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Over-Zealous Antitrust Enforcement Vs. National Interest: The Case Of Qualcomm And 5G

Our own government is, once again, undermining the nation’s economic and security interests by launching an unnecessary antitrust attack on a leading domestic company.  This time, the company is Qualcomm, our leader in 3G, 4G and emerging 5G mobile communications technologies.  Leadership in 5G will be global and foundational to nearly all the new advanced technologies, including the Internet of Things, Artificial Intelligence, autonomous vehicles, robotics, and automated health care.




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Our main rival, China, has adopted the Made in China 2025 Plan to dominate all these new technologies.  To reach its target date, it has invested massive amounts of both private and government capital to develop its own advances in technology.

China is also acquiring new U.S. technologies by a variety of methods, including forcing U.S. companies operating in China to take Chinese “partners” and disclose to them advanced technologies, by using its massive military resources to obtain advanced technology via cyber-hacking, and by deploying countless human agents and “collectors” at U.S. companies and universities.

This global competition pits Chinese government-supported giants like Huawei against U.S. companies in the race to important foundational technologies such as 5G, first and foremost Qualcomm.  But instead of supporting Qualcomm, our government — via the Federal Trade Commission — is suing Qualcomm.

The FTC is currently seeking to invalidate scores of Qualcomm licensing agreements long ago voluntarily signed by Apple and others, agreements that gave the licensees permission to use technologies Qualcomm developed and patented after many years and many millions of dollars in R&D expenditures.

Will FTC Kill Qualcomm?

The FTC’s requested remedy would destroy Qualcomm’s decades-old licensing program and, most importantly, crimp revenues it uses to fund further development of the complex engineering technologies needed to enable 5G.  The likely result?  Huawei will dominate the world-wide foundation of 5G and all the technologies and industries 5G will support.

This nightmare scenario is all the more regrettable because we should have learned our lesson long ago.  Decades earlier, our antitrust authorities attacked U.S. TV makers, sending the entire consumer electronics industry to a rising Japan.  Later, they repeated the same mistake against Xerox and still later against IBM, shrinking those industry leaders and unintentionally assisting the rise of foreign competitors.

In all these cases, patents and patent licensing were at the heart of our government’s dispute with our own leading companies.  So too with the FTC’s current dispute with Qualcomm.

As the former Chief Judge of the Federal Circuit Court of Appeals, the nation’s patent court, I can only shake my head in disbelief and dismay. The patent system relies on widespread licensing that authorizes use of technology by all who need it (and are willing to pay for it), while assuring return on investment to the inventors based on the market value the licensees themselves accord to the patented technologies.  The very point of patents — which unlike antitrust law is rooted in the U.S. Constitution (Article I, Section 8) — is to guarantee rewards to the inventors of technology as an incentive to invest in further research and development.

Neglecting Antitrust

Here the FTC effectively is saying to Apple and the other licensees, who are the experts in their markets and have vast cash resources and batteries of lawyers: “You may be the experts, but we think you paid too much for the technology you needed permission to use; therefore, all these private license agreements, although in place for years, should now be overturned.”

Antitrust law has a proper place in the patent space, mainly to prevent Patent Misuse, a well-defined wrong, but that is not what the FTC charges here. Rather, it is suing to force renegotiation of private contractual agreements and to devalue patents, a form of private property. Given that the license fees were agreed to by sophisticated, highly successful and cash-rich companies who know well the value of the patented technology, these private contracts should not be the business of government.

Some commentators express concern that patents may not always significantly contribute to the advance of the particular technology, but all must agree that the huge portfolio of patents on dozens of technologies Qualcomm developed and licensed are central to mobile communications, including the smart phones we use every day.  And  despite the fees paid for the licenses, smart phone makers like Apple appear to have suffered no fundamental harm.

No Harm, No Foul

Indeed, they have amassed astronomical profits, holding cash reserves in amounts larger than the national budgets of many nations, while often buying back stock, acquiring other companies, boosting their own R&D expenditures and increasing dividends.

I myself am a satisfied Apple customer and admire their astounding phones and other devices, but I do not see how it can honestly be concluded that the Qualcomm licenses have impaired the economic health of Apple or other the mobile equipment makers.  As for consumers, we have enjoyed ever better devices at ever lower prices.

The FTC also alleges that Qualcomm wrongly refuses to license its chip-making competitors, such as Intel.  While the cellular industry norm for decades has been to grant licenses to equipment makers but not to chipmakers, Intel hardy seems to have been impaired by Qualcomm’s adherence to the established industry practice.  To the contrary, Intel’s chips have replaced Qualcomm’s chips on all new Apple phones.  Clearly competition in the chip industry is still viable and healthy.

Courts Making Economic Policy

In its lawsuit in Federal court in San Jose, the FTC has essentially asked a Federal trial judge to make national economic policy of enormous global consequence — and all without the massive record the Congress develops over years of hearings when doing the same. More to the point, is it really necessary for one unelected official to make economic policy decisions that will have repercussions for decades because some tech companies worth billions now say they paid too much for licensing agreements?

There is even a still greater danger. Every day, we see news accounts of intellectual property theft of American technology by Huawei, allegedly at the direction of its top officials, and we read about its alleged ties to the Chinese government and military. The number two Huawei official is under arrest in Canada and being sought for extradition to the United States.

In the meantime, the FTC has relied heavily on Huawei-related witnesses, including their lead licensing attorney, and a licensing consultant who has long worked for Huawei, including as a consultant in negotiating its licenses with Qualcomm.

Huawei’s Role

Our military and intelligence agencies now ban use of Huawei equipment, and even the U.S. Treasury Department’s Committee on Foreign Investment in the U.S. (CFIUS) has made clear in a March 2018 letter its concerns about the race for global dominance in 5G: “Given well-known U.S. national security concerns about Huawei and other Chinese telecommunications companies, a shift to Chinese dominance in 5G would have substantial negative national security consequences for the United States.”

Furthermore, the CFIUS went on to say that the cause of its concern is that “a weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process.”

As a concerned citizen, I have to ask: Why are we letting an over-zealous antitrust agency, once again, needlessly threaten our nation’s future?

  • Michel is the former chief judge of the United States Federal Circuit Court of Appeals.

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