Federal AI Executive Order Addresses State–Federal Regulatory Tensions

For companies operating across multiple jurisdictions, the Order introduces additional federal activity in an already evolving regulatory landscape. State requirements remain in force, while federal agencies are directed to evaluate, challenge, and potentially take steps to preempt certain state approaches over time.

Key Provisions

National Policy Framework  The Order states a federal policy objective of promoting a uniform and “minimally burdensome” national approach to AI regulation. The stated purpose is to develop a policy framework that supports and encourages U.S. AI development and reduces regulatory fragmentation among states, while also preventing censorship, upholding copyright laws and protecting children.

AI Litigation Task Force  The Order directs the Attorney General to establish an AI Litigation Task Force within 30 days. The task force is charged with identifying state AI laws that may conflict with federal policy or burden interstate commerce and, where appropriate, initiating legal challenges based on preemption, Commerce Clause, First Amendment, or other constitutional theories.

State Law Review and Publication  Within 90 days, the Secretary of Commerce, in consultation with other agencies, must publish an evaluation of existing state AI laws. The review will identify statutes viewed as inconsistent with national objectives, including laws that mandate specific AI outputs or impose disclosure or reporting requirements that raise constitutional questions.

Conditional Federal Funding  The Order instructs the Secretary of Commerce and other agencies to consider conditioning access to certain federal grants, including Broadband Equity Access and Deployment (BEAD) broadband infrastructure funds, on state alignment with national AI policy. States identified as having conflicting laws may be asked to commit not to enforce specified provisions as a condition of discretionary federal funding.

Federal Standard Development  The FCC and FTC are directed, respectively, to initiate proceedings to develop federal AI reporting and disclosure standards and a policy on applying the federal prohibition on unfair and deceptive acts or practices to AI models. These efforts may include discussion of the relationship between federal standards and state regulatory requirements.

Legislative Package  The Order calls for the preparation of legislative recommendations for comprehensive federal AI legislation that would preempt state laws that conflict with the policy outlined in the Order, subject to exceptions for areas such as child safety, critical infrastructure (including data centers), and government procurement.

Implications

Existing State Laws Continue to Apply  The Order does not, in its own right, purport to suspend or override state AI statutes. Unless enforcement of such laws is enjoined through litigation or modified by state action, existing state requirements remain applicable. Companies should continue to comply with current state obligations while monitoring federal developments.

Increased Federal Litigation Activity  The creation of the AI Litigation Task Force establishes a formal mechanism for federal review and potential challenge of state AI laws. Over time, this may result in litigation addressing the scope and enforceability of certain state statutes, with implications for compliance planning during periods of judicial review.

Federal Funding Considerations  The use of federal grant eligibility as a policy lever raises questions regarding the scope of executive authority and the relationship between funding programs and state regulatory choices. Companies involved in federally funded projects, particularly in telecommunications and infrastructure, may wish to monitor how funding conditions are applied in practice.

Development of Federal Standards  Agency-led efforts to establish federal AI standards suggest a gradual approach toward greater regulatory uniformity and coordination. Whether and to what extent such federal standards preempt state law will depend on the existence and substance of underlying federal statutory authority, how state laws interact with those authorities, and judicial interpretation.

State Legislative Response  States retain authority to regulate business activity within their borders, subject to constitutional limits. In response to federal initiatives and express exemptions in the Order, some states may consider amendments designed to align state laws with categories carved out from the Order, such as child safety or procurement, while maintaining underlying policy objectives.

Recommended Actions

Review Federal Funding Exposure  Companies that rely on federal grants or participate in federally supported state programs should assess whether evolving funding conditions could affect existing or planned projects.

Maintain State Law Compliance  Organizations should continue to track and comply with applicable state AI laws, including requirements related to bias assessments, transparency, and data governance, while identifying areas that may be subject to federal review and tracking litigation raising preemption or other challenges to state laws.

Monitor Federal Agency Activity  The Commerce Department evaluation and FCC and FTC proceedings will inform the direction of federal AI policy. Companies may wish to monitor these processes and consider engagement where appropriate.

Incorporate Regulatory Developments into Governance  Boards and management teams should include AI regulatory developments in ongoing risk oversight and governance discussions, recognizing that the regulatory framework remains in transition.

Conclusion

The December 11 Executive Order reflects a concrete effort to coordinate federal and state approaches to AI regulation. While its immediate legal effect is limited, it establishes processes that may influence litigation, funding, and agency rulemaking over time. Companies deploying AI at scale should continue to monitor these developments and consider their potential impact as the regulatory landscape evolves.