Abusing trade law to ban iPhones is not in the public interest

An otherwise ordinary legal dispute between three American tech giants has taken a bizarre turn, leading a federal trade agency to consider whether enforcing one company's patent rights could end up harming national security.

The dispute stems from Apple's decision to start making iPhones with chips supplied by Intel instead of Qualcomm. Qualcomm responded by filing patent lawsuits against Apple, including a complaint at the U.S. International Trade Commission seeking an import ban on some, but not all, iPhones — only those that contain Intel modem processors.

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The anti-competitive effects of such a ban are obvious, but there's more at stake here than just Qualcomm's market share.

A competitive market for modem processors is vital for the development and deployment of secure 5G networks in the United States. The issue is serious enough that the ITC should rely on its rarely used power to withhold a trade remedy on public interest grounds, even if Apple's phones infringe a patent.

Although most Americans have probably never heard of the ITC, the agency has authority over a wide range of trade-related matters, including unfair trade investigations under Section 337 of the Smoot-Hawley Tariff Act of 1930. The trade agency conducts dozens of such investigations every year, usually involving claims of patent infringement against American companies that are also defending against the same patent claims in court. Unlike a court, however, the ITC cannot award damages for infringement — it's only remedy is to ban the importation of infringing products.

But an import ban can cause serious harm to consumers and markets, harm that greatly exceeds the value of a single patent. That's especially true for high-tech devices like smartphones, which include technology covered by hundreds of thousands of patents.

To mitigate that harm, the law requires the ITC to consider the impact of an exclusion order on the public interest. Specifically, the agency must look at the consequences of an import ban on product availability, consumers, competitive conditions in the U.S. economy and the public welfare.

In the iPhone investigation, an administrative law judge recently recommended against issuing an import ban, ruling in Qualcomm's favor on infringement but in Apple's favor on the public interest.

In particular, the judge found that an exclusion order would force Intel out of the 4G modem market and ultimately "harm the role and ability of the United States in developing emerging 5G technology to the likely detriment of U.S. national security and competitiveness." He added that there's a "near certainty" that granting Qualcomm an import ban would cause "real harm to the United States on a potentially very broad basis."

That's a big win for Apple, but the case is far from over. The judge's findings on the public interest are just a recommendation to the six-member commission, which has the final say. But the Commission seldom denies an exclusion order for public interest reasons. In fact, it's only done so three times in its entire history. And the last time was in 1984.

One big reason why public interest arguments don't succeed at the ITC is that the agency always weighs any possible harm from an exclusion order against a strong competing public interest in the enforcement of intellectual property rights.

That same concern has prompted fierce criticism of the administrative law judge’s recommendation from some policy groups. Refusing to issue an exclusion order after finding infringement, they say, is the work of “socialists,” “encourages patent theft” and “is tantamount to abrogating the rule of law.”

These criticisms completely mischaracterize the ITC’s purpose. The trade agency’s power to block imports is not meant to enforce patent rights but to prevent unfair foreign competition from harming the U.S. economy. That’s why the law includes not just a public interest test but other trade-related limits, like the requirement that complainants operate or license a domestic industry.

Critics also ignore the fact that Qualcomm can sue Apple in a court of law, where independent, constitutionally-appointed judges have the power to provide relief for infringement. The question is not whether the public's interest in upholding patent rights is important; it’s whether that interest is even implicated.

Giving great weight to the public interest in patent protection is especially unjustified in Qualcomm's case, where the company’s quest for an import ban targeting only iPhones with Intel processors is part of a broader strategy to misuse its patents in order to extort its customers and drive its competitors out of the market.

The ITC should not let Qualcomm further its anticompetitive schemes through trade laws. The public interest strongly favors a competitive market in modem processors to better develop secure 5G technology. That's ample reason for the ITC to avoid imposing a trade remedy that harms American companies and consumers just so Qualcomm won’t have to take its patent complaint to court.

Bill Watson is an associate fellow at the R Street Institute who specializes in the role of technology in international trade.