Any way to treat a ‘national champion?’

In a test of wills, agency clout, and competing national priorities, competition policy (or at least one version of it) scored a victory over industrial and national security policy last week. At least that is one temporary takeaway from federal district judge Lucy Koh’s decision to declare Qualcomm’s core business model in flagrant violation of US antitrust law.

As noted in previous blogs, the Federal Trade Commission cases against Qualcomm developed against an extraordinary set of circumstances. It was brought in the waning days of the Obama administration by the then-majority FTC Democratic commissioners over the opposition of their Republican counterparts. Though the Republicans gained a commission majority under President Trump, the case went forward because the new FTC Chairman recused himself because of his prior involvement in the litigation. Subsequently, to no avail, representatives from the Defense, Homeland Security, Energy, and Justice Departments met with FTC staff pleading for the case to be dropped. When this failed to move the FTC staff, the DOJ, as noted previously, intervened with Judge Koh, requesting a hearing on remedies if she ruled against Qualcomm. DOJ officials cited deep national security concerns if the company were hobbled or weakened in the competition to create technologically transformative 5G networks. (In the complex world of 5G competition, all of this took place in a week where the US government intervened to block Qualcomm from supplying essential chips to Huawei, the Chinese telecoms giant that is the leading manufacturer of backbone network equipment.)

Judge Koh ruled against Qualcomm on all counts — and then some. Without plunging again into the details, suffice it to state that she basically proceeded from the assumption that the company undertook a number of illegal acts in “maintaining monopoly power.” She did not find credible the company’s arguments that competition in the field was actually increasing, that there was no evidence of harm to consumers, and that its business model went back to its infancy and was not a product of dominant power.

The judge brushed aside the Justice Department’s request for a hearing on remedies, and she invited further litigation against Qualcomm by forbidding the company from reaching private settlements with current and future complainants.

Qualcomm is appealing the case and asked for a stay of the decision until the legal proceedings are complete. As it will likely get a stay, a final determination is months, even years, away. (Meanwhile, the company will be vulnerable to foreign regulators citing the decision as precedent even without a legal conclusion.)

On the competition policy front, let’s be clear. The antitrust issues surrounding this are vigorously contested: defining monopoly and what constitutes improper behavior for a strong or dominant player. Though extreme, Judge Koh’s opinion is not without merit or precedent. Still, what seems a rigid, even cavalier, refusal to acknowledge the national security and technological consequences of her ruling also betokens dogma over reality.

Crippling Qualcomm, should this be the result of this ruling, will have dire technological and national security consequences. Outside experts with no connection to the company are virtually unanimous that, as one noted, the decision “has serious repercussion for the US innovation economy, far beyond this situation.”

Going forward, two things should happen. First, the debate should be widened well beyond the current judicial process.  The relevant congressional committees — at least those on intelligence and armed forces — should hold hearings in the implications of both Koh’s decision and on the national security connection with Qualcomm’s future.

More immediately, given the checkered and fractious history of FTC decision making, the DOJ should consider a direct intervention with the federal appeals court, challenging Judge Koh’s legal findings or at least the draconian impact of her accompanying orders. In any case, the government should move to expedite the judicial proceedings so as not to leave Qualcomm suffering the consequences of extended legal limbo.

Even those (like the author) skeptical of “national champions” should concede that there are complex issues here that cannot be adequately resolved within the confines of conflicted competition policy doctrine.