The Taiwan Fair Trade Commission’s Problematic Qualcomm Decision Highlights the Urgent Need for U.S. Leadership in International Antitrust

Joshua D. Wright

In his inaugural policy speech as Assistant Attorney General and head of the Antitrust Division of the U.S. Department of Justice, Makan Delrahim highlighted due process and procedural fairness as critical issues in the global antitrust landscape.  Delrahim rightly observed, “[T]here should be no debate about fundamental approaches to the just administration of the antitrust laws, such as non-discrimination, procedural fairness, and transparency.” With approximately 130 jurisdictions worldwide having active antitrust enforcement regimes, convergence on basic procedural protections and substantive provisions of the antitrust laws remains a hot issue in global antitrust.

At the same time, the temptation is strong for a new or ambitious antitrust agency to score points or flex its muscle by demonstrating aggressive antitrust enforcement. That temptation often comes at the expense of applying proper procedural and substantive methods to antitrust enforcement. That problem is perhaps the most significant challenge facing United States antitrust enforcement agencies, and Delrahim should be applauded for recognizing it as such and for taking the critical first steps necessary to communicate to the rest of the world the United States’ view of appropriate antitrust enforcement.

The Taiwan Fair Trade Commission’s (“TFTC”) decision against Qualcomm Inc., imposing a more than $700 million fine, highlights the magnitude of the problem. And it isn’t going away without a concerted effort from leadership at the United States antitrust agencies, the international antitrust community, and a commitment to economic education at developing competition agencies. Modern antitrust enforcement often involves complex economic analysis and application of the law to dynamic and innovative industries and business models. This combination implies the antitrust enterprise is necessarily a fact-intensive one that embraces a variety of approaches and methods. But there are also procedural and substantive commitments shared by the international antitrust community. The TFTC’s process and substantive analysis in the Qualcomm decision demonstrate quite clearly that the TFTC failed to comport with some of the most basic and fundamental requirements for proper adjudication of antitrust laws.

Indeed, three of the TFTC’s seven commissioners found the decision was sufficiently detached from established norms to take the relatively rare step of issuing strong dissenting opinions. The TFTC decision violates the global consensus on mandatory precepts for antitrust enforcement in three fundamental respects. First, throughout the process, the TFTC repeatedly failed to honor basic due process protections. Second, the TFTC failed to articulate a cognizable theory of competitive harm or to provide any economic evidence supporting such a theory. Third, the TFTC failed to articulate (let alone prove) any harm to the competitive process rather than harm to mere competitors. I’ll elaborate briefly on each of the three deviations from accepted standards of care in antitrust enforcement.

1. Failure to provide due process and procedural protections

Competition authorities, courts, and experts across the globe all acknowledge that due process and procedural transparency are critical to the investigative process. Organizations like the International Competition Network (“ICN”) and the Organisation for Economic Co-operation and Development (“OECD”) have invested significant efforts to developing some now well-established norms regarding basic due process and substantive requirements for antitrust enforcers. The ICN, for instance, describes due process and procedural transparency as “essentialto sound competition law enforcement.” And the OECD likewise explains that “[f]airness and transparency are essential for the success of antitrust enforcement” as they “ensure a better understanding of the facts [] and help improve the quality of evidence and reasoning on which the agency bases its enforcement actions.” In other words, due process protections not only provide a predictable framework for defendants, but also enhance outcomes by ensuring that an enforcer’s theories are rigorously tested against the defendant’s best responses and against all the available evidence—rather than just some cherry-picked pieces. These norms provide for the bare minimum standards competition agencies should satisfy in conducting investigations, such as opportunity to review the case file, providing a written document setting forth the theories of harm and evidence relied upon, and an opportunity to present specific evidence and arguments addressing or rebutting the evidence and theories advanced by the competition authority.

Despite the well-recognized need for proper due process, the TFTC conducted an investigation without providing a specific written explanation of its legal and factual basis. The TFTC, for instance, refused to disclose to Qualcomm all the business practices under investigation, the full legal theories it was considering, or the evidence of harm upon which it intended to rely. In fact, prior to receiving the final decision itself, Qualcomm received little more than a short form letter with vague allegations and summary conclusions. Nor did the TFTC permit Qualcomm to review the full case file or to engage with the TFTC’s purported evidence; it provided only a subset of the file, and those documents were so heavily redacted as to be illegible.

The process the TFTC afforded Qualcomm in this case thus failed to comport with established international standards. It calls into serious questions the TFTC’s conclusions—which were never tested against the full evidence, as the dissenting Commissioners note. Such conduct can also have far-reaching effects. Indeed, one of the dissenting TFTC Commissioners emphasized that the TFTC’s lack of restraint in exercising its own power and failure to provide due process threatened the agency’s independence.

2. Failure to show harm to competition through economic theory or analysis

Economic analysis and evidence is the lodestar of modern antitrust analysis. The typical experience in a competition agency evaluating business conduct for potential antitrust violations is an iterative process during which the agency shares its competitive concerns with the company under investigation, and the company responds to those concerns with data, economic analysis, and other evidence. Appropriate substantive and economic analysis, of course, cannot occur without due process. But without a clear theory of harm—an explanation of why particular conduct violates the antitrust laws and how it harms competition and consumers—it is impossible to know what evidence would be responsive to the agency’s concern.

The TFTC concludes that certain of Qualcomm’s business practices violated the Taiwan Fair Trade Act (“TFTA”). But it provides no sound theory—let alone significant evidence—explaining why these practices harmed consumers. One might think that evidence of the harm to consumers arising from business practices that had been in the market for nearly a decade would not be hard to find. Perhaps evidence of higher prices? Or lower output? Or less innovation? But the TFTC decision offers none. Nor is there any analysis to suggest the conduct at issue harmed any consumers. With the quality-adjusted price of smartphones falling over time, it is hard to imagine what evidence the TFTC would have produced. A TFTC dissenting Commissioner again highlighted this weakness in the TFTC’s analysis, concluding its combination of illogical economic reasoning and lack of professional economic analysis were insufficient to support the TFTC’s decision.

The void of economic analysis or evidence in the TFTC decision stands out against the evidence-based analysis that has become the international norm. For example, the European Court of Justice recently remanded the European competition authority’s $1.2 billion fine against Intel for a similar failure to connect the allegedly unlawful conduct to economic proof.

3. Failure to protect consumers rather than rivals

Another hallmark of modern antitrust analysis is the distinction between harming competition—the proper focus of the antitrust laws—as opposed to harming competitors. This distinction lies at the heart of modern antitrust analysis because nearly all forms of competitive rivalry that benefits consumers—competition itself—harms a rival. The TFTC’s decision stands out against this approach as it reflects a clear willingness to condemn a firm for engaging in conduct that harms its less efficient rivals—even conduct that benefits Taiwanese consumers.

The harm to competition requirement is the bedrock of international antitrust enforcement. Since at least the mid-1990s, the OECD acknowledged the global consensus that the goal of antitrust laws is “to protect the process of competition rather than the viability of individual competitors,” and has since elaborated that “a practice is not considered exclusionary when it causes rivals to falter only because they are inept.” Individual countries have likewise explained that harm to competitors is insufficient to demonstrate harm to competition itself. The U.S., for instance, has repeatedly explained antitrust laws exist to protect “competition, not competitors.” The European Union has similarly stated that “what really matters is protecting an effective competitive process and not simply protecting competitors,” and that this “may well mean that competitors who deliver less to consumers in terms of price, choice, quality and innovation will leave the market.” Numerous other jurisdictions echo this policy goal, including Korea, China, and Japan.

The TFTC’s decision against Qualcomm, however, is in clear tension with this global consensus. The decision discusses in several places the difficulties Qualcomm’s competitors, most notably Taiwanese competitors MediaTek and VIA Telecom, purportedly faced because Qualcomm’s chips are superior. That bears repeating: the TFTC acknowledges that harm to Qualcomm’s rivals derived largely from its ability to outcompete them through offering better products. As one dissenting Commissioner rightly explains, protecting “competitors” rather than “competition” departs from the legislative purposes of the TFTA. The difficulties of competition are the very nature of competition and should be celebrated by competition authorities rather than condemned. As U.S. AAG Delrahim rightly warned, using the antitrust laws to protect domestic companies results in economies that “typically grow stagnant[,] deliver less value to domestic customers, and fare poorly on global markets.”

Conclusion

With approximately 130 antitrust regimes around the world, competition to provide the intellectual leadership to guide the international antitrust community is more intense now than it has ever been. The presence and persistence of the U.S. on these issues are more important than ever, as well. U.S. AAG Delrahim’s timely statements on the importance of due process and agency transparency are a critical first step towards the U.S. playing a greater role in facilitating the healthy development of due process protections and substantive antitrust law around the world. The TFTC’s Qualcomm decision clearly demonstrates the urgent need for further steps and continued leadership from American antitrust agencies.

Joshua D. Wright

Executive Director

Global Antitrust Institute, Antonin Scalia Law School, George Mason University


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