2 November 2015
In the past few months, Nokia’s acquisition of Alcatel-Lucent has been approved by the EU (Case M.7632, decided 24 July 2015 and published in late September) and Chinese competition authorities (press release announcing decision, 21 October 2015).
While the European Commission approved the merger in Phase I without remedies, the Chinese authority (MOFCOM) has required Nokia to give commitments in relation to the licensing of the acquired standard essential patents (SEPs). MOFCOM’s market analysis suggested that Nokia’s market position for 4G SEPs (presumably based on patent declarations) would climb from second to first, and considered that “it’s possible that Nokia will use its standard-essential patents (SEPs) to exclude or restrict the relevant market competition after the deal”. MOFCOM further stated: “After the concentration, the possible unreasonable changes of Nokia’s charges of SEPs will bring differences to the landscape of China’s mobile terminal manufacturing market and wifi equipment manufacturing market. It will exclude and restrict the market competition and finally impair the interest of consumers”. As a result of MOFCOM’S concerns, Nokia “promised to continue to abide by FRAND rules with regards to SEPs, and also made commitments on topics concerning the prohibition and transferring of SEPs”. The exact text of the commitments has not (yet) been made public. Why, then, the concern in China, when no such concern was evinced in the EU? First, the EU seems to have come to rather different conclusions on the merged entity’s position in 4G technology markets (not the market leader, according to the EU’s assessments). More fundamentally, the Commission appears to take the view that the FRAND obligations which apply to the transferred patents are sufficient to prevent harm: “The merged entity is […] obliged to license its SEPs to any interested party under such FRAND terms and the transaction will not affect or change the parties' FRAND commitments”. The way this is expressed is worth noting, since it provides some helpful explanation of the requirement in Article 6.1bis of the ETSI IPR Policy (newly introduced in March 2013) that FRAND undertakings should be “binding on successors-in-interest”. The Commission evidently understands this to mean that FRAND for a particular SEP has to mean the same thing, regardless of which party is licensing out that patent. The Commission also seems to place importance on the fact that the merged entity will retain a significant infrastructure manufacturing business. Query whether its conclusion would have been different had the transfer of SEPs been made to a non-practising entity.
As regards non-SEPs, the press release from the MOFCOM investigation gives no particular insight. The Commission took the view that no concerns would arise: it stated that there were no indications that Nokia “would have greater ability and incentive to enforce Alcatel’s non-SEPs than Alcatel has today”, and further stated that its investigation had not suggested that any of Alcatel’s non-SEPs were “indispensable” for manufacturers. The criterion of indispensability seems to set a high bar for competition law intervention in relation to non-SEPs. It is, however, in line with the Court of Justice’s view in Huawei v. ZTE that ‘FRAND-encumbered’ SEPs are in a different class from other patents which manufacturers can design around. Time will tell if this distinction is warranted, so far as the merged entity is concerned.