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Microsoft's Nokia Deal Clears China Hurdle

Microsoft's Nokia Deal Clears China Hurdle

Microsoft can move forward with its acquisition of Nokia without having to make any serious concessions to China. There was some concern that its Ministry of Commerce might erect some barriers to the deal, since Nokia owns thousands of mobile technology patents necessary for Android development. However, Microsoft agreed to play nicely with its competitors, and China evidently was satisfied.

By Erika Morphy E-Commerce Times ECT News Network
04/09/14 6:19 AM PT

Microsoft's proposed US$7.4 billion acquisition of Nokia's mobile phone business is moving closer to the finish line, having just won approval from China's Ministry of Commerce. It is a key milestone for the transaction, which sailed through the U.S. and European approval processes with little difficulty or delay.

The deal is expected to close this month with 15 regulatory authorities around the world having signed off on it.

Nokia on Tuesday announced that China was greenlighting the sale without requiring drastic changes to its main technology patent practices -- although several conditions would have to met.

What Microsoft Promised

Microsoft has promised pledged to honor fair, reasonable and non-discriminatory (FRAND) patent licensing principles for at least eight years under the conditions imposed by China's regulatory authorities.

Perhaps more significantly, at least to China's regulatory authorities, Microsoft also said it would make nonexclusive licenses available for Android smartphones, many of which are developed in China. Some 80 percent of smartphones in China run Android, for which Microsoft holds some patents.

There were fears that China would request drastic -- potentially deal-killing -- changes before granting approval. The fears were fanned when the ministry said it would need a longer period of time to study the deals and its effects.

Certainly the ministry has been subject to intense lobbying by Google and Samsung, both of which were seeking assurances that Microsoft would not raise its licensing fees.

"Both the U.S. and European officials concluded that the deal would not result in the device market becoming less competitive," Ross Buntrock, a partner with Arent Fox, told the E-Commerce Times.

"China's Ministry of Commerce, on the other hand, took much longer -- and at the end of the day, credited concerns raised by Chinese handset makers who claimed that the combined company would wield too much power over standards-essential patents," he noted.

In the end, the Ministry waved through the transaction after extracting a minimal number of changes. No authority has asked for changes to its licensing program or royalty terms, Nokia has said. In short, the ministry's perceived bark was far worse than its bite.

"Chinese regulators squeezed Microsoft for a modest list of commitments that expire in April 2022, but which in my opinion are not material or overly burdensome," Buntrock said.

Unfounded Fears

The fears about its intentions were unfounded, Microsoft said. It never had any intention of changing its existing patent licensing policies as a result of the Nokia deal.

In many respects, the deal is noncontroversial.

American and European antitrust regulators approved the sale of Nokia's devices unit to Microsoft with "lightning speed," as Buntrock noted, taking only a few months to deliberate it.

The acquisition is widely viewed as a good -- perhaps even essential -- move for Microsoft, and one that won't necessarily be disruptive for the industry. After all, most of Microsoft's largest competitors, including Apple, Amazon, Google and Samsung, have developed their own complete hardware and software platforms, which is what Microsoft presumably wants to do with Nokia. It will be another option in the market for consumers.

Concerns grew from the specter of a more aggressive Microsoft, armed with Nokia's patents, trying to freeze out competitors from the Android market -- or at least wring expensive concessions from them.

"Nokia has tens of thousands of patents that are vital to the mobile communications industry," said David Cadden, a professor of entrepreneurship and strategy in the School of Business at Quinnipiac University.

"Its acquisition by Microsoft must have thrown many into a fearful fit," he told the E-Commerce Times, "feeling that Microsoft might exploit those patents."


Erika Morphy has been writing about technology, finance and business issues for more than 20 years. She lives in Silver Spring, Md.


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