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New FTC chair could push changes in Qualcomm case, other tech issues

By   /   February 9, 2017  /   News  /   No Comments

The appointment of a new chairwoman of the Federal Trade Commission could mean a paradigm shift in the panel’s actions on recent hot-button issues, including a federal lawsuit brought against Qualcomm days before the end of the Obama administration.

The FTC knocked the San Diego-based chip maker for allegedly violating federal antitrust law by leaning on its dominant market position to solicit unfair licensing terms from its competitors, as well as manufacturers of cell phones. The commission said that by threatening to disrupt cell companies’ supply of processors, Qualcomm was able to obtain elevated royalties for its standard-essential patents that manufacturers would otherwise reject. The FTC alleges the result is increased costs that are passed on to consumers.

FTC photo

ANOTHER WAY: New acting FTC chairwoman Maureen Ohlhausen is expected to take a different approach to leading the commission than her Obama administration predecessor.

“The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks,” the regulator said.

The lone dissenter in the 2-1 vote to bring the complaint in federal district court was Maureen Ohlhausen, who President Donald Trump subsequently appointed as acting chair of the FTC.

Ohlhausen said in a rare rebuke that the Qualcomm action was “extraordinary.”

She called the move “an enforcement action based on a flawed legal theory … that lacks economic and evidentiary support, that was brought on the eve of a new presidential administration, and that, by its mere issuance, will undermine U.S. intellectual property rights in Asia and worldwide. These extreme circumstances compel me to voice my objections.”

Ohlhausen said the complaint fails to allege Qualcomm charges more than a reasonable royalty, which speaks to the dearth of evidence in the case.

Berin Szoka, president of TechFreedom, told Watchdog.org that Ohlhausen’s words indicate she’ll act quickly to make the suit go away once the balance of the commission tips in favor of Republicans.

“Maureen’s dissent strongly implies that she considers this lawsuit so lacking in legal and evidentiary basis that she will simply dismiss the complaint,” Szoka said.

The FTC now has a 2-1 balance in favor of Democrats. At full strength, the commission has five members — with no more than a 3-2 balance in favor of either party — who serve seven-year terms and must be confirmed by the Senate.

Qualcomm suit was ‘rushed and reckless’

In a letter sent to Trump in the week after his inauguration, 17 representatives of conservative and free-market groups called the decision by Obama’s FTC “rushed and reckless.”

“The FTC’s complaint against Qualcomm is midnight regulation at its worst — a misuse of antitrust litigation to promote a destructive policy agenda that aims to undercut patent property rights and conservative free market principles,” they wrote.

They argued the case sets a precedent that could harm U.S. intellectual property rights around the world.

“Specifically, the complaint signals to foreign antitrust authorities that U.S. companies are fair game for similarly damaging, and equally frivolous, enforcement actions overseas — often in naked attempts to steal U.S. patented technology or eliminate U.S. competition from their domestic markets.”

The signers, which include Grover Norquist, president of Americans for Tax Reform, and Katie McAuliffe, executive director of Digital Liberty, urged Trump to make Ohlhausen his permanent FTC chair appointment, as well as move to quickly replace resigning commissioner, and former chairwoman, Edith Ramirez with a Republican after she leaves the commission on Friday.

Trump could name Ohlhausen as permanent chairwoman without Senate approval.

Ohlhausen’s pragmatic approach

Ohlhausen has served on the commission since 2012, after leaving her job as a partner in the law firm Wilkinson Barker Knauer LLP, where she focused on FTC issues that included data protection, privacy and cybersecurity. She previously worked with the FTC, first serving as an attorney adviser for former commissioner Orson Swindle after starting the FTC’s general counsel office in 1997 and then serving as director of the Office of Policy Planning from 2004 to 2008.

Defining ‘substantial injury’

Another FTC case resolved on Monday could further clue observers in on Ohlhausen’s ruling style.

Vizio settled a complaint — without admitting wrongdoing — that it used software on its smart TVs to collect and sell data from 11 million of its customers without their knowledge or consent.

While Ohlhausen agreed that Vizio was deceptive in collecting that data, especially since consumers don’t expect televisions to collect and share information about what they watch, she thought the FTC may have overreached in defining that data as sensitive information.

“We have long defined sensitive information to include financial information, health information, Social Security Numbers, information about children, and precise geolocation information. We have also recommended that companies get opt-in consent before collecting and sharing the content of consumers’ communications,” she wrote. “But here, for the first time, the FTC has alleged in a complaint that individualized television viewing activity falls within the definition of sensitive information.”

She said the case shows the need for the FTC to more rigorously examine what constitutes “substantial injury” to consumers and their privacy, and that she planned to launch such an effort in the coming weeks.

Adam Mosoff, professor of law at George Mason University School of Law, from which Ohlhausen graduated in 1991, told Watchdog he expects her to base her decisions as chair on actual market conditions. Mosoff co-founded the Center for the Protection of Intellectual Property at George Mason and focuses his teaching and writing on such topics as patent and trademark law.

“I’m certain that she’ll bring a more evidence-based approach to the FTC’s investigations and ultimate actions and that she will refrain the FTC from acting on untested academic theories, especially when those regulatory actions could have strong effects on our innovation economy,” he said.

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Johnny Kampis is National Watchdog Reporter for Watchdog.org. Johnny previously worked in the newspaper industry and as a freelance writer, and has been published in The New York Times, Time.com, FoxNews.com and the Atlanta Journal-Constitution. A former semi-professional poker player, he is writing a book documenting the poker scene at the 2016 World Series of Poker, a decade after the peak of the poker boom. Johnny is also a member of Investigative Reporters and Editors.