Update: The TikTok Clusterfuck: Trump To Order A Block, Microsoft Wants To Buy, And Competition Is Still There

from the say-what-now dept

Update: Sooo... we already have a bunch of updates on this story. Trump has said he's banning TikTok entirely and is "against" allowing a US company to buy TikTok. Below is the original post, with only a slight clarification regarding Ben Thompson's thoughts on TikTok, which I didn't present very clearly in the original. Then, beneath the post I'll have more thoughts on Trump's comments.

There's been a panic over the last few weeks about TikTok, the rapidly growing social network that is owned by the Chinese internet giant ByteDance (by way of history: ByteDance purchased a startup called Musical.ly in 2017, and rebranded it TikTok in 2018, and then it started growing like crazy). A few weeks ago, the Trump administration started suggesting it would ban TikTok, and a story was built up around the idea that TikTok was some sort of national security threat, despite very little evidence to support this. A separate narrative was simply that Trump was annoyed that TikTok kids made Trump look bad in Tulsa by reserving a bunch of tickets to his rally that they never intended to use.

Either way, it was announced today that the Trump administration was likely to order ByteDance to shed TikTok and immediately with that was the news that Microsoft was a likely buyer.

The whole thing is kind of silly. The most compelling argument I've seen for why the US should ban TikTok came from Ben Thompson at Stratechery, who more or less says (this is a very simplified version of his argument, so read the whole thing) that since China is engaged in a war to impose its ideology on the world, and that it will make use of TikTok and other services to effectively attack Western liberalism, it is effectively dangerous to allow it to operate in the west under Chinese ownership. He supports selling TikTok off to a American company, or barring that, banning the app in the West. I tend to lean the other way: to me, banning TikTok strikes me as effectively proving China's views on liberalism, and allowing them to claim hypocrisy on the west, and use these actions to justify its own actions.

On top of that, if the concern is about China, then the fact that most of our network and computer equipment is built in China would seem like maybe a larger concern? But beyond a weird, similar freakout about Huawei, no one seems to be taking any serious interest in that. And that doesn't get into the fact that US intelligence has leaned heavily on US internet companies to try to get access to global data -- meaning that there does seem to be a bit of US exceptionalism built into all of this: it's okay when we do it, but an affront if any other government might do the same thing...

Separately, this whole situation with TikTok and Microsoft demonstrates the pure silliness of the antitrust hearing in the House earlier this week. Note that there were claims that the four companies there represented "monopoly power." And yet, just days later, we're talking about how a recent entrant in the market, which has grown up quickly, and which Facebook certainly sees as a threat, is so powerful on the internet that it needs to be sold from its Chinese owners -- and the leading candidate to purchase it, Microsoft, is not even one of the "too powerful" companies who were on the panel.

If a new entrant can rise up so quickly to be a "threat" and then needs to be purchased by another giant... it certainly suggests that the internet market still remains pretty vibrant, and not at all locked down by a few monopolies.

Updated thoughts: So that's the original above. Now that Trump is saying he really is going to ban TikTok and is against its sale, there are multiple issues raised. Trump seems to think he can do this under his emergency economic powers (effectively declaring TikTok to be a national security issue -- the same "tool" he used to impose tariffs on China without Congressional approval). If he goes that route, there will be lawsuits -- and there will be significant Constitutional issues raised. The Supreme Court has in the past declared software speech, in Brown v. Entertainment Merchants Association (the case about whether or not the government could regulate video games and require age warnings). And, in the 2nd Circuit, a somewhat frustrating decision regarding the publishing of some code that would break DRM, Universal v. Corley, it is at least notable that the Court made a clear statement that software is protected under the 1st Amendment:

Communication does not lose constitutional protection as "speech" simply because it is expressed in the language of computer code. Mathematical formulae and musical scores are written in "code," i.e., symbolic notations not comprehensible to the uninitiated, and yet both are covered by the First Amendment. If someone [*446] chose to write a novel entirely in computer object code by using strings of 1's and 0's for each letter of each word, the resulting work would be no different for constitutional purposes than if it had been written in English. The "object code" version would be incomprehensible to readers outside the programming community (and tedious to read even for most within the community), but it would be no more incomprehensible than a work written in Sanskrit for those unversed in that language. The undisputed evidence reveals that even pure object code can be, and often is, read and understood by experienced programmers. And source code (in any of its various levels of complexity) can be read by many more. Ultimately, however, the ease with which a work is comprehended is irrelevant to the constitutional inquiry. If computer code is distinguishable from conventional speech for First Amendment purposes, it is not because it is written in an obscure language.

And, later:

Computer programs are not exempted from the category of First Amendment speech simply because their instructions require use of a computer. A recipe is no less "speech" because it calls for the use of an oven, and a musical score is no less "speech" because it specifies performance on an electric guitar. Arguably distinguishing computer programs from conventional language instructions is the fact that programs are executable on a computer. But the fact that a program has the capacity to direct the functioning of a computer does not mean that it lacks the additional capacity to convey information, and it is the conveying of information that renders instructions "speech" for purposes of the First Amendment.

There were other issues with that case, but it remains law in the 2nd Circuit. TikTok suing over being banned would present an interesting 1st Amendment issue at the very least.

As to whether or not Trump could block the sale to a US company -- ordinarily the answer to that should also be no, with a few caveats. However, as was recently revealed in Congress, the Bill Barr-lead DOJ appears to have no problem at all weaponizing its powers against companies the President is annoyed with -- meaning that the DOJ could trump up some ridiculous excuse for why TikTok cannot be sold to an American company, and it's possible a court would buy it.

On a related noted, it's also entirely possible that the President would try to lean on both Apple and Google to remove TikTok from their app stores. And while I'd like to believe both companies would push back -- the fact that there are realistically just those two bottlenecks to blocking TikTok entirely from the country, it could also get... interesting.

I get the feeling we'll be writing about all of this for quite some time.

Filed Under: china, competition, donald trump, internet, ownership, trade war
Companies: microsoft, tiktok

Sony, Microsoft, Nintendo Say Trump Tariffs Will Make Game Consoles Hugely More Expensive

from the Big-Old-Derp dept

If you hadn't noticed by now, Trump's efforts to use tariffs to somehow magically improve the country's standing in the world aren't based on much in the way of sound logic or economic theory. And companies who've been forced to reconfigure and relocate their entire supply chains (to countries like Taiwan) to avoid massive penalties are likely to just pass those costs on to American consumers, something said consumers haven't really fully grokked yet. Countless CEOs think the entire gambit is immeasurably stupid, but have been hesitant to be too pointed in their criticism for fear of upsetting administration regulators.

As the actual bill comes due however, consumers are likely to wake up from their slumber. Maybe.

Case in point: Microsoft, Sony, and Nintendo this week fired off a letter to the Office of the United States Trade Representative, warning the Trump administration's plan to bump Chinese tariffs from 10 to 25 percent will have a profoundly-negative impact on the game industry. With 96 percent of game consoles made in China last year, the act of reconfiguring their entire supply chains will have a massive impact on the sector's bottom line and the numerous connecting companies that tendril out from the big three gaming giants.

The letter itself is abundantly clear that it's not these companies that are going to eat these costs, but the American consumer. In fact, the full letter (pdf) leans heavily on data suggesting that the 25 percent hike on game consoles will result in US consumers paying $840 million more on the game hardware than they might have anyway:

"A price increase of 25% will likely put a new video game console out of reach for many American families who we expect to be in the market for a console this holiday season. For those purchases that do go forward despite tariffs, consumers would pay $840 million more than they otherwise would have, according to a recent study prepared for the Consumer Technology Association by the independent economic group, Trade Partnership. That study also noted that “[e]ven after accounting for new tariff revenue, the result is a net $350 million loss for the U.S. economy for each year the tariffs remain in effect, with the burden carried by U.S. consumers."

Hey, neat.

Presumably, Trump believes that these threats will ingeniously force China's hands in trade negotiations, though it's not really clear that's actually happening. What's happening instead is a slow accumulation of collateral damage, as countless US companies (like Apple) face new penalties that will slowly chip away at the US economy before it forces China's hand. It will be curious to see what happens when American consumers realize they're the ones footing the bill as we wait for the final outcome of a unilateral US trade gambit that was never likely to actually work.

Filed Under: china, donald trump, gaming consoles, playstation, tariffs, trade war, us, ustr, xbox
Companies: microsoft, nintendo, sony

Huawei Now Using Patent Claims To Demand $1 Billion From Verizon, As The US Tries To Chase Huawei Out Of The US Market

from the patent-trade-wars dept

This one combines a few stories that we've covered a lot over the years, showing how they're intersecting. For some time now we've been covering the US's evidence-free attacks on Huawei, the Chinese telco equipment giant. Basically, for years, there have been stories insisting that Huawei is too closely linked to the Chinese government, leading to fear mongering stories saying that the company should be effectively barred from the US. However, multiple attempts to find security flaws in Huawei's products have failed to show any kind of backdoors, and the fact that US-based Huawei competitors often seem to be making the loudest noises about the Chinese giant should raise some eyebrows.

The other story we've covered a lot is around China and patents. For years and years, US companies (and policymakers) would go on and on about how Chinese companies didn't respect US patents, and demanding that China "must respect our IP." As we've highlighted for years, the Chinese government realized a decade or so ago that since the US kept trying to apply diplomatic pressure to "respect patents," China realized it could just start using patents as an economic weapon. The number of patents granted in China started to shoot up, and (surprise surprise) suddenly in legal disputes, Chinese companies were using patents to block American competitors. And the US couldn't really complain since it was the US that demanded China "respect patents" so much.

Just a few weeks ago, we noted that China was gearing up to respond to Donald Trump's ignorant trade war by using patents against US companies.

Put it all together, and it should be no surprise at all that Huawei is now demanding $1 billion from Verizon for patent infringement.

Verizon is reportedly using equipment through other companies that relies on Huawei patents covering core networking gear, internet of things technology and wireline infrastructure. Verizon and Huawei representatives met last week in New York to talk about whether the gear could infringe on Huawei patents, Reuters said.

"These issues are larger than just Verizon," a Verizon spokesman told Reuters. "Given the broader geopolitical context, any issue involving Huawei has implications for our entire industry and also raises national and international concerns."

The US government walked right into this. For years it's been demonizing Huawei without evidence, while at the same time demanding that China respect patents. So, of course, it opened itself right up to Huawei now claiming patent infringement against US companies. Even better, it's over third party gear. US policymakers can't seem to think more than a single move ahead, because it was fairly obvious how all of this would play out years ago, and yet they walked right into it.

Filed Under: china, patents, surveillance, telco equipment, trade war
Companies: huawei, verizon

Once Again, China Is About To Use The US's Obsession With 'Intellectual Property' Against Us

from the and-we-walk-right-into-it-every-fucking-time dept

You've heard the narrative of course: China is supposedly terrible on intellectual property, always copying the US and swiping our secrets. This has been the popular narrative over the last few decades, with politicians and other folks continuously insisting in strong terms about how we need to get China to "respect our intellectual property." Early on we warned folks that this wouldn't end well, and so far we've been exactly right. Unlike many supporters of our patent and copyright systems, China actually recognizes that those systems are mercantilist forms of monopoly protectionism, and if there's a country out there that knows how to leverage such protectionism, it's China. And here's the ridiculous gift that the US has handed China: in demanding that it better "respect" patents and copyright, it gifted China the key to being protectionist in a manner that the US can't really complain about. It's a tremendous self-own by US policymakers, but it keeps happening.

We warned about this a decade ago when we pointed out that China was rapidly patenting stuff, and using all those patents to make a giant public display about how it was now "respecting patents." But, in practice, it was using those patents to block American competitors and to even block US companies in other countries. To China, its patent strategy is not about greater innovation, it's about using the monopoly-powers that (inexplicably) Americans are demanding China "respect" as an economic weapon against non-Chinese companies.

That's why it's astoundingly short-sighted that the USTR continues to target China in its silly Special 301 report. We've talked about this report for years. It's the report that the USTR comes out with every year, based solely on anecdotes and industry associations whining about this or that country -- and putting them on a "list" that has no practical impact other than that US diplomats are supposed to whine to the governments of those countries. While the list is sometimes used to browbeat smaller countries into changing their local copyright or patent laws, larger companies literally laugh it off. Canada, for years, has publicly explained that it completely rejects the USTR's methodology in the Special 301 report, and thus doesn't consider its findings to be legitimate. And Canada is less of an economic powerhouse than China.

All that is prelude to China now going on the attack against the US (one of many attacks, thanks to our President kicking off what he promised would be an "easy" trade war), claiming that the USTR's naming of China on the Special 301 Report is a political attack on China:

Chinese state media on Monday criticized the United States for its complaints about intellectual property theft, calling them a “political tool” intended to suppress China’s economic development.

Yeah, because in China, intellectual property totally is a "political tool," so why wouldn't they expect the same to be true in the US?

An op-ed article in the People’s Daily targeted the Section 301 report Washington issued in March 2018, saying the authors fabricated the claim that China stole hundreds of billions of dollars worth of intellectual property from the U.S.

“If the report is based on imagined or selective data, it’s a kind of science fiction novel,” it said.

“Intellectual property rights should be a bridge for innovation and cooperation among countries. In the hands of the U.S. it has become a political tool, a weapon to contain other countries, and a veil for bullying the world.”

First off, the "science fiction novel" line is pretty good (and possibly a nod towards the growing success of science fiction in China with Liu Cixin's books and movies based on his books becoming a cultural phenomenon there).

But, more importantly, all that the US has done over the past few decades is to teach China how to use patent and copyright law for political purposes, and now that Trump is so focused on this ridiculous trade war, watch out for China to leverage our own demands about intellectual property against the US.

Filed Under: china, copyright, intellectual property, patents, special 301 report, trade war, ustr

When A 'Trade War' Involves Seizing And Imprisoning Foreign Execs, It's No Longer Just About Trade

from the it-kinda-leads-to-actual-wars dept

For years we've been writing about the weird US government infatuation with the Chinese telco equipment firm, Huawei. The company has built a widely successful business, but going back many years there's been a loud whisper campaign that the company's equipment would send information back to the Chinese government. Of course, when our own government investigated this, it could find no evidence at all that this was true. It also seems notable that Huawei itself asked for this investigation, claiming that it would clear the company's name, since it wasn't doing anything that people were accusing it of doing. This doesn't mean that the company isn't doing something nefarious, but such claims should have some sort of evidence to back them up, and so far they've been lacking.

Of course, this may have been one of those situations where people assumed that whatever we would do to others, others must be doing to us, because what we do know, is that the NSA broke into Huawei's computers and grabbed a bunch of emails and source code. That bit seems to get left out of all the fear mongering reporting about Huawei. Oh, and it later came out that much of the whisper campaign about Huawei spying for the Chinese government... originated from the US firm Cisco, which was seeing its market share eroded by Huawei.

So we've long taken the claims about Huawei with a large grain of salt, even as most in the media have been willing to repeat the allegations about Huawei without mentioning the lack of evidence, Cisco's involvement, or the fact that the US government swiped a bunch of stuff from Huawei, even though all of those things seem kinda relevant.

By now, of course, you've probably heard that Canadian officials arrested Huawei's CFO, Meng Wanzhou, who also happens to be the daughter of the founder, and there are plans to try to extradite her to the US. While no charges have been revealed, most people claim it has to do with violating US sanctions on Iran by shipping US made equipment to Iran. The details here will matter, but it's still incredibly unusual to have a friendly country arrest a top exec and then try to extradite them.

Even if the official charges have nothing to do with the ongoing trade war with China, as nearly everyone is pointing out, there's no way this doesn't create massive blowback on any new trade agreement. Remember it was just a few days ago (was it really just a few days?) that President Trump announced that he'd agreed to end the senseless trade war he'd started (which has created a massive import tax on American businesses and consumers). Of course, when the Chinese gave their version of the story, it sounded remarkably different than Trump's version.

But, at least it sounded like progress was being made, and maybe we could end the insanity. But, of course, by having an ally arrest a top exec, it's thrown everything up in the air. Imagine, for example, if Sheryl Sandberg was on a trip to Pakistan, and was arrested by authorities there and extradited to China to face criminal charges. That's kind of the equivalent of what the US has just done via Canada.

Then, take it a step further. White House officials have told the press that they believe Meng "could be used as leverage with China in trade talks," and you realize this has fuck all to do with Iranian sanctions. No, that's the White House more or less admitting that they've taken a hostage in a trade war. That's hellishly dangerous. Because China will not hesitate to retaliate. If I were an American business exec, I'd stay far away from China or any of its allies right about now.

Arresting an executive over such a thing, and then admitting you want to use her as "leverage," just as you're negotiating a complex trade deal is... the kind of thing that turns a trade war into an actual war. It's an incredibly dangerous move that should concern everyone.

Filed Under: arrests, china, donald trump, extradition, hostage, iran, meng wanzhou, surveillance, trade war, war
Companies: cisco, huawei

IP Commission: Cut Off WHO Funding If It Doesn't Make IP Protection Priority One

from the if-you-haven't-got-your-health-IP,-you-haven't-got-anyt dept

The IP Commission Report on the "theft" of American IP is the gift that keeps on taking. We've already discussed the commission's suggestion that infringers' computers be loaded up with spyware and malware and the apparent "fact" that China has singlehandendly destroyed every IP-reliant industry in America.

Hidden towards the bottom of the report is (yet another) terrible proposal, guided by the heavy hand of self-interest. It plainly spells out the commission's priorities: American IP above all else, even the health and well-being of other nations.

Recommend to Congress and the administration that U.S. funding to the World Health Organization (WHO) program budget in whole or in part be withheld until (1) the WHO’s process of certifying national regulatory agencies includes attestation that IP protection is an essential part of the regulatory evaluation process, and (2) the WHO refrains from prequalifying any product until the regulating agency of jurisdiction demonstrates and certifies that it does not violate IP rights...

The U.S. government has leverage at the WHO chiefly because of its financial support, which consists of annual “means tested” contributions to the WHO’s program budget and “voluntary” contributions whose total value is about $350 million. This support from the United States can be a carrot or a stick to influence the WHO’s actions.

So, if the WHO puts health ahead of American IP holders, the US should just cut off its contributions to the organization, and indirectly, the countries it assists. One would think that the "regulatory evaluation process" would be primarily concerned with ensuring new drugs and medical technology do more good than harm, healthwise. The possibility of IP infringement probably doesn't even cross the radar of the WHO. That job belongs to other agencies.

But the commission ties IP enforcement and worldwide health together, forcing one to rely on the other by linking US monetary contributions to protection of American IP. The WHO would now be required to make sure rights holders aren't being cut out of a market before attempting to solve larger problems -- like halting an outbreak before it becomes an epidemic.

The commission also suggests the US solicit a little help with its low-level IP extortion by asking for other affected countries (affected by IP theft -- not widespread health issues) to follow its lead in chaining contributions to IP enforcement.

Multilateral coordination may also be possible. For example, the IP of Japanese-developed medicine is frequently stolen, and Japan’s current annual and voluntary contributions to the WHO total over $70 million.

With enough support, maybe the commission can force the WHO to properly reflect its new priorities by dropping the "H" (which is of secondary concern) and replace it with "IP" (job #1). WIPO!

The commission "recommends" this course of action but can't "endorse" it quite yet, possibly because it will make everyone involved look like a bunch of greedy meatbags who value their profits over the health of the developing world. (Heavily paraphrased -- here's the original.)

The Commission believes this recommendation has strong promise but is not ready to endorse it. To be acted upon, this recommendation requires careful assessment of the likely impacts and the potential for unintended consequences. It will be essential to ensure that the poorest and most vulnerable across the world continue to have access to life-saving, high-quality health interventions, now and in the future. In fact, IP protections are vital to that outcome, because they preserve incentives for innovation and foster predictable markets for manufacturers.

In other words, we like it but we can't endorse until we can mitigate the unintended consequences (one of which was listed earlier). The poorest and most vulnerable across the world should still have access to lifesaving medicine and technology, pending licensing approval and WHO due diligence. (The last sentence in the Commission's bet-hedging paragraph is simply wishful thinking -- the kind that gets copyright extended and bad legislation crafted.)

Threatening to yank WHO funding screws up the organization's priorities. The funding should be contingent on the WHO providing the best possible health assistance it can worldwide. Being an IP cop for US interests (and other countries, should they choose to go this regrettable route) shouldn't even be part of the equation.

Filed Under: china, commission the theft of american intellectual property, dennis blair, healthcare, henry jackson, intellectual property, ip, ip commission, ip theft, john huntsman, trade war, who
Companies: national bureau of asian research

IP Commission Thinks YOU Should Pay For China's Infringement

from the alternatively,-it-could-just-deduct-$1,000-a-year-from-your-paychecks dept

As Mike discussed in a previous post, the IP Commission's report on "theft of American IP" points a finger almost exclusively at China. And, as was pointed out in another post, the report is also loaded with some genuinely terrible ideas (protect IP with malware, anyone?). Here's another one: starting a trade war with China over intellectual property. This recommendation, taken from the final pages of the document, is both a broadside against China and a genuinely terrible idea.

Generally speaking, instigating a trade war is a bad idea, even when you have the upper hand. Instigating a trade war over something as poorly defined (especially in this report) as "IP theft" is a worse idea. Instigating a trade war with a country that already has you staring down the barrel of a steep trade deficit is just asking for trouble. The US has tried this sort of thing before (to protect the American steel industry) and found itself facing retaliatory tariffs from European nations as well as having its tariffs declared illegal by the World Trade Organization.

No one truly "wins" in a trade war, but there's no shortage of losers -- mainly the consumers caught in the crossfire. But despite the enormous potential downside and the shortsightedness of this move, the commission seems to feel protecting the US from "IP theft" is worth the sacrifice. (It helps that the entire sacrifice will be borne by others.) The commission's recommendation bases itself on the claim that China alone is responsible for around 70% of the "$300 billion" it claims the US is losing every year. And it aims to make China pay... by making Americans pay. In the "Potential Future Measures" section (Chapter 14), the commission makes this suggestion:

Recommend that Congress and the administration impose a tariff on all Chinese-origin imports, designed to raise 150% of all U.S. losses from Chinese IP theft in the previous year, as estimated by the secretary of commerce. This tariff would be subject to modification by the president on national security grounds.

The argument for this proposal is that only by seriously limiting the U.S. market for Chinese goods and services will sufficient incentive be created for Chinese authorities to systematically reduce IP theft. The method proposed to accomplish that goal is to impose the calibrated tariff just described.

While such action would allow retaliation, the huge Chinese trade surplus with the United States could cause the retaliation to be ineffective. Chinese exports to the United States are between three and four times the dollar value of U.S. exports to China.

The Commission is not prepared to make such a recommendation now because of the difficulty of estimating the value of stolen IP, the difficulty of identifying the appropriate imports, and the many legal questions raised by such an action under the United States’ WTO obligations. If major IP theft continues or increases, however, the proposal should be further refined and considered.

Wonderful. Despite the fact the commission openly admits it can't accurately estimate the value of "stolen IP," and despite the fact this plan could possibly be illegal, it proposes that, in the middle of an economic downturn, the government should artificially raise the price of consumer goods in order to ensure the fiscal well-being of the MPAA, RIAA and the BSA. This would add $450 billion in tariffs onto the cost of imported goods. This works out to roughly $1,000 per person annually, or $4,000 for a family of four. China's manufacturers aren't simply going to eat the tariff. They'll either raise prices or stop shipping to the US. Costs of goods will rise in the US no matter which path they take. Kicking a major competitor out of the market tends to have that effect, especially when the competitor prices aggressively.

Now, these industries will make assurances that the money they're receiving (as part of an international "you must be a pirate" tax) will be shoved right back into the economy, either through job creation or additional investments. But those assurances won't mean much to Americans being stretched even thinner by rising prices, especially when they notice this plan basically transfers money out of their pockets and into the accounts of select US companies.

The commission feels that by artificially limiting China's exports, it can force the country to respect US intellectual property. The reward for China would be a decrease in the tariff, provided the "theft" numbers drop. But if I know anything about industries and subsidies (which this essentially is), those benefitting from this "deal" will soon be hooked on the new revenue stream and will have zero incentive to officially recognize any sort of downturn in Chinese infringement.

And if I know this, then you'd better believe China knows this. Instead of being rewarded for making efforts to curtail infringement, it will more likely see the tariff increase or hold steady, rather than decline by any appreciable amount. There's little incentive for China to improve its IP record and next to no incentive for IP industries to wean themselves off the tariff. All this will do is inch us closer to the frontlines of a trade war with the largest exporter in the world -- a war we can't hope to win and one that puts the American consumer right in the line of fire.

Filed Under: china, commission the theft of american intellectual property, dennis blair, henry jackson, intellectual property, ip, ip commission, ip theft, john huntsman, trade war
Companies: national bureau of asian research