Chinese tech giant challenges Department of Defense designation

Alibaba challenges its blacklist designation and seeks to stop a statute banning it from choosing lobbyists that also work with contractors connected to the Department of Defense.SAN JOSE, Calif. (CN) — A federal judge questioned the constitutionality of a recently approved federal statute Thursday regarding a large Chinese e-commerce business designated as a Chinese military company and subsequently prohibited from contracting with the U.S. government or lobbying on its behalf.Alibaba Group Holding Limited and its U.S. subsidiary challenged the Department of Defense after it was first designated as a Chinese military company on June 8 and further challenged the lawfulness of the June 30 passage of a federal law banning the department from signing contracts with any company, parent company or subsidiary that hires a lobbyist working for a listed Chinese military company.The department describes an entity as a Chinese military company if it is “directly or indirectly owned by, controlled by, or beneficially owned by, affiliated with, or in an official or unofficial capacity acting as an agent of” Chinese military, security and industrial organs, including the People’s Liberation Army, the Ministry of Industry and Information Technology and the State-Owned Assets Supervision and Administration Commission.Additionally, it could be “identified as a military-civil fusion contributor to the Chinese defense industrial base” — a category that in turn includes entities “managed, overseen, supervised by, otherwise under the control of or affiliated with (including by means of formal participation in research partnerships and projects)” the ministry, among others. According to the government, Alibaba falls into this category.Other large Chinese companies, such as internet services company Baidu and Chinese carmaker BYD, are also listed under the designation.Alibaba seeks a preliminary injunction to stop the government from enforcing the statute as it applies to it, but it also challenges the statute generally, arguing it violates First Amendment rights.The company, which connects U.S. suppliers to other businesses through a robust online storefront, challenged the designation and the statute on First Amendment, Administrative Procedure Act and vagueness claims.One reason Congress passed the statute, according to the government, is the risk contractors and lobbyists could obtain or pass along sensitive information through shared connections with Chinese military companies.At a hearing for the preliminary injunction motion, Alibaba attorney Chris Eiswerth said the government’s burden to show how that risk is a “real issue or problem” hadn’t been met. He argued that by disallowing companies such as Alibaba from choosing their own lobbyists — because, Eiswerth noted, if a lobby firm must choose between working with one client under the U.S.’ designation or “thousands of other companies” that contract with the department, lobbyists would choose companies not blacklisted — the government was impinging on its political speech.To drive the point home, he said Alibaba had two dozen lobbyists working in the U.S. before the statute passed, and now the company has zero, causing irreparable harm. Eiswerth said lobbyists are important to large companies like Alibaba that work with U.S. suppliers and need access to legislators to promote its interests in trade policy, regulations and taxes.Furthermore, he argued, the statute doesn’t stop information from leaking; it just stops lobbyists from working with different contractors.“The government doesn’t get a free pass in how it goes about restricting speech,” he said. “Why should the government be allowed to do so in a roundabout way?”Department of Justice attorney Stephen Tagert said the statute didn’t infringe on speech rights; instead, it “forecloses a type of relationship” between the government and companies designated as Chinese military companies.Tagert mentioned the congressional ban on TikTok for national security concerns as a foreign-owned and influenced company, but Eiswerth pushed back on that analogy, saying TikTok’s issues had to do with ownership of a social media company, not protected speech.U.S. District Judge Eumi Lee wasn’t convinced by the government’s arguments when asked about the balance of equities, saying “nobody disagrees that national security is incredibly important, but they can’t just say that there has to be a showing.”“Otherwise, wouldn’t the government be able to repress any speech, correct?” the Joe Biden appointee asked.She said the government’s record on detailing the risk and harm implied by the passage of the statute was “thin.” Lee also straightforwardly asked Tagert if a congressional act outweighed a constitutional right.“No, but we think it should be given consideration,” Tagert replied.Lee didn’t indicate her thoughts on the injunction and took the motion under submission.Subscribe to our free newslettersOur weekly newsletter Closing Arguments offers the latest about ongoing trials, major litigation and rulings in courthouses around the U.S. and the world, while the monthly Under the Lights dishes the legal dirt from Hollywood, sports, Big Tech and the arts.Additional Reads