Taiwan's Antitrust Decision Devalues U.S. Intellectual Property
On October 20, 2017 the Fair Trade Commission of the Republic of China (Taiwan) issued a decision against U.S. technology company Qualcomm Incorporated. By a divided 4–3 vote, the Commission concluded that certain of the company’s longstanding and industry-wide patent licensing practices violate Taiwan’s competition law. Qualcomm was ordered to pay a record approximately $778 million fine and to negotiate with existing and potential licensees over long-established, industry-accepted agreements, among other penalties.
Ironically — given the Commission’s mandate to protect consumer interests — these remedies will harm Taiwan consumers by raising prices. More troubling still for the rest of the world, they will harm incentives to innovate for both patent holders and manufacturers everywhere.
The Commission’s decision is the most recent in a series of troubling decisions over the last few years that highlight the potential harm of antitrust enforcement. The number of foreign competition laws and agencies has risen dramatically over the last 25 years, with 130 jurisdictions having competition laws today — up from just 23 in 1990. A bipartisan group of competition and trade experts recently reported that certain of these jurisdictions are
in some cases, denying foreign companies fundamental due process and, in other cases, applying their competition laws to protect their home markets from foreign competition, promote national champions, and/or force technology transfers.
With respect to intellectual property (IP) rights, in particular, certain foreign governments appear to be using competition law to unfairly target royalty payments to U.S. companies in order to favor their own domestic manufacturers. This threatens to harm U.S. innovation and economic growth. Consider that, as of 2014, IP-intensive industries support at least 45 million U.S. jobs and contribute more than $6 trillion dollars to (or 38.2 percent of) U.S. gross domestic product. These unfair practices also conflict with international norms recognizing that the purpose of competition law is to protect the competitive process to benefit consumers, not to protect specific companies or competitors.
The Commission’s decision is unusual because it was accompanied by publicly issued dissenting statements from three commissioners. The statements highlight several blatant flaws in the decision.
First, the majority failed to provide due process to Qualcomm, including restricting the right of the commissioners to access and review the case file prior to the decision. For instance, as one dissenting commissioner pointed out, the commissioners were subjected to unduly strict review procedures and timelines, such as allowing only online file review from 8 a.m. to 6 p.m. excluding weekends and holidays. The Commission also failed to hold even “a single hearing” or other forum during which Qualcomm could defend itself and the commissioners could deliberate.
Second, the majority failed to conduct an economically sound, evidence-based analysis. Another dissenting commissioner stated that:
The Decision failed to evaluate the influence of Qualcomm’s underlying conducts on the competition and the consumer welfare from the perspective of economic analysis, which resulted in the fact that the Decision is protecting ‘competitors’ rather than ‘competition,’ which has departed from the legislative purposes of the [Taiwan competition act].
Finally, the Commission acted inappropriately to protect competitors, such as domestic manufacturers, rather than the competitive process and consumers.
With respect to due process, over the course of its investigation, the Commission repeatedly denied Qualcomm’s multiple requests that the Commission provide the company with specific information on the theories and evidence on which the investigation was based. Such a denial of fundamental due process rights prohibited the company from adequately defending itself and seriously calls into question the merits of the Commission’s decision.
Such denial of due process has far-reaching effects. As one of the dissenting commissioners points out:
Once an independent agency perceives no self-restraint in exercising its power by overlooking the foundation for democracy and rule of laws, including respects, participation and transparency, it will eventually harm the independency cherished by everyone.
One hope to correct this miscarriage of justice — which weakens innovation incentives and intellectual property rights — is to send a clear message abroad that the U.S. will not stand for the taking of intellectual property of U.S. companies. This could start with a statement by the U.S. government that addresses the lack of due process and supports Qualcomm’s efforts to overturn the Commission’s decision. This would afford the Taiwan legal system an opportunity to self-correct and also send a message globally about the ability of its regulators to administer antitrust laws effectively and fairly.
It is time for U.S. interests to declare “enough is enough” when it comes to foreign antitrust authorities depriving American companies of the fruits of their investments in innovation.
David J. Kappos is a Partner at Cravath, Swaine & Moore LLP, and former Under Secretary of Commerce and Director of the United States Patent and Trademark Office. Cravath, Swaine & Moore LLP represents Qualcomm Incorporated.