim of privilege has been filed and there is no statement in any of the declarations filed by the Defendants that claims that the specific agency decision under review involves such "delicate considerations." While Defendants' counsel has invoked the miasma of "national security," the agency officials themselves have not contended that a decision on whether the book/diskette distinction is rational will require judicial involvement in "delicate matters of national security and foreign policy." The only assertions that judicial review would intrude into issues of national security come from counsel, not from the agency officials.
It is well established in judicial review of administrative action that the courts review what the agency did, not what counsel argues in court. S.E.C. v. Chenery Corp., 318 U.S. 80, 88, 87 L. Ed. 2d 626, 63 S.Ct. 454 (1943)(agency action may not be upheld on any grounds other than those relied upon by the agency); K N Energy, Inc. v. F.E.R.C., 968 F.2d 1295, 1303, 297 U.S. App. D.C. 13 (D.C. Cir. 1992)("courts may not accept appellate counsel's post-hoc rationalizations for agency action"). The asserted "national security" implications of the action under review are thus not a proper consideration for deferring to the agency decision.
The fact of the matter is that Plaintiff will be able to prove, through publicly available evidence, that the book/diskette distinction is, at least in this specific instance, irrational, arbitrary, capricious and completely ineffectual as a meaning of controlling the export of the source code at issue. Plaintiff's proof will not touch on national security matters and it is inconceivable that the Defendants would assert a factual or legal defense that would involve properly classified information. Unless and until a properly documented claim of executive privilege is presented, there is no basis for this Court to decline to adjudicate the APA claims on grounds of national security.
Defendants cite and rely on a number of decisions from other circuits in contending that the APA claim in this case is unreviewable. (Def. Memo. at 19-21) That reliance is misplaced. The cases cited all involved challenges to a decision to subject particular commodities, as a category, to export controls. This case does not present a challenge to the inclusion of the category of cryptographic software in the list of controlled commodities, but challenges instead the specific decision to permit export of this specific source code in printed form while prohibiting export in digital form. Plaintiff will acknowledge, for purposes of this case, that the Executive Branch could rationally decide to regulate the export of cryptographic software on grounds of national security. But the legitimacy of the decision to regulate such software does not immunize specific administrative decisions from judicial scrutiny. What is at issue in this case is not the rationality of the policy decision to regulate cryptographic software, but the rationality of the specific decision here in light of the widespread international availability of the exact same source code in the same format. The rationality of that distinction simply does not involve consideration of national security matters.
The defendants' reliance on the Ninth Circuit decision interpreting the EAA overlooks the significant difference between those decisions and the law in this circuit. In Dart v. United States, 848 F.2d 217 (D.C. Cir. 1988), this Circuit had to determine whether the judicial review prohibition in the EAA was broad enough to prohibit the review of certain functions that were not specified in the language of the EAA's prohibition. The EAA prohibited review of orders of the Secretary that "�affirm, modify, or vacate' an ALJ's initial decision." Id. at 221. In Dart, the Secretary had issued an order that did not affirm, modify or vacate an ALJ decision, but instead "reversed" the ALJ's decision. The court found that judicial review of the Secretary's reversal was available based upon the "well-established presumption favoring judicial review and on the particular language, structure and legislative history of the EAA." Id. at 221. That decision is consistent with the "narrow construction" rule that the Supreme Court has held must be applied to legislative attempts to limit judicial review. See, e.g., Bowen v. Community Nutrition Inst., 476 U.S. 667, 670, 106 S.Ct. 2133, 90 L. Ed. 2d 623 (1986); Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 87 S.Ct. 1507, 18 L. Ed. 2d 681 (1967).
The D.C. Circuit has also made it clear that the party seeking to preclude review bears the burden of demonstrating by clear and convincing evidence that Congress intended to restrict access to judicial review. Abbott Laboratories v. Gardner, 387 U.S. 136, 141, 87 S.Ct. 1507, 18 L. Ed. 2d 681 (1967)(statutory preclusion of judicial review of final agency actions must be demonstrated clearly and convincingly); Bartlett v. Bowen, 816 F.2d 695, 699 (D.C. Cir. 1987); see Paradyne Corp. v. United States Department of Justice, 647 F. Supp. 1228, 1235 (D.D.C. 1986). The defendants have failed to carry their burden in this case, and thus the Court should review all of Plaintiff's claims. [5]
Additionally, the Supreme Court held in Lincoln v. Vigil, 508 U.S. 182, on remand Vigil v. Rhoads, 2 F.3d 1161 (10th Cir. 1993), that although the agency's action was committed to agency discretion as a matter of law, "the APA contemplates, in the absence of a clear expression of contrary congressional intent, that judicial review will be available for colorable constitutional claims." 508 U.S. at 195. The constitutional claims raised here are clearly colorable. [6]
The day when courts automatically retreated at the Executive's sounding of the "national security" alarm has long passed. This Court has substantial experience in handling genuine issues of national security and ruling on the merits of claims that raise genuine issues involving classified materials. See, e.g., United States v. American Telephone & Telegraph, 567 F.2d 121 (D.C. Cir. 1977) ("The executive would have it that the Constitution confers on the executive absolute discretion in the area of national security. This does not stand up"). There is no reason to treat the APA claims in this case as unreviewable when the only assertion of a national security problem is the unsubstantiated argument of counsel.
Defendants also claim that this Court cannot review the President's decision to perpetuate the export control regime despite the expiration of the Export Administration Act of 1979 that authorized the creation of that regime. This action does challenge the decision of the President to invoke IEEPA to perpetuate a system of export controls, but it does so by challenging specific agency action, not by directly challenging the Executive Orders that implemented that transfer. Plaintiff argues that the President improperly relied on IEEPA and that his action amounts to unauthorized Executive legislation prohibited by the Separation of Powers doctrine. Such an argument is properly placed before this Court, even if it were construed as a direct challenge to the Executive Orders.
A similar issue was presented in Chamber of Commerce v. Reich, 74 F.3d 1322 (D.C. Cir. 1996). In that case the plaintiffs challenged an Executive Order on the grounds that it was inconsistent with the National Labor Relations Act. The Court of Appeals noted that the action challenged the Executive Order itself, not any action taken by an agency in implementing the order. Since the President is not an "agency" within the meaning of the APA, the Court held that review of the legality of the Executive Order itself was not available under the APA. The Court went on, however, to hold that it could decide whether the Executive Order violated the NLRA because the President's action in issuing the order was inherently subject to judicial review.
Chamber of Commerce establishes that it is proper for this Court to decide whether the President's invocation of IEEPA as a basis for continuing the export control regime is lawful, regardless of whether the issue is viewed as a direct challenge to the President's action or as a challenge to the Commerce Department regulations implementing the President's decision. In either event the issue is subject to judicial review.
This litigation presents two challenges to the validity of the export control regime, on its face, with respect to all cryptographic source code. The first facial challenge is an assertion that the President acted without legislative authority and in violation of Congressional intentions, when he perpetuated the existence of the export control regulations despite the expiration of the Export Administration Act of 1979 that had provided the statutory authority for those regulations. That assertion is a new issue for this Court that was not present when Judge Richey issued his decision. It goes to the entire Department of Commerce export control system, not just to the application of that system to cryptographic source code.
The second facial challenge is the same First Amendment argument that was raised and decided by Judge Richey.
President Clinton transferred responsibility for controlling exports of nonmilitary cryptographic software to the Department of Commerce on November 15, 1996, by issuing Executive Order 13026. When he did so, he attempted to bring those commodities under the controls of the Export Administration Regulations (the "EAR") that had been promulgated by the Department of Commerce as an implementation of the Export Administration Act of 1979.
The fundamental legal flaw in the President's action is the fact that the EAA is not permanent legislation and it had expired long before the 1996 Executive Order was issued. The EAA most recently expired in 1994. At that time President Clinton issued Executive Order 12924 in which he declared that because of the expiration of that domestic law there was "an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States" and he therefore declared a national emergency on the basis of that threat. He then ordered, on the basis of the authority granted in IEEPA, that "the provisions of the Export Administration Act of 1979 should "continue in full force and effect" so as to maintain the existence of the export control regulations previously promulgated by Commerce. Id. The President's order was �significantly � qualified in its entirety by the phrase "to the extent permitted by law." Id.
The express purpose and intended consequence of Executive Order 12924 was, in effect, to amend and extend the expired EAA without congressional action. Such unilateral executive action is, we submit, an unconstitutional usurpation of legislative authority. Moreover, it was an improper invocation of IEEPA and directly contrary to the fundamental limitations of that law.
It is fundamental that the Constitution vests all legislative powers in the Congress, not in the Executive Branch. U.S. Const. Art. I, § 1. When Congress has passed a law with an explicit expiration date, the President cannot amend that law by changing the expiration date. To do so is to engage in a purely legislative act. See, e.g., Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952)(President's order seizing steel mills invalid because not based on authority in a statute or the Constitution itself).
The EAA did not contain any provision allowing the President to extend it once it had expired. Despite the absence of any authority to extend the EAA, the Defendants argue that a history of EAA expirations followed by presidential orders to extend the authority of the EAA amounts to congressional acquiescence in the executive action. This argument was accepted by Judge Patel when she held in Bernstein III that "it is within Congress' power to change this practice and it has chosen not to." 974 F. Supp. at 1300. We submit that Judge Patel's conclusion and the Defendants' acquiescence argument are flawed.
The established doctrine of congressional acquiescence in executive action arises in a fundamentally different context. It arises in circumstances where a party argues that the Executive has implemented a statute contrary to its terms or to congressional intent and the Executive responds by arguing that Congress has long known of the practice and has acquiesced in the Executive's action. In those cases the Executive action is taken in the course of implementing a statute that is in force and the issue is whether the Executive's implementation is consistent with the terms of the statute. This is not such a case. Here the statute which Congress passed to authorize export controls has expired. There is no export control law in force that the President has misapplied, but a total absence of authority that he seeks to fill by executive action. It cannot be argued that the unilateral extension of the expired EAA is a permissible executive implementation of that statute. By its own unambiguous terms it expired in 1994. It has not been re-enacted by Congress since that date.
Plaintiffs submit that Congress cannot "acquiesce" in an Executive action that "makes a law" as distinguished from an action that "mis-executes a law." It is one thing for the courts to imply congressional ratification of executive actions that interpret and apply a statute that is in force. It is an entirely different matter for the courts to allow the President to fill a statutory void by unilateral action. Since the EAA has expired, the Executive Order continuing it in effect cannot be justified on grounds that Congress has acquiesced in an Executive amendment to the expiration date in the statute.
The President's reliance on IEEPA to extend the expired EAA is particularly improper because the action is a distortion of the explicit limitations Congress placed in the IEEPA.
IEEPA authorizes the President to declare a national emergency "to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States." 50 U.S.C. § 1701(a). Congress emphasized that the extraordinary powers were to be incident-specific and that any effort to invoke powers with respect to a "new threat shall be based on a new declaration of national emergency with respect to such threat." 50 U.S.C. § 1701(b). Executive Order 12924 cannot be defended as an invocation of the IEEPA authority.
The only change in circumstances that caused the issuance of Executive Order 12924 was the passage of time and the expiration of the EAA. That development simply cannot be described as an event that "has its source in whole or substantial part outside the United States." The entire source of this "emergency" is domestic. The failure of Congress to re-enact the EAA is not a foreign event. Moreover, it is neither unusual nor extraordinary. The EAA has expired several times. It has almost become "ordinary" for this pattern of legislative inaction and unilateral executive action to occur.
The Supreme Court has previously recognized that IEEPA is not an open-ended grant of authority to the President. In Dames & Moore v. Regan, 453 U.S. 654 (1981), the Court reviewed the validity of the President's action with respect to Iranian assets after the taking of American hostages in Tehran and the subsequent settlement agreement following their release. One aspect of that review involved a provision of the President's orders that suspended litigation of claims against Iranian interests that were pending in American courts. The Court held that while IEEPA was a sufficient authorization for the President to nullify attachments of Iranian assets, it was not broad enough to authorize a suspension of the litigation of the claims underlying the attachments. The basis for this conclusion was the fact that the claims underlying the attachments were in personam claims and as such were "not in themselves transaction involving Iranian property or efforts to exercise any rights with respect to such property." Id. at 675. Because IEEPA limits its grant of authority to issuing orders with respect to "property in which any foreign country or a national thereof has any interest," [7] the suspension of the underlying claims was not authorized by IEEPA. [8]
The Dames & Moore decision establishes a principle that IEEPA should be strictly construed according to its terms to limit excessive Executive actions that affect the property of American citizens. In this case, the EAR is being applied to control the distribution of software owned by an American citizen, even if the software is distributed � without charge � over the Internet to the public. In such a situation there is simply no foreign property interest that forms the basis of any invocation of IEEPA's authority.
The executive practice of continuing to impose export controls after the enabling legislation has expired is, we submit, constitutionally intolerable. The EAA expired almost five years ago. Two successive congresses have failed to re-enact it. The time has come for the Judicial Branch to end this pattern and re-establish the fundamental principle that Congress legislates and the Executive implements.
The First Amendment issues presented by the Amended Complaint are the same as the issues presented in the initial Complaint. During a status conference the Court indicated that it considered Judge Richey's rulings to be the law of the case and would not revisit those decisions.
In order to preserve all issues for appellate review, Plaintiff incorporates by reference our prior memoranda [9] with respect to the First Amendment issues. In addition to the arguments advanced in those memoranda, we also rely on Judge Patel's decisions in the Bernstein litigation. In the circumstances we will not unnecessarily lengthen this memorandum by repeating the First Amendment arguments.
The issues of law that are specific to the administration decision regarding the Karn diskette present both constitutional and statutory questions. Plaintiff submits that resolution of those issues requires an evidentiary hearing. [10]
The necessity for an evidentiary hearing is highlighted by the absence of any evidentiary hearing at the administrative level. The Commerce Department decisions in this case are devoid of any evidence that the unique facts of this case were seriously considered by the agency. It is clear that Commerce simply invoked President Clinton's Executive Order and denied Mr. Karn's request without any serious consideration of the merits of his application.
It is quite apparent that Executive Order 13026, drafted primarily by the Justice Department's Office of Legal Counsel, was consciously intended to address this specific litigation. During the prior stages of this litigation Defendants' counsel consistently argued that the prohibition imposed in this matter was based on the "functionality" of the source code, not its informational content. The Executive Order transferring jurisdiction to Commerce uses precisely the same concept. [11] In a clear reference to the foreign-availability of the source code in this case, the Executive Order directs Commerce to ignore the fact that these same digital files are available from foreign-based Internet sites. [12]
Plaintiff submits that this Court should not give significant weight to the Commerce determination in this case. It is quite evident from both the language of those decisions and the absence of any administrative hearing or request for a dialogue with Mr. Karn that the Department believed it had no discretion to approve the Karn application in light of the specific directions in the Executive Order. The established presumption of administrative regularity and deference to administrative expertise should disappear when, as is quite evidently the case here, the agency chose not to consider exercising its discretion and instead denied the Karn applications in a automatic, uncritical formal process lacking any indicia of the application of administrative judgment.
Plaintiff's contention that the administrative action is arbitrary and capricious is based on two separate contentions, either of which is a sufficient basis for reversing the administrative decision.
The Defendants contend that there is a rational basis for treating the book differently than the diskette. The only asserted difference is that it is easier to create an operating program from the digital version of the source code than from the book version. That asserted difference is, we submit, immaterial and reliance on the difference is capricious.
The difference between using the diskette to create an operating encryption program and using the book is a matter of only a few hours of human effort. [13] That difference is trivial.
The irrationality of the book/text distinction is well illustrated by the recent announcement that one of the more widely used encryption programs, "Pretty Good Privacy" ("PGP"), is now being distributed as version 5.0i from PGP affiliates in Europe. See http://www.pgpi.com/project. The 5.0i version of PGP is identical to version 5.0 distributed in the United States. As explained by the distributors, "PGP 5.0i . . . was compiled from source code that was printed in a book (well, actually 14 books). The books were exported from the USA in accordance with the US Export Regulations, and the pages were then scanned and OCRed to make the source available in electronic form." Id. This development proves that the book/diskette distinction that the Executive branch seeks to perpetuate is completely ineffectual in preventing the international spread of US-developed strong cryptography. [14]
The administrative refusal to permit export of the Karn diskette is particularly irrational in view of the fact that the digital files on the diskette are already available, in digital form, from Internet file transfer protocol ("ftp") sites outside the United States. [15] Anyone who wishes to obtain the source code on Karn diskette can easily download those digital files from those Internet sites. In short, the Karn diskette files are already available outside the United States and it is patently irrational to preclude Mr. Karn from exporting the diskette in these circumstances.
Bureaucratic rigidity, particularly when national security concerns are purportedly involved, is not novel. But the Commerce Department position in this case is particularly irrational and arbitrary in light of the fact that the Department has permitted at least one other applicant to export source code in digital form that includes some of the same cryptographic algorithms as those on the Karn diskette.
On April 25, 1997, Lee Tien, an attorney acting on behalf of his client Hugh Daniel, sought a determination from Commerce that certain domain name server security software could be exported without an export license. [16] Mr. Tien filed a classification request and a supporting letter, just as Mr. Karn did in this case. The explanatory letter clearly explained that the source code included the full source code for RSAREF, a well-known cryptographic toolkit developed by RSA, Inc., a leading US-based producer of cryptographic software. RSAREF in turn includes the full source code for two of the same cryptographic algorithms that are included on the Karn diskette. See attached Karn April 18, 1998, Declaration.
On June 4, 1997, Commerce responded favorably to the Tien-Daniel request and classified the source code as an EAR 99 item, meaning that export was not controlled. Since that ruling the entire source code has been available for unrestricted download from a US-based Internet site, http://www.toad.com/~dnssec/prototype-download.html.
The Department's June 4, 1997, action is irreconcilably inconsistent with the action two months later which denied Mr. Karn's request for the same classification and the subsequent action denying his application to export the software. Mr. Karn specifically asked for a license to permit him to export the software by, among other things, publishing it on the Internet as Mr. Daniel had been permitted to do. [17]
The Defendants' Motion is completely silent on this aspect of the Complaint. Absent presentation of some compelling justification for this inconsistent action, the refusal to permit export of the Karn diskette must be set aside. See Independent Petroleum Ass'n of American v. Babbitt, 92 F.3d 1248, 320 U.S. App. D.C. 34 (D.C. Cir. 1996) (holding that an administrative agency must treat similar cases in a similar manner unless it can provide a legitimate reason for failing to do so); Freeman Engineering Assoc., Inc., et al., v. F.C.C., 103 F.3d 169, 182, 322 U.S. App. D.C. 263 (D.C. Cir. 1997) (stating that under the Administrative Procedure Act arbitrary and capricious standard of review of administrative decisions, an agency may not treat like cases differently).
The Memorandum filed by the Defendants is totally silent about this inconsistent administrative action. The Amended Complaint plainly states in paragraphs 37 and 67 that the denial of Mr. Karn's application was inconsistent with other administrative actions and constitutes a denial of Equal Protection. That claim, not presented in the original Complaint, was based on the Tien-Daniel administrative action. The Defendants' failure to address that claim, or even to seek clarification if they did not perceive the facts on which it is based, is yet another indication that the defendants have never given serious consideration to the merits of the Karn applications and have instead reacted in a knee-jerk fashion to simply deny the applications.
It is indeed ironic that the President chose to invoke IEEPA as the basis for transferring export control authority over cryptographic source code to the Commerce Department. At the time he so acted, Judge Patel had already held that cryptographic source code was a form of speech protected by the First Amendment. IEEPA expressly and unambiguously denies the President authority to impose export controls on speech. Congress provided that the President has no authority under IEEPA to proscribe:
the exportation to any country, whether commercial or otherwise, regardless of format or medium of transmission, of any information or informational materials, including but not limited to, . . . compact disks, CD ROMs . . .
50 U.S.C. § 1702(b)(3). That prohibition applies fully to the Karn diskette. The diskette, as explained in prior memoranda, consists entirely of information and informational materials. Imposition of export controls on the Karn diskette thus violates the very statute upon which the regulation is founded.
Any doubt about the effect of that prohibition on the administrative action in this case is resolved by the legislative history of the provision. Congress included this prohibition in IEEPA in order "to protect the constitutional rights of Americans to . . . communicat[e] with people of other countries . . . such as by sharing information and ideas" and "to facilitate . . . activities incident to the flow of information and informational materials without regard to the type of information, its format, or means of transmission." H.Rep.No. 482, 103rd Cong., 2d Sess. 238, 1994 USCCAN 302, 482.
We recognize that the IEEPA prohibition does not apply to material that is otherwise controlled under the national security export authority of the EAA, [18] but that exception cannot be invoked because the EAA has expired and thus there are no items that are otherwise controlled under the EAA. The controls imposed on the Karn diskette are imposed solely on the basis of IEEPA and not on the based of the now-lapsed EAA. The prohibition in IEEPA on controlling exports of information and informational material thus precludes the controls imposed on the Karn diskette.
Resolution of the issues that are specific to the Karn diskette requires the Court to evaluate certain factual determinations. The primary material factual issue in dispute is whether the distinction drawn by the defendants between the Applied Cryptography printed text listings and the Karn diskette digital files is rational. While the issue is one of "constitutional fact," it is in essence a judgment that requires consideration of the technical aspects of cryptography, the practical aspects of computer source and object code, and the realities of foreign availability of the same digital files contained on the Karn diskette. Plaintiff submits that a fully informed judicial decision on these issues requires an evidentiary hearing. Such a hearing is particularly appropriate in light of the novel issues of first impression presented here.
A similar situation was presented in the litigation in this Court over the constitutionality of the "must carry" legislation that required cable television operators to carry the signals of the over-the-air local broadcast stations. When that case reached the Supreme Court, the Justices concluded that the evidentiary record had not been sufficiently developed to permit a properly informed decision. See Turner Broadcasting System, Inc. v. FCC, ___ U.S. ___, 114 S. Ct. 2445 (1994). This case should be handled without creating the possibility of yet a second remand before rendition of a decision on the merits by the Court of Appeals. An evidentiary hearing would ensure that a full and complete factual record is available for all the judges who will consider the issues.
For the reasons stated, Defendants' Motion to Dismiss should be denied and Plaintiff's Cross-Motion for Partial Summary Judgment should be granted. If Plaintiff's Cross-Motion is not granted, the matter should be set for an evidentiary hearing.
Respectfully submitted, Kenneth C. Bass, III D.C. Bar #: 52985 Venable, Baetjer, Howard & Civiletti, LLP 1201 New York Avenue, N.W. Suite 1000 Washington, D.C. 20005 (202) 962-4890 Thomas J. Cooper D.C. Bar #: 213215 Venable, Baetjer, Howard & Civiletti, LLP 1201 New York Avenue, N.W. Suite 1000 Washington, D.C. 20005 (202) 962-4857 Counsel for Plaintiff
Date: April 20, 1998
I hereby certify that on April 20, 1998, the foregoing Plaintiff's Memorandum in Opposition to Defendants' Motion to Dismiss or for Summary Judgment and in Support of Plaintiff's Cross-Motion for Partial Summary Judgment and attached Declaration of Philip R. Karn, Jr. was served by mail, postage prepaid, on:
Anthony J. Coppolino
Trial Attorney
U.S. Department of Justice
Civil Division - Federal Programs Branch
P.O. Box 883
Washington, D.C. 20044
KENNETH C. BASS, III
1. The Export Administration Act of 1979, 50 U.S.C. App. �� 2401 et seq., ("EAA").
2. Because Judge Richey accepted the Defendants' argument that judicial review under the APA of the agency decision was precluded by the AECA, he had based his decision on the constitutional issues presented. Since the transfer of regulatory jurisdiction to the Commerce Department presented the possibility of resolution on statutory, rather than constitutional grounds, the Court of Appeals remanded for consideration of the new issues in order possibly to avoid reaching the constitutional issues.
3. There are three reported decisions in the case: Bernstein v. Dept. of State, 922 F. Supp. 1426 (N.D. Cal. 1996) (Bernstein I); Bernstein v. Dept. of State, 945 F. Supp. 1279 (N.D. Cal. 1996) (Bernstein II); and Bernstein v. Dept. of State, 974 F. Supp. 1288 (N.D. Cal. 1997) (Bernstein III).
4. As discussed below, the Department of Commerce classified certain domain name security software as an "EAR 99" item which means it is not subject to export controls. See http://www.toad.com/~dnssec/commerce-classif-ear99.gif. That software included the full source code to software known as RSAREF. RSAREF includes full source code for the DES and 3DES cryptographic algorithms that are included on the Karn diskette. See attached Karn Declaration of April 17, 1998. Thus Commerce granted in response to that application precisely the relief it has denied Mr. Karn with respect to another version of source code implementing the same cryptographic algorithms.
5. Defendants do not expressly address Plaintiff's position that subjecting the diskette to export controls when the information it contains is identical to information contained in Applied Cryptography (information previously deemed by the State Department as not subject to the Department's export controls) is arbitrary and capricious, an abuse of discretion and not otherwise in accordance with the Administrative Procedure Act (the "APA") at 5 U.S.C. 706(2)(A). Compl. � 29. Defendants simply state that judicial review is not permitted under the APA where it has been precluded by statute. Defs. Mem. at 16. As shown supra, review in this matter is, in fact, not precluded by statute.
6. While Judge Richey rejected the constitutional claims on the merits, his decision plainly shows why the claims are colorable. Judge Patel's decisions holding the regulatory scheme unconstitutional present an even stronger reason for concluding the constitutional claims are colorable.
8. The Court ultimately concluded that a long-standing practice of settlement of foreign claims by the Executive Branch, coupled with congressional acquiescence, resulted in a conclusion that the President's action in that instance was an appropriate exercise of the Executive Power of Section 1 of Article II of the Constitution. That conclusion would not apply here. The Defendants argument that the Executive Order is valid is based entirely on IEEPA and they do not assert that the order can be sustained as an exercise of the President's constitutional powers. Moreover, any such argument would conflict with the fact that Congress expressly enacted the EAA as temporary legislation with a specific expiration date. When the President acts contrary to the express terms of a statute, any assertion of inherent Executive Powers is suspect. See Youngstown, supra, at 637-638 (Justice Jackson's concurring opinion).
9. The prior memoranda that addressed the First Amendment issues were Plaintiff's Opposition to Defendants' Motion to Dismiss filed Dec. 11, 1995, and Plaintiff's Supplemental Memorandum in Opposition to Defendants' Motion to Dismiss filed Dec. 22, 1995.
10. Plaintiff requested the Court of Appeals to rule that an evidentiary hearing should be held. While the Court did not so rule, it did take the unusual step of issuing an order in response to Plaintiff's Petition for Rehearing in which the Court of Appeals noted that this Court should decide on remand whether to hold an evidentiary hearing. Plaintiff believes that action is an indication that the Court of Appeals anticipates that such a hearing will be held in order to ensure an adequate record for decision. Cf. Turner Broadcasting System, Inc. v. FCC, ___ U.S. ___, 114 S.Ct. 2445 (1994)(remanding case for an evidentiary hearing to develop a complete record before resolving issues).
11. "[T]he export of encryption software . . . must be controlled because of such software's functional capacity, rather than because of any informational value . . . ." E.O. 13026, Sec. 1 (c).
12. The Order states that there could be harm to the national security "even where comparable products are or appear to be available from sources outside the United States." "E.O. 13026, Sec. 1.
13. The actual difference as determined by Mr. Karn is 3.5 hours if the text is converted to a digital file using a scanner and an Optical Character Recognition (OCR) program. The difference is less than 3 hours if the book text is typed on a keyboard to make a digital text file. Some additional time would be required to proofread the text file and correct and errors in the source code. See Karn Declaration of December 7, 1995, �� 5-7 and Tuthill Declaration, both previously filed in response to Defendant's First Motion to Dismiss.
14. PGP 5.0 and 5.0i both use "strong" cryptography that employs 128-bit encryption. The Defendants will undoubtedly argue that since it took "More than 70 people from all over Europe . . . over 1000 hours to make the PGP 5.0I release possible" the book/diskette distinction has achieved its intended purpose. It is not, we submit, conceivable that the slight delay in international distribution of PGP had any effect on national security or foreign policy interests. Any effect on United States economic interests was entirely negative since the regulatory system inhibits U.S. companies like PGP in their effort to increase distribution of their cryptographic products. Moreover, subsequent OCR improvements have significantly reduced the time required for such an effort.
15. The current list of sites where the Karn diskette digital files is available at http://www.cs.hut.fi/ssh/crypto/software.html.
16. The full facts of this administrative proceeding are published at http://www.toad.com/~dnssec/govt.html.
17. Because Commerce decisions on export licenses are not made public, Mr. Karn did not become aware of this prior inconsistent administrative action until John Gilmore published the facts of the Tien-Daniel licensing action on December 23, 1997.
