Georgetown Law
Technology Review

On March 12, President Trump issued an order prohibiting the $117 billion hostile takeover of Qualcomm by Singapore-based Broadcom Limited, following the recommendation of the Committee on Foreign Investment in the United States (CFIUS).1Presidential Order Regarding the Proposed Takeover of Qualcomm Incorporated by Broadcom Limited, Mar. 12, 2018, https://www.whitehouse.gov/presidential-actions/presidential-order-regarding-proposed-takeover-qualcomm-incorporated-broadcom-limited/. If the merger is eventually allowed to move forward, it will likely be the largest tech merger of all time.2Katie Roof & Ingrid Lunden, Trump Blocks Broadcom’s Takeover of Qualcomm, TECH CRUNCH (Mar. 12, 2018, 7:07 PM), https://techcrunch.com/2018/03/12/trump-blocks-broadcoms-takeover-of-qualcomm/. In this rare move, the Trump administration has shown that it is moving towards broad interpretations of the Committee’s authority (as well as the President’s own), while simultaneously advocating for the Foreign Investment Risk Review Modernization Act (FIRRMA),3Statement by the Press Secretary Supporting the Foreign Investment Risk Review Modernization Act, Jan. 24, 2018, https://www.whitehouse.gov/briefings-statements/statement-press-secretary-supporting-foreign-investment-risk-review-modernization-act/. which would even further expand the Committee’s reach.4Elizabeth Rogers, Considering a “Smart” Telecom Deal with a Chinese Firm? Two Challenges Posed by FIRRMA, GEO. TECH. L. REV. (Mar. 2018), https://georgetownlawtechreview.org/considering-a-smart-telecom-deal-with-a-chinese-firm-two-challenges-posed-by-firrma/GLTR-03-2018/. These signs all point to an increasing tendency to use national security as a means of promoting the administration’s political agenda. The only questions that remain are how far the administration is willing to go and what that means for the tech industry moving forward.

Established in 1975, CFIUS was originally intended to merely monitor foreign investments; the Committee didn’t have the authority to block or divest transactions it deemed problematic until the Exon-Florio Amendment was passed in 1988, granting the President such authority, which was promptly delegated to CFIUS.5Xingxing Li, National Security Review in Foreign Investments: A Comparative and Critical Assessment on China and U.S. Laws and Practices, 13 BERKELEY BUS. L. J. 255, 261-62, 271 (2016).; see also Christopher M. Tipler, Defining ‘National Security’: Resolving Ambiguity in the CFIUS Regulations, Comment, 35 U. PA. J. INT’L L. 1223, 1226-28 (2014). In 2007, the Foreign Investment and National Security Act (FINSA) took that authority one step further, broadening the definition of “covered transaction” while continuing to omit a definition of “national security,” making CFIUS review a far more significant hurdle for M&A transactions involving a non-U.S. entity.6Li, supra note 5, at 262; see also 50 U.S.C. § 4565(a)(3)-(5) (2012). This authority is further strengthened by national security clauses in bilateral investment agreements7These clauses generally reserve the right to “apply[] measures that [a party] deems necessary for . . . the protection of its own essential security interests.” See, e.g., OFFICE OF THE U.S. TRADE REPRESENTATIVE, 2012 U.S. MODEL BILATERAL INVESTMENT TREATY art. 18 (2012), https://ustr.gov/sites/default/files/BIT%20text%20for%20ACIEP%20Meeting.pdf. and the fact that courts are largely unable to review Presidential enforcement of CFIUS recommendations.8For a detailed discussion of the judicial review bar in the DPA in light of Ralls Corp. v. Comm. on Foreign Inv., 758 F.3d 296 (D.C. Cir. 2014) and its progeny, see Chang Liu, Ralls v. CFIUS: The Long Time Coming Judicial Protection of Foreign Investors’ Constitutional Rights Against Government’s National Security Review, Note, 15 J. INT’L BUS. & L. 361 (2016).

This intervention by the administration is unusual in several respects. First, while the Committee’s actions have generally been shrouded in a veil of secrecy, the discussion of the Broadcom-Qualcomm takeover has been very publicly disclosed.9See, e.g., Presidential Order, supra note 1; Qualcomm Inc., Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Schedule 14A) (Feb. 9, 2018). Second, parties to transactions have traditionally backed off of acquisitions that were poised to be barred by executive order.10Id. Most unusual, however, is the stage and scope of this intervention. The presidential order in this case did not simply block the transaction in question. Rather, it intervened far in advance of the transaction, proscribing the election of independent directors proposed by Broadcom to the Qualcomm board based on the possibility that these directors would vote to approve the takeover.11See Presidential Order, supra note 1. See also Foreign Investment in the U.S.: President Blocks Broadcom-Qualcomm Under CFIUS, Citing National Security Concerns, BARNES & THORNBURG LLP (Mar. 20, 2018), http://www.btlaw.com/files/Uploads/Documents/2018%20Alerts/International%20Trade%20Law/Alert%20Foreign%20Investment%20in%20the%20U.S.%20President%20Blocks%20Broadcom%20Qualcomm.pdf. Furthermore, in the background of this executive action, Broadcom is actively pursuing redomiciliation in the United States, which would usually vitiate any concerns that CFIUS might raise.12Foreign Investment in the U.S.: President Blocks Broadcom-Qualcomm Under CFIUS, Citing National Security Concerns, supra note 11. Here, however, as the execute order specifically prohibits any “device entered into or employed for the purpose of, or with the effect of, avoiding or circumventing this order,” redomicialiation itself could be banned.

Beyond expanding the scope of CFIUS review, the administration seems to have effectively created a new defense to hostile takeovers. The CFIUS review that led to the President’s order was triggered by a unilateral request by Qualcomm without Broadcom’s knowledge.13Traditionally, CFIUS reviews are instigated by both parties in a joint request. See, e.g., Drew Savor, Brian Weimer & Reid Whitten, Chips on Their Shoulders: CFIUS Intervenes in Broadcom’s Hostile Takeover Bid for Qualcomm, FCC LAW BLOG (Mar. 8, 2018), https://www.fcclawblog.com/2018/03/articles/fcc/broadcoms-takeover-bid-qualcomm/. Time will tell whether the move will ultimately be successful, but it appears that by unilaterally involving CFIUS, Qualcomm has avoided a hostile takeover even better than it could have hoped with a poison pill or a white knight.