FTC Attack on Qualcomm Benefits China, Harms American Consumers
The Federal Trade Commission’s (FTC) clearly defined mission is to protect consumers by keeping a watchful eye over the marketplace, and thwart anti-competitive trade practices. Yet it is exactly U.S. consumers who stand to lose, and lose big, if the FTC succeeds in its mind-boggling and legally flimsy case to bring U.S. chip maker Qualcomm to its knees. The FTC’s legal action — commenced at the 11th hour by outgoing Obama administration bureaucrats after the 2016 election — further has the disastrous potential to capsize America’s position as the global leader in technology, and hand that mantel to America’s Chinese competitors on a silver platter.
Qualcomm is of course the company that invented most of the technology that makes our smart phones work. Their technology powered 2G, 3G, 4G LTE wireless technologies, and is creating the next-generation 5G standards that will revolutionize digital technology and bring us such things as driverless cars, streaming virtual reality, and a host of new inventions yet to be imagined. The research Qualcomm conducts and the tech they produce is, to put it bluntly, kind of a big deal. And in a fiercely competitive global market with billions at stake they are largely responsible for making America the world’s digital technology superpower.
One would think that Qualcomm would have to be engaging in some seriously nefarious anti-competitive business practices to warrant our own government hauling them into court, but all it took was two commissioners who thought Qualcomm was charging other companies too much to license its technology. In terms of actual evidence of Sherman Antitrust Act violations, the FTC practically has a brief case filled with blank pages. The FTC has produced no evidence of harm to the marketplace or consumers from Qualcomm’s royalty rates.
Instead the FTC is claiming Qualcomm charges “elevated” fees. But again, there is no allegation or evidence they charge above what is fair, reasonable and non-discriminatory (FRAND) or that they withheld their technology from competitors. Either of these actions — charging unfair royalties or refusing competitors access to licenses — could certainly justify an antitrust action, but on these points the FTC comes up empty. It’s why dissenting FTC Commissioner Maureen Ohlhausen took the extremely rare step of issuing a written dissent to argue the action was without merit. Said Ohlhausen, “[The FTC] complaint fails to allege that Qualcomm charges more than a reasonable royalty. That pleading failure is no accident; it speaks to the dearth of evidence in this case.”
Far from protecting consumers, the FTC case will actually harm them in a number of ways. First, it’s a frontal attack on American intellectual property rights, for if the FTC and U.S. District Judge Lucy Koh, now overseeing the case, succeed in dictating to whom Qualcomm must license their technology and how much they can charge, they dilute the very concept of what it means to have a protected right to an invention or patent.
It’s a fundamental principle of property law; why water and mow my lawn if someone else can just drive up and haul chunks of it away? What’s the incentive for companies to invest billions of dollars in new technologies, as Qualcomm has done, if the right to exclusive control is snatched away by bureaucrats with an agenda? It’s an ideal recipe for squashing innovation, and instead of fostering competition, sends a signal to less competitive companies they can just gang-up on the industry leader with the better product and demand access to their inventions at a price that is not market-based.
Forfeiting control of the innovations that have led to Qualcomm becoming a market leader in digital technology will assuredly give an edge to their competitors, most notably the Chinese tech Goliath Huawei, who are already nipping at their heels. In a development that can only be described as troubling, the FTC actually tapped Huawei as a key witness to testify against Qualcomm at trial. This is truly going from the sublime, to the outrageous; the American government prosecuting a U.S. company with the aid of our international competitors, who have everything to gain at Qualcomm’s expense.
This could only have pleased the Chinese government, who for years has been hacking America’s networks while illegally appropriating our intellectual property as if it were an Olympic event. It should also raise red flags — no pun intended — that the Chinese government, by its own laws, has the right to access any and all information of native Chinese companies, under whatever terms it deems necessary. If anyone thinks this is a Chinese issue only, think again.
There is no question Qualcomm is thoroughly vigilant in protecting its intellectual property assets, but then again, so is Disney. Technology by definition is constantly evolving, picking new winners and losers every day. Any company that has invested billions in this highly-competitive environment should be able to determine how their assets are used, licensed and developed. These investments and innovations have benefited our nation and consumers immensely, and will continue through the next tech revolution if innovators such as Qualcomm are allowed to maintain ownership of the ideas they invent without bureaucratic activism.
The vital principles upholding intellectual property rights protect and benefit consumers, but these principles will be a distant memory the day chips under the control of the Chinese government populate our devices and networks. The harm to consumers is not Qualcomm charging royalty rates on its patents that reflect the value of the innovation they created, but a bureaucracy that threatens to trip-up American innovation and allow foreign competitors to pass us at the finish line.
Gerard Scimeca is an attorney and Vice-President of CASE, Consumer Action for a Strong Economy, a free-market consumer advocacy organization.
