By Corbin K. Barthold, Senior Litigation Counsel at Washington Legal Foundation.

In 2017 the Federal Trade Commission sued Qualcomm for antitrust violations. In May a federal trial judge in San Jose ruled for the FTC and imposed broad restrictions on how Qualcomm may sell its technology and its products. Qualcomm’s appeal is pending before the U.S. Court of Appeals for the Ninth Circuit.

The Qualcomm case has sparked dissent within the FTC and incited a public feud between the FTC and the Department of Justice. It has laid bare some of the more glaring flaws of our nation’s giant, wasteful, unmanageable government apparatus.

No one reform can fix those flaws. The Qualcomm case shows, however, that we might do well to start with the judge-made limits on the president’s removal power.

A Weak Antitrust Lawsuit

Qualcomm has long been a major inventor of cellular technology. Every mobile phone uses technology Qualcomm created and patented. Some of these patents are “standard essential”: they claim inventions that standards organizations, seeking to ensure that all mobile phones can operate on a common network, have adopted as industry norms. To convince a standards organization to adopt its patented technology as an industry norm, a company must agree to license use of the technology on “FRAND” terms—terms that are fair, reasonable, and non-discriminatory.

Besides creating and licensing cellular technology, Qualcomm sells the modem chips that connect a mobile phone to a network. Qualcomm generally sells these chips only to mobile-phone makers that also purchase a license to use Qualcomm’s wider body of cellular-technology patents. Further, Qualcomm generally does not license its patents to other chip makers. The FTC contends that these two practices—Qualcomm’s “no license, no chips” policy and its refusal to license patents to rival chip makers—violate the antitrust laws.

It’s not a strong case. Qualcomm does not collect higher licensing fees from phone makers that decline to use its chips, so it’s not clear how the “no license, no chips” policy is anticompetitive. The policy appears merely to discourage phone makers from trying to use Qualcomm’s cellular technology without paying for it.

The refusal-to-deal allegation is even weaker. A major goal of antitrust policy is to discourage undue cooperation between competing firms. It is, therefore, almost never unlawful for a company to refuse to treat with a rival.¹ Only one situation requires scrutiny: when a monopolist ends an established course of dealing without a rational business reason for doing so. But Qualcomm is not necessarily a chip monopolist; it probably never dealt much with other chip makers; and it certainly had good reason not to license to rivals. There is broad agreement on this last point. Even the trial judge acknowledged that Qualcomm makes more money by licensing its patents only to phone makers.

It is no answer to point to Qualcomm’s FRAND obligations. Those are a matter of private contract, and violating them should lead, at most, to an award of contractual damages. Instead Qualcomm has been subjected to antitrust scrutiny and ordered to restructure its business model. 

An Institutional Imbroglio

But put to one side the lawsuit’s merits. What’s truly startling is how the government has proceeded with the case. The FTC filed its complaint three days before the end of the Obama administration. Only two commissioners voted to bring the action. Two other seats were vacant, and one commissioner, Maureen Ohlhausen, dissented. “I face an extraordinary situation,” she wrote. She declined to approve a lawsuit brought “on the eve of a new presidential administration,” based “on a flawed legal theory,” and likely to “undermine U.S. intellectual property rights in Asia and worldwide.”²

From there the fractiousness within the government only escalated:

• After the close of trial, the Department of Justice asked the court, should it find antitrust liability, to hold a hearing on remedies. In response the FTC filed a statement accusing the DoJ of “misconstruing” the law and the record.³
• Two weeks after the trial court issued its final decision,⁴ the head of the DoJ Antitrust Division, in prepared remarks delivered abroad, criticized a key piece of the FTC’s theory of liability. “In the view of the United States, violating a FRAND commitment, by itself, should not give rise to an antitrust claim,” he said. “Contract law,” he continued, “is available and adequate to remedy such conduct. Any additional deterrence that the Sherman Act could offer risks curbing procompetitive conduct and reducing innovation.”⁵
• The trial court’s decision also ignited further dissension within the FTC. Commissioner Christine Wilson took the extraordinary step of publishing an op-ed denouncing the ruling, which she called “both bad law and bad policy.” “The expropriation of American technology will continue,” she wrote, “but now under the auspices of U.S. law.”⁶
• On appeal Qualcomm moved to stay the trial court’s ruling. The DoJ filed a statement in support of the motion, as well as a declaration from an undersecretary of the Department of Defense. Curtailing Qualcomm’s “technological leadership,” even “in the short-term,” could “harm national security,” the undersecretary declared. “Qualcomm,” she explained, “is both the U.S. and global leader in 5G [cellular] technology,” and “a weakening of Qualcomm’s position” would enable “China to expand its influence on the 5G standard setting process.”⁷
• Opposing the stay motion, the FTC observed that the undersecretary’s declaration amounts to “an assertion that Qualcomm should be immune from antitrust scrutiny.” The FTC also accused the DoJ of making “groundless” and “erroneous” claims, “raising unsubstantiated concerns,” and “mischaracterize[ing] the [trial] court’s analysis.”⁸

One set of government lawyers and officials is engaged in a long, involved, and increasingly acid spat with another set of government lawyers and officials. This much is clear: both sides are billing the taxpayer.

Something has gone wrong.

A ‘Quasi-Legislative’ Body

Yes, the Constitution confers rights. But mainly it divides power. That, indeed, is the first thing it does. It vests the “legislative Powers” in Congress and the “judicial Power” in the federal courts.⁹ The “executive Power” it vests “in a President.”¹⁰

Note well: the executive power is not handed to agencies or bureaucrats. It is given to “a President.” It is he, the Constitution says, who must “take Care that the Laws be faithfully executed.”¹¹ And so it is he, Madison declared, who must hold “the power of appointing, overseeing, and controlling those who execute the laws.”¹² If President Kennedy really once told a citizen, “I agree with you, but I don’t know if the government will,” he was commenting on a structural malfunction.

Unified control fosters accountability. If the DoJ Antitrust Division sues Qualcomm and makes a mess—the lawsuit cripples America’s development of 5G technology—the president is directly linked to the debacle. The Antitrust Division answers to the Attorney General, and he answers to the president, who can remove him at will.¹³ If voters are sufficiently incensed about the Antitrust Division’s conduct, they can legitimately hold that against the president at the next election.

So the DoJ must listen to the president, and the president holds all executive authority, the better to ensure that he in turn must listen to the people. But then how can the FTC defy the DoJ?

We know the answer, suspect though it may be, because Commissioner William Humphrey ignored a letter from FDR telling him he was fired. Humphrey just kept showing up for work. Before long eternity’s power of removal achieved what FDR’s had not, and Humphrey’s estate sued the government for unpaid wages.

The president had until then been able to remove any senior officer at will.¹⁴ According to the FTC Act, however, the president may remove a commissioner only “for inefficiency, neglect of duty, or malfeasance in office.”¹⁵ FDR’s only qualm with Humphrey had been a want of enthusiasm for the New Deal. “I do not feel,” he had told Humphrey, “that your mind and my mind go along together on either the policies or the administering of the Federal Trade Commission.”¹⁶

Acting, many at the time believed, chiefly out of spite toward FDR, the Supreme Court declared in Humphrey’s Executor v. United States¹⁷ that the president must obey the FTC Act’s cause condition. To justify this new limit on the president’s removal power, the Court transformed the FTC’s defects into virtues. The FTC’s duties, the Court declared, “are neither political nor executive, but predominantly quasi-judicial and quasi-legislative.” Congress just wanted to create a “nonpartisan” “body of experts,” and, thanks to these good intentions, the FTC was valid precisely because Congress made it “independent of executive authority.”

The Founders were no naïfs. They did not believe in fantasies like politically neutral government bodies. Ambition, they maintained, must be made to counteract ambition.¹⁸ No surprise therefore that the Constitution never blesses arming an agency with an amorphous blend of “quasi” powers. As Justice Jackson wrote, “the mere retreat to the qualifying ‘quasi’ is implicit with confession that all recognized classifications have broken down.”¹⁹

Humphrey’s Executor acceded to the founding of a new branch of government. In that branch—in the FTC, the SEC, the FCC, the CFTC, the NLRB, and on and on—unelected regulators wield the executive power (among others). They apply the law in accord with their own policies, their own maxims, their own vision. When their aims conflict with the (original) executive branch’s, they need not yield.

A Quandary

What if Humphrey’s Executor were overturned?

The presidents of our day claim that they may govern with a pen and a phone; that they may do whatever they want. And this attitude is not going anywhere. The method by which we choose a leader does not favor the person who pledges to limit his branch’s power, to strive to make those under him do the same, and otherwise to keep quiet and stay out of the way. Those who warn against executive supremacy—the few, at least, who do so regardless of which party controls the White House—should never stop.

But the independent agencies are no paragons of restraint or rule-following either.²⁰ Nor are they dispassionate arbiters. They are generally honest and hardworking; but they are also partisans who consult their own interests.²¹

If the president regained his power to remove any officer at will, he would still pay a political price for abusing that power. And because the power would touch only officers, he would still have only limited control of the career staff. His restored authority might not enable him to do much beyond heading off the odd spectacle—say, a bitter confrontation, in open court, between the FTC and the DoJ.

In any event, this is supposedly a republic. Government by consent of the governed and all that. Faced with the sins of democracy (e.g., ignorance, inconstancy), on the one hand, and the sins of bureaucracy (e.g., arrogance, ineptitude), on the other, our founding dogmas instruct us to lodge our hopes in the people.²² Besides, if popular vices are to do us in, there is, in the end, nothing for it. A paternalistic ruling class cannot long preserve us from ourselves.²³

None of which is to say that the Supreme Court will ditch Humphrey’s Executor. A justice or two may be zealous for purity. More desire continuity or—dare it be said?—prefer a government unshackled from the original constitutional rules. And it might indeed be wisest, taking one thing with another, not to go so far.

But we should not blindly assume that keeping Humphrey’s Executor makes sense. Look no further than the self-destructive sniping in the Qualcomm case. The constitutionality of insulating officers from at-will removal deserves fresh attention.

A Step Toward Reform

The Court can at least avoid doing further damage.

In 2010 Congress created the Consumer Financial Protection Bureau. Like agency commissioners and board members, the director of the CFPB can be removed only for cause. Unlike those officers, however, the director serves by herself. She alone decides what rules the CFPB will issue. She alone decides whether a company has violated those rules, whether the violation will trigger an enforcement action, and whether the penalty for the violation will be mild or severe. And because she serves a five-year term, she will often be doing all this under a president who did not even appoint her.²⁴

The Court has been asked to decide whether the CFPB’s structure is constitutional.²⁵ It should take up the question and answer “no.” This wouldn’t be much, but it wouldn’t be nothing.

Some realism is in order. Hamilton wanted an executive department capable of “decision, activity, secrecy, and despatch.”²⁶ No mere court ruling—not one making the CFPB director removable at will; not even one overturning Humphrey’s Executor—will place those qualities in the modern executive branch. Our massive, tangled, sclerotic, refractory federal government will continue to war against itself.

It is (to borrow from Carlyle²⁷) a crowd of brother-men, fighting so fiercely with Fate and with one another; struggling their lives out, as most sons of Adam do, for that which profiteth not.

Notes

1. Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).
2. Dissenting Statement of Commissioner Maureen K. Ohlhausen, In the Matter of Qualcomm Inc., No. 141-0199 (FTC, Jan. 17, 2017).
3. FTC v. Qualcomm Inc., No. 5:17-cv-220, Dkt. 1489 (N.D. Cal. May 9, 2019).
4. Id., Dkt. 1490 (May 21, 2019).
5. Makan Delrahim, “Don’t Stop Thinking About Tomorrow”: Promoting Innovation by Ensuring Market-Based Applications of Antitrust to Intellectual Property (June 6, 2019).
6. Christine Wilson, A Court’s Dangerous Antitrust Overreach, Wall St. J. (May 28, 2019).
7. FTC v. Qualcomm Inc., No. 19-16122, Dkt. 25 (9th Cir. July 16, 2019).
8. Id., Dkt. 30 (July 18, 2019).
9. U.S. Const. Art. I, § 1; Art. III, § 1.
10. Art. II, § 1, cl. 1.
11. Art. II, § 3.
12. 1 Annals of Cong. 463 (1789).
13. See Myers v. United States, 272 U.S. 52 (1926).
14. Id.
15. 15 U.S.C. § 41.
16. Letter from Franklin D. Roosevelt to William E. Humphrey (Aug. 31, 1933).
17. 295 U.S. 602 (1935).
18. Federalist No. 51.
19. FTC v. Ruberoid Co., 343 U.S. 470, 487-88 (1952) (Jackson, J., dissenting).
20. Ask Mark Cuban. CNBC.com, Mark Cuban: SEC Case Was Personal; I Did Nothing Wrong (Oct. 23, 2013).
21. Joe Schoffstall, Federal Government Workers Donating Overwhelmingly to Democrats, Wash. Free Beacon (Oct. 16, 2017).
22. E.g., McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 404-05 (1819).
23. “A censor may maintain, he can never restore, the morals of a state. It is impossible for such a magistrate to exert his authority with benefit, or even with effect, unless he is supported by a quick sense of honor and virtue in the minds of the people, . . . and by a train of useful prejudices combatting on the side of national manners. In a period when these principles are annihilated, the censorial jurisdiction must either sink into empty pageantry, or be converted into a partial instrument of vexatious oppression.” Edward Gibbon, The Decline and Fall of the Roman Empire, vol. I, ch. X (1776).
24. See PHH Corp. v. CFPB, 881 F.3d 75, 165-66 (D.C. Cir. 2018) (Kavanaugh, J., dissenting).
25. Seila Law LLC v. CFPB, No. 19-7 (U.S., filed June 28, 2019).
26. Federalist No. 70
27. The French Revolution, vol. I, book VI, ch. II (1837).