Huawei and ZTE banned from doing business in the US for another year

US President Donald trump has extended his executive order that prohibits US companies from doing business with companies from certain countries.

This time last year Trump signed the Executive Order on Securing the Information and Communications Technology and Services Supply Chain. It skirted around the matter but it was quite clear that it was specifically aimed at keeping Chinese kit vendors out of the US telecoms networks, something that was further confirmed by Huawei’s public ire following the announcement.

Since it would be fair to say that relations between the US and China haven’t exactly thawed in the intervening time, it came as little surprise to see Trump announce the claimed emergency that prompted the executive order is still happening, As a consequence the restrictions put in place have been extended for another year. Here’s the text of the announcement.

On May 15, 2019, by Executive Order 13873, I declared a national emergency pursuant to the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) to deal with the unusual and extraordinary threat to the national security, foreign policy, and economy of the United States posed by the unrestricted acquisition and use of certain information and communications technology and services transactions.

The unrestricted acquisition or use in the United States of information and communications technology or services designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of foreign adversaries augments the ability of these foreign adversaries to create and exploit vulnerabilities in information and communications technology or services, with potentially catastrophic effects. 

This threat continues to pose an unusual and extraordinary threat to the national security, foreign policy, and economy of the United States.  For this reason, the national emergency declared on May 15, 2019, must continue in effect beyond May 15, 2020.  Therefore, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)), I am continuing for 1 year the national emergency declared in Executive Order 13873 with respect to securing the information and communications technology and services supply chain.

We’re not aware of and public reaction by Huawei, ZTE or any other companies that may be perceived to be subject to the jurisdiction or direction of foreign adversaries. Internally, however, the US state seems to be launching new initiatives to control communications in the country by the day. The latest news is that the opportunity to restrict the ability of intelligence agencies to spy on citizen’s online activities has been narrowly missed, so American’s would be well advised to surf cautiously.

White House sets up committee to assess foreign participation in US telco

President Donald Trump issued an executive order to establish a new committee to provide recommendations to FCC  regarding foreign applications for telecom licences in the US.

The formally titled “Executive Order on Establishing the Committee for the Assessment of Foreign Participation in the United States Telecommunications Services Sector” was issued by the president on Saturday, with a primary objective to ‘assist the FCC in its public interest review of national security and law enforcement concerns that may be raised by foreign participation in the United States telecommunications services sector’.

The committee will be chaired by the Attorney General (William Barr as the current job holder) and members will include the Secretary of Defense, the Secretary of Homeland Security, and heads of other executive departments or agencies, and Assistants to the President which the President sees appropriate. Advisors to the committee will include a dozen secretaries and heads of relevant departments and agencies, for example the State Department, Treasury, Commerce, National Intelligence, Office of Science and Technology Policy, as well as the President’s assistants for National Security Affairs and Economic Policy.

The committee’s working relation with the FCC will go two-ways. The FCC can refer applications for licences or transfers of licences to the committee for review. The committee will ‘review applications and licenses for risks to national security and law enforcement interests posed by such applications or licenses’, and will be authorised to collect information on applicants needed for the reviews. Based on such risk reviews, the committee shall recommend to the FCC whether it should dismiss or deny applications, set condition on or modify the granting of licences, or even revoke licenses already granted.

“I applaud the President for formalizing Team Telecom review and establishing a process that will allow the Executive Branch to provide its expert input to the FCC in a timely manner,” said FCC Commissioner Ajit Pai. “Now that this Executive Order has been issued, the FCC will move forward to conclude our own pending rulemaking on reform of the foreign ownership review process.”

Citing the FCC’s decision to reject an application from China Mobile to offer international telephony service last year, Pai said “this FCC will not hesitate to act to protect our networks from foreign threats. At the same time, we welcome beneficial investment in our networks and believe that this Executive Order will allow us to process such applications more quickly.”

Some of America’s biggest telecom companies are of foreign ownership. The newly formed New T-Mobile, the merger between T-Mobile and Sprint, is a subsidiary of Deutsche Telekom, with the German parent company being the biggest share-holder (43% of total share), and its second largest shareholder is Japan-based Softbank (23%). Vodafone used to own 45% of Verizon Wireless until 2014. But these naturally fall under the “beneficial investment” category. It will be applications like the one filed by China Mobile that will get most of the committee’s attention.

5G patent chest-beating is an unhelpful distraction

The constant propaganda sent out by the big kit vendors has recently moved onto 5G patents and the latest claims are more unhelpful than ever.

A couple of weeks ago Huawei flagged up a report from the European Patent Office entitled ‘Digital technologies take top spot in European patent applications’. The reason it did so was to bring attention to the table at the end of it that had Huawei as the clear leader among all companies when it came to patent applications to the EPO last year.

Then this morning Nokia sent out a press release headed ‘Nokia announces over 3,000 5G patent declarations’. Specifically the declaration was of 3,000 patent families to ETSI (European Telecommunications Standards Institute) that are essential for 5G and this milestone was positioned as a major step forward from the previous one six months ago concerning 2,000 patent declarations.

There followed a bunch of self-promotion and generic quotes from Nokia bigwigs about how into R&D the company its and, by extension, what a great company it is. The clear intention was to create the impressing that Nokia’s 5G R&D efforts have improved by 50% in the last six months, but it’s very difficult to verify that claim since there are so many unknowns in the claim.

Were the 2,000 patent declarations also ETSI 5G essential families or something else? What even is a patent declaration – is it an application or a full patent? If we are comparing apples with apples and the two milestones concern exactly the same type of claim, how has Nokia suddenly managed such a dramatic uptick in its 5G R&D efforts?

At least Nokia’s claims concern the 5G standard. Huawei’s big achievement was merely to file more applications for all kinds of technology with the EPO than any other company. Anyone can file a claim but that says nothing about the utility or viability of the patent in question and, if a company was determined to win a given patent application race, it could just order loads of its employees to file applications for any old rubbish.

Ericsson has yet to join in this patent pissing competition via press release and when we asked it for comment we were directed to this blog post from October last year, entitled Why you shouldn’t believe everything you read about 5G patents. In it Christina Petersson, CIPO and Head of IPR & Licensing at Ericsson, argues that when you apply certain essentiality filters, Ericsson comes out on top when it comes to 5G patents.

We might be a bit thick here at, but we find all these claims and counterclaims totally confusing and impossible to derive any useful conclusions from. So we asked around the industry and came to the conclusion that we’re not alone, even among people whose job it is to understand this stuff.

Our instincts about the Nokia announcement were supported, that they may well be comparing apples with oranges, disguising that fact with slippery PR language. For those claims to have substance they needed to be a lot more specific. On top of the vagueness surrounding the 2,000 milestone, we don’t know if those 3,000 patent families are unique to 5G or just recycled legacy patents.

This apparently happens a lot, you see. 5G wasn’t created in a vacuum, it stands on the shoulders of 4G and many of the patents that concern the underlying physics of lobbing voice and data from a transmitter to a phone go back to even earlier generations. So many of the technologies required to make 5G work were actually invented decades ago, but still apply today. That’s fine but if participants in the patent Olympics are counting old patents among their big 5G achievements that’s cheating, surely.

Then you have the matter of where the patent applications are filed. It’s easy to file a patent but a lot harder to have it granted. That involves getting a lot of things right and jumping through a lot of bureaucratic hoops. In principle you literally write a claim on the back of a fag packet and hand it in, and that would count as an application. ETSI seems to be the gold standard when it comes patent rigour.

Around half of Huawei’s 5G patent applications seem to have been made in China, however, and they account for half of all such applications made in China. While there’s nothing intrinsically wrong with that, it’s worth noting that Samsung and LG, which are in the top three 5G patent applicants alongside Qualcomm, have hardly filed any applications in Korea. It’s almost as if the barrier to entry for patent filing in China is somehow lower.

Apparently it didn’t used to be like this. There were no press releases talking up how many patents a company had filed and such things weren’t used as a proxy for general R&D competence. The impression we get is that it was kicked off by Huawei, which is showing an increasing fondness for chucking thinly supported claims around, and the likes of Nokia feel compelled to return fire.

So why would Huawei, which still seems to be on top despite the best efforts of the US government, feel the need to resort to such questionable tactics to inflate its public image? The answer probably lies in its increasing belligerence in the face of President Trump’s provocations, as illustrated by its recent decision to file a lawsuit against Verizon. Again, this is unprecedented, as companies tend not to sue potential customers.

There has been a steady drip of propaganda positioning Huawei as the clear 5G technological leader. The message seems to be that if countries allied to the US decide to ban Huawei from their 5G networks, that will put them at a significant disadvantage against those who don’t. Additionally it tells the US that Huawei doesn’t need it anyway and strikes a general tone of defiance.

The fact that this patent war is being waged in Europe probably isn’t a coincidence either, as that is the primary battleground in the geopolitical battle of wills between the US and China. Every time a European country refuses to ban Huawei that represents a win for China and its belt-and-road strategy of economic imperialism.

The fact remains, however, that nearly all of the patent announcements being chucked out there are largely meaningless given the lack of qualification and context attached to them. Most patent applications made now won’t be processed for around four year, and it’s only then that we’ll know who the 5G technology leader is. Until then the industry would be well advised to take any claims with a big pinch of salt. We certainly will.

ZTE says it has heard nothing about fresh US bribery investigations

US media is reporting that ZTE is the subject of a fresh bribery investigation, but the Chinese vendor says that’s the first it has heard of it.

NBC was the first media to report that ZTE is ‘the subject of a new and separate bribery investigation by the Justice Department.’ Before long the WSJ did that thing where they suddenly dig up an anonymous source of their own to independently leak a story that’s already in the public domain, with the headline U.S. Probes Chinese Telecom Giant ZTE for Possible Bribery.

If that report is accurate it must have been a very gentle probe, more of a prod or an askance look, because ZTE insists it has no knowledge of any such thing. Under the headline of ‘clarification of news articles’, ZTE acknowledged reports such as the ones above, but stressed the US has not contacted it.

“The company would like to clarify that it has not received notices from the relevant government departments of the United States in this regard,” said the announcement. “The company will proactively communicate with the relevant government departments of the United States, and will make announcements as and when required.

“The company is fully committed to meeting its legal and compliance obligations. The top priority of the company’s leadership team is making the company a trusted and reliable business partner in the global marketplace.

“Currently, the production and operating activities of the company are carried on as normal. The company wishes to remind investors that only information published by the company on its website and the websites of the Hong Kong Stock Exchange and the Shenzhen Stock Exchange should be relied upon. Investors are urged to base their investments on rational considerations and beware of risks.”

That last paragraph is a bit strange as companies aren’t known for being in any great hurry to publicise any bad news unless they have to. It looks like ZTE doesn’t really get what the point of journalists is. Having said that, it does seem strange for US authorities to leak this story to the press before formalising proceedings, which means this could just be a shot across the bows by the Trump administration, to put additional pressure on China in their trade war.

UK government keeps Huawei rebels at bay, for now

A Tory rebel amendment designed to ban Huawei from UK mobile networks was narrowly defeated in a parliamentary vote.

A proposed amendment to the Telecoms Infrastructure Bill, which would eventually make it illegal for UK network operators to use equipment provided by high risk vendors, i.e. Huawei, failed to win a majority vote in the House of Commons. But considering how large the Conservative majority is, the fact that it only lost by 24 votes represented a significant wake up call for the government.

In the end 36 Tory MPs rebelled and 22 abstained, and if five DUP MPs hadn’t voted with the government then it would have only taken eight more rebels to swing the result. Among the rebels were some ‘big hitters, including Ian Duncan-Smith, David Davies, Liam Fox, Esther McVey and Mark Francois. Such a close result puts additional pressure on the Prime Minister as the bill passes through the House of Lords and raises the prospect of further rebellions when the specific 5G bill gets read.

In response to the vote Huawei VP Victor Zhang had the following to say: “We were reassured by the UK government’s decision in January that we could continue working with our customers to keep the 5G roll-out on track. It was an evidence-based decision that will result in a more advanced, more secure and more cost-effective telecoms infrastructure.

“We are proud to have supplied cutting-edge technology to telecoms operators in the UK for more than 15 years and we will build on this strong track record, supporting those customers as they invest in their 5G networks, boosting economic growth and helping the UK continue to compete globally.

“The government has examined the evidence and concluded that Huawei should not be banned on cyber security grounds and two parliamentary committees have done the same and agreed. An evidence-based approach is needed, so we were disappointed to hear some groundless accusations asserted. The industry and experts agree that banning Huawei equipment would leave Britain less secure, less productive and less innovative.”

The debate preceding the vote was initiated by Labour MP Chi Onwurah, who stressed her impeccable credentials at some length, before going on to waste everyone’s time by making a series of cheap party political points. There eventually followed some discussion of Huawei’s security status, its links to the Chinese government and Chinese attitudes to international trade in general, all of which have already been discussed at great length elsewhere.

Onwurah’s main concern about the government’s current position on Huawei appeared to be, not that she lacked faith in the assessment of the National Cyber Security Centre, but that the measures recommended to mitigate any risk posed were being insufficiently implemented. It was then the turn of Tory MPO Ian Duncan-Smith, sponsor of the amendment, to state his case.

Let us be absolutely clear at the outset: this company is not a private company,” said IDS. “Ultimately, it is essentially almost completely owned by Chinese trade unions, and they, of course, are completely locked into the Chinese Government. This an organisation wholly owned by China.

“The single biggest problem we have faced is that, nearly two decades ago, the Chinese Government set out to ensure that they dominated the market. As this organisation has access to nigh-on unlimited funds, it has spent that period underbidding every single time in these processes, from 2G through to 4G and now, as we understand it, 5G.

“If we look at this strategy, we see that when this all began, there were something like 12 companies in this marketplace. One by one, they have disappeared. Why have they disappeared? They simply cannot compete with Huawei’s pricing. These telecoms companies have bit by bit found themselves going to the cheapest bidder, providing the technology is as good as the others. By the way, it is certainly not an argument that Huawei has better technology; there is no evidence of that whatsoever.”

The discussion went on for a while in that vein, the central theme being that Huawei only got where it is today by cheating with the help of the Chinese government. That may well be true, but little concrete evidence was presented to support the claims and, furthermore, they are tangential to the matter of security. There was further protectionist muttering from other MPs that eventually rebelled, creating the impression that, for many of them, this was a matter of international trade rather than security.

IDS went on to expose the fragility of his position with the following statement, made after listing the countries that have implemented more severe restrictions on Huawei. “No matter how intelligent, brilliant and great our security and cyber-security services are, how is it that they are right and everybody else is wrong? In fact, at a briefing the other day, I saw them trashing the Australian view of this. I simply say, fine, but the reality is that we are alone on this matter, and I think that that is a very bad place to be in relation to our closest allies when it comes to security.”

Not only does that statement serve to confirm the fact that this amendment seeks to relegate technical assessments below political ones, it also chooses to overlook the European consensus that is almost identical to the current UK position. The then proceeded to contradict himself by stressing how internationally preeminent the UK’s judgment is on such matters.

This dragged on for a while until DCMS Secretary Oliver Dowden got a word in edgeways. “We looked at this issue over many months and in great technical detail through our telecoms supply chain review,” said Dowden. “This review was informed by technical and security analysis undertaken by GCHQ’s National Cyber Security Centre. It was the most detailed study of what is needed to protect 5G, anywhere in the world. The recommendations from the review will substantially improve the security and resilience of the UK’s telecoms networks, which are a critical part of our national infrastructure.

“The Government’s decision on high-risk vendors remains. As we have said, we are clear-eyed about the challenges posed by Huawei. That is why the National Security Council has decided that high-risk vendors should be excluded from sensitive and critical parts of networks and that there should be a strict 35% cap on the market share in the rest of the network.

“We will of course keep the 35% cap under review and, over time, our intention is to reduce our reliance on high-risk vendors as the process of market diversification takes place. We want to get to a position where we do not have to use high-risk vendors in our telecoms networks at all, but to do that, we have to work with our Five Eyes and other partners to develop new supply chain capacity in our critical national infrastructure. I can tell the House that we will do that in this Parliament.

The reason IDS and his merry band still voted in favour of their amendment is that they found Dowden’s reassurances to be insufficient, both in terms of substance and timing. It’s hard to imagine what he could have said other than “Oh, alright then, we’ll ban them,” to appease them and that’s where the debate has been left.

The specific bill addressing 5G networks and high risk vendors is due to be read later this year. It looks like the government has some work to do if it doesn’t want to risk having that bill rejected. But, then again, if PM Johnson is looking for a way to retreat from his previous position in order to placate a US President that seems very likely to be in place for most of this Parliament, then this back bench rebellion might not be half as unwelcome as it seems.

UK establishment goes to war with itself over Huawei 5G decision

A bunch of MPs are set to moan in parliament about Huawei today, while a corporate heavy hitter has been recruited as an expert witness for the defence.

Today sees the third reading of the Telecommunications Infrastructure (Leasehold Property) Bill 2019-20, which was introduced at the start of this year and is apparently designed to support the UK government’s aggressive fibre rollout targets. However, MPs who are still bent out of shape over the decision to allow some Huawei presence in the UK’s 5G networks apparently see this as an opportunity to introduce an amendment banning Huawei entirely.

The mainstream media is reporting that quite a few Conservative MPs, led by party stalwart Ian Duncan-Smith, will be backing this amendment. We’re led to believe there could be as many as 30 of them, but since the government has a majority of 80, the it seems very unlikely they will succeed. At the very least, however, they’ve got a nice lot of coverage for their concerns and kept the conversation over Huawei and network security alive.

The bill was introduced by former Telegraph tech hack Matt Warman, who is now an MP and part of the department for digital and a bunch of other stuff. He recently argued the toss over this matter in parliament and seemed to agree that, in an ideal world, there would be no ‘high risk’ (i.e. Chinese) vendors’ kit in UK 5G networks at all. However, he wouldn’t make an outright commitment to such a move, nor commit to timescales.

Meanwhile Huawei has mobilised establishment business veteran Mike Rake, who has been on the board of an impressive number of companies, including BT, to write an open letter to nobody in particular, addressing the matter. Here it is in full.

Dear Sir [bit of a controversial start – Ed]

As we leave the EU it has never been more critical to have an open, proactive and informed approach to trade; not just with European partners, but as leading Brexiters have continuously and rightly said, with the US, China and other major economies.

We must also make better use of existing and emerging technologies to improve our productivity and competitiveness. It is in this context that the government rightly put pressure on BT during the time that I was Chairman, and since, to rapidly expand full fibre availability and to be one of the first countries to invest in and launch 5G. Much progress has been made with much still to do. The industry is only able to do this by buying the best equipment at the best price, while ensuring security and diversity of supply.

In relation to 5G considerable progress has been made. This could not have been achieved without using Huawei, who were the first to make reliable equipment available at an economic price. BT and the industry have always been cognisant of the security risks of all suppliers, none of whom are based in the UK and whose equipment is mostly manufactured in China. That is why in 2010, the UK was unique in establishing an independent centre for the verification of Huawei’s software code and hardware – done with the full cooperation of GCHQ. We are fortunate in this country to have in GCHQ, one of the best intelligence gathering agencies in the world. They are clear that this risk can be managed with the safeguards and limits which have been established.

Any attempt to further restrict Huawei 5G equipment, or to remove existing 4G equipment will not only incur very significant costs, but prejudice trade relationships with China and will significantly set back the Government’s broadband ambitions. This in turn will further damage our competitiveness as an economy, at what is a critical moment.

We cannot afford to set back the important technological and communication progress we have made, with ill-informed assertions which are not supported by the facts and the experts. The government has taken an evidence-based decision and we should all support it.

Yours sincerely

Sir Mike Rake

Chairman BT (2007 to 2017), President CBI ( 2013 to 2015), Advisor to Huawei (2019 to present).

Rake is described as ‘Huawei UK advisor’ a role we assume he hasn’t adopted solely out of boredom or the kindness of his heart. In other words, in this current capacity he is effectively acting as a Huawei employee and his words should be viewed in that context. His Twitter profile also reveals he is openly hostile to Brexit, a position he shares with many other establishment types, so he probably wants the UK to align with the EU position on Huawei.

There are some nice euphemisms in the letter, such as ‘economic’ instead of ‘cheap’, but regardless of an economic incentives Rake may have had to right the letter, his argument is sound. The fact still remains that our very well-informed experts reckon the risk can be managed at the proposed level of exposure, so who are these MPs to argue otherwise, unless they themselves have ulterior motives?

Apple settles iPhone hobbling case out of court

Gadget giant Apple had been the subject of a class action lawsuit alleging it deliberately slowed older iPhones in order to compel customers to upgrade.

Now Reuters reports that Apple decided to settle the suit out of court, while at the same time maintaining its innocence. The settlement seems to be capped at a payout of $500 million, even though it’s not yet known how many devices might qualify for a compensation payment. Claimants will probably get around $25 per phone.

The allegation is that older iPhones noticeably slowed after Apple software updates. That in turn made their owners believe their phones were knackered and that it was time to upgrade. They seem to think Apple deliberately slowed their phones in order to shift more product. Apple insists the slowing could have been down to all sorts of other things such as, somewhat implausibly, temperature changes.

The reason Apple apparently gave for settling even though it didn’t think it had done anything wrong was that it couldn’t be bothered with the hassle of litigation. Qualcomm, among others, will have been surprised at Apple’s sudden reluctance to unleash its lawyers. The Apple we thought we knew would never have hesitated to litigate so long as it thought it had a chance of winning, which makes you wonder whether this claim had more merit than it would have us believe.

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.