Last week, the Federal Communications Commission (FCC) released a Notice of Proposed Rulemaking (NPRM) seeking comment on its proposals to allow limited marketing and sale of radio-frequency (RF) devices to consumers prior to authorization; and importation into the United States of a number of pre-authorized RF devices for sales activity. If the FCC’s proposed rules are adopted, RFID equipment manufacturers and vendors will be able to expedite distribution of their products. Comments are due 30 days after the NPRM is published in the Federal Register; reply comments are due 45 days after publication.
Conditional Sales of RF Devices to Consumers
The FCC recommends that its sales and marketing rules be liberalized to enable manufactures to execute conditional sales contracts with consumers for pre-authorized RF equipment. Specifically, RF equipment manufactures would be allowed to conditionally sell, but not deliver, pre-authorized RF devices to consumers. The current rules permit such conditional sales agreements between manufacturers and wholesalers and retailers exclusively.
The idea behind this proposed rule change is to encourage expedited distribution of innovative RF devices through arrangements such as direct-to-consumer sales over the Internet. The FCC declares that “[e]ntrepreneurs and start-ups can use these new distribution models to grow their businesses and bypass the channels often controlled by large incumbents.”
Certain safeguards will be included in the proposed rule, including requiring clear disclosure to the consumer that the equipment is subject to the FCC’s rules and that delivery is contingent upon applicable equipment authorization and technical requirements. The FCC seeks comment on the following issues:
- What other actions could the FCC take that would yield the anticipated benefits of expedited distribution of RF equipment?
- Are there certain types of RF devices that should not be included in the proposed rule, g., equipment that could pose substantial interference risks if not installed properly or devices that are used to ensure the safety of life and property?
- Should the FCC require suppliers to provide consumers with information on how to seek a refund in the event the device cannot be authorized?
- Should manufacturers be required to include a label on the device’s packaging stating that delivery to consumers will not occur until the device is authorized?
- Should the FCC impose recordkeeping requirements on manufacturers so that the equipment can be accounted for if the authorization is not granted or enforcement actions need to be taken?
- Are additional rules necessary to address potential harm than may result from allowing conditional sales to consumers?
- Because conditional sales typically involve upfront payments, what should the government’s role be when a conditionally sold RF devices cannot be delivered and consumers may be entitled to a refund or similar remedy under a sales agreement?
- Should other entities in the supply chain besides manufacturers be permitted to enter into such conditional sales agreements?
- What are the relative costs and benefits of the proposed rule?
Importation Rules
The FCC proposes to update its importation rules to permit up to 4,000 pre-authorized RF devices subject to certification (which generally means devices containing transmitters, e.g., RFID readers and possibly active tags) to be imported into the United States for pre-sale activities such as imaging, packaging, and delivery to retail locations. The FCC’s rules currently require that all RF devices be authorized prior to importation with limited exceptions: up to 400 pre-authorized devices may be imported for demonstrations at trade shows; up to 4,000 such devices may be imported for testing and evaluation; and up to three such devices may be imported for personal use. None of these pre-authorized devices may be sold or marketed.
The FCC seeks comment on the following matters:
- Should other types of RF devices (e., those not subject to certification) be included in this rule? Persuasive comments on this question could, in addition to potentially widening the scope of RFID devices that would be speeded to market, also have the added benefit of obliging the FCC clarify its regulatory classification of active tags. While active tags contain transmitters and could arguably be classified as intentional radiators subject to certification, the FCC has not made a definitive ruling on this matter. Hybrids such as transponding active RFID tags are even further in regulatory limbo. It is important to have regulatory clarity on RFID devices, because the cost of FCC certification of intentional radiators is more than that of self-authorization of unintentional radiators (i.e., devices that produce but don’t transmit RF energy). Moreover, engaging in the wrong type of authorization for an RF device could subject a manufacturer, importer, or vendor to enforcement action by the FCC.
- Should operation of pre-authorized devices be permitted (g., by the manufacturer’s agents) be permitted under this rule?
- Are specific controls needed to ensure that the limit on pre-authorized RF device is not exceeded (g., limiting the number of ports of entry)?
- The proposed rule would codify a method to for exceeding the 4,000-device limit with written permission by the FCC’s Chief Engineer. Should this written approval be made public?
- Should manufacturers be required to have a reasonable basis to believe that authorization will be granted within 30 days of importation? Should more, or less time be permitted? Should the manufacturer be required to provide documentation to the FCC as to how and why it has a reasonable basis for believing that authorization will be granted? If so, what factors should be included in that documentation?
- Should all such devices be required to display a temporary device label? If so, what information should be included on the label?
- Should manufacturers be required to maintain legal control of the devices, even after transferring them to retailers?
- Should manufacturers have processes in place to retrieve the equipment from retailers in the event that authorization is denied? If so, how should such processes be structured? If authorization is denied, should the FCC require the manufacturer to provide a report to the FCC, detailing its plan for retrieving the devices?
- Should a remote-shutdown feature be required for RF devices imported for pre-sale activities?
- Should limitations be placed on where pre-authorized RF devices may be sent after importation?
- Should such devices be required to display the expected FCC ID of the manufacturer as a means of ensuring that the FCC’s labeling rules are observed after the device is Certified? If so, how should such a rule be enforced?
- What are the likely costs and benefits of the proposed rule?
- Should the FCC coordinate with Customs and Border Protection to ensure that devices subject to this rule comply with all the applicable conditions?
Conclusion
While the proposed new rules are certainly good news for the RFID industry, as delineated herein the FCC is seeking input as to various restrictions and legal liability that could be imposed on RF equipment manufacturers under the new rules. Consequently, RFID stakeholders should seriously consider making their voices heard in this proceeding. Joint comments by two or more entities, as well those by trade associations, often have the most impact on the FCC’s decision-making process.
For more information, please contact Ronald E. Quirk, Head of Marashlian & Donahue’s Internet of Things Practice Group, at [email protected] or 703-714-1305.