MOFCOM conditionally clears Nokia s Acquisition of. Alcatel-Lucent with behavioral remedies

Transcription

1 MOFCOM conditionally clears Nokia s Acquisition of Alcatel-Lucent with behavioral remedies Dr. Zhao Hao, Song Ying & Feng Siduo On 19 October 2015, the Ministry of Commerce of the P.R.C ( MOFCOM ) conditionally cleared Nokia Oyi s ( Nokia ) acquisition of Alcatel Lucent ( Alcatel ) with four behavioral remedies focusing on maintaining fair licensing of standard-essential patents (SEPs). Brief Introduction of the Case On 15 April 2015, Nokia signed a Memorandum of Understanding on Acquisition with Alcatel, according to this memorandum, Nokia intends to acquire 100% shares of Alcatel through a tender off. A notification about this deal was filed on 21 April 2015 and officially accepted by MOFCOM on 15 June On 14 July 2015, the notification went into the second phase for review of MOFCOM. After MOFCOM expressed its concerns that this deal would lead to anti-competitive effects, Nokia proposed relevant remedies to MOFCOM. Through thorough evaluation, MOFCOM considers the proposals could release its competition concerns and decides to clear this transaction with remedies. In MOFCOM s view, the relevant product markets for the deal are the radio access network market, the core network systems market, the network infrastructure service market, and the information and communication technology SEP licensing market. Meanwhile, the relevant geographic market is primarily the China market. MOFCOM finds this deal would not arouse anti-competitive influence in the first three relevant product markets in China, while it could obstacle or limit the competition in the information and communication technology SEPs licensing market. The agency considers that Nokia would increase its holding in 2G, 3G and 4G SEPs and strengthen its concentration in the information and communication technology 1 / 5

2 SEPs licensing market ex post this deal. If Nokia refuses to license, charges overly high royalty fee, or conducts any other anti-competitive behaviors, the downstream competition would be distorted, which is likely to impair customers interests in the end. Four behavioral remedies focusing on maintaining fair licensing of standard-essential patents (SEPs) were imposed on Nokia accordingly, which are: (1) On a reciprocal basis, Nokia commits not to use injunctions to prevent enforcements of FRAND- (fair, reasonable and non-discriminatory) encumbered SEPs, unless the potential licensees are unwilling to sign FRAND licensing agreements and follow the terms. (2) If Nokia transfers its SEPs to a third party, it shall inform Chinese licensees, as well as Chinese companies that are actively engaging in licensing talks, about the transfer details. (3) Nokia will only transfer its SEPs to a new owner on the basis that the new owner accepts the existing FRAND commitments made by Nokia. (4) MOFCOM has the right to monitor the implementation of Nokia s commitments. Nokia shall report to MOFCOM about the implementation of the conditions within 45 days after the end of each calendar year. The reporting obligation will last five years until 18 October, This case shows new tendency of MOFCOM s attitude on evaluating the competitive effects involving SEPs, which will be presented as below. Key Issues and the Observation Defining the market for SEPs market as the relevant market MOFCOM defines all of the information and communication technology SEPs as the relevant product market, rather than divides each of them into the individual market. As MOFCOM states, even though this market can be divided into more specific markets based on demand-side analysis, it would made no difference on competition 2 / 5

3 analysis in this deal. Relevant market, as the starting point and basis of competition analysis, has been focused in the cases regarding SEPs. After the court judges that each SEP constitutes an individual relevant product market in the Huawei v. IDC litigation, the issue of whether it is necessary to specify the SEPs licensing market has drawn many attentions. MOFCOM s view gives an inspiration on that the extent to which the relevant market should be specified could be decided by serving the needs of competition analysis. Competition Analysis In the process of competition analysis, MOFCOM evaluates various factors rather than comparing the market shares only, which is consistent with the complexity and flexibility of the high-technology industry. Evaluation Factors Following facts are considered in this case: First, is there any undertaking which could compete with the concentrating undertakings. Second, if the manufacturers in downstream markets could counter-balance with Nokia by crossing-licensing. Third, what about the plan and tendency of the concentrating parties producing and marketing strategies. Finally, what about the characteristics of the relevant product markets. Analysis In The First Three Markets Even though Nokia would have large market shares after the deal in the first three relevant markets, MOFCOM does not conclude that it could induce anti-competitive effects in these markets, considering that there are some serious rivals in these market, such as Huawei, Ericsson and so on. 3 / 5

4 Analysis In The SEPs Licensing Market As per MOFCOM s statement, Nokia s market share in the fourth market would increase largely. Meanwhile, most wireless communication equipment manufacturers and handset makers, as the downstream market undertakings, are unable to engage in cross-licensing with Nokia, so that they are lack of sufficient countervailing power to counter-balance with Nokia. Based on this circumstance, MOFCOM concludes if Nokia makes unreasonable changes to its SEPs licensing strategies, such strategies could cause changes to the competition dynamic among the manufacture markets. Therefore, MOFCOM judges that this deal is likely to cause anti-competitive effects on the fourth relevant market, namely Nokia s unreasonable changes may increase the cost of downstream undertakings, which may cause the latter drop out of the market or carry the increased burden to customers. Remedies In the process of formulating remedies, MOFCOM pays more attention on protecting Chinese downstream companies and enhancing its supervision, which could be found in the second and fourth remedies imposed on Nokia. The second remedy requires Nokia to inform Chinese licensees and Chinese potential licensees the transfer details if it intends to transfer its patents to a third party. In this way, the licensees and potential licensees could make predication and strategies about this change. MOFCOM also asks Nokia to report the information and contracts if it transfers its patents to any third party, so that MOFCOM could enhance its supervision on the implementation of remedies imposed on Nokia. Tendency In this case, MOFCOM shows its attitudes towards the cases regarding SEPs, those are: 4 / 5

5 To what extent the relevant product market be specified should be decided according to the needs of competition analysis. Various factors rather than the market share only should be considered in the process of competition analysis, such as the countervailing power of the competitors and downstream undertakings, the producing and marketing strategies of the concentrating undertakings and so on. MOFCOM intends to enhance its supervision on the implementation of remedies. 5 / 5