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Department of Justice Wants to Pause Qualcomm Ruling

By Evan Niu, CFA - Jul 17, 2019 at 3:28PM

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The DOJ antitrust division thinks Qualcomm will win its appeal of the FTC ruling.

It's been nearly two months since the U.S. Federal Trade Commission scored a landmark victory against Qualcomm ( QCOM 1.15% ) in its antitrust suit against the mobile chip giant. That loss has massive implications for Qualcomm's business model, as federal Judge Lucy Koh had ordered the company to renegotiate many of its licensing agreements and change many of its fundamental business practices, but it was always clear that the legal process would be protracted. Qualcomm secured an approval to expedite its appeal last week.

The U.S. Department of Justice is now asking the courts to pause the case.

Qualcomm sign outside of company headquarters

Image source: Qualcomm

Three agencies come to Qualcomm's defense

The DOJ has filed an amicus brief asking a federal appeals court to delay enforcement of Koh's decision, citing potential national security concerns while arguing that enforcement could hurt U.S. competitiveness in 5G technology. Furthermore, the department believes that Koh's decision is incorrect, and that Qualcomm has a decent chance of winning an appeal. From the filing:

The district court's ruling threatens competition, innovation, and national security. Its liability determination misapplied Supreme Court precedent, and its remedy is unprecedented. Immediate implementation of the remedy could put our nation's security at risk, potentially undermining U.S. leadership in 5G technology and standard-setting, which is vital to military readiness and other critical national interests.

The government notes that 5G will be "foundational for new military capabilities," and as such needs a "trusted supplier not tied to foreign governments." That likely refers to Huawei, one of Qualcomm's chief competitors in the race to 5G, which also has extensive ties to the Chinese government. Qualcomm currently has both classified and unclassified contracts with the Department of Defense, and Undersecretary of Defense for Acquisition and Sustainment Ellen Lord submitted a declaration supporting Qualcomm.

"For DoD, Qualcomm is a key player both in terms of its trusted supply chain and as a leader in innovation, and it would be impossible to replace Qualcomm's critical role in 5G technology in the short-term," Lord wrote. "For that reason, DoD is seriously concerned that any detrimental impact on Qualcomm's position as a global leader would adversely affect its ability to support national security."

DOD isn't the only government agency that is worried. The U.S. Department of Energy argues its IT infrastructure could be adversely affected. The DOE's chief information officer, Max Everett, also submitted a written declaration.

"DOE missions may be significantly harmed if the wireless telecommunications and 5G standards and devices, and the underlying research and development that enabled that technology are no longer supplied by Qualcomm and available for use by the Department during this critical period of time," Everett wrote. "The Department is concerned that the unique role played by Qualcomm in the U.S. telecommunications supply chain would not be filled by another U.S. entity, thereby allowing foreign-aligned firms to advance and drive the development and intellectual property underpinnings of international 5G standards instead of the U.S."

The DOJ tried to poke numerous holes in Koh's findings, and believes that Qualcomm "has a likelihood of success" in its appeal.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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