This past week the Antitrust Division of the U.S. Department of Justice announced that it was closing its investigations of three high-profile acquisitions of substantial patent portfolios, including patents essential to implementing standards in the wireless communications and computer industries.  On the same day, the European Commission cleared one of the same transactions.  These decisions offer much-anticipated insight into how these two agencies are likely to analyze the potential competitive impact of acquisitions of sizeable patent portfolios containing patents essential to compete in high-tech industries.

U.S. DOJ statement

On February 13, the DOJ issued a statement explaining why it was closing its investigation of three separate acquisitions of substantial patent portfolios:  Google Inc.’s acquisition of Motorola Mobility Holdings, Inc. (with its portfolio of about 17,000 patents and almost 7,000 patent applications), the acquisitions by Apple Inc., Microsoft Corp., and Research In Motion Ltd. (RIM) of about 6,000 patents and patent applications of Nortel Networks Corporation, and the acquisition by Apple of certain patents of Novell Inc.  On the same day, the European Commission issued its decision to approve Google’s acquisition of Motorola Mobility Holdings under the EU merger control regime.

In evaluating how these acquisitions might affect competition, the DOJ analyzed the “ability and incentives” of the acquiring firms to use the acquired patents to foreclose competition or raise rivals’ costs.  The DOJ focused in particular on patents considered essential to practice standards in the wireless communications industry that Motorola Mobility and Nortel, through their participation in standard-setting organizations, had committed to license to industry participants.  The DOJ considered whether an acquiring firm could have the “incentive and ability to exploit ambiguities” in FRAND commitments to demand “supracompetitive” licensing rates, compel a prospective licensee to grant the acquiring firm a license to the licensee’s differentiating technology, charge a licensee the “entire portfolio royalty rate when licensing only a small subset” of the patents in the portfolio, or seek to exclude standard-compliant products from the market altogether.

The DOJ concluded that Microsoft’s low market share in mobile platforms would make a strategy to harm rivals unprofitable.  The DOJ also noted that Microsoft has cross-licenses in place with the majority of its Android-based OEM competitors, making a strategy to harm rivals “even less plausible.”

The DOJ noted that the respective shares of Google and Apple in mobile platforms made a strategy of holding up rivals “more likely,” but in context not likely to harm competition.  The DOJ noted that its concerns about the potential anticompetitive use of the acquired essential patents “was lessened by the clear commitments by Apple…to license [the acquired essential patents] on fair, reasonable and non-discriminatory terms…[and] not to seek injunctions in disputes involving [those patents.]”  The DOJ noted that Google’s licensing commitments “were more ambiguous and do not provide the same direct confirmation of its…licensing policies.”  However, the DOJ also noted that Motorola Mobility has “a long and aggressive history of seeking to capitalize” on its patents, and determined that Google’s acquisition of Motorola Mobility “is unlikely to materially alter that policy.”  Thus, the DOJ determined that Google’s acquisition of Motorola Mobility’s patents does not substantially lessen competition.  The DOJ noted, however, that how Google may exercise its patents in the future “remains a significant concern” and stated that it would continue to monitor the use of patents essential to standards in the wireless industry. 

European Commission statement

The European Commission also announced its decision to approve Google’s acquisition of Motorola Mobility, stating that the transaction “does not itself raise competition issues.”  The Commission noted that it had coordinated its investigation with the DOJ.  The Commission reached its decision “mainly because [the acquisition] would not significantly modify the market situation in respect of operating systems and patents” for mobile devices.  The Commission noted in particular that Google’s acquisition of Motorola Mobility’s patents essential to the practice of the 3G and 4G/Long Term Evolution wireless telecommunications standards would not impede competitors’ access to those patents.  The Commission Vice President responsible for competition policy also announced, however, that the Commission would “continue to keep a close eye on the behavior of all market players in the sector, particularly the increasingly strategic use of patents.”

Observations

This pair of statements provides an important indication of the issues that the U.S. antitrust and EU competition authorities are likely to consider determinative in analyzing future acquisitions of patent portfolios in the technology space.  A company contemplating the acquisition of a patent portfolio should consider that:

  • An acquisition by a company with a substantial presence in a product market of patents essential to implement industry-wide standards in that market is likely to attract close scrutiny from both the U.S. antitrust and EU competition authorities.
  • The DOJ will evaluate the acquiror’s incentives, as well as its ability, to use the acquired patents to foreclose competition or raise rivals’ costs (although it is unclear whether courts would accept an analysis based only on the acquiror’s incentives).
  • The DOJ also will consider whether the acquiror’s specific FRAND commitments (if any) may reduce the likelihood of anticompetitive use of the acquired patents.

These issues are likely to arise more frequently in the future as companies seek to align their intellectual property portfolios with their long-term strategic objectives.