by By Reveena Kumari Sethia*
Antitrust laws have evolved across the globe to ensure that consumer welfare and effective competition remain the priority while balancing the promotion of liberalism and uninterrupted world trade. The intervention of executive action where antitrust and economic policies could’ve brought an acceptable balance may be seen as a step backward in the larger move towards global liberalization and free markets.
A recent example of this can be seen in President Trump’s Executive Order blocking Broadcom’s bid for Qualcomm in the semiconductor industry. The proposed merger would’ve been the largest in its field and would’ve meant a Singapore-based entity gaining a stronghold over a large, pioneering American company in an industry that America expressly wants to dominate. The bid was blocked on national security grounds and is the third of its kind. The President feared a Chinese stronghold in the industry if the bid were to go through. Interestingly, two large Chinese smartphone makers (who generate more than 10% of Qualcomm’s revenue) have openly expressed their disapproval of the deal, noting that it would squeeze profit margins and benefit other global rivals. If the Chinese didn’t want the deal to go through in the first place, then what did the Executive Order actually achieve and was there a more rational alternative?
The Executive Order reflects a subconscious move to the Harvard school-type approach to antitrust. The Harvard approach sees dominance in the market as the ability to act and hence, advocates for frequent intervention because it assumes price discrimination or exclusive dealing by a dominant firm will necessarily be harmful since they have the ability to harm and would therefore act on it. It also uses policy considerations to justify intervention and thus, substantiates itself on non-economic grounds as well. It makes sense that the Executive Order reflects this approach because it comes across as a worried response to Chinese influence in the sector and isn’t based on any economic rationale at all. Economically, Chinese firms feared that they would’ve suffered had the deal gone through! The order defeated its own purpose in a way by putting Chinese fears to rest.
Instead of using this extreme interventionist approach, had antitrust authorities been allowed to complete their review, they could’ve followed the European Commission’s more Chicago-style approach in the Qualcomm-NXP deal focussing on consumer welfare and economic theory; and accepted commitments including divestments in certain sensitive markets like defence and behavioural commitments like royalty-free licensing or non-discrimination even by ensuring a neutral third party’s presence.
The Executive Order, in effect, has been politically futile in terms of blocking Chinese presence in US industries and progressively, a step back for an industry that relies on progress.
Now, as of 5 April 2018, Broadcom has moved its headquarters to Delaware to secure further deals, indicating that the Executive Order route was not the most effective in securing a larger political agenda and may result in a waste of taxpayer money. As a US-entity, Broadcom will again fall under the antitrust radar if it aims to acquire any other US-based technological companies or bid for Qualcomm again. Therefore, there would again be a significant wastage of administrative resources and judicial in-economy in examining the deal again by antitrust regulators (as they were doing for the last few months till the Executive Order was passed), and possibly being tied to accept commitments and divestitures as they would’ve had to even at present, had the deal gone through. Interestingly, this move to shift headquarters to Delaware was announced even before the Executive Order was passed, indicating that the Order is genuinely over-interventionist and not in keeping with globalization or free markets as it couldn’t have genuinely tackled Broadcom’s bid for Qualcomm in itself (since they can rebid as a US-based corporation now) and was probably just a desperate effort at curbing Chinese stronghold in the market without any direct link establishing Chinese presence in the Broadcom bid. Further, it hasn’t dissuaded Chinese companies from investing in the US either. What the order has done is chilled competition and innovation in a market which runs on new technology. The impact of this could be a significant impediment in the development of 5G technology, which directly impacts consumers and innovation in competition.
Had the merger had gone through, it would’ve ensured a higher responsibility on the newly dominant entity to behave in a manner that doesn’t impede competition on merits and warranted close attention by antitrust watchdogs around the world. Additionally, it could’ve ensured some clarity in the debate on royalties for standard essential patents . Last year, the UK High Court of Patents directed worldwide SEP holders like Huawei to issue universal licensing conditions applicable on a worldwide basis. The US had the opportunity to analyze that approach (and bring clarity to the market which largely relies on Qualcomm for chips), which it missed due to executive intervention as the executive order killed the chance for both the FTC and the courts from making any antitrust determination. It seems likely that we may have to wait several years before such an opportunity arises again. Executive orders seem to be moving us backward from embracing the global nature of the economy today and undermining the ability of antitrust laws to strike a balance between consumer welfare and policy considerations.
*Raveena Sethia is an LLM candidate and Trust Scholar at the University of Cambridge.