Monday, February 13, 2012

European Commission clears Google-Motorola deal but with reservations concerning standard-essential patents

The European Commission just announced that it has approved Google's proposed acquisition of Motorola Mobility. In addition to a press release announcing the decision, the Commission's Vice President of Competition Enforcement, JoaquĆ­n Almunia, issued a statement to provide further background on the rationale.

The most important paragraph in the Vice President's statement is this:

"Today's decision does not mean that the merger clearance blesses all actions by Motorola in the past or all future action by Google with regard to the use of these standard essential patents. Our decision today is without prejudice to the legality under EU antitrust law of Motorola's past and Google's future actions. However, the question whether Motorola's or Google's conduct is compliant with EU antitrust law cannot be dealt with in the context of the merger procedure."

This means the European Union's antitrust arm expressly reserves the right to investigate, and potentially penalize, any past and future actions by the combined entity, or any of its parts, with standard-essential patents. Of course, it would be an overstatement to call this an implicit condemnation of MMI's actions -- but it's consistent with what the Vice President said last Friday about standard-essential patents, and I believe it's accurate to conclude that the EU is going out of its way here to keep all options for the future.

The paragraph I quoted above says that a merger review is not the right context to deal with these issues. Competition enforcement in the EU has multiple pillars (antitrust investigations of abusive behavior, cartel cases, subsidies, merger control). Merger control is the only major area of competition law in which regulators have to base their decisions on a prognosis of whether the merger is going to result in a significant impediment to competition -- things must get worse. By comparison, it's much easier to launch an antitrust investigation (or cartel investigation) after the fact, when all the evidence is on the table. If a regulator wants to block a merger, the legal standard is whether the expected negative impact on competition is the most likely outcome. That's often hard to prove. Furthermore, merger control is on very short and rigid timelines.

I understand the Commission's decision, though I do believe that at least in connection with the H.264 video codec standard, the most likely outcome will be that Google will view an aggressive use of patents essential to that standard as an opportunity to kill two birds with one stone. Google clearly has an anti-H.264 agenda. But again, far be it from me to blame the Commission: it can still fix any problems later. In particular, since it is already investigating Samsung, whose related behavior has a lot of parallels with that of MMI, it is already looking at the key issues here.

While Google and Motorola can claim that their merger has taken another important regulatory hurdle, the way the EU has positioned this decision should give Google's leadership and legal team pause. It's very, very unusual for a regulator to approve a deal just on the basis of the argument that it doesn't believe it can make the case for an exacerbation of the situation, though it acknowledges that there may already be antitrust issues.

The Commission notes that Motorola's positions on these issues have, apparently, been consistent in some ways. But something "consistent" can still be consistently problematic.

You know what's particularly noteworthy? Neither the Commission's press release nor the additional statement by Vice President Almunia say anything to the effect of Brussels welcoming Google's recent letter to standards bodies concerning the post-acquisition use of Motorola Mobility's patents. I had criticized that letter for having huge loopholes. Typically, the Commission welcomes such public declarations by companies if it believes that those are potentially helpful, at least on a good-faith basis. But Brussels doesn't applaud Google's promise of continuity.

Continuity is all it takes for a merger to be approved, but Europe's competition regulator has made it clear that it may not be enough going forward. In my personal opinion, Googlorola is heading for serious antitrust trouble if it doesn't change course concerning FRAND. I don't want to read more into the Commission's statement than what it is saying, but some of what the Commission is not saying, such as describing Google's assurances as helpful, says a lot.

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