On May 19, 2012, the Ministry of Commerce of the People’s Republic of China (“MOFCOM”) conditionally cleared the acquisition of Motorola’s mobile business by Google (the “Transaction”).
In doing so, MOFCOM imposed four conditions on Google:
- continue to license Android in a free and open source manner;
- treat all original equipment manufacturers (“OEMs”) in a non-discriminatory manner;
- abide by Motorola’s existing fair, reasonable and non-discriminatory obligations with respect to patents; and
- appoint an independent trustee to supervise the implementation of these conditions.
Conditions 1, 2 and 4 apply for five years, however Google may request MOFCOM to amend or repeal conditions 1 and 2 upon any change in market conditions.
In MOFCOM’s decision, the relevant markets were identified as (a) smart mobile devices and (b) their operating systems. With respect to the smart mobile device market, MOFCOM concluded that it is a highly decentralized market with intense competition both within China and globally. Motorola therefore does not gain any notable advantage in this arena, as Google is not a player.
However, in the smart mobile device operation system market, Google is a de facto manipulator through Android, which occupies 73.99% market share in China. Given the high threshold to enter this market, Google is expected to maintain its dominant position in the foreseeable future.
Accordingly, MOFCOM’s major concern underlying the conditional clearance derived from an analysis of the separate but interactive markets of smart mobile devices and their operating systems. This is due to the overall position of Chinese OEMs in the global market. While leaders in the smart mobile device market, such as Samsung and HTC, have the ability to manufacture products on multi-operating platforms, Chinese OEMs rely heavily on Android to develop and produce Android-compatible devices. If Motorola gains favorable or even exclusive access to Android, Chinese OEMs may be at a competitive disadvantage.
The conditional clearance on the Transaction underscores the importance of identifying Chinese market characteristics in merger review filings. In sharp contrast, both antitrust authorities in the United States and the European Union approved the Transaction unconditionally, only expressing concerns on future use of Motorola’s patent portfolio by Google. Given the unique characteristics of the Chinese market, care should be given and special strategies should be formulated when coordinating multijurisdictional filings in any M&A transactions.