Texas Judge rules for White House over Huawei

Huawei has faced a setback in its pursuit of legitimacy in the US. as a Texas District Court ruled against its lawsuit directed towards the National Defense Authorization Act (NDAA).

Judge Amos Mazzant of the US District Court in East Texas ruled that section 889 of the NDAA was valid and legal. Huawei had argued the clause, which effectively banned it and ZTE from working with any company receiving federal funding, was unconstitutional on the grounds it presumed guilt without a fair trial.

While a Huawei victory was hardly going to make an impression with the single-minded White House policy makers, this is a victory for the Government, seemingly validating its decision.

“Contracting with the federal government is a privilege, not a constitutionally guaranteed right – at least not as far as this court is aware,” Judge Mazzant said in the ruling, first reported by Reuters.

This is an interesting nuance which has been put forward by Judge Mazzant. Huawei has argued the clause banning service providers from spending federal money on Chinese equipment is unconstitutional, though Judge Mazzant has stated that the Government should have the right to control how its money is allocated and spent. The Act does not prevent Huawei from doing business in the US entirely, which keeps the Government on the right side of the line.

The lawsuit, which was filed in March 2019, stated that Congress was acting in violation of the US Constitution as it was denying the firm the right to bid on both Government and private sector contracts. Huawei suggested the Act was a Bill of Attainder, as it presumed guilt without trial. Under Article I Section 9 in federal law, and in state law under Article I Section 10, US Constitution forbids such actions.

For the US, this could add some momentum to the already existing propaganda campaign against China and seemingly all companies from China. This ruling could add buoyancy to the Simple Resolution which has recently been passed in the House of Representatives.

The resolution, which can be used to influence administrative actions and foreign policy, stated that the House of Representatives believed all Chinese countries were effectively under Government control, state-owned or private. Such a broad-brush approach to condemnation is a very dangerous and small-minded approach to take, though the anti-China rhetoric could be offered a new lease of live…

Huawei dismisses fresh US racketeering charges

Huawei has publicly rebutted the new superseding charges of racketeering and trade secret theft filed by the US Department of Justice.

Officials from the DoJ and the FBI announced the charges against Huawei as well as two of its official subsidiaries, Huawei Device Co. Ltd. (Huawei Device), Huawei Device USA Inc. (Huawei USA), and two of its unofficial subsidiaries, Futurewei Technologies Inc. (Futurewei) and Skycom Tech Co. Ltd. (Skycom). Also on the defendants list is Huawei’s CFO, Meng Wanzhou (Meng), already in detention in Canada fighting her extradition case. The new charges being a superseding indictment means it contains and expands on the earlier charges officially announced in January 2019. As a result, most of cases listed out in detail in the full document are familiar to those following the Huawei vs. USA saga closely.

Huawei denies all the charges. “This new indictment is part of the Justice Department’s attempt to irrevocably damage Huawei’s reputation and its business for reasons related to competition rather than law enforcement,” the company said in a statement. “These new charges are without merit and are based largely on recycled civil disputes from last 20 years that have been previously settled, litigated and in some cases, rejected by federal judges and juries. The government will not prevail on its charges, which we will prove to be both unfounded and unfair.”

The charges broadly fall into two categories: racketeering and breaking US international sanctions.

Most of them fall into the first category. The DoJ alleges that Huawei and the associated parties have violated the 1970 “Racketeer Influenced and Corruptions Act (RICO)”. The law, targeted at organised crimes, lists 35 types of offenses that may qualify as “racketeering”, from bribery and kidnapping to obstruction of criminal investigation by law enforcement agencies and everything in between. In the present case, the DoJ accused Huawei of “misappropriated intellectual property included trade secret information and copyrighted works, such as source code and user manuals for internet routers, antenna technology and robot testing technology”, then, after winning unfair competitive advantages, Huawei and its subsidiaries reinvesting the gains from this “alleged racketeering activity in Huawei’s worldwide business, including in the United States.”

Specifically this category of actions allegedly include “entering into confidentiality agreements with the owners of the intellectual property and then violating the terms of the agreements by misappropriating the intellectual property for the defendants’ own commercial use” and poaching competitor employees the “directing them to misappropriate their former employers’ intellectual property”, as well as “using proxies such as professors working at research institutions to obtain and provide the technology to the defendants.” Huawei is also alleged to have incentivised its employees for obtaining the most valuable competitor information.

When it comes to breaking sanctions, the indictment, updated with more details, is against Huawei and its subsidiaries’ alleged “business and technology projects in countries subject to U.S., E.U. and/or U.N. sanctions, such as Iran and North Korea – as well as the company’s efforts to conceal the full scope of that involvement.”

Meanwhile, the Department of Commerce decided to renew the Temporary General License for Huawei for 45 more days, which means American companies can have another one and half months to do business with Huawei legally while moving “to alternative sources of equipment, software and technology”, the DoC said.

In response to the DoC decision, Huawei reiterated its position that it should be removed the government’s Entity List completely instead of being granted one at a time. Not doing so “has done significant economic harm to the American companies with which Huawei does business, and has already disrupted collaboration and undermined the mutual trust on which the global supply chain depends,” the company said in an emailed statement.

Incidentally, while the DoJ alleged Huawei of using scholars to gain access to advanced technologies otherwise unavailable to it, the Department of Education has launched an investigation into gifts from foreign governments to America’s top universities, with Harvard and Yale being singled out. These two schools as well as other Ivy League and leading schools including Georgetown, Texas A&M, Cornell, Rutgers, MIT, and Maryland, have failed to declare fundings from Qatar, China, Saudi Arabia, and the United Arab Emirates. The DoE said since its enforcement efforts started in July last year, $6.5 billion previously undisclosed foreign money has been reported.

The crackdown on the US academics’ links to the Chinese government went up a notch when late last month, Charles Lieber, the chair of Harvard University’s department of chemistry and chemical biology and one of the world’s leading nanoscientists, was arrested for lying about his link with Chinese government-sponsored lab in China as well as the hefty payments ($50,000 per month) he received.

FTC starts turning the screw on Big Tech

The Federal Trade Commission (FTC) has issued Special Orders to five of the technology industry’s biggest hitters as it takes a more forensic look at acquisition regulation.

Under the Hart-Scott-Rodino Act, certain acquisitions or mergers are required to be greenlit by the regulatory authorities in the US before completion. This is supposed to be a measure to ensure an appropriate marketplace is maintained, though there are certain exceptions to the rule. It appears the FTC is making moves to combat the free-wheeling acquisition activities of Big Tech.

Under the Special Orders, Google, Amazon, Apple, Facebook and Microsoft now have to disclose all acquisitions which took place over the last decade. It appears the FTC believes the current rules on acquisition need to be reconsidered.

“Digital technology companies are a big part of the economy and our daily lives,” said FTC Chairman Joe Simons. “This initiative will enable the Commission to take a closer look at acquisitions in this important sector, and also to evaluate whether the federal agencies are getting adequate notice of transactions that might harm competition. This will help us continue to keep tech markets open and competitive, for the benefit of consumers.”

While authorities have already questioned whether some acquisitions are in the best interest of a sustainable industry, in fairness, Big Tech has done nothing wrong. Where relevant, the authorities have been notified regarding acquisitions, and they have generally been approved. If the FTC and its cousins in other regulatory authorities believe the current status quo is unappealing, they only have themselves to blame.

In general, an acquisition will always have to be reported if the following three criteria are met:

  1. The transaction would have an impact on US commerce
  2. One of the parties has annual sales or total assets of $151.7 million, and the other party has sales or assets of $15.2 million or more
  3. The value of the securities or assets of the other party held by the acquirer after the transaction is $68.2 million or more

All three of these criteria have to be met before the potential acquisition has to be approved by the regulators.

Interestingly enough, the Android acquisition by Google is rumoured to be for roughly $50 million, therefore the third criteria was not met, and the team did not need to gain regulatory approval for the deal. This is perhaps what the FTC is attempting to avoid in the future, as while we suspect there was no-one in the office at the time with enough foresight to understand the implications, the regulator might suggest it would not have approved the deal in hindsight.

One of the issues being faced currently, and this is true around the world not just in the US, is that authorities feel they have lost control of the technology industry. Companies like Google and Facebook arguably wield more influence than politicians and regulatory authorities, a position few will be comfortable with outside of Silicon Valley.

Aside from this investigation, the FTC is also exploring Amazon in an antitrust probe, while Google and Facebook are facing their own scrutiny on the grounds of competition. There have also been calls to break-up the power of the technology companies, while European nations are looking into ways to force these companies to pay fair and reasonable tax. Across the world, authorities are looking for ways to hold Big Tech more accountable and to dilute influence.

Interestingly enough, we don’t actually know what the outcome of the latest FTC foray will be. It will of course have one eye on updating acquisition rules, though as Section 6(b) of the FTC Act allows the regulator to conduct investigations that do not have a specific law enforcement purpose; it’s a blank cheque and the potential outcome could head down numerous routes.

The EU starts hassling US tech companies again

Facebook and Qualcomm look set for another round of scrutiny from the European Commission around their business practices.

According to the WSJ, Facebook is being asked to hand over internal documents to EU antitrust investigators so they can have a deeper look into whether or not it used dirty tricks against its competition. The allegation is that Facebook made use of its users’ data to skew the market in its favour by bribing partners to stay loyal.

That’s the sort of thing Qualcomm has got into trouble with the European Commission about in the past and, according to Reuters, lightning may be about to strike twice. Qualcomm revealed in a regulatory filing accompanying its recent quarterlies that the EU is investigating whether it abused its dominant position in radio frequency front-end chips.

It seems the EU is concerned that Qualcomm is using its near monopoly in 5G modems to strongly encourage customers to buy its RF chips too. Apparently sales of RF chips were a factor in issuing a better than expected forecast. As ever this will all drag out as lawyers and antitrust types get bogged down in the minutiae of it all, but it seems clear that the EU’s appetite for hassling US tech companies is undiminished.

Netherlands named as Europe’s meanest GDPR henchman

The Netherlands has seen the most GDPR breach notifications reported to the regulator, but the spread of activity, or inactivity in some nations, is quite remarkable.

In the eight months since GDPR was officially written into European regulations, law firm DLA Piper has said regulators have been alerted to breaches more than 59,000 times. The Netherlands, Germany and the UK have seen the biggest numbers of notifications, with 15,400, 12,600 and 10,600 respectively, though the new privacy status quo has not been embraced with such enthusiasm everywhere.

“GDPR has driven the issue of data breach well and truly into the open,” said Ross McKean, a partner at DLA Piper, “The rate of breach notification has increased by over 12% compared to last year’s report and regulators have been busy road-testing their new powers to sanction and fine organisations.”

The scale and depth of these breaches vary considerably, a mis-sent email there and a cybersecurity hack here, but the number does represent a significant shift in the tides; data breaches are now being taken seriously, or at least in some nations.

As you can see from the table below, we have selected the ten largest economies across the bloc, the variance is quite interesting.

Nation Breaches in total Breaches per 100,00 people
Germany 12,600 15.6
UK 10,600 16.3
France 1,300 1.9
Italy 610 0.9
Spain 670 1.3
Netherlands 15,400 89.8
Sweden 2,500 24.9
Poland 2,200 5.7
Belgium 420 3.6
Austria 580 6.6

There might be a few reasons for increased number of notifications in certain countries, allowing for the presence of different industries. For example, Ireland has the 4th largest number of notifications to the data watchdog (c.3,800) but the 20th smallest population (out of 28). This is also a country where the economy and society is dominated by the presence of the technology sector.

This will explain some of the variance on figures, but not completely. Take Italy for example. This is the 4th largest economy across the bloc, but in the eight months since May 25 when GDPR was introduced, the regulator was only notified of 610 data breaches. There are two explanations for such a low figure:

  • Italian businesses have some of most advanced data protection policies and mechanisms worldwide
  • The culture of owning mistakes and reporting data protection and privacy inadequacies is almost non-existent in the country

We have made the Italians the centre of this point, but there are quite a few who would fall into this category of (a) squeaky clean or (b) don’t care about GDPR. Spain has 670 breach notifications to the regulator, Belgium 420, Greece 70, Cyprus 35 and Liechtenstein 15.

Although GDPR has certainly made promising sets forward in forcing a more privacy orientated society and economy, the issues will continue to persist unless the same stringent attitudes are adopted across the board. Such is the fluidity and borderless nature of the digital economy, a weak link in the chain can cause disruption. All economies are interlinked, make no doubt about that.

Interestingly enough, momentum will gather as the digital economy becomes more complex. Security and data protection are still not high enough priorities on the corporate agenda, although trends are heading the right direction. Breaches will still continue to occur, and fines will start to get very large.

GDPR violations carry a maximum penalty of €20 million or 3% of annual revenues. These numbers can be reduced if the breach is reportedly in a timely manner and the company is helpful. However, fines to date have not been to this magnitude largely because the incidents occurred prior to the introduction of GDPR. Any breach which occurred after May 25 will be met with a much sharper stick than previously.

For example, Equifax is a company which collects and aggregates information on over 800 million individual consumers and more than 88 million businesses worldwide. Hundreds of millions of customers and consumers were impacted by the Equifax data breach of 2017, though the maximum fine which could be imposed by the UK’s Information Commissioner’s Office (ICO) was £500,000. Under GDPR, Equifax would have been fined £20 million.

GDPR took Europe into the 21st century when it comes to data protection and privacy. It forced companies and regulators to take a more stringent approach to the security of personal and corporate information. Despite the pain everyone had to endure to be GDPR-compliant, it should only be viewed as a good thing.

Data breaches are almost certainly going to continue, but one thing you can guarantee is the numbers are going to be getting a lot bigger.

Indian Supreme Court rejects telcos appeal over government bill

The billions owed by Vodafone Idea and Bharti Airtel for historic license fees must be paid after the Indian Supreme Court rejected their appeal.

The two massive operator groups appear to be running out of options, having spent the latter half of last year first contesting the fees, then begging for clemency and then finally threatening to exit the market if they’re given no relief over their massive financial burden. Typically the Supreme Court is where you turn to when you’ve tried everything else, but in this case it was that same court that enforced the fees last year.

Reuters reports that it’s specifically petitions seeking a review of last year’s order that have been rejected, indicating that the Supreme Court has seen nothing since then to persuade it any mistake was made. In today’s money Vodafone Idea owes £3.9 billion and Bharti Airtel $3 billion. This decision is sure to bring a fresh wave of existential angst from the beleaguered operators.

So what next? There will be talk of further petitions and that sort of thing but it looks like the Supreme Court is not for moving. That just seems to leave the political angle. The money is owed to the government, so it’s presumably within its power to at least ease the burden. In most countries MNO competition is considered vital to a healthy telecoms sector, but the way the Indian government has acted since the creation of Reliance Jio suggests otherwise in India.

It’s déjà vu all over again as Vivendi suffers another Italian defeat

Italian Media company Mediaset wants to merge its Italian and Spanish businesses, something that significant shareholder Vivendi opposes.

The combined company would be called MediaFor Europe and a Mediaset EGM recently voted to go ahead with the merger plan. French conglomerate Vivendi owns around 30% of Mediaset, but two thirds of its stake is held in a trust by a company called Simon Fiduciaria, following a ruling by the Italian telecoms regulator that owning big chunks of both Mediaset and operator group TIM violates media plurality laws.

Subsequently it seems to have been decided that Simon Fiduciaria doesn’t get a vote in Mediaset general meetings, thus greatly diminishing Vivendi’s voice at such events. Vivendi reckons that’s the only reason the Berlusconi family, which owns almost half of Mediaset via its investment vehicle Finnivest, won the recent vote and it’s not happy about it.

Vivendi deplores today’s irregular approval by the Mediaset Extraordinary Shareholders Meeting of the new merger plan regarding MediaForEurope,” said a Vivendi press release. “The new plan has only gained approval because of the unlawful refusal to allow Simon Fiduciaria (which holds 19.9% of Mediaset share capital) to vote, relying on an interpretation of the Italian media law which is contrary to the EU Treaty.

“In addition, the new plan was adopted ignoring Italian law procedures regarding trans-border mergers, including the withdrawal rights for shareholders, and has merely removed some blatantly abusive clauses, without modifying the disproportionate rights granted to Fininvest.

“All recent judicial decisions and opinions, in particular from the Advocate General of the Court of Justice of the European Union in December, have not discouraged Fininvest’s representatives in the Mediaset Board from depriving minority shareholders of their most basic rights. The Mediaset Board has once again placed the company in a situation of serious legal uncertainty.”

All this huffing and puffing from a massive conglomerate that routinely tries to hijack the running of large companies without going to the trouble of buying them is a bit rich. Last year Vivendi’s protracted attempt to do so at TIM failed and history seems to be repeating itself, with Mediaset regarding Vivendi’s interests in the company as hostile. Vivendi’s principle objection to this merger seems to be a dilution of its shareholding in the combined entity, rather than anything to do with the strategy and health of the company as a whole.

Philips files wearables patent complaint against Fitbit and Garmin

The US International Trade Commission (USITC) has said it will formally kick-off an investigation into Fitbit, Garmin and other parties, following a patent complaint from Philips.

Although the original filing was made last month, the probe into now Google-owned Fitbit, Garmin, Ingram Micro, Maintek Computer and Inventec Appliances can now begin after a vote from the USITC. Philips has suggested the parties have violated three of its patents in health monitoring and smart watch products.

Details might be a bit thin on the ground, though the three patents which Philips believes are in violation are:

  • US Patent No. 7,845,228: Activity motion tracking
  • US Patent No. 9,820,698: Actigraphy methods and apparatuses
  • US Patent No. 9,717,464: A continuous transdermal monitoring system
  • US Patent No. 9,961,186: A Personal Emergency Response System (PERS) system which is not confined to the individual’s home

Although Garmin and Fitbit are well known for their notable presence in the fitness wearables market, Philips has carved its own niche in the highly lucrative healthcare space. It might not be as ‘sexy’ a segment, but it can prove to be incredibly profitable, especially in a market such as North America where private insurance rules the roost.

Philips does have a presence in the consumer wearables space and has even launched a few smart watch products of its own, but these are considerably less successful that the Fitbit or Garmin alternatives. Success matters very little when it comes to patent violations, and Philips has requested the USITC block the import of the devices in question.

What is worth noting is this is not the first instance of bad blood between Philips and Fitbit.

During July 2019, Philips filed another patent infringement case filed in Massachusetts Court focusing on four different patents. These patents related to GPS, the security of data during transmission and fitness related applications. In this example, Philips claimed to have informed Fitbit about the violation, but the US firm did not respond to licensing calls. This case is on-going.

Huawei and ZTE have a month to convince the US they’re not a security threat

The US Federal Communications Commission has set a deadline of 3 February for comments on its designation of Huawei and ZTE as security threats.

This is a standard regulatory procedure to demonstrate the gathering of as many viewpoints and pieces of information as possible before making a decision. But as is so often the case this will probably prove to be a mere formality in the rubber-stamping process of a decision that was made some time ago.

Specifically there were two almost identical announcements made by the Public Safety and Homeland Security Bureau, in which the only variations were the names of the companies. ‘The PSHSB announces that comments in response to the initial designation of [company], its parents, affiliates, and subsidiaries as a covered company in the Protecting Against National Security Threats to the Communications Supply Chain Through FCC Programs Report and Order are due on February 3, 2020,’ opened the announcement.

It goes on to clarify that this process refers to the prohibition on spending USF money by any US operator with Huawei or ZTE. Huawei is taking the FCC to court over this prohibition so it seems to be belatedly manufacturing the impression of due process in anticipation of the matter going to court.

It’s hard to see what arguments Huawei, ZTE or any of their allies could possibly present this month that would persuade the FCC of the error of its ways. Little, if any, concrete evidence has been presented of the threat they pose to US security other than the fact that they’re Chinese and thus presumed to be obliged to assist the Chinese state in espionage when required. Huawei’s legal action will rely heavily on demonstrating the FCC is not granting it legal due process and this call for comment does little to undermine that claim.

You don’t need to understand AI to trust it, says German politician

The minister for artificial intelligence at the German government has spoken about the European vision for AI, especially how to grow and gain trust from non-expert users.

Prof. Dr. Ina Schieferdecker, a junior minister in Germany’s Federal Ministry of Education and Research (Bundesministerium für Bildung und Forschung, BMBF), who has artificial intelligence in her portfolio, recently attended an AI Camp in Berlin (or KI-Camp in German, for “künstliche Intelligenz”). She was interviewed there by DW (Deutsche Welle, Germany’s answer to the BBC World Service) on how the German government and the European Union can help alleviate concerns about AI among ordinary users of the internet and information technologies.

When addressing the question that AI is often seen as a “black box”, and the demand for algorithms to be made transparent, Schieferdecker said she saw it differently. “I don’t believe that everyone has to understand AI. Not everyone can understand it,” she said. “Technology should be trustworthy. But we don’t all understand how planes work or how giant tankers float on water. So, we have learn (sic.) to trust digital technology, too.”

Admittedly not all Europeans share this way of looking at AI and non-expert users. Finland, the current holder of the European presidency, believes that as many people as possible should understand what AI is about, not only to alleviate the concerns but also unleash its power more broadly. So it decided to give 1% of its population AI training.

Schieferdecker also called for a communal approach to developing AI, which should involve science, technology, education, and business sectors. She also demanded that AI developers should consider users’ safety concerns and other basic principles from the beginning. This is very much in line with what has been outlined in the EU’s “Ethics guidelines for trustworthy AI” published in April this year, where, as guideline number one, it is stated “AI systems should empower human beings, allowing them to make informed decisions and fostering their fundamental rights. At the same time, proper oversight mechanisms need to be ensured, which can be achieved through human-in-the-loop, human-on-the-loop, and human-in-command approaches.” As we subsequently reported, those guidelines are too vague and lack tangible measurements of success.

Schieferdecker was more confident. She believed when Germany, which has presumable heavily shaped the guidelines, assumes the European presidency in the second half of 2020, it “will try to pool Europe’s strengths in an effort to transform the rules on paper into something real and useable for the people.”

The interview also touched upon how user data, for example shopping or browsing records, are being used by AI in an opaque way and the concerns about privacy this may raise. Schieferdecker believed GDPR has “made a difference” while also admitting there are “issues here and there, but it’s being further developed.” She also claimed the government is working to achieve a data sovereignty in some shape and “offer people alternatives to your Amazons, Googles, Instagrams” without disclosing further details.

The camp took place on 5 December in Berlin as part of the Science Year 2019 programme (Wissenschaftsjahr 2019) and was co-organised by the BMBF and the Society for Information Technology (Gesellschaft für Informatik, GI), an industry organisation. The interview was subjected to a vetting process by the BMBF before it could be published. As DW put it, “the text has been redacted and altered by the BMBF in addition to DW’s normal editorial guidelines. As such, the text does not entirely reflect the audio of the interview as recorded”.