On 18 January 2018, the European Commission ('Commission') approved Qualcomm's proposed acquisition of NXP, subject to compliance with commitments offered by Qualcomm, following an in-depth investigation. Both firms are important players in the semiconductor industry, supplying products used in the manufacture of smartphones.
Qualcomm develops and supplies baseband chipsets that allow smartphones to connect to cellular networks. NXP supplies semiconductors, including near-field communication ('NFC') and secure element ('SE') chips, which are used in particular for secure payment transactions on smartphones. NXP also developed and owns MIFARE, a leading technology used as a ticketing/fare collection platform by several transport authorities in the European Economic Area.
The transaction was notified to the Commission on 28 April 2017 and the Commission opened an in-depth Phase 2 investigation on 9 June 2017. During its investigation, the Commission found that Qualcomm and NXP had strong market positions, offered highly complementary products and owned a significant amount of intellectual property relevant to smartphone manufacturers (including standard and non-standard essential patents related to NFC chips). As a result, the Commission was concerned that the merged business would have had the ability and incentive:
- make it more difficult for suppliers to access NXP's MIFARE technology, by raising the licensing royalties or by refusing to license the technology;
- to degrade the interoperability of Qualcomm's baseband chipsets and NXP's NFC and SE chips with rivals' products, with a view to foreclosing rival suppliers of chipsets and chips; and
- to charge significantly higher royalties for its NFC patents owing to its increased bargaining
The Commission's approval decision is conditional upon compliance with the following commitments offered by Qualcomm, which address the above competition concerns:
- offer licences for an eight-year period on terms that are at least as advantageous as those available today, to ensure that third parties continue to have access to the MIFARE technology and trademarks;
- agreeing to ensure that, for an eight-year period, it would provide the same level of interoperability between its own baseband chipset and the NFC and SE products it acquires from NXP with the corresponding products of rival companies;
- offering not to acquire NXP's standard essential NFC patents and certain of its non-standard essential NFC patents; and
- agreeing not to enforce its rights against other companies and to grant worldwide royalty-free licences of any of NXP's non-standard patents for as long as it owns them.
It is evident from Commissioner Margrethe Vestager's comments, both at the time of the decision to open an in-depth investigation and following the approval decision, that this case was placed under the microscope due to consumers' dependency on electronic devices in everyday life. This case illustrates the central mission of the Commission: to protect consumers by ensuring that they can benefit from innovative products at competitive prices.
The case is also noteworthy from the perspective that internal documents obtained during the merger investigation were used as evidence in a separate antitrust investigation in which the Commission fined Qualcomm almost €1bn for abusing its dominant position in the market for baseband chipsets (see Ashurst's update).
