China's MOFCOM Grapples With Open Source Issues In Google-Motorola Deal

by Sheppard Mullin Richter & Hampton LLP

[author: Becky Koblitz]

This past February the US Department of Justice (“DOJ”) and European Commission (“Commission”) cleared Google Inc.’s acquisition of Motorola Mobility Holdings Inc. without any conditions. In contrast, on May 19, 2012 the Chinese Ministry of Commerce (“MOFCOM”) approved the acquisition subject to what some observers believe were over-cautious conditions linked to a lack of experience and institutional resources.

Google Inc. is a provider of internet search and online advertising services as well as the developer of an open source (free of charge) mobile operating system called Android. Motorola Mobility Holdings Inc. manufactures smartphones and computer tablets, and owns approximately 17,000 issued patents and 6,800 applications, including standard essential patents (“SEPs”). In general, SEP’s are important in terms of implementing certain telecommunication standards such as 3G or 4G/LTE and WiFi and WiMax in smartphones.

MOFCOM determined that Google’s acquisition of Motorola had the effect of eliminating or restricting competition in the markets of operating systems and patents, but approved the acquisition with three conditions:

  1. Google must continue to distribute Android, its mobile operating system, without any charges and under an open source license for the next five years;
  2. For the next five years Google must treat all original equipment manufacturers in a non-discriminatory manner with respect to the Android platform; and
  3. After the acquisition, Google’s commitments to license Motorola’s patents should continue to comply with the existing fair, reasonable and nondiscriminatory (“FRAND”) terms of the standard setting organizations.

Google was also required to appoint an independent party to monitor its activities with regard to these three conditions. The monitoring for the first two conditions will be for the next five years and can be waived if the market changes. If Google loses control over Motorola, the second condition will become null and void. The monitoring of the third condition is indefinite.

With regard to the first condition, MOFCOM noted that Google’s operating system, Android, occupied 73.99 percent of the market share in China during the fourth quarter of 2011, while Nokia’s Saipan had 12.53 percent and Apple’s iOS had 10.67 percent, such that Google’s Android dominated the market of operating systems. For comparison purposes, the DOJ found that for the US market at the end of 2011, Google’s Android accounted for approximately 46 percent of the U.S. smartphone operating system platform subscribers, Apple iOS had about 30 percent, RIM approximately 15 percent and Microsoft approximately 6 percent. MOFCOM believed that the reason Android is able to maintain such a large market share is because Google offered it on a free and open access basis. Therefore, MOFCOM reasoned, if Google starts charging for Android, this will have a negative impact in the sense that those who invested in the Android—including manufacturers of smart phones, software developers and end users—will incur additional costs. The open source aspect of Android is Google’s business model. Neither the DOJ nor the Commission mentioned that Google had any plans to change the way it distributed the Android system, nor did MOFCOM refer to such plans. The Commission noted that “Google’s revenue is mostly derived from online advertising and to a certain extent from mobile online advertising.” MOFCOM’s concern about Google's large market share is thus arguably misplaced, as the open source nature in and of itself allows all users’ access to Android. The idea of providing something free of charge is a novelty and anomalous to Chinese business culture, and it may be because of this difference in business cultures that MOFCOM wanted in black and white a confirmation that Google would continue to offer the Android as an open source operating system.

With regard to the second condition, similar to the Commission, MOFCOM considered whether Google would be likely to prevent Motorola’s competitors from using Google’s Android operating system (the DOJ did not address this issue). However, contrary to the Commission’s position that it is unlikely that Google would restrict the use of Android solely to Motorola, “given that Google’s core business model is to push its online and mobile services and software to the widest possible audience”, MOFCOM apparently believed that Google “is likely to” favor Motorola over other original equipment manufacturers. Again, MOCOM wanted in black and white Google’s confirmation of what Google would do anyway, that it would not discriminate against other manufacturers of smartphones/tablets.

With regard to the third condition, similar to the Commission and DOJ, MOFCOM considered issues of access and strategic use of the SEPs with respect to their effects on competition. Both the DOJ and the Commission acknowledged that it is possible to misuse patents to the detriment of competition and expressed concern about how Google would exercise its rights gained through the patents, but found that the present acquisition was not indicative of how Google would use the SEPs. Both agencies were willing to take a “wait and see” approach, i.e., continue to monitor Google’s use of the SEPs in the wireless device industry, particularly in the smartphone and computer tablet markets. MOFCOM took its analysis a step further and required a confirmation from Google that it would comply with the FRAND terms of licensing, similar to the previous two business activities, something Google would do anyway. Perhaps MOFCOM required this confirmation because it would be more difficult for the enforcement agencies, the National Development and Reform Commission and the State Administration of Industry and Commerce, to monitor Google’s actions in the future.

In addition, there are administrative costs related to the employment of a supervisor which Google will bear and which may be passed on to consumers. These costs include payment for the services as well as internal costs for setting up a system within Google to comply with the conditions. In the end, the comfort that MOFCOM gains with these conditions likely will be embedded in the costs borne by the consumer. Perhaps over time, as MOFCOM’s experience grows, it will feel more secure in taking more of a “watch and see” as opposed to a micro-manage approach. This acquisition shows once more that for off-shore acquisitions that have been cleared by other jurisdictions, Chinese antitrust clearance is not to be taken for granted, but neither has it varied dramatically to date.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.