NO. 96-5121
















Pursuant to Circuit Rule 28(g) the appellant submits this brief to reply to the Supplemental Brief for the Appellees which was filed on January 3, 1997.1 While we agree with the Appellees that the case is not mooted by the promulgation of new regulations, we disagree that the proper procedural response to those regulations is to substitute the Department of Commerce for the Department of State pursuant to Rule 43(c) of the Federal Rules of Appellate Procedure. We submit that the Commerce Department should be added as a party and the Department of State should be retained as a party. Moreover, the effective elimination of the statutory provision barring review of the Administrative Procedure Act claim does not, as the Appellees suggest, mean that Mr. Karn still cannot 'go forward with his non-constitutional APA challenge.' (Appellees' Supp. Brief at 12) The effect of eliminating the AECA statutory preclusion of judicial review raises substantially different issues than those previously litigated and those issues should not be summarily decided without the benefit of briefing or a decision from the District Court. While the constitutional claims previously litigated remain ripe for decision, the statutory claims that Judge Richey declined to address are not ripe for appellate resolution and should be addressed, if necessary, on remand after a decision on the merits of the constitutional claims.2 This Supplemental Brief explains our position.3

I. The Constitutional Issues Remain Ripe for Appellate Resolution

It is clear that the promulgation of these new regulations has not mooted the controversy. We had already noted in our Reply Brief that the then-anticipated regulations were expected to have 'no effect on the decision in this case' and the Department of Justice does not disagree. (App. Reply Br. at 22, n. 4) The new regulations have, if anything, sharpened the parties' differences and made clear the substantial regulatory discrimination that is presented in this case.

The new regulations explicitly provide that '[a] printed book . . . setting forth encryption source code is not itself subject to' the export control regime. 15 C.F.R. § 734.3, note to (b)(2) and (b)(3). The new regulations also make it clear that 'encryption source code [on a] computer diskette' remains subject to export controls even where the identical source code has been published in printed form in a book. Id. That is precisely the same regulatory discrimination that has always been at issue in this litigation. The substantial regulatory difference has been clarified and sharpened, it has not been alleviated in any way. Indeed since the State Department decision under review constituted a unique interpretation of facially ambiguous regulations, the new Commerce regulations simply codify what had developed as the administrative framework of the State Department.

The new regulations clearly treat identical information differently merely because of the media on which it appears. Cryptographic source code printed on paper is exempted from export controls, presumably because the Executive Branch recognizes that the First Amendment protects books from export restrictions. The identical text on a computer diskette, however, must pass through a time-consuming and often impenetrable regulatory regime. This explicit difference in treatment squarely raises both a substantive Due Process and a First Amendment issue: can the Executive Branch properly discriminate source code on paper and identical source code on diskette?

The importance of a ruling by the Court on these issues has been heightened by the recent decision of Judge Patel in Bernstein v. Department of State, No. C-95-0582 (N.D.Cal. Dec. 16, 1996) (a copy has been filed with the Court by both parties). That decision declared the ITAR regime, as applied to cryptographic software, an unconstitutional system of prior restraints on speech. As such the decision is flatly inconsistent with Judge Richey's decision in this case. Given that conflict, the issuance of the Commerce regulations after both decisions had issued and the importance to the Executive Branch as well as the private sector in a prompt judicial determination of the constitutionality of the new regulations, it is appropriate for this Court to proceed to a decision on the merits as to the constitutional issues which have been fully briefed and remain very much in dispute.

II. The Department of Commerce Should Be Added as a Party, But the Department of State Should Remain a Party

The Appellees have suggested that the Department of Commerce should be substituted for the Department of State as the defendant agency.4 (Appellees' Supp. Brief at 10-12) In making this suggestion the Appellees mistakenly state that 'Mr. Karn did not seek compensatory relief or any other form of 'retrospective' relief . . . that might survive' the regulatory change. (Appellees' Supp. Brief at 11, n. 6) In fact Mr. Karn did seek one form of compensatory relief against the Department of State; attorney's fees under the Equal Access to Justice Act. (JA00014) While it is, of course, entirely premature to decide any issues raised by such a request, it would be improper to dismiss the Department of State as a party in light of that request. Were fees to be awarded under the EAJA, the award should run against the State Department which made the decisions under review, not the Commerce Department which will administer the new regulations.

An additional reason for retaining the State Department is the possibility that this Court will conclude that material facts are in dispute and must be resolved on remand. Cf. Turner Broadcasting System, Inc. v. FCC, 114 S. Ct. 2445 (1994) (case remanded for factual determinations needed to reach decision on First Amendment issues) Some of that discovery could very well involve the State Department since that agency made the challenged decision, rather than the Commerce Department which has not played any role in the decisions under review.

III. The Non-Constitutional APA Claim is Not Ripe for Review

The Appellees suggest that Mr. Karn's APA challenge remains a 'non-reviewable claim' notwithstanding the fact that the statutory provision in the Arms Export Control Act, 22 U.S.C. § 2778(h), on which Judge Richey relied is no longer applicable. (Appellees' Supp. Brief at 12-13) We disagree.

Judge Richey construed a specific statute. He rejected our argument that the statute, properly construed, precluded judicial review of an Executive Branch decision to restrict classes of commodities under the AECA, but did not preclude review of individual licensing decisions. Our argument rested both on the express language of the statute and a general presumption in favor of judicial review. The Appellees acknowledge that the statutory provision is not applicable to the new regulatory regime. (Appellees' Supp. Brief at 12)

Relying on two decisions from other Courts of Appeals, the Executive defendants now contend that '[t]he decision to place encryption products, including cryptographic source code, on the [Commodity Control List] is beyond the reach of judicial review even in the absence of an explicit statutory bar.' (Appellees' Supp. Brief at 12, citing United States v. Mandel, 914 F.2d 1215, 1220-23 (9th Cir. 1990) and United States v. Martinez, 904 F.2d 601 (11th Cir 1990)) We submit that any decision that the APA claim in this case is non-reviewable despite the inapplicability of 22 U.S.C. § 2778(h) would be premature and improper. The non-reviewability argument now raised by the Executive Branch has never been briefed by the parties and has not been passed on by the District Court. In those circumstances this Court should decline the Appellees' invitation to reach out to decide this issue.

We submit that a decision on the APA claim, should such a decision become necessary, should be made in the first instance by the District Court on remand. Given the well-established preference for judicial review, it would be extraordinary to rule, without the benefit of prior litigation, that something 'inherent' in the nature of export controls or cryptography renders the new Commerce regulations immune from judicial scrutiny under the APA. Such a far-reaching conclusion would not only be substantively wrong, it would be procedurally incorrect. We further submit that the presence of this now unresolved statutory claim should not affect the Court's consideration of the constitutional issues that remain ripe and fully contested. Those issues have been fully briefed, have been squarely decided by Judge Richey and are not affected in any significant way by promulgation of the new regulations. The interests of judicial economy, as well as the public interest in obtaining a prompt appellate opinion on these substantial and significant matters , counsels for proceeding to a decision on the merits on the constitutional issues and, if necessary in light of those decisions, a remand to consider the APA statutory claims.


For the reasons set forth in this Supplemental Brief, the Court should add the Department of Commerce as a defendant. For the reasons set forth in our prior briefs and in this Supplemental Brief, the Court should proceed to consider and reverse the District Court's decisions on the First and Fifth Amendment claims. Judge Richey's decision that the Appellant's APA claims were not reviewable under 22 U.S.C. § 2778(h) should be vacated as moot and the APA claims remanded, if necessary for further action not inconsistent with this Court's decisions on the constitutional issues.

Date: January 8, 1997

1 The Appellees' Supplemental Brief was not filed until 7 days before the scheduled oral argument and was not received in time to file this Supplemental brief no later than 7 days prior to the scheduled oral argument. By a separate motion we seek an order of the Court permitting this filing for good cause shown.

2 We recognize that courts normally do not rule on constitutional issues when there are unresolved statutory issues. However in this case the statutory issue, whether the distinction is 'arbitrary and capricious' under the APA, is not significantly different from the substantive Due Process issue. It would, therefore, be more efficient for the Court to rule on the constitutional issues and then, if necessary, remand for consideration of the APA challenge.

3 Because of the time limitations imposed by the January 3 filing by Appellees, we are not responding to the their 'Statement' which describes and summarizes the recent Presidential and administrative actions. The relevant documents are included as addenda to the Appellees' Supplemental Brief and are thus before the Court. We are prepared to respond to questions about the effect of those actions at the January 10, 1997, oral argument.

4 The Appellees do not discuss the status of Defendant McNamara, but presumably they would suggest that he be dismissed as a party. Since his presence was nominal and is not necessary to afford full relief to Mr. Karn should we prevail, we have no objection to dismissing Secretary McNamara in light of the new regulations.