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On the heels of President Trump’s executive order in May recognizing the national security threat posed by China’s Huawei, a federal judge in California has issued a major ruling that hands Huawei a huge, if inadvertent, victory.
Although Huawei now claims that Trump’s order would cost the company some $30 billion over the next two years, the court’s ruling in a case involving its chief American rival may soften the blow.
In its long-running feud with U.S. chip-maker Qualcomm, the Federal Trade Commission launched a lawsuit in the closing days of the Obama Administration. The attack on the company, which develops chips and other technology to power smartphones, was based on no evidence of harm. Many antitrust experts said the lawsuit was based on testing novel theories of antitrust law.
Qualcomm is viewed largely as America’s best chance of maintaining global 5G leadership as the company is the current leader in developing 5G technology and standards. Huawei, essentially an extension of the Chinese government, is quickly moving to overtake that lead—with the unlimited support of the Chinese government. Given these facts, an antitrust assault on Qualcomm—based on exotic legal theories and no identifiable consumer harm—is reckless and absurd.
It is also bizarre when one considers that the government defied common sense and allowed the unchecked growth of other more threatening and massive monopolies, such as Facebook, Google and Amazon, yet now targets Qualcomm as uniquely dangerous.
According to media reports, leaders of the national security community strongly urged the FTC to reach a reasonable settlement with Qualcomm to end the case. They understood what is at stake. Hobbling Qualcomm, given the critical global 5G battle under way, would undermine our national security. In fact, the FTC, unbelievably, called a Huawei executive as its lead witness in the trial.
The concern has not been limited to national security officials. The Department of Justice filed a motion with the judge in the case a few weeks ago urging her to hold hearings as a possible remedy if she rules against Qualcomm. “There is a plausible prospect that an overly broad remedy in this case could reduce competition and innovation in markets for 5G technology and downstream applications that rely on that technology,” the Justice Department lawyers wrote. This came after Qualcomm reached a major settlement with Apple on patent licensing—which was a key component of the FTC case. The settlement included an agreement for Qualcomm to provide 5G chips for Apple phones, a win for consumers.
Judge Lucy Koh ignored the government filing and issued a ruling that included exactly the over-broad remedies that the Justice department warned her against. Koh’s decision lets regulators and judges dictate how much a company like Qualcomm can charge for its patents—a kind of power grab typical of adherents to the administrative state mentality. The ruling will damage Qualcomm’s intellectual property rights and undermine innovation.
Right after Koh’s decision was announced, a number of industry and investment analysts said the clear winner was Huawei and that an American judge essentially ruled for Huawei.
Let that sink in. We are in a struggle with China—the world’s largest authoritarian police state—as to who will control the technology of the future. That’s what the current tariff and trade fight ultimately is about; yes, it’s about unfair trade deals and shifting manufacturing away from China and potentially back to the United States. But really this is about who controls the technology of the future, where that technology is manufactured, who sets the standards for data privacy, and how free the flow of information will work.
Do we want the world’s greatest free-market economy to be the primary influence on this technology and setting the standards for it? Or the Chinese Communists who have already via artificial intelligence, social credit scores, facial recognition software, and hundreds of millions of cameras, created a deeply invasive surveillance state inside of China? Is that the model we want here? Do we want to assist their ambitions to control our population as well as their own?
It is almost impossible to fathom how a federal judge and a government agency could be taking action to help Huawei, while the Trump Administration (and many of our allies) are working to stop Huawei from dominating 5G. The stupidity is staggering.
Qualcomm is planning to appeal and stay the remedies, and one hopes the company will be successful. But let’s also hope that a remedy comes before it is too late for Qualcomm and for America’s 5G leadership.
Photo Credit: Zhang Hengwei/China News Service/VCG via Getty Images