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Microsoft-Nokia issues have familiar ring

by William McConnell | Published January 6, 2012 at 3:54 PM

If Microsoft Corp. goes ahead with rumored plans to buy Nokia Corp.'s smartphone division, the deal would likely draw an extended review from the Department of Justice.

The DOJ is currently reviewing a deal that raises similar competition issues, Google Inc.'s pending $12.5 billion deal to acquire Motorola Mobility Holdings Inc., which received a second request for information from the DOJ Sept. 29.

Both acquisitions would be vertical combinations of makers of smartphone operating systems and handset manufacturers, and there is worry that the OS makers -- Google in particular -- would have some incentive to stop providing them to rivals of their new in-house manufacturing arms.

The biggest issue in both deals appears to be whether patents being acquired along with the handset manufacturers come with exclusivity arrangements that could preclude wide dissemination of the operating systems.

However, several antitrust attorneys say the likelihood that antitrust concerns would lead the DOJ to try blocking either deal is slim.

"At a very high level they appear to be complementary" and pose no competition concerns, said William Vigdor, partner at Vinson & Elkins LLP. However, he said the regulators will closely examine whether patents, backbone overlaps or licensing issues pose competitive threats.

Neither deal poses traditional horizontal competition issues because the would-be buyers don't compete with their targets. As for vertical competition worries, although Motorola competes with other handset makers that also rely on Google's Android operating system, Motorola claims only a sliver of the handset business and Google has little incentive to damage its other Android partners' businesses. A Microsoft bid for Nokia likely would pose even less concern, given that its smartphone operating system has a backseat to Android and Apple's iOS. Also, if the Google-Motorola deal is approved, regulators would have little choice but to approve creation of a rival integrated smartphone provider.

Rumors of a Microsoft-Nokia deal have circulated for months but gained new traction Friday, Jan. 6, when a Russian blogger who follows the mobile market reported that the firms' top officials will meet in Las Vegas imminently to finalize the sale of Nokia's smartphone business to Microsoft.

A deal could prompt sharp reaction from Apple Inc., which already has accused Microsoft of trying to destroy Android by gobbling up operating system and cellphone patents. In April, a Microsoft-led consortium closed its $450 million purchase of open-source patents from Novell Inc. That sale was approved after the DOJ insisted on major revisions and vowed to continue checking how the deal affects competition. Apple has also complained about the pending $4.5 billion purchase by another Microsoft-led alliance of Nortel Networks Corp.'s patent portfolio. That deal is still under DOJ review.

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Tags: M&A | Microsoft Corp. | Nokia Corp. | regulatory

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Microsoft-Nokia issues have familiar ring

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