Qualcomm Caves In China But Goes Rogue In The USA And Elsewhere

Qualcomm Shutterstock/testing

Timothy Lee Senior Vice President, Center for Individual Freedom
Font Size:

Back in 2016, telecommunications and semiconductor giant Qualcomm’s Founding Chairman and CEO Emeritus, alongside its Executive Chairman, openly opposed Republican presidential candidate Donald Trump.

An open coalition letter they joined asserted, “we have concluded: Trump would be a disaster for innovation.” Rationalizing their opposition, they stated that Trump posed an unacceptable threat to “freedom of expression, openness to newcomers, equality of opportunity, public investments in research and infrastructure, and respect for the rule of law.”

“Respect for the rule of law?”

Qualcomm’s behavior in China, as well as conduct in the U.S. that prompted the Federal Trade Commission (FTC) to take legal action against it, hardly squares with that professed ideal.

Additionally, just last month, it was reported that Qualcomm is expected to face European Union imposed penalties for incentivizing Apple to refuse Qualcomm’s competitors’ chips. Opinions of E.U. regulation aside, these new E.U. penalties, which are expected any day now, are based on the same exclusive dealing violations as those within the U.S. FTC complaint.

Regarding China, Qualcomm has reportedly deepened its relationship with the communist regime, including partnerships to develop advanced technologies like artificial intelligence and smartphones, and to increase their productive capacities there. As part of its attempt to undercut American businesses like Intel, Qualcomm has also worked with the Chinese government to manufacture microchips that will help bolster the country’s computing power, and even engaged in a direct partnership with the Chinese government to assist in the creation of a supercomputer – an act in direct defiance to the United States’ national security interests.

Thus, while a consensus of skepticism toward China grows across the globe, Qualcomm appears committed to strengthening its relationship with the country. Just last month, Qualcomm CEO Steve Mollenkopf declared at the Citi Global Technology Conference that the company plans to employ its “geographical scale” to continue helping the Chinese become “international players.”

All of this follows Qualcomm’s legal difficulties with Chinese anti-competition authorities in 2015 for the violation of a 2008 anti-monopoly law. To settle that prosecution, Qualcomm merely had to pay a $975 million fine and agreed to new royalty rate terms for the telecommunications chipsets used by Chinese companies going forward. That settlement appeased the Chinese government, and as noted above, Qualcomm emerged on largely a favorable footing there and the remedy may have actually increased the company’s close ties with the Chinese government. Today, revenue from China accounts for two-thirds of Qualcomm’s total revenue each year, which seems to suggest that the fine may have merely been a “pizzo” — extortion in the form of protection money paid to organized crime, often a forced transfer of money — and the new licensing structure may have been a partnership agreement between the company and senior Chinese officials.

Elsewhere across the world and in the U.S., however, Qualcomm’s questionable business practices remain intact.

Qualcomm has contravened worldwide precedent set by international Standard Setting Organizations (SSO), organizations that classify the patents at the center of Qualcomm’s disputes with Apple and other companies regarding Standard Essential Patents (SEP). Qualcomm agreed to adhere to those standards, and to license their SEPs under Fair, Reasonable, and Non-Discriminatory (FRAND) terms internationally. But Qualcomm has violated that pledge, and broken the rules governing these unique patents. As a result, consumers pay up to 5 percent of the sale price of each phone as Qualcomm breaches their SEP contract and squeezes the phone manufacturers into heavily coerced licensing agreements. Thus, Qualcomm’s behavior beyond the confines of China impacts the overall cost of the device sold to the consumer. And as referenced above, its behavior has put triggered legal action from the U.S. FTC and authorities in other places like Taiwan.

But according to Qualcomm, its capitulation in China should play no role elsewhere, as evidenced in its reply to the complaint filed by the FTC:

Any requested relief that would apply to the licensing of patents issued by a jurisdiction other than the United States would be barred as beyond the reach of the U.S. antitrust laws, including the FTC Act, and/or as an improper application of those laws due to principles of international comity.

Translation: Qualcomm would rather acknowledge its liability publicly, quietly strengthen its Chinese partnerships to benefit the company and the PRC and continue its behavior toward American businesses. They pursue what amounts to a “divide and conquer” strategy, settling liability findings where they must, but continuing the practices elsewhere in order to maintain their dominant market position and refusing to play by the rules to which they agreed.

Here’s a better course for Qualcomm: Practice what you preached while maligning Donald Trump in 2016. Respect the rule of law. Promise to comply with whatever ruling the FTC issues and comply everywhere you conduct business operations. And stop playing one way in China, and differently everywhere else.

Timothy Lee is Senior Vice President of Legal and Public Affairs at the Center for Individual Freedom, an Alexandria, Virginia-based nonprofit organization founded in 1998 to advocate the principles of free markets, limited government and international liberty.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.