China Approves Google-Motorola Deal With Conditions

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The decision was issued on Saturday:

Authorities in China have approved Google Inc.’s bid to buy phone maker Motorola Mobility, clearing the way for the $12.5 billion deal to close early next week.

The approval brings the Internet search giant closer to sealing its biggest acquisition ever. Buying Motorola allows Google to expand into manufacturing phones, tablet computers and other consumer devices for the first time. The deal also gives Google access to more than 17,000 Motorola patents. (Associated Press)

The full text of the decision is not yet available in English, although I’m sure that will be remedied by someone quickly. It only runs perhaps three pages in English (my estimate). Here’s the link to the Chinese version.

Two things about the decision that are interesting. First, this is yet again another conditional M&A approval by the Ministry of Commerce. So far, we’ve only had one rejection (Coca-Cola’s failed acquisition of Huiyuan) under the Anti-monopoly Law since 2008. However, conditional approvals seem to be getting more frequent. I’m not yet sure what that means, although it certainly does point to a more active MOFCOM which, if nothing else, is reminding everyone around the world that China must be taken seriously when cross-border M&A deals go down.

Second, the analysis of the mobile market by MOFCOM should provide lots of fodder for IT consultants and industry experts. I don’t count myself as one, so I will not attempt to either support or criticize MOFCOM’s take on the effects of the Google acquisition to China’s domestic market.

That being said, here are a few of the issues raised by MOFCOM in its decision and, most importantly, the conditions it attached to the approval:

1. MOFCOM found that with Android, Google occupies a dominant market position. This is not a violation of the Anti-monopoly Law, but it is a key component of an analysis into whether a company is in fact using that position (or could do so in the future) to harm consumers. In its decision, MOFCOM took into account Android’s market share, the reliance that mobile device manufacturers have on the operating system, Google’s strong position with respect to technology and its financial position, and the relatively high market barriers to entry.

2. With Google’s Motorola purchase, it would be able to treat other mobile device manufacturers non-preferentially, putting those manufacturers at a competitive disadvantage and distorting the market.

3. With respect to Motorola’s patent portfolio, Google will be able to use those IPRs to force unreasonable licensing conditions, which could reduce competition and ultimately harm consumers.

No huge surprises there to anyone, I suspect. And here are the conditions that MOFCOM attached to the approval (this is NOT a translation, just a quick summary of key points):

1. Google shall provide Android on a “free and open basis” (免费和开放的基础).

2. In doing so, Google shall treat all original equipment manufacturers on a non-discriminatory basis.

3. Google shall continue to comply with Motorola’s current fair, reasonable and non-discriminatory patent obligations.

4. Google shall commission an independent trustee (独立的监督受托人) to monitor and supervise the fulfillment of these obligations.

Conditions 1 & 2 are valid for five years, although Google can apply for modification or rescission if market conditions change. The trustee’s report must be submitted to MOFCOM every six months. After the five-year period has expired, MOFCOM may still monitor the situation and make such decisions that are necessary given market conditions.

Someday I’d love to see what one of these trustee reports looks like.

3 responses on “China Approves Google-Motorola Deal With Conditions

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  2. G. E. Anderson

    After every other anti-trust authority in the world approved this merger, China held it up for months only to tell Google to do things the company had already said it would do.

    Reminds me of the classmate who always spoke up toward the end of class and basically repeated what everyone else had said so far — all in order to get class participation points.

    1. Stan Post author

      Yeah, with all these conditional approvals, many of which only amount to “OK, as long as you don’t do anything bad in the future,” it seems as though MOFCOM, the new kid on the anti-trust block, has some insecurity issues.