Concern over Patents
With the Korea Fair Trade Commission (FTC) examining the effects of the merger between Nokia and Microsoft, its results are drawing a lot of attention. Experts are saying that like China, the country’s anti-trust regulator will give their seal of approval to the takeover of the Finnish company’s handset unit by the Redmond-based software company, under certain conditions.
According to the Korean anti-trust regulator and industry sources on April 20, the FTC is going to announce the results of its review on Microsoft’s purchase of Nokia within this month.
After announcing its plan to acquire Nokia’s device business in September of last year, Microsoft has received regulatory approval for the M&A deal from antitrust bodies around the world, starting with the European Commission and the U.S. Department of Justice in Dec. However, regulatory authorities in Asia such as Taiwan and Korea are still conducting their reviews, owing to concerns over the likelihood that Microsoft will pressure its competitors using patents that the company and Nokia have. After facing pushback from Asian antitrust regulators, Nokia and Microsoft delayed their plans to conclude the buyout to April from the first quarter.
In particular, Chinese smartphone makers expressed concern to their government over potential higher patent fees from the deal. The Korea Electronics Association also filed a complaint with the FTC on March 7, together with the Korea Software Industry Association, the Korea Semiconductor Industry Association, and the Korea Battery Industry Association. “After buying Nokia, Microsoft may keep Korean manufacturers such as Samsung in check using Nokia’s patents,” said the local electronics industry in its petition.
Aware of a possible backlash from local companies, the Chinese Ministry of Commerce approved Microsoft’s purchase of Nokia on April 8, with certain conditions, saying, “Microsoft and Nokia’s patents could limit competition in the local smartphone market.” In light of the Chinese government’s decision, the Korean regulatory body is more likely to follow suit. In fact, the body is said to be considering granting conditional approval to the business consolidation, and finalizing its standards for approval.
Nokia, rather than Microsoft, is actually giving serious cause for concern to local Android device manufacturers such as Samsung and LG Electronics. The software giant is said to have a large number of patents for Android operating systems and is reportedly charging patent fees already in the range of between US$5 per smart phone and US$10 per tablet PC.
Nokia, on the other hand, has not been active so far in collecting fees for its patents related to smartphones, since it has signed cross-licensing agreements with rival companies. Nonetheless, industry analysts are saying that if the Finnish firm’s handset business joins with Microsoft, Nokia can freely exercise its patent rights without manufacturing mobile phones. In that case, the smartphone maker would turn itself into a Non-Practicing Entity (NPE), or a patent troll. Currently, the firm retains nearly 30,000 patents for smartphones; among them, 7,000 cases relate to mobile communications. In fact, news organizations in China reported on April 3 that the Finnish company asked every smartphone vendor in the nation to pay as much as 20 times higher patent fees.
In response, Chinese antitrust authorities approved the M&A transaction under the condition that Microsoft does not ban Android device makers in the country from selling phones, even if they infringe on Microsoft’s standard-essential patents (SEPs). It was also agreed that after the merger, the software firm will not raise licensing fees, and will maintain similar terms for its standards-setting patents as well. In addition, Chinese regulators demanded that Nokia abide by fair, reasonable, and non-discriminatory (FRAND) patent licensing principles. Under those terms, SEP holders are required to let rival companies use their patents in FRAND manners.
The local electronics industry thinks positively about the fact that the approval by the Chinese regulatory body is subject to certain conditions, but wants the Korean counterpart to impose stricter conditions on the Finnish handset maker. An industry source remarked, “It is already mandatory for international standardization organizations to abide by FRAND principles, which the FTC asked Nokia to pledge to honor. So, Korea needs to enforce tougher regulatory conditions.”
In the meantime, industry analysts are saying that the state visit of US President Barack Obama scheduled on April 25 will affect the FTC’s deliberation as well. The US government is reportedly hoping that the business consolidation review will soon be finalized in Korea. Now, the M&A deal is waiting to be approved by the Korean government. An FTC official said, “I cannot comment on an issue that is currently under review.”