China: MOFCOM Cleared Google/Motorola Deal with Conduct Remedies

Last Updated: 30 May 2012
Article by Susan Ning and Hazel Yin

On May 19, 2012, MOFCOM cleared, with conditions, Google's acquisition of Motorola Mobility ("Motorola"), a USD 12.5 billion deal and the largest ever in Google's M&A history. The deal was announced in August 15, 2011 and obtained unconditional approval from the United States' Department of Justice and the European Commission in February 2012. This article outlines the major points of MOFCOM's conditional clearance decision of the Google/Motorola deal ("Decision").

Relevant Market

In the Decision, the product markets are defined as smart mobile devices (include smartphones, tablets, and smart TVs) and the operating systems ("OS") for smart mobile devices.

When it comes to the geographic market, the Decision is somewhat vague. The Decision simply says that the markets have the characteristics of a global market; and MOFCOM took into account the competition status in the global market yet focused on the competition status in the Chinese market. In previous conditional approval decisions, the geographic market is usually clearly defined as worldwide or China-wide with the supporting reasoning.

Competitive Analysis

According to the Decision, MOFCOM is mainly concerned with input foreclosure effects that are likely to arise as a result of the transaction and considered the following issues in its review process:

Status of the relevant market: MOFCOM recognizes that competition status of each of the two vertically-related markets has shown distinctive features. The smart mobile device market is wide-dispersed and Motorola does not have obvious advantage compared with other device makers.

On the other hand, MOFCOM considers the market for OS for smart mobile devices to be highly concentrated. The Decision cited some data of unidentified source, showing that as of Q4, 2011, Android has a market share of 73.99% in the Chinese market, whereas the shares of Symbian and iOS are 12.53% and 10.67% respectively. In light of the high market share of Android, reliance of OEMs on Android, Google's financial and technological capabilities and the high market entry thresholds, MOFCOM finds that Android has a dominant market position in the market for OS for smart mobile devices. MOFCOM also finds that Android's dominance is expected to be maintained or strengthened for a considerable period of time into the future because Nokia has gradually given up on Symbian, iPhone is more expensive than Android phones and that Windows Phone is still at the initial developing stage.

Free and Open-source: MOFCOM finds that OEMs, software developers and users have reliance on Android. According to MOFCOM, the free and open-source model is the major reason Android achieves a dominant market position within a short period of time. It is therefore essential for Google to maintain the model in order to protect the reasonable expectation and rightful benefits of the relevant parties. MOFCOM did not specify how and to what extent the business model will likely be affected by the specific transaction, causing negative impact on the relevant parties.

Fair treatment of OEMs: MOFCOM finds that Google has the incentive and ability to grant more favorable conditions to Motorola, such as providing Motorola with the latest version of Android ahead of other OEMs. MOFCOM particularly points out that Google is likely to choose Motorola as the OEM for testing the compatibility of new versions of Android before such a new version is officially launched, thereby placing the other OEMs at a disadvantage. Just like the approach it took in the previous Henkel/Tiande decision, MOFCOM did not elaborate on the reasons why Google would have the incentive to engage in discriminatory practices at the sake of its revenue-generating model that is mainly based on on-line advertisement.

Motorola patent licensing: MOFCOM recognizes that the vast number of Motorola's patents in telecommunications standards is the major drive for Google to acquire Motorola. Again, MOFCOM finds that after the transaction, Google has the incentive and the ability to impose unreasonable licensing terms to the counterparties, without elaborating on the reasons why Google would have the incentive to do so.

Market entry: MOFCOM also finds that there is significant barrier for entry into the OS market for smart mobile devices mainly because Android and iOS have already developed strong footage in the market. MOFCOM considers that in the foreseeable future, market entry is less likely to alleviate or offset the anti-competitive effects the transaction may have.


In an effort to alleviate its concerns, MOFCOM requested Google 1) to license the Android platform on a free and open basis, consistent with the current business practice; 2) to treat all OEMs in a non-discriminatory manner in relation to the Android platform; 3) to honor Motorola's existing FRAND commitments; and 4) to engage a supervision trustee to monitor its performance of the commitments. The first two commitments have a term of five years, and Google is entitled to apply for change or termination of the commitments in case of a change of the market status. The two commitments will also elapse once Google ceases to control Motorola. During the five-year period, Google is required to report to MOFCOM and the supervision trustee every six months regarding its performance of the commitments. After the expiry of the five-year term, MOFCOM may continue to evaluate the Chinese market of OS for smart mobile devices and make a decision according to law based on its evaluation.

This is the 8th case (among the 13 conditional clearance cases up till now) where MOFCOM imposed stand-alone conduct remedies that are not ancillary to structural remedies. It is also the first time MOFCOM issued a decision on Saturday.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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