Today’s Wall Street Journal reports on a White House plan to coordinate the development of 5G systems by American companies. The effort is intended to provide a domestic alternative to Huawei for 5G infrastructure hardware.
But if the FTC loses in an appeal at the 9th Circuit this month, that White House plan might run straight into a brick wall.
When a company participates in standard-setting, they typically agree that they’ll license any patents that they own that are necessary to create a product that complies with the standard on “FRAND” terms—a fair and reasonable royalty, available to anyone and not discriminating between licensees. These patents—called “standard-essential patents”, or SEPs—are supposed to be available to anyone in order to ensure that a single standard-setting participant can’t pick winners and losers.
The problem is that some companies have violated their obligation to license anyone who asks. That’s where the FTC came in.
The FTC challenged a pattern of conduct by baseband chipset vendor Qualcomm. That pattern included refusing to license competitors, refusing to sell chips to anyone who didn’t license Qualcomm’s patents, and using exclusive deals to cut competitors off from access to the market.
At the district court, Judge Koh’s opinion explained precisely how Qualcomm’s licensing practices had harmed competition and prevented competitors from entering the market. In particular, Judge Koh addressed Qualcomm’s position that it was not obligated to license competitors to its standard-essential patents, despite promising to do so as a condition of participating in standard-setting activities.
Judge Koh held that Qualcomm’s promise requires them to license competitors, a promise they had been violating for years.
That’s one of the things Qualcomm is appealing to the 9th Circuit—they want to be able to license selectively, licensing customers but refusing to license anyone who might compete with them.
On appeal, Qualcomm and DOJ argued that national security interests weighed against granting the remedies ordered by Judge Koh. Instead of backing the FTC, the Department of Justice chose to make the claim that unless Qualcomm can refuse to license its competitors, national security will suffer.
The problem, of course, is that this case is about more than just Qualcomm. The U.S. patent system only applies to U.S. patents, but it applies to anyone’s U.S. patents. And that includes Huawei—holder of a significant number of U.S. patent rights. As I wrote last year, anything Qualcomm can do, Huawei can do.
If Qualcomm can refuse to license its competitors to its standard-essential patents, so can Huawei. If Qualcomm can use that to force competitors out of the market and not face antitrust liability for that action, so can Huawei.
Having a U.S. competitor to Huawei would be good for competition, good for innovation, and good for consumers. Competition would drive down the prices telecom companies pay for infrastructure, allowing them to provide better service to consumers. And it would provide another avenue for innovation in cellular standards—the more companies participating, the more ideas will come in to help ensure that the best technology is incorporated into future revisions of the standard. And having additional U.S. companies participating would help ensure that U.S. values like freedom of expression and from unwarranted surveillance are part of the standard.
But if Huawei can refuse to license competitors, none of that will happen. The nascent U.S. effort will falter because telecom companies, faced with the potential of billion dollar patent suits if they use unlicensed U.S. hardware, will use Huawei (or Huawei-approved) hardware instead. Without customers, that effort will die.
If the Administration is serious about promoting U.S. interests in 5G, it needs to support the FTC’s position at the 9th Circuit.