Trade and Security

A Patent Dispute Tests the Administration’s National Security Resolve

By Charles Duan
Thursday, December 6, 2018, 8:02 AM

Experts in the technology industry are closely watching the Apple–Qualcomm litigation, in which the phone and computer designer has charged the chip-making firm of anticompetitive behavior and the chip maker has retaliated with multiple worldwide patent lawsuits. But the dispute is worth the attention of national security experts, too. Recent developments set up a potentially revealing showdown in the larger context of the Trump administration’s foreign economic policy.

Almost two years into the Trump presidency, the administration has taken multiple steps toward economic protection of domestic industries: import tariffs and CFIUS investigations for example. The administration has leaned on national security to justify those actions. The recent steel and aluminum tariffs, for example, were based on Commerce Department findings that domestic producers of those materials are necessary to serve national defense needs. Similarly, the recent flurry of activity by the Committee on Foreign Investment in the United States (CFIUS) reflects concern about the effect of foreign investment on national security.

Critics and free market proponents have questioned actions such as these as trade protectionism masquerading as national security. In the case of steel tariffs, for example, my colleagues Megan Reiss and Clark Packard have argued that “it is simply implausible that the United States would be unable to receive supplies of steel necessary for national security.” But disentangling the government’s motives is difficult where the purported national security interest is aligned with economic protection. The steel tariffs, for example, may have actually been imposed in order to boost the revenues of domestic steel producers, with the national security argument just as legal cover; or the administration may genuinely (if perhaps wrongly) be concerned about the military’s need for steel.

The Apple-Qualcomm dispute offers an opportunity to disentangle those motives. While national security and economic protection have cut in the same direction in previous cases, the tangle between Apple and Qualcomm has reached a point where national security is misaligned with economic protection, such that decisions in the dispute may reveal where the administration actually stands on the relative merits of those two policy concerns. When the administration is forced to choose, in other words, is national security or economic protection the deciding factor?

Apple and Qualcomm are fighting their legal war on multiple fronts, with Apple charging Qualcomm with anticompetitive conduct and Qualcomm returning fire with patent infringement lawsuits against iPhones in multiple venues worldwide. One of those venues where Qualcomm has charged Apple’s devices with infringement is the International Trade Commission (ITC), an independent federal agency with authority to issue exclusion orders that block the importation of articles deemed to infringe U.S. patents. Recently, Administrative Law Judge Thomas Pender of the ITC agreed that the iPhones in question did infringe one of the asserted patents, but remarkably declined to recommend issuance of an exclusion order, largely on national security grounds.

Judge Pender’s reasoned that, based on the evidence, an exclusion order would fundamentally distort the market for certain cell phone chips. Such an order would render Qualcomm the sole and dominant provider of the chips in a way that would harm further development of the mobile communications infrastructure, particularly 5G technology. Given the government’s previous determinations that 5G development is critical to national security, Judge Pender concluded that an exclusion order would be contrary to national security. Accordingly, in view of the ITC’s statutory mandate to consider “the public health and welfare” prior to issuing an exclusion order, the judge declined to recommend one.

Having reached this initial recommendation, the Trump administration now has up to three procedural opportunities to weigh in. Judge Pender’s recommendation goes up to the six politically-appointed commissioners of the ITC, who may reconsider and possibly reverse the judge’s determination. In performing this review, the ITC must consult with federal agencies such as the Department of Justice, which it does by opening up a comment period for the agencies along with the general public. Finally, if the full commission does change course and enter an exclusion order, there is a 60-day period for review by the president (delegated to the U.S. trade representative).

These three events will offer a particularly interesting window into the administration’s thinking. Judge Pender’s decision sets up something of a law-school hypothetical for testing the administration’s commitment to national security in the context of trade policy, because the national security concern is partially at odds with the protectionist result. National security interests counsel in favor of the ITC forbearing from issuing an exclusion order, whereas the exercise of the exclusionary power by an agency designed for domestic protectionism—the ITC’s patent authority originates from the Smoot–Hawley Tariff Act—would be consistent with policy driven by economic protection.

National security disfavors exclusion in this case. The administration has made clear on multiple occasions now that it views 5G competition and mobile infrastructure as a national security issue: such concerns underpinned the blacklisting of ZTE and Huawei, the CFIUS blocking of Broadcom’s attempted Qualcomm takeover, and the proposed 5G nationalization plan, among other things. And it is not hard to see how single-firm dominance in 5G chip technology would impair these professed national security interests, both by diminishing incentives to build secure systems and by giving foreign competitors a relatively greater share of firms leading technological development. Conversely, it is difficult to discern any national security harm in allowing Apple to import iPhones. Thus, if national security is the driving concern for the administration’s policies, then the administration would undoubtedly do better to reject the sought importation ban as Judge Pender did.

A contrary result favoring an exclusion order, by contrast, would belie the administration’s prior appeals to national security. Given that Judge Pender’s decision referred to national security “a matter of pre-eminent importance,” the government cannot at this point plead ignorance of the role of national security in this ITC investigation. And if the administration were now to downplay the seriousness of national security here after its particularly vigorous assertion of national security concerns over 5G technology, it would be difficult to see that result as anything less than a reversal of course.

Granted, domestic economic protection does not necessarily cut in favor of an ITC exclusion order. The firms who stand to lose, Apple and its preferred chip maker Intel, are American companies. On the other hand, the White House has closely associated protectionism with curbing intellectual property theft, so an intellectual property–based importation ban might superficially seem to advance these policies. (In reality, it would not advance those policies; concerns about “IP theft” relate to trade secrets, not patents.) Were the administration to support Judge Pender’s initial determination, that alone would not necessarily prove whether national security or protectionism is the administration’s lead policy motive. But a reversal of the determination would be highly instructive, demonstrating that where national security and economic protection do not align, national security does not necessarily carry the day. At best, this would demonstrate that the administration is unpredictably inconsistent in its weighing of national security concerns; at worst, it would suggest that previous appeals to national security may have been just a cover.

A third possibility would be for the ITC to acknowledge the national security concerns at stake but dismiss them as irrelevant to its statutory role as a trade and intellectual property agency. The commission’s authorizing statute directs consideration of four public interest factors—“the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers”—before entering an exclusion order. National security would seem to fit into this broad rubric; indeed, this was the legal basis for Judge Pender’s recommendation. But historically, the ITC has been dismissive of concerns outside its role as patent adjudicator, having rejected exclusion orders only a handful of times—albeit ones implicating major national policy issues: fuel efficiency, nuclear physics research, and public health.

The possibility of the ITC simply ignoring national security would be especially concerning, given that there is no doubt that trade policy can adversely impact national security. It would suggest a need for trade policymakers such as the ITC to be given a stronger mandate to consider issues such as national security, which in the case of the ITC could be accomplished either through greater participation of other arms of government in ITC proceedings or through statutory reform to direct the ITC to consider a broader range of national interests.

The larger question, one that goes behind this administration, may be how to ensure that public concerns like national security receive sufficient attention across federal organizations, particularly those who are tasked primarily with economic roles. There are many such organizations besides the ITC—indeed, many that deal with intellectual property and international relations specifically, including the U.S. Trade Representative negotiating IP clauses in trade deals; the U.S. Patent and Trademark Office, with its IP Attaché program that consults on IP laws across the globe; and Immigration and Customs Enforcement, which polices copyright and trademark piracy. It is unclear to what extent these agencies and others, in the course of undertaking their authorized roles, consider the broader implications of their actions from a national security or other public policy perspectives. If the Qualcomm ITC investigation demonstrates a failure to give due consideration to these perspectives, that failure may serve as a leading indicator that other agencies are lacking as well in their awareness of or attention to broader policy concerns.