When Government Does Special Interests’ Bidding

James Edwards Intellectual Property Consultant
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In 2016, Americans went to the polls and defied all the pundits and the professional prognosticators, sending shock waves across the nation and the world.  The results of the election occurred because voters were tired of elitist business as usual in Washington.

They were tired of politicians and bureaucrats overregulating our businesses and our economy.  They were fed up with the federal government engaging in crony capitalism, where politics picks winners and losers in the marketplace.

Over eight years, the Obama administration’s policies deliberately increased regulations in virtually every sector of our economy and sought to reshape the economy in its big-government image.  According to a 2016 analysis by the American Action Forum, Obama regulatory policies cost the economy $743 billion.

This record included some of the most far-reaching regulations of the financial, health and energy sectors ever seen.  These actions, along with aggressive antitrust enforcement and administrative actions and rhetoric against strong patent and intellectual property enforcement, cast a major cloud over the economy.  The destabilizing effects on businesses and uncertainty over many industries led to anemic economic growth and one of the slowest economic recoveries in decades.

That administration took every last opportunity to continue its destructive regulatory ways.  On its way out the door, Obama minions also saddled the economy with scores of last-minute rules and regulations — a last gasp to cement a legacy and hamstring the incoming administration.  Along with those “midnight regulations,” many supporters of free-market principles worried about “midnight litigation,” where agency lawsuits would be difficult for the incoming Trump administration to undo.

The Obama Federal Trade Commission did just that only two days before leaving office.  The undermanned FTC voted 2-1 to file suit against the mobile technology leader Qualcomm.  The FTC had been considering the matter for months and suddenly as Obama cronies were about to exit, they felt compelled to launch a case.

The dissenting commissioner, Maureen Ohlhausen, issued a rare written dissent.  She called this an “extraordinary situation: an enforcement action based on a flawed legal theory (including a standalone Section 5 count) that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide.”

Former FTC Commissioner Josh Wright recently said the FTC’s current antitrust and IP policies “off the tracks.”  He said the spillover effects abroad are American innovators’ biggest problem because what U.S. agencies say and do on IP and antitrust have profound consequences.  Wright called IP rights vital for economic growth and innovation.

The case against Qualcomm is not only based on flawed economic and legal theory, but on something we’ve seen too much of in Washington:  competitor-driven lawsuits and regulation.  Rather than just use their lobbying influence, some companies advance their special interest by pressing government to engage in policies or lawsuits that hamstring their competitors.

In this case, Apple and Samsung, which want to drive down the price they pay to use Qualcomm’s patented technology, have pushed for government action to do just that through official lawsuits and regulation.  The South Korean government has hit Qualcomm with a record fine and is seeking to control the price of Qualcomm’s patented technology worldwide, not just in the confines of its national borders – all to advantage the Korean company Samsung.  Apple reputedly pushed for the FTC to file suit and then filed its own case, which mirrored the government’s case, only days later.

As Qualcomm pointed out in its filing in the Apple lawsuit, Apple has launched a global regulatory attack on Qualcomm – even collaborating with its competitor Samsung (with which Apple previously battled for years in litigation) to convince international regulators like the Korea Fair Trade Commission to target Qualcomm.

“Apple and Samsung’s inducement of regulatory action had nothing to do with the protection of competition,” Qualcomm’s countersuit said.  “Instead, they saw an opportunity to try to avoid paying fair value for Qualcomm’s intellectual property and to impede Qualcomm’s licensing program — and they acted.”

These crony capitalist tactics continue as these companies and their allies write letters and conduct publicity campaigns to push government regulators to rig the game against the creators of cutting-edge technological standards whose patents appropriately and necessarily provide them exclusivity.

If successful, the crony cabal will increase government intervention in our economy by continuing to misapply antitrust theory where IP rights should rule.  These actions use the coercive power of government to appropriate, deprive and destroy private property rights and the ability of the market to determine a fair price for a hard-earned product — especially those under the protection of a patent’s exclusivity.

As we turn the corner with new policies that remove the burden of overregulation and crony capitalism, this case and similar ones are a great place to start.  U.S. regulators shouldn’t do the bidding of powerful companies who want to use the power of the state to pay less (or nothing) for the creations of others.

James Edwards consults on intellectual property policy to companies, associations and conservative organizations, including as patent policy advisor to Eagle Forum Education & Legal Defense Fund.  The views expressed are his own.