“Chertoff concludes that ‘the U.S. should let competition drive innovation rather than support exclusive national champions.’ He is absolutely correct, but the way to do that is to promote innovation, respect the exclusive nature of patent rights, and accurately and fairly apply antitrust laws.”
On November 25, former Director of Homeland Security Michael Chertoff wrote an opinion piece in the Wall Street Journal that chastised the Department of Energy for filing an amicus brief on behalf of Qualcomm in a case that can only be properly described as the ongoing persecution of Qualcomm at the hands of the Federal Trade Commission (FTC). What Chertoff fails to state, however, is that not only has the Department of Energy come out in support of Qualcomm, but so too has the Department of Justice, as well as many others, including former Federal Circuit Chief Judge Paul Michel. Chertoff also conveniently fails to mention the genesis of the Qualcomm case; namely that it was filed by the FTC several days prior to the end of the Obama Administration at the behest of Apple.
Apples to Elephants
Chertoff is upset by the government support of Qualcomm because of what he calls a “monoculture risk,” which he likens to when farmers plan only one variety of a crop, leading to devastation when the crop fails. The problem with Chertoff’s example is it bears no relationship to the world of intellectual property, or the actual dispute between the FTC and Qualcomm. Crops are tangible products that can exist in only so much quantity because of a finite resource, namely the land on which to grow them. Intellectual property exists to protect creations of the mind and no such scarcity exists. With a proper climate and fostering ecosystem any individual, or company, can create. Simply put, Chertoff’s seemingly high-minded analogy is comparing apples to elephants: two things that are wholly unrelated.
Chertoff explains: “American reliance on a single chip provider creates an inviting target for adversaries, who would need to find and exploit only one vulnerability to execute a destructive cyberattack.”
That may well be true, but why this problem has anything to do with the case between the FTC and Qualcomm is not explained by Chertoff, although he certainly leaves the uninformed reader to believe there is an undisputed, direct connection between the two. And if we are to take Chertoff’s critique seriously, he must be suggesting the need for more competition, not less competition. Yet he offers no insight into how or why the possible elimination of the single American chip provider from the marketplace will create greater national security.
The Consequences of Discouraging Innovation
Nothing the FTC is demanding from Qualcomm will make it more likely that any other U.S. company engages in the expensive, time-consuming research and development necessary to innovate. Quite to the contrary in fact. The remedy facing Qualcomm if the district court decision is not overruled is that they must license their technology to competitors, which will in essence create a free rider problem. Qualcomm competitors will be able to cease innovating themselves and can get access to Qualcomm technology. Why would they innovate?
What the remedy the FTC achieved in the district court will do is make it more difficult for Qualcomm to succeed. Qualcomm now faces what is essentially a compulsory license—an order to license competitors. There is no possibility that such licenses will achieve a fair market value, and the economic prospects for Qualcomm will decrease, which will bring down with it the ability to invest in future research and development.
This is the problem that former UK prime minister Margaret Thatcher characterized so well when describing socialism: At some point you run out of other people’s money. The same is also true with innovation. When you enable a culture of free riders who take with impunity, or as here are able to demand compulsory licenses, at some point you run out of other people’s innovation to take because it is no longer economically feasible for them to innovate in the first place.
The Real and Present Danger
The real problem Mr. Chertoff should be concerned with is the failure of Qualcomm because they are the only U.S. company engaging in research and development in the platform that will become the future of the telecommunications industry for the next generation. If Qualcomm does not succeed, not only will its competitors not have anything to take, but Huawei may well dominate the future of telecommunications. If we are to believe what we are told by the government, Huawei has exceptionally close ties with the Chinese government (to be polite), and if they were to dominate telecommunications technologies in the years to come that would pose a real and present national security threat.
Chertoff concludes that “the U.S. should let competition drive innovation rather than support exclusive national champions.” He is absolutely correct, but the way to do that is to promote innovation, respect the exclusive nature of patent rights, and accurately and fairly apply antitrust laws. The real national security issue here is not the U.S. government pointing out that Judge Koh fundamentally misapplied U.S. antitrust law and laid waste to the fabric of U.S. patent law.
The real national security issue is a fundamental failure of the United States patent system to encourage innovation and prevent free riders. Sadly, that failure coupled with the political connections of Qualcomm’s competitors during the Obama years, has led to misapplication of competition policy for the short-term benefit of profits of Qualcomm’s domestic competitors and the long-term benefit of foreign competitors.
A position that makes it more difficult for America’s “single chip provider” to succeed and easier for the Chinese competition to succeed demonstrates extraordinarily naïveté when one professes concern for national security.
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