
Qualcomm, National Security, and Patents - randomname2
https://stratechery.com/2018/qualcomm-national-security-and-patents/
======
swyx
HN readers regularly miss the point of Ben's posts. I admit I'm a bit of a
fanboy but sometimes I wonder if this audience just doesn't "get" Stratechery.
Ben doesn't really care about Qualcomm here. It's just a poster child for what
in his view is actually wrong: technology patents. Let me quote for those who
skimmed:

"There is a certain amount of irony here: the government is intervening in the
private market to stop the sale of a company that is being bought because of
government-granted monopolies. Sadly, I doubt it will occur to anyone in
government to fix the problem at its root, and Qualcomm would be the first to
fight against the precise measures — patent overhaul — that would do more than
anything to ensure the company remains independent and incentivized to spend
even more on innovation, because its future would depend on innovation to a
much greater degree than it does now.

The reality is that technology has flipped the entire argument for patents —
that they spur innovation — completely on its head. The very nature of
technology — that costs are fixed and best maximized over huge user-bases,
along with the presence of network effects — mean there are greater returns to
innovation than ever before. The removal of most technology patents would not
reduce the incentive to innovate; indeed, given that a huge number of software
patents in particular are violated on accident (unsurprising, given that
software is ultimately math), their removal would spur more. And, as Qualcomm
demonstrates, one could even argue such a shift would be good for national
security."

IMO this is the more controversial claim he makes and nobody discusses it. I
think I am in favor but I'm no legal expert. We just take it on faith that the
patent system is the way the world works, but what if it's only the way the
world -used to- work?

~~~
IBM
>The reality is that technology has flipped the entire argument for patents —
that they spur innovation — completely on its head. The very nature of
technology — that costs are fixed and best maximized over huge user-bases,
along with the presence of network effects — mean there are greater returns to
innovation than ever before.

This is a silly argument that only really favors large incumbent tech
companies of a certain kind, internet businesses. It basically eliminates
anyone that doesn't derive their moat from network effects or high capital
intensity or any business that focuses on a specific part of the value chain
away from the final good or end user, such as ARM or Qualcomm. The world is
better off because ARM's business model exists. The world is even better off
with Qualcomm. There's large antitrust issues with Qualcomm that's being
litigated by regulators and Apple, but that doesn't mean they shouldn't be
able to patent their technology.

~~~
da_chicken
I would tend to agree. There's two built-in protections for hardware: patents,
and the massive costs of the means of production. If there are no patents,
then means of production is the only barrier to essentially all available
technology. Any minor player that brings technology to market will be
vaporized by the marketplace dominance of the big players. We'd be back to
trade secrets for all hardware technology (bye bye open standards)

It would certainly be better for _technology_ in the short run, but the
outcomes for human civilization could be catastrophic since competition is so
damaged any time big players have so much control that they can undermine the
free market.

No, the solution isn't to _eliminate_ patents. It's to reduce the term of
patents and copyright in general to more reasonable lengths of time. 20 years
is at least 5 generations in most technology fields. If we want to stimulate
tech, then we should reduce a hardware patent to 7-10 years, and a software
copyright to 14-25 years. We should not reward rent-seeking behavior that does
not provide any value to the economy.

~~~
ekianjo
14 years for software copyright? thats way too long especially since patents
tend to be super broad these days.

~~~
da_chicken
It very well may be, but I would tend towards being conservative with a first
attempt at correction, and the current term is _120_ years.

Keep in mind, too, that copyright is what backs the GPL and other free
software licences. You thought Tivoization was bad? If we set the expiration
date to 5 years, then the 4.0 Linux kernel would be eligible for proprietary
use by 2020.

------
api
Trade policy is one of the few areas where I agreed with Trump. I still
couldn't vote for him because of his narcissism and his racism, but now that
he's president I do hope that he pushes back against China.

Our trade policies with China are grossly unfair and I agree that they are
effectively self-sacrificial. China is _extremely_ protectionist and
economically nationalistic, and is benefiting greatly by playing this off
against America's openness and globalism. We keep expecting them to come
around and play our game, but as has become apparently with recent political
shifts in China (no more term limits, etc.) they aren't and they won't.
They're not playing the globalist game. They're playing for their own national
interests.

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TheArcane
Looks like most of the US tech community is welcoming this decision.

It's interesting to imagine their reactions when foreign governments intervene
to block American companies acquiring their native companies.

Eg. the Dutch government blocking Qualcomm's takeover of NXP. (EU stalling the
acquisition to investigate antitrust issues is different.)

~~~
Analemma_
I'd have done the same if Broadcom were an American company. I oppose it
because I pretty much reflexively oppose all mergers of huge companies leading
to more consolidation: the evidence is overwhelming that this is harming
competition and increasing prices across a variety of business sectors. As for
the national security aspect, I don't give a shit. Trump did the right thing
for the wrong reason.

~~~
vermontdevil
And this is a private equity play - buy the company. Strip it of its assets,
ignore any future R&D opportunities and move on as soon as all revenues are
exhausted.

Hate these type of moves.

~~~
whatok
Private equity? Both of the companies are publicly listed in the US.

~~~
LynxInLA
Yes, but the acquisition was to be financed with $106 billion in debt
[https://www.bloomberg.com/news/articles/2018-02-12/broadcom-...](https://www.bloomberg.com/news/articles/2018-02-12/broadcom-
lines-up-106-billion-of-debt-funding-for-qualcomm-deal)

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ksec
This article doesn't make any sense to me. They are assuming, if Broadcom
moves back to US, and bought Qualcomm, they would reduce its R&D and future
contribution of 6G, hence all other gibberish. ( It is actually in Broadcom
interest to stay at the top of the standard setting committees )

How would they force Qualcomm to continue its R&D for 6G even if they stay on
their own?

How would they know, even if Qualcomm continue its R&D, those tech will be
made into 6G standard, and not any Chinese competitors? Or any European
Allies, like Ericsson or Nokia.

~~~
bryanlarsen
"It is actually in Broadcom interest to stay at the top of the standard
setting committees"

Broadcom is doing a leveraged buy-out via debt. So they need some sort of
quick cash to avoid being swamped by debt. With that sort of debt load, the
short term trumps the long term because if you don't deal with the debt in the
short term, there is no long term to worry about.

"How would they force Qualcomm to continue its R&D for 6G even if they stay on
their own?"

They don't, but Qualcomm has a good history of ignoring activist investors who
call for them to split their chip-making and patent trolling arms.

"How would they know, even if Qualcomm continue its R&D, those tech will be
made into 6G standard, and not any Chinese competitors?"

They don't, but they do know that Qualcomm has successfully done so in the
past, and that it won't happen if they don't even try.

~~~
freyr
> _" patent trolling"_

Qualcomm generates a lot of IP, but don't they also implement that IP in their
chipsets? Does "patent trolling" now just mean enforcing their IP rights?

~~~
sturmen
Agreed: Qualcomm is not a "patent troll", they're a normal company with a very
sizable IP portfolio they rightfully innovated and use in their own products,
as well as licensing to other companies. Whether they abuse their market
position is its own question, but they have nothing to do with companies that
were founded solely to buy vague "shopping cart" patents and make money only
via lawsuit settlements.

~~~
bryanlarsen
Disagree strongly. Qualcomm agreed to license their patents in a fair,
reasonable and non-discriminatory (FRAND) manner in return for having those
patents included in wireless standards, and then turned around and broke those
agreements.

And that's really only the tip of the iceberg for the shenanigans that
Qualcomm has engaged in. By spreading FUD, they were instrumental in ensuring
that the US used their CDMA standard rather than the (arguably superior)
European GSM standards which they didn't have any patents on.

IOW, patent trolling is legal. Qualcomm's patent trolling was so egregious
that they've paid billions in antitrust fines and lost lawsuits.

~~~
ksec
While I dont like Qualcomm and think they are charging too much. I dont think
this comment paints the whole picture.

Qualcomm doesn't licensee ONLY the wireless FRAND patents, they licenses
everything from CPU to software design , battery, antenna etc patents.

Now the problem is they dont allow you to choose which one parts to license.
They lump it together, and they say you are guarantee to be using one of our
CPU / Antenna / Battery patents we have "invented". So just paid for the whole
thing.

While you can put a price on FRAND patents, you cant fairly price the other
patents which is not part of it. And, just on the defence of Qualcomm, they do
actually do R&D and invent these stuff, so patents trolling isn't exactly a
fair word to them.

According to Apple CEO Tim Cook spoken on record, for every 6 dollars of
wireless patents, 1 dollars goes to 5 companies that is Huawei, Ericsson,
Nokia, etc, and 5 dollars goes to Qualcomm.

Personally I think they are charging too much. But we dont really have a way
to solve this pricing problem. So legal becomes the only choice.

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dopamean
> Given well-known U.S. national security concerns about Huawei and other
> Chinese telecommunications companies, a shift to Chinese dominance in 5G
> would have substantial negative national security consequences for the
> United States.

I have a question about this. If the US government believes Chinese dominance
in standard would be a threat to US national security would it not be fair to
assume the opposite is true? Would US dominance in standard setting would pose
a threat to other countries' national security?

~~~
coldacid
Perhaps, but if that's the case, isn't it better for a democratic nation to be
a risk to a dictatorship's national security rather than the other way around?
Better America be dominant than China or Russia.

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emiliobumachar
Could anybody explain why would a Chinese dominance in the 6G standard-setting
process would be to the detriment of US national security? Economic strategy,
I get, but national security? It's not like only Chinese companies would be
able to manufacture 6G chips once they'd set the standard... is it?

~~~
RobertRoberts
My economics teacher in high school (not a great source, I know) said that no
country has ever been permanently conquered through military might alone. But
countries have been by economics.

If you believe this (or a variation of this idea) then it's reasonable to
consider the possibility that China is using, or could possibly use, economics
as a weapon.

~~~
YCode
China is definitely doing this already, more effectively than any other
country they view economics and other alternative forms of warfare as the
bread and butter of diplomatic policy and they are very good at mixing it with
realpolitik when for example building islands or offering foreign aid.

~~~
adventured
I agree, they're very clearly doing that already. Fortunately there's not much
new about it however. Japan was supposed to conquer the world with its economy
in the 1980s. Every headline breathlessly touted that fact. It was seemingly
universally believed. They had a vast trade surplus, their market was hyper
restricted to outsiders, they were rapidly generating wealth and had a higher
GDP per capita than the US. The Japanese were conquering one industry after
another, whether traditional industrial or electronics, and frequently accused
of dumping as they went. Sound familiar?

Today:

US GDP per capita: $60,000

Japan: $38,000

If China does everything right, somehow avoids any recessions or depressions,
sees no major consequences from dictator Xi, magically stops accumulating debt
at a torrid pace - in about 20 years they'll finally catch up to the US
economy in size.

Given their population base, maybe it is inevitable; it won't be easy however.
The US has been a comparatively very well oiled economic juggernaut for 150
years, and it's still rolling, commonly outpacing far smaller economies in
growth. No country in world history has put together an economic stretch like
the US has since the Civil War. China has a lot to prove about being able to
manage something like that, especially under a power hungry dictatorship and
utilizing a command & control tilted model. Filling in economic slack is the
easiest part of growing an economy, that's where all the talking heads got
Japan so wrong. Today all the talking heads are extrapolating China's easy
fill-in-the-slack growth forward perpetually. They're going to be wrong again,
the question is to what degree.

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dreamygeek
A very clever move by Trump indeed. Something that I wasn't expecting at all.
This will surely delay China's streak of Domination in the Telecom sector.

~~~
dqpb
I guess relying on capitalism to build a country would fail if foreign
countries could just buy out your most important companies.

~~~
adventured
The premise under Capitalism would be that the state-sponsored / state-owned
corporations were acting as conquering agents and should be treated as a form
of invasion in terms of national defense. The theory is that it'd be defending
the rights of the people to not be brought under the heel of a conquering
foreign government. Such trade would be regarded as a military action on
behalf of the foreign country, since under Capitalism the government has no
role to play in the economy in terms of owning & operating economic assets.

~~~
mark_edward
This has been false from the beginning though, you are referring to an
imaginary capitalism that never existed.

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madez
This is an enlightening post. That the USA see influence on technical
standards as a threat to national _security_ shows what they are using their
own influence for.

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qubex
Can somebody please correct this to ’Qualcomm’?

~~~
sctb
Yes! Thanks.

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dis-sys
from the article -

> There is a certain amount of irony here: the government is intervening in
> the private market to stop the sale of a company that is being bought
> because of government-granted monopolies.

wait, what the author expect the US government to do? To give the deal green
light so bigger monopolies can be created by such merges? Maybe Qualcomm
should learn something and start talking to banks to acquire Intel. Just
borrow a couple hundred billion from banks, like what Broadcom did, what can
possibly go wrong?

~~~
e1ven
The way I read his argument was-

"It is ironic that the US is concerned about the patents. Patents only have
weight because governments give them weight - They could declare the patents
public domain at any time."

