Apple the Traitor

Apple Sues Qualcomm In China, Harms U.S. National Security
By Gordon G. Chang

Wednesday, Beijing’s Intellectual Property Court announced that Apple had instituted two lawsuits against Qualcomm.
In one of the cases, the Cupertino-based giant alleges Qualcomm did not license “standard essential patents” properly.
In the other case—the far more significant of the two—Apple is seeking 1 billion yuan ($145.3 million) for violations of China’s Anti-Monopoly Law.
Whatever the merits of the anti-monopoly case—and I am expressing no view on merits here—an Apple win will almost certainly undermine U.S. national security.
As an initial matter, Apple vs. Qualcomm is an ordinary dispute between two giants over—what else?—money. 

Qualcomm’s general counsel, Don Rosenberg, who denied the validity of his adversary’s claims, said the two cases in China “are just part of Apple’s efforts to find ways to pay less for Qualcomm’s technology.”
He’s undoubtedly correct on that score as companies always seek to reduce costs. 

The issue is whether Qualcomm, the world’s leader in chips for mobile phones, violated the Anti-Monopoly Law.
Yet to speak about compliance or violation of the AML, as the antimonopoly law is sometimes called, mischaracterizes the situation.
Yes, the AML is technically a law as it was enacted by the National People’s Congress, the highest organ of state power in China, in 2007. 

The law, however, is a fiction, at least in practical terms, because it is less a legal rule than a club Chinese officials consistently use on foreign companies. 

While Xi Jinping, China’s supremo, has presided over the combination of state enterprises and the recreation of formal monopolies without challenge, Chinese competition officials have been using the AML to undermine the competitiveness of foreign companies, especially American ones.
It should be no surprise, then, that the first known application of the law was against Coca-Cola, when it tried to buy domestically owned Huiyuan Juice Group. 

The deal was blocked in March 2009.
Back then, the AML was best seen as an attempt to provide a statutory justification for what officials had already been doing, stopping acquisitions of local businesses. 

In the months before the AML became effective in August 2008, Beijing had arbitrarily used its power to stop, most notably, Microsoft, Goldman Sachs, and Carlyle in proposed high-profile acquisitions.
Having protected domestic enterprises from takeover, officials in the Xi era have adapted the AML to further Beijing’s goal of fostering domestic technology companies — by injuring foreign ones.
The most notable instance of the use of the AML for this purpose involves, perhaps coincidentally, Qualcomm. 

The San Diego-based business in 2015 both paid a 6.1 billion yuan ($975 million) fine for deemed violations of the AML and agreed in a rectification plan to reduce royalties.
Qualcomm’s business model, largely based on royalty streams, has been under attack in the last half decade in, most importantly, South Korea and the U.S. 

In the U.S. this month, the Federal Trade Commission filed a complaint against Qualcomm on the 17th and Apple brought suit against the company in Federal court, in the Southern District of California, on the 20th.
Whatever the merits of these actions in the U.S.—and I express no opinion on these either—the plundering of an American tech company in China can only undermine the United States. 

And that is exactly what will happen because Apple filed suit in China.
The Chinese central government, led by the Communist Party, will do whatever it thinks best for China’s interests in deciding Apple vs. Qualcomm, and it’s clear Beijing will side with Apple. 

If it sides with Apple, it will undermine protection of intellectual property. 

If it undermines intellectual property, it erodes the American economy. 

The American economy, of course, is increasingly dependent on creating such property and licensing it around the world. 

And these days, economic issues ultimately have national security implications, especially when they involve technology. 

So don’t expect Qualcomm to get a fair trial in the Beijing Intellectual Property Court. 

There can be no impartial adjudication in China when the Communist Party believes it has an interest.
In fact, this month China’s top judge effectively confirmed the unfairness of the Chinese court system and even boasted about it. 

On the 14th, Chief Justice Zhou Qiang of the Supreme People’s Court told top provincial judges to reject “erroneous” Western notions of judicial independence. 

Speaking of the “trap” of Western ideas, he rejected criticism of the Party’s leading role. 

“Bare your swords towards false Western ideals like judicial independence,” he demanded.
Zhou’s statement is notably not because it breaks new ideological ground—it does not— but because it is reflective of regressive trends in the Chinese capital. 

As the Financial Times noted, Zhou, once a reformist figure, “fired a warning shot at judicial reformers by formally acknowledging that China’s court system is not independent of the Communist Party and rejecting attempts to make it so.”

Jerome Cohen, perhaps the world’s leading expert on the Chinese judicial system, put it this way: “This statement is the most enormous ideological setback for decades of halting, uneven progress toward the creation of a professional, impartial judiciary.”
In short, because Party interference in the court system is increasing, Apple has an excellent chance in prevailing in its anti-monopoly suit in China.
And every American—even Apple shareholders, who also benefit from the protection of intellectual property—should be rooting for the other side.