China: China’s MOFCOM Conditionally Clears Microsoft/Nokia And Merck/AZ

Last Updated: 23 May 2014
Article by Peter Wang and Yizhe Zhang

China's Ministry of Commerce has issued two new conditional approval decisions relating to Microsoft's acquisition of Nokia, and Merck's acquisition of AZ Electronics. These decisions show that MOFCOM will pay close attention to the intellectual property rights owned by the parties to the transaction and will impose remedies where it feel that, in its view, such rights can be misused, especially if to the detriment of Chinese licensees.


On April 8, MOFCOM approved Microsoft's acquisition of Nokia's mobile handset business. MOFCOM's review focused on three product markets:  smartphones, mobile operating systems, and the licensing of standard-essential and non-essential patents for smartphones. Geographically, MOFCOM focused on potential impact on the China market.

MOFCOM found that the Microsoft mobile operating system and the Nokia smartphone business had minor market positions and were unlikely to impact competition post-closing.

However, MOFCOM concluded that, post-acquisition, Microsoft would have the capability to restrict competition in the upstream patent license market for smartphones, particularly with respect to Microsoft's package license for Android phones, known as the Android program license. MOFCOM stated that Microsoft's patents covered by the Android program license include technology that is "essential" for the production and manufacture of Android phones, which make up more than 80% of the Chinese smartphone market, including many standard-essential patents as well as 26 families of non-essential patents. MOFCOM found that Microsoft has the motivation to increase competitors' costs by raising its patent royalty rates, now that it was acquiring another competing smartphone manufacturer, the existing Nokia mobile handset business. By contrast, MOFCOM stated that the majority of Chinese smartphone manufacturers lack the "strength" to engage in effective cross-licensing; that patent licensing is a key barrier to entry for smartphone manufacturing; and that any increase in royalty fees would endanger the ability of Chinese smartphone manufacturers to compete, thereby reducing competition and injuring consumers.

MOFCOM also found that, post-acquisition, Nokia (i.e., the seller of the existing Nokia mobile handset business and related patents) will have the incentive and ability to increase its own patent licensing royalty rates for smartphone-related patents. (Note that, unlike other jurisdictions, MOFCOM also considered likely effects on post-closing behavior by the seller, rather than looking only at the likely post-closing conduct of the acquiring entity, Microsoft.)  MOFCOM noted that Nokia has "thousands" of standard-essential patents relevant to telecommunications and was a "leader" in that area "in terms of patent quantity and quality," and that its patents are needed by smartphone manufacturers to conduct production activities. As a result, MOFCOM found that "Nokia has controlling power over the smart phone market."  Moreover, MOFCOM posited that, because Nokia is exiting the downstream device and service market through the transaction, it will have reduced motivation to maintain lower patent royalty fees for the mobile industry. MOFCOM again stated that Chinese potential licensees lack countervailing bargaining power; that such patents are the key barrier to entry in the smartphone business, and that any increase in royalty fees would affect competition in the China market.

As a result, MOFCOM imposed conditions on both Microsoft and Nokia:

  1. With regard to its standard-essential patents ("SEPs"), Microsoft is required (subject to the requirement of reciprocity by any potential licensee):
    1. to honor its FRAND commitments for SEPs;
    2. not to seek injunctions or exclusion orders based on its SEPs against smartphones made in China;
    3. not to require reciprocal licensing from licensees unless the licensee holds SEPs for the same industry; and
    4. to transfer its SEPs only to third parties that agree to abide by these conditions.
  2. For its non-essential patents, Microsoft is required:
    1. to continue to provide nonexclusive licenses to smartphone manufacturers within China;
    2. to license such patents (a) for fees not exceeding those it charged prior to the concentration or contained in current license agreements, and (b) on the same (in substance) non-price terms and conditions as prior to the concentration; and
    3. for 5 years, not to transfer these patents to any third party, and thereafter to transfer them only to third parties that agree to abide by these conditions.

The conditions on Microsoft generally are imposed for 8 years with some exceptions.

3. Nokia is required (generally subject to reciprocity):

  1. to continue to honor its existing FRAND commitments for SEPs;
  2. to confirm its support for the principle that, subject to reciprocity, injunctions should not be enforced based on SEPs to prevent implementation of a standard subject to FRAND undertakings unless the prospective licensee is unwilling to enter into or comply with a FRAND license;
  3. not to require licensees also to license Nokia's patents not subject to FRAND undertakings;
  4. to transfer its SEPs to a new owner only subject to existing FRAND undertakings and its MOFCOM commitments; and
  5. not to depart from its current generally offered FRAND per unit running royalty rates for its current portfolios of cellular communication SEPs.

The conditions on Nokia are subject to a reporting duty for 5 years, but do not appear to have a specific time limit on the conditions themselves.


On April 30, MOFCOM approved the acquisition of AZ Electronic Materials S.A. ("AZ") by Merck KGaA ("Merck"). MOFCOM's review focused on two products that are components in the manufacture of flat panel displays (FPDs):  liquid crystal and photoresist. The decision indicates that MOFCOM engaged outside economists to assist with its review.

MOFCOM found that, because both liquid crystal and photoresist are raw materials used for FPD manufacturing, they are "complementary" and constitute "adjacent" markets. Merck and AZ have significant market shares in the two markets -- Merck has 60% share worldwide and 70% share in China in liquid crystal, while AZ has 35% worldwide and 50% in China in photoresist. MOFCOM found that, after the concentration, Merck would become the largest supplier of both liquid crystal and photoresist, while other competitors are able to supply only one product alone and with limited capacity.

As a result, MOFCOM found that the transaction would have the effect of eliminating or restricting competition in both markets, because Merck would have the capacity to engage in tied or bundled sales and cross subsidies to harm competition, and barriers to entry (including IP/patents) are high.

To resolve those concerns, MOFCOM required Merck and AZ to commit:

(a) not to engage in tie-in sales that would force Chinese customers to purchase both Merck and AZ's products at the same time including not to give cross subsidies between Merck's liquid crystal and AZ's photoresist; and

(b) to license Merck liquid crystal patents on non-exclusive, commercially reasonable and non-discriminatory terms. 

These terms were imposed for a period of 3 years.

Key points

MOFCOM view of adjacent/complementary markets. In Merck/AZ, MOFCOM viewed different raw materials used for FPD manufacturing as adjacent markets, even though there is no demonstrated relationship between the two other than that they are separate inputs required for FPD, and indicated concerns with cross-market bundling or tying. 

Non-overlap products. In Merck/AZ, MOFCOM imposed remedies even though the parties have no overlaps in the relevant markets, and although AZ's worldwide photoresist share is only 30% (although its China share is 50%). 

IP barriers to entry and licensing. With very little discussion, MOFCOM concluded in Merck/AZ that, "in the liquid crystal market, Merck has over 3500 patents, and some patents constitute substantial barriers."  Combined with an estimated 2-3 years for downstream customers to test and certify the technology of alternative photoresist suppliers, MOFCOM found significant barriers to entry. Similarly, in Microsoft/Nokia, MOFCOM found that both companies possess significant numbers of standard-essential and non-essential patents constituting barriers to entry into smartphone manufacturing. The Merck decision even requires the parties to ''notify MOFCOM in advance'' if they license any technology to Chinese licensees, presumably so that MOFCOM can oversee the license terms.

Timing. The Microsoft/Nokia case was cleared with conditions on the last day of Phase III. It is not clear from the decision when the Parties began to offer remedy proposals.

The Merck/AZ case was formally accepted by MOFCOM at the end of January. The Parties proposed the final set of remedies on April 25, and the decision was issued on April 30, i.e., in the middle of Phase II. That case, like the earlier Thermo Fisher case, shows that, if MOFCOM has clear and focused concerns, and parties are prepared to make specific remedy proposals to address those concerns up front, then even cases raising concerns and, in MOFCOM's view, requiring conditions can be cleared relatively quickly. 

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions