Follow-on thoughts on (and beyond) Microsoft/Nokia (by Luis Ortiz Blanco)
[Note by Alfonso: A few weeks ago I wrote a brief post regarding one particular aspect of the Commission’s press release about the Microsoft/Nokia decision that caught my attention. Before posting it, I discussed the matter with two of my
bosses’ colleagues: Luis Ortiz Blanco and Marcos Araujo, both with significantly more merger experience than myself, and both of whom initially agreed with the point I was trying to make. A few days ago this question came up again, and I managed to extract from Luis the commitment that he would write his views on a guest post here (all previous attempts to get him to do that and a Friday Slot interview were unsuccessful…). Luis needs no introduction; he’s an exceptional person, professor, lawyer, and was even also one of the best men at my wedding... He’s also the reason why I work in competition law, but that's a long story. I leave you with him].
Readers of this blog may by now be familiarized with Alfonso’s and Nicolas’ well-known “persistence”. I admit to be and old-school guy, more prone to do my writings with time, pen and paper rather than swiftly and informally on blogs, but this time they caught me off guard and suggested an interesting topic, so here I am, giving blogging a try.
Despite the title of this blog entry, my intention is not to comment on the Microsoft/Nokia decision specifically, not the least because the decision is not yet available and I have not directly or indirectly worked on the case. My intention is to discuss an interesting theoretical point that appears to have arisen in that case and that prompts very relevant legal question for practitioners, academics and competition authorities which go beyond the facts of a given matter: do or should merger control rules and remedies apply also to impediments to competition that a transaction may generate on the seller’s side?
Alfonso already touched on this issue in a previous post. In my view, he rightly identified what I also see as an erred reasoning in the European Commission’s press release, according to which:
- “The Commission considers that any possible competition concerns, which might arise from the conduct of Nokia, following the transaction, in the licensing of the patent portfolio for smart mobile devices which it has retained falls outside the scope of the EU Merger Regulation. The Commission cannot take account of such concerns in the assessment of the current transaction. Indeed, Nokia is the seller whereas the Commission’s investigation relates to the merged entity.
Now, do really merger control rules really relate only to the merged entity, to the exclusion of the seller?
Prior to providing you with my answer to this question, I would remark that, in my experience, it is most unusual to see the European Commission (or any other competition authority for that matter) self-limiting its own powers. Competition enforcers often tend to do the contrary, that is, to explore the powers they have, even if at the risk of perhaps going beyond them at times.
If among the readers of this blog is the one person that bought my book Market Power in EU Antitrust Law, she or he might recall the criticism I directed (pp. 77-78) at a few cases (ExxonMobil, and particularly at Grupo Villar Mir/EnBW/Hidroelectrica del Cantábrico and EnBW/EDP/Cajastur/Hidrocantábrico in relation to the ‘third-party dominance theory”) in which the Commission had intervened aggressively on the market in order to address effects unrelated to the transaction. In those cases the Commission extended and arguably exceeded its powers because of its will to address what it saw as a competitive problem. In its Microsoft/Nokia press release, however, the Commission does the contrary: it appears to restrain or limit the powers it has in order to justify not evaluating what many saw as a competitive problem.
This stance is all the more surprising if one recalls that in the past the Commission has accepted/required some “soft commitments” in Oracle/Sun and, in a more similar setting, on the part of Google at the time it acquired Motorola Mobility. The theory of harm in both the latter case and Microsoft/Nokia related to the alleged possible anticompetitive use of patent portfolios. If anything, Microsoft/Nokia would seem to give rise to increased suspicion [the deal was structured in a way that has resulted in an unusual situation: Microsoft buys Nokia’s mobile device business but not valuable mobile device patents, which it will only license. Nokia, in turn, will be under pressure to assert its patents aggressively, may possibly also act under the influence of Microsoft, and would be immune from possible retaliatory strategies because it will not manufacture smartphones anymore. The move is smart, but, in my personal view, maybe also a bit obvious too].
The sole argument seemingly adduced by the Commission to justify its different treatment of the two deals seems to be the precisely the one we are discussing in this post. But, think for a second, would it make sense to endorse an interpretation of the merger regulation that would enable parties to avoid scrutiny by carefully tailoring the structure of a deal?
Now, and more importantly, why do I say that the Commission must have the power to assess the effects of a merger on the selling party?
First of all, because it makes sense. If a merger does affect the incentives of the players in a given market in such a way that competition may be significantly impeded, there would seem to be no valid reasons for competition authorities not to look at the problem and, where necessary, accept (i.e. demand) commitments The contrary would undermine the effectiveness of the merger control system. Why could not the Commission condition the authorization of a transaction to a commitment from one of the parties to it (the seller)?
Secondly, because as Alfonso pointed out in his previous post, the letter of the Merger Regulation supports this idea. He referred to recital 25 of the Horizontal Merger Guidelines; I would also argue that the references in articles 6(2) and 8(2) to “modifications [of the concentration] by the undertakings concerned” shall logically encompass the parties to the transaction (the only ones that can modify it), which obviously would include the seller.
Thirdly, because the Commission’s practice reveals that in the past remedies have been required from the selling party. Think of cases such as E.ON/MOL, where the commitments accepted by the Commission concerned the seller (interestingly, the commitment was drafted in a way such that E.ON would “undertake to procure MOL to dispose of [certain shares in the transferred companies]’. Think also of Alcatel/Telettra, where assurances by a third-party (Telefonica) were relied on by the Commission in accepting commitments. This is not to mention the cases in which the Commission relied on Member State’s (i.e. third parties) assertions and declarations of intentions in support of certain commitments.
Perhaps the Commission would benefit from a third party appeal (not that these have been successful lately) prompting the Courts to rule that the Institution has more powers than it now purports to have. Once again –just like it happened in Camera Care regarding interim measures (a story that I always like to tell my students about)- the Commission could experience the serendipity of obtaining increased powers without even seeking them.