The FTC’s Suit Against Qualcomm Is a Serious Threat to National Security

November 22, 2019
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The competition to be the first to invent the next global wireless standard, known as 5G, is of extraordinary importance not just to the U.S. economy, but to national security.

Today, the United States is in a head-to-head race with several countries, notably China and its state-backed industries, which view 5G as a must-win competition. In the United States, winning this race will depend almost entirely on the efforts of private companies.

The most prominent of these is Qualcomm, one of the nation’s premier communications technology companies. Given the stakes involved, the decision by the Federal Trade Commission (FTC) to file a complaint in federal district court charging Qualcomm, Inc., with monopolistic behavior seemed, to say the least, somewhat odd. Why would a federal district judge, ruling in favor of the FTC, impose draconian measures on Qualcomm that would fundamentally cripple its position as America’s gold medal entry in the 5G race?

This is the leading technology of the near future. Fifth-generation cellular communications will use a new combination of hardware, software and frequencies to create networks significantly faster than previous generations. It will be able to transmit more data 100 times faster than the current 4G system. It will enable the creation of the long-envisioned Internet of Things in which millions of sensors, devices and computers will work seamlessly to serve consumers.

5G has the promise to revolutionize our economy, society and military operations. For the United States, hundreds of billions of dollars and millions of jobs are at stake. For the U.S. military, operating a secure, low-latency 5G network will be essential to realizing operational concepts such as Distributed Lethality and Multi-Domain Command and Control.

According to retired Marine Corps Gen. James Jones, former National Security Advisor: “China’s aggressive attempt to subsidize the development of global 5G networks as a tool of Beijing’s geopolitical and economic power requires an urgent and robust, public- and private-sector response from the United States government, its allies, and partners to bring secure 5G technology to our allies.”

The Trump Administration has made U.S. leadership in the race to develop and deploy 5G technologies a priority for both economic and national security reasons. The 2017 National Security Strategy called for improving America’s digital infrastructure by deploying a secure 5G Internet capability nationwide. At a White House meeting earlier this year, the president made the case for U.S. preeminence in 5G:

We cannot allow any other country to out-compete the United States in this powerful industry of the future. We are leading by so much in so many different industries of that type, and we just can’t let that happen. The race to 5G is a race America must win, and it’s a race, frankly, that our great companies are now involved in. We’ve given them the incentive they need. It’s a race that we will win.”

Qualcomm is so dominant that even its foreign competitors, such as Huawei, employ Qualcomm technology. In what some sources have characterized as a new “arms race” for 5G, Qualcomm is this country’s ace in the hole.

Qualcomm is also a vital member of the U.S. defense industrial base. In 2018, the Committee on Foreign Investment in the U.S. rejected a proposal by a foreign company to acquire Qualcomm. The Committee argued that Qualcomm's status as a well-known, trusted, and technologically preeminent player in the U.S. telecoms market was important to national security.

According to Aimen Mir, deputy assistant secretary of the Treasury, a “reduction in Qualcomm’s long-term technological competitiveness and influence in standard setting would significantly impact U.S. national security. This is in large part because a weakening of Qualcomm’s position would leave an opening for China to expand its influence on the 5G standard-setting process.”

Despite the important role Qualcomm plays in securing the United States’ position as a global leader in wireless standards, in the waning days of the Obama Administration, the FTC filed a complaint against Qualcomm alleging it pursued anticompetitive policies to create and maintain a monopolistic position in cellular networking technologies. In a trial held earlier this year, a federal district court judge sided with the FTC. The judge imposed a particularly harsh remedy, ordering Qualcomm to fundamentally alter its business model by abandoning the company’s long-standing methodology for calculating royalties for the use of its intellectual property. The order would essentially require the company to renegotiate its existing contracts with customers and to license its intellectual property to competitors, including Chinese companies. 

This decision amounts to a forced technology transfer to Huawei and China – imposed by our own government. The Department of Justice asked the judge to hold a hearing on remedies that might protect U.S. interests, but the judge refused and instead issued the harmful order.

Qualcomm is appealing the decision, and in a rather remarkable turn of events, the Departments of Justice, Energy and Defense have all filed declarations with the court in support of Qualcomm’s request that the ruling be stayed pending the appeal. The Ninth Circuit Court of Appeals has granted the stay, but if the court ultimately upholds the lower court ruling, it would still fundamentally threaten U.S. national security. The decision would cede the growing 5G market to foreign entities, most notably China, handing them dominance on a silver platter.

Seeing the danger, Ellen Lord, Undersecretary of Defense for Acquisition and Sustainment, filed a declaration to the court: “DoD firmly believes that any measure that inappropriately limits Qualcomm's technological leadership, ability to invest in research and development (R&D), and market competitiveness, even in the short-term, could harm national security.”

Thanks to overzealous regulators and a compliant judge, U.S. national security and the future of 5G is now in the hands of the Ninth Circuit. Many judicial observers believe the lower court ruling was bad law. The appeals court must recognize what is at stake for our nation’s security and heed the warning from agencies with expertise in this space -- the Departments of Defense, Energy and Justice -- or the United States will lose the most important technological race of our time.

Dan Gouré, Ph.D., is a vice president at the public-policy research think tank Lexington Institute. Goure has a background in the public sector and U.S. federal government, most recently serving as a member of the 2001 Department of Defense Transition Team. You can follow him on Twitter at @dgoure and the Lexington Institute @LexNextDC. Read his full bio here.

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