San Diego Qualcomm Inc. looked almost like an arm of the government last month when President Donald Trump cited national security risk as his reason for halting the San Diego semiconductor company’s attempted takeover by Singapore-based Broadcom Corp.
But another way to view events before and since his declaration is that Qualcomm is just the latest company to get caught up in a continuing fight over the transfer of telecommunications technology between the United States and China.
Wireless companies from the two countries have repeatedly waged legal battles over accusations one misappropriated the other’s intellectual property. Although some of this is industry standard, Trump’s intervention in Broadcom’s case — and his plan to place $60 billion per year in tariffs on Chinese goods because of alleged IP theft — escalate the confrontation to a new level.
U.S. on Offense
“I don’t believe that China is used to an American president standing up against China’s previously unchallenged theft of IP from American companies,” said Steven L. Ré, the president of Rancho Santa Fe’s Fairbanks Capital Management Inc.
Even after Broadcom’s failed attempt, Qualcomm remains in the middle. It is asking Chinese regulatory approval for a major acquisition while also trying to settle a high-stakes licensing dispute with the country’s largest telecommunications manufacturer, Huawei Technologies Co. Ltd.
It’s bad timing, to say the least.
“I’m not sure you really could have avoided this” standoff over patent licensing and a large acquisition at the same time people start talking about a trade war with China, said Danny Crichton, a New York editorial manager for tech industry analysis website TechCrunch.
Cybersecurity lawyer Guillermo Christensen, partner at Boston-based law firm Brown Rudnick LLP, said the Trump administration has good reason to take a protectionist stance. He said enormous losses are incurred when a U.S. company comes to China with a new product or service, only to lose control of its IP.
People may disagree with the administration’s approach, he said, but few would argue U.S. trade relations with China have gone well during the last 20 years. He suggested Trump’s goal is to shake up the dynamic that has developed.
Finding a Solution
As Christensen sees it, the core question is whether the United States should wait until Huawei has blown the competition out of the water “and then try to fix (the situation), or you try something preemptive.”
One option is to build economic walls around U.S. industry to give it time to strengthen, he said. Another is to set up transparent rules around competition, then pursue enforcement actions where necessary.
Tariffs may not be an ideal measure, he said, because they are negative and could become so ingrained in the U.S. economy that they would be hard to remove. A better approach might be to introduce progressive trade measures that phase out over time, he said.
Another strategy already in use is probably also effective, Christensen said: monitor China’s national champions as a way of waking people to the risks.
He was referring, in part, to espionage warnings in February by the heads of six U.S. intelligence agencies. They advised Americans to avoid using products and services by Huawei and fellow Chinese telecommunications equipment-maker ZTE Corp.
Under political pressure, wireless carriers AT&T Inc. and Verizon Communications Inc. have called off agreements to distribute Huawei phones in the United States. Late last month, retailer Best Buy decided to stop carrying Huawei products.
Huawei Facing Political Complications
Jim McGregor sees Huawei as being caught in an unfortunate trade dispute much the way Qualcomm is. The founder and principal analyst at Arizona-based Tirias Research acknowledged the company has secured Chinese government contracts, much the way U.S. tech companies have, and that the country’s leaders wield a degree of influence common in China. But calling Huawei an arm of government is an overgeneralization, he said.
He described a pattern in which countries open themselves to foreign technology investment, then suddenly shift to protectionism.
“It goes through waves,” he said. “What we’re seeing now is all political.”