Legal Issues Raised by the Proposed Executive Order on AI Preemption
On November 19, 2025, a draft executive order that the Trump administration may issue as early as Friday, November 21 was publicly leaked. The six-page order consists of nine sections, including prefatory purpose and policy statements, a section containing miscellaneous “general provisions,” and six substantive provisions. This commentary provides a brief overview of some of the most important legal issues raised by the draft executive order (DEO). This commentary is not intended to be comprehensive, and LawAI may publish additional commentaries and/or updates as events progress and additional legal issues come to light.
As an initial matter, it’s important to understand what an executive order is and what legal effect executive orders have in the United States. An executive order is not a congressionally enacted statute or “law.” While Congress undoubtedly has the authority to preempt some state AI laws by passing legislation, the President generally cannot unilaterally preempt state laws by presidential fiat (nor does the DEO purport to do so). An executive order can publicly announce the policy goals of the executive branch of the federal government, and can also contain directives from the President to executive branch officials and agencies.
Issue 1: The Litigation Task Force
The DEO’s first substantive section, § 3, would instruct the U.S. Attorney General to “establish an AI Litigation Task Force” charged with bringing lawsuits in federal court to challenge allegedly unlawful state AI laws. The DEO suggests that the Task Force will challenge state laws that allegedly violate the dormant commerce clause and state laws that are allegedly preempted by existing federal regulations. The Task Force is also authorized to challenge state AI laws under any other legal basis that the Department of Justice (DOJ) can identify.
Dormant commerce clause arguments
Presumably, the DEO’s reference to the commerce clause refers to the dormant commerce clause argument laid out by Andreessen Horowitz in September 2025. This argument, which a number of commentators have raised in recent months, suggests that certain state AI laws violate the commerce clause of the U.S. Constitution because they impose excessive burdens on interstate commerce. LawAI’s analysis indicates that this commerce clause argument, at least with respect to the state laws specifically referred to in the DEO, is legally meritless and unlikely to succeed in court. We intend to publish a more thorough analysis of this issue in the coming weeks in addition to the overview included here.
In 2023, the Supreme Court issued an important dormant commerce clause opinion in the case of National Pork Producers Council v. Ross. The thrust of the majority opinion in that case, authored by Justice Gorsuch, is that state laws generally do not violate the dormant commerce clause unless they involve purposeful discrimination against out-of-state economic interests in order to favor in-state economic interests.
Even proponents of this dormant commerce clause argument typically acknowledge that the state AI laws they are concerned with generally do not discriminate against out-of-state economic interests. Therefore, they often ignore Ross, or cite the dissenting opinions while ignoring the majority. Their preferred precedent is Pike v. Bruce Church, Inc., a 1970 case in which the Supreme Court held that a state law with “only incidental” effects on interstate commerce does not violate the dormant commerce clause unless “the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.” This standard opens the door for potential challenges to nondiscriminatory laws that arguably impose a “clearly excessive” burden on interstate commerce.
The state regulation that was invalidated in Pike would have required cantaloupes grown in Arizona to be packed and processed in Arizona as well. The only state interest at stake was the “protect[ion] and enhance[ment] of [cantaloupe] growers within the state.” The Court in Pike specifically acknowledged that “[w]e are not, then, dealing here with state legislation in the field of safety where the propriety of local regulation has long been recognized.”
Even under Pike, then, it’s hard to come up with a plausible argument for invalidating the state AI laws that preemption advocates are concerned with. Andreessen Horowitz’s argument is that the state proposals in question, such as New York’s RAISE Act, “purport to have significant safety benefits for their residents,” but in fact “are unlikely” to provide substantial safety benefits. But this is, transparently, a policy judgment, and one with which the state legislature of New York evidently disagrees. As Justice Gorsuch observes in Ross, “policy choices like these usually belong to the people and their elected representatives. They are entitled to weigh the relevant ‘political and economic’ costs and benefits for themselves, and ‘try novel social and economic experiments’ if they wish.” New York voters overwhelmingly support the RAISE Act, as did an overwhelming majority of New York’s state legislature when the bill was put to a vote. In my opinion, it is unlikely that any federal court will presume to override those policy judgments and substitute its own.
That said, it is possible to imagine a state AI law that would violate the dormant commerce clause. For example, a law that placed burdensome requirements on out-of-state developers while exempting in-state developers, in order to grant an advantage to in-state AI companies, would likely be unconstitutional. Since I haven’t reviewed every state AI bill that has been or will be proposed, I can’t say for sure that none of them would violate the dormant commerce clause. It is entirely possible that the Task Force will succeed in invalidating one or more state laws via a dormant commerce clause challenge. It does seem relatively safe, however, to predict that the specific laws referred to in the executive order and the state frontier AI safety laws most commonly referenced in discussions of preemption would likely survive any dormant commerce clause challenges brought against them.
State laws preempted by existing federal regulations
Section 3 of the DEO also specifically indicates that the AI Litigation Task Force will challenge state laws that “are preempted by existing Federal regulations.” It is possible for state laws to be preempted by federal regulations, and, as with the commerce clause issue discussed above, it’s possible that the Task Force will eventually succeed in invalidating some state laws by arguing that they are so preempted.
In the absence of significant new federal AI regulation, however, it is doubtful whether many of the state laws the DEO is intended to target will be vulnerable to this kind of legal challenge. Moreover, any state AI law that created significant compliance costs for companies and was plausibly preempted by existing federal regulations could be challenged by the affected companies, without the need for DOJ intervention. The fact that (to the best of my knowledge) no such lawsuit has yet been filed challenging the most notable state AI laws indicates that the new Task Force will likely be faced with slim pickings, at least until new federal regulations are enacted and/or state regulation of AI intensifies.
It seems likely that § 3’s reference to preemption via existing federal regulation is at least partially intended to refer to Communications Act preemption as discussed in the AI Action Plan. There is a major obstacle to preempting state AI laws under the Communications Act, however: the Communications Act provides the FCC (and sometimes courts) with some authority to preempt certain state laws regulating “telecommunications services” and “information services,” but existing legal precedents clearly establish that AI systems are neither “telecommunications services” nor “information services” under the Communications Act. In his comprehensive policy paper on FCC preemption of state AI laws, Lawrence J. Spiwak (a staunch supporter of preemption) analyzes the relevant precedents and concludes that “given the plain language of the Communications Act as well as the present state of the caselaw, it is highly unlikely the FCC will succeed in [AI preemption] efforts” and that “trying to contort the Communications Act to preempt the growing patchwork of disparate state AI laws is a Quixotic exercise in futility.” Harold Feld of Public Knowledge essentially agrees with this assessment in his piece on the same topic.
Alternative grounds
Section 3 also authorizes the Task Force to challenge state AI laws that are “otherwise unlawful” in the Attorney General’s judgment. The Department of Justice employs a great number of smart and creative lawyers, so it’s impossible to say for sure what theories they might come up with to challenge state AI laws. That said, preemption of state AI laws has been a hot topic for months now, and the best theories that have been publicly floated for preemption by executive action are the dormant commerce clause and Communications Act theories discussed above. This is, it seems fair to say, a bearish indicator, and I would be somewhat surprised if the Task Force managed to come up with a slam dunk legal argument for broad-based preemption that has hitherto been overlooked by everyone who’s considered this issue.
Issue 2: Restrictions on State Funding
Section 5 of the DEO contains two subsections that concern efforts to withhold federal grant funding from states that attempt to regulate AI. Subsection (a) indicates that Commerce will attempt to withhold non-deployment Broadband Equity Access and Deployment (BEAD) funding “to the maximum extent allowed by federal law” from states with AI laws listed pursuant to § 4 of the DEO, which instructs the Department of Commerce to identify state AI laws that conflict with the policy directives laid out in § 1 of the DEO. Subsection (b) instructs all federal agencies to assess their discretionary grant programs and determine whether existing or future grants can be withheld from states with AI laws that are challenged under § 3 or identified as undesirable pursuant to § 4.
In my view, § 5 of the DEO is the provision with the most potential to affect state AI legislation. While § 5 does not contain any attempt to actually preempt state AI laws, the threat of losing federal grant funds could have the practical effect of incentivizing some states to abandon their AI-related legislative efforts. And, as Daniel Cochrane and Jack Fitzhenry pointed out during the reconciliation moratorium fight, “Smaller conservative states with limited budgets and large rural populations need [BEAD] funds. But wealthy progressive states like California and New York can afford to take a pass and just keep enforcing their tech laws.” While politicians in deep blue states will be politically incentivized to fight the Trump administration’s attempts to preempt overwhelmingly popular AI laws even if it means losing access to some federal funds, politicians in red states may instead be incentivized to avoid conflict with the administration.
Section 5(a): Non-deployment BEAD funding
Section 5(a) of the DEO is easier to analyze than § 5(b), because it clearly identifies the funds that are in jeopardy—non-deployment BEAD funding. The BEAD program is a $42.45 billion federal grant program established by Congress in 2021 for the purpose of facilitating access to reliable, high-speed broadband internet for communities throughout the U.S. A portion of the $42.45 billion total was allocated to each of 56 states and territories in June 2023 by the National Telecommunications and Information Administration (NTIA). In June 2025, the NTIA announced a restructuring of the BEAD program that eliminated many Biden-era requirements and rescinded NTIA approval for all “non-deployment” BEAD funding, i.e., BEAD funding that states intended to spend on uses other than actually building broadband infrastructure. The total amount of BEAD funding that will ultimately be classified as “non-deployment” is estimated to be more than $21 billion.
BEAD funding was previously used as a carrot and stick for AI preemption in June 2025, as part of the effort to insert a moratorium or “temporary pause” on state AI regulation into the most recent reconciliation bill. There are two critical differences between the attempted use of BEAD funding in the reconciliation process and its use in the DEO, however. First, the DEO is, obviously, an executive order rather than a legislative enactment. This matters because agency actions that would be perfectly legitimate if authorized by statute can be illegal if undertaken without statutory authorization. And secondly, while the final drafts of the reconciliation moratorium would only have jeopardized BEAD funding belonging to states that chose to accept a portion of $500 million in additional BEAD funding that the reconciliation bill would have appropriated, the DEO would jeopardize non-deployment BEAD funding belonging to any state that attempts to regulate AI in a manner deemed undesirable under the DEO.
The multibillion-dollar question here is: can the administration legally withhold BEAD funding from states because those states enact or enforce laws regulating AI? I am going to cop out and say, honestly, that I don’t know for certain at this point in time. There are a number of potential legal issues with the course of action that the DEO contemplates, but as of November 20, 2025 (one day after the DEO first leaked) no one has published a definitive analysis of whether the administration will be able to overcome these obstacles.
The Trump administration’s Department of Transportation (DOT) recently attempted a maneuver similar to the one contemplated in the DEO when, in response to an executive order directing agencies to “undertake any lawful actions to ensure that so-called ‘sanctuary’ jurisdictions… do not receive access to federal funds,” the DOT attempted to add conditions to all DOT grant agreements requiring grant recipients to cooperate in the enforcement of federal immigration law. Affected states promptly sued to challenge the addition of this grant condition and successfully secured a preliminary injunction prohibiting DOT from implementing or enforcing the conditions. In early November 2025, the federal District Court for the District of Rhode Island ruled that the challenged conditions were unlawful for three separate reasons: (1) imposing the conditions exceeded the DOT’s statutory authority under the laws establishing the relevant grant programs; (2) imposing the conditions was “arbitrary and capricious,” in violation of the Administrative Procedure Act; and (3) imposing the conditions violated the Spending Clause of the U.S. Constitution. It remains to be seen whether the district court’s ruling will be upheld by a federal appellate court and/or by the U.S. Supreme Court.
Suppose that, in the future, the Department of Commerce decides to withhold non-deployment BEAD funding from states with AI laws deemed undesirable under the DEO. States could challenge this decision in court and ask the court to order NTIA to release the previously allocated non-deployment funds to the states, arguing that the withholding of funds exceeded NTIA’s authority under the statute authorizing BEAD, violated the APA, and violated the Spending Clause. Each of these arguments seems at least somewhat plausible, on an initial analysis. Nothing in the statute authorizing BEAD appears to give the federal government unlimited discretion to withhold BEAD funds to vindicate policy goals that have little or nothing to do with access to broadband; rescinding previously awarded grant funds and then withholding them in order to further goals not contemplated by Congress is at least arguably arbitrary and capricious; and the course of action proposed in the DEO is, arguably, impermissibly coercive in violation of the Spending Clause.
AI regulation is a less politically divisive issue than immigration enforcement, and a cynical observer might assume that this would give states in this hypothetical AI case a better chance on appeal than the states in the DOT immigration conditions case discussed above. However, there are a number of differences between the DOT conditions case and the course of action contemplated in the DEO that could make it harder—or easier—for states to prevail in court. Accurately estimating states’ chances of success with high confidence will take more than one day’s worth of analysis.
It should also be noted that, regardless of whether or not states could eventually prevail in a hypothetical lawsuit, the prospect of having BEAD funding denied or delayed, perhaps for years, could be enough to discourage some states from enacting AI legislation of a type disfavored by the Department of Commerce under the DEO.
Section 5(b): Other discretionary agency funding
In addition to withholding non-deployment BEAD funding, the DEO would instruct agencies throughout the executive branch to “take immediate steps to assess their discretionary grant programs and determine whether agencies may condition such grants on States either not enacting an AI law that conflicts with the policy of this order… or, for those States that have enacted such laws, on those States entering into a binding agreement with the relevant agency not to enforce any such laws during any year in which it receives the discretionary funding.”
The legality of this contemplated course of action, and its likelihood of being upheld in court, is even more difficult to conclusively determine ex ante than the legality and prospects of the BEAD withholding discussed above. The federal government distributes about a trillion dollars a year in grants to state and local governments, and more than a quarter of that money is in the form of discretionary grants (as opposed to grants from mandatory programs such as Medicaid). That’s a lot of money, and it’s broken up into a lot of different discretionary grants. It’s likely that many of the arguments against withholding grant money from AI-regulating states would be the same from one grant to another. However, it is also likely that there are some discretionary grants to states which could more reasonably be conditioned on compliance with the President’s deregulatory AI policy directives and other grants for which such conditioning would be less reasonable. Ultimately, further research into this issue is needed to determine how much state grant funding, if any, is legitimately at risk.
Issue 3: Federal Reporting and Disclosure
Section 6 of the DEO instructs the FCC, in consultation with AI czar David Sacks, to “initiate a proceeding to determine whether to adopt a Federal reporting and disclosure standard for AI models that preempts conflicting State laws.” Presumably, “conflicting state laws” is intended to refer to state AI transparency laws such as California’s SB 53 and New York’s RAISE Act. It’s not clear from the language of the DEO what legal authority this “Federal reporting and disclosure standard” would be promulgated under. Under the Biden administration, the Department of Commerce’s Bureau of Industry and Security (BIS) attempted to impose reporting requirements on frontier model developers under the information-gathering authority provided by § 705 of the Defense Production Act—but § 705 has historically been used by BIS rather than the FCC, and I am not aware of any comparable authority that would authorize the FCC to implement a mandatory “federal reporting and disclosure standard” for AI models.
Generally, regulatory preemption can only occur when Congress has granted an executive-branch agency authority to promulgate regulations and preempt state laws inconsistent with those regulations. This authority can be granted expressly or by implication, but, as discussed above in the discussion of Communications Act preemption under § 3 of the DEO, the FCC has never before asserted that it possesses any significant regulatory authority (express or otherwise) over any aspect of AI development. It’s possible that the FCC is relying on a creative interpretation of its authority under the Communications Act—FCC Chairman Brendan Carr previously indicated that the FCC was “taking a look” at whether the Communications Act grants the FCC authority to regulate AI and preempt onerous state laws. However, as discussed above, legal commentators almost universally agree that “[n]othing in the Communications Act confers FCC authority to regulate AI.”
It’s possible that the language of the EO is simply meant to indicate that the FCC and Sacks will suggest a standard that may then be enacted into law by Congress. This would certainly overcome the legal obstacles discussed above, and could (depending on the language of the statute) allow for preemption of state AI transparency laws. However, it would require passing new federal legislation, which is easier said than done.
Issue 4: Preemption of state laws for “deceptive practices” under the FTC Act
Section 7 of the DEO directs the Federal Trade Commission (FTC) to issue a policy statement arguing that certain state AI laws are preempted by the FTC Act’s prohibition on deceptive commercial practices. Presumably, the laws which the DEO intends for this guidance to target include Colorado’s AI Act, which the DEO’s Purpose section accuses of “forc[ing] AI models to embed DEI in their programming, and to produce false results in order to avoid a ‘differential treatment or impact’…” on enumerated demographic groups, and other similar “algorithmic discrimination” laws. A policy statement on its own generally cannot preempt state laws, but it seems likely that the policy statement that the DEO instructs the FTC to create would be relied upon in subsequent preemption-related regulatory efforts and/or by litigants seeking to prevent enforcement of the allegedly preempted laws in court.
While the Trump administration has previously expressed disapproval of “woke” AI development practices, for example in the recent executive order on “Preventing Woke AI in the Federal Government,” this argument that the FTC Act’s prohibition on UDAP (unfair or deceptive acts or practices in or affecting commerce) preempts state algorithmic discrimination laws is, as far as I am aware, new. During the Biden administration, Lina Khan’s FTC published guidance containing an arguably similar assertion: that the “sale or use of—for example—racially biased algorithms” would be an unfair or deceptive practice under the FTC Act. Khan’s FTC did not, however, attempt to use this aggressive interpretation of the FTC Act as a basis for FTC preemption of any state laws.
Colorado’s AI statute has been widely criticized, including by Governor Jared Polis (who signed the act into law) and other prominent Colorado politicians. In fact, the law has proven so problematic for Colorado that Governor Polis, a Democrat, was willing to cross party lines in order to support broad-based preemption of state AI laws for the sake of getting rid of Colorado’s. Therefore, an attempt by the Trump administration to preempt Colorado’s law (or portions thereof) might meet with relatively little opposition from within Colorado. It’s not clear who, if anyone, would have standing to challenge FTC preemption of Colorado’s law if Colorado’s attorney general refused to do so. But Colorado is not the only state with a law prohibiting algorithmic discrimination, and presumably the guidance the DEO instructs the FTC to produce would inform attempts to preempt other “woke” state AI laws as well as Colorado’s.
The question of how those attempts would fare in federal court is an interesting one, and I look forward to reading analysis of the issue from commentators with expertise regarding the FTC Act and algorithmic discrimination laws. Unfortunately, I am not such a commentator and will therefore plead ignorance on this point.