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Crony Capitalism Goes High Tech: What Every Apple User Needs To Know

By  |  May 19, 2017, 11:20am

One of the trends that has alarmed many of us who believe in free markets and conservative principles is the rise of crony capitalism, where powerful companies try to use government to benefit their bottom line and/or to hamstring their rivals.  Powerful companies find ways to take advantage of subsidies, regulations, tax changes and even government lawsuits.

The trend took off during the Obama administration, where they took many actions to benefit influential and favored companies and industries.  Of course policies that lead to bigger and more intrusive government create more opportunities for powerful companies and interests to take advantage of bigger government.

In the closing days of the Obama administration many conservatives warned about the dangers of midnight regulation and a number of us also joined to warn about potential “midnight litigation.”  The administration did just that when the FTC launched an antitrust case against Qualcomm only 2 days before the Obama FTC was to leave office in a 2-1 vote – in a case that reeks of crony capitalism.  The sole Republican commissioner Maureen Ohlhausen (who is now the acting Chair) issued a strong dissent and said the case was being rushed out as the current commission was on its way out and based on no evidence of actual harm.

The case is a clear example of companies (mainly Apple) running to the government to help them do through courts and the regulatory process what they can’t in the marketplace.   It’s evident that Apple lobbied for the FTC to take this action.  Only days after the FTC case, Apple filed its own private lawsuit against Qualcomm – which read almost exactly like the FTC complaint. Other companies, like Samsung and Intel, who would benefit from hamstringing Qualcomm, have joined in.

Qualcomm, which developed the technology that allows smartphones by Apple and Samsung (and others) to connect to cellular networks offering multi-functionality, licenses their technology to these companies.  Qualcomm developed the technology and holds the patents.  The smartphone companies, like Apple, want to pay less for the licenses.   That’s their right but it’s something they can work out in negotiations (like others do in the marketplace). Instead, Apple wants the added leverage of a government antitrust case to help them bring down the cost – or even get someone else’s intellectual property for free.

Interestingly, it’s been reported in the media that analysts estimate the cost of Qualcomm licenses as approximately $15 per phone (on a $600 plus phone).  Seems like a small price to pay to allow your phone to actually function as a mobile supercomputer, with more connectivity than a laptop.  In their response to the Apple lawsuit, Qualcomm argues that Apple (and Samsung) have engaged in the equivalent of a global regulatory assault.  They have lobbied the FTC and according to media coverage of their filing, Apple encouraged Samsung executives to “get aggressive” in asking South Korean competition regulators to target Qualcomm.  According to their filing, “Apple and Samsung’s inducement of regulatory action had nothing to do with the protection of competition. Instead, they saw an opportunity to try to avoid paying fair value for Qualcomm’s intellectual property and to impede Qualcomm’s licensing program—and they acted.” Intel, who has also weighed in on this case, has developed a competing modem chip and would be more than happy to see the government hold back Qualcomm.

This is exactly the type of crony capitalism and competitor driven government action we need to stop – and part of the environment that led to the election results of 2016.  These types of lawsuits and regulatory actions must end.

Unfortunately the FTC doubled down last week and rejected Qualcomm’s motion to dismiss (with cheerleading and supportive briefs from Qualcomm competitors). Because of a delay in appointment of new commissioners, the current makeup of the Commission has not changed enough to allow for a change in direction, despite the acting Chair’s opposition to the current case.

Alden Abbott of the Heritage Foundation, an expert on Intellectual Property and antirust who previously worked at the FTC, criticized the case against Qualcomm when it was first filed.  “Qualcomm is more than one exceptionally ill-advised example of prosecutorial overreach, that (hopefully) will fail and end up on the scrapheap of unsound federal antitrust initiatives,” he wrote.  Echoing concerns raised by Ohlhausen, a champion of IP protection and of regulatory restraint, he added this case, “may be used by foreign competition authorities to justify unwarranted actions against American firms.”

It’s past time to put an end to crony capitalism and government doing the bidding of powerful and well-connected companies who’d rather win in the courtroom, halls of Congress or the regulatory sphere than in the marketplace.  The spurious case against Qualcomm is a prime example of crony capitalism and is an attack on the broader concept of Intellectual Property rights, which are fundamental to conservatism and to our leading global role in innovation.  We need to stand up for property rights and stand up to crony capitalism – and it’s time for this case (and others like it) to come to an end.

Ken Blackwell is a Fellow at the National Academy of Public Administration, in Washington, D.C. and a former Domestic Policy Advisor to the Trump Transition Team.