Microsoft's deal for Nokia's handset biz gets approval in China

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Microsoft's (NASDAQ:MSFT) $7.5 billion deal to buy Nokia's (NYSE:NOK) devices and services business and license its patents received regulatory approval from China, bringing the agreement one step closer to closing. The companies continue expect to finish the deal this month after regulatory delays pushed the closing of the transaction past the end of the first quarter.

The deal has now received approvals from the European Commission, the U.S. Department of Justice and other jurisdictions, Nokia said.

As part of the agreement with the Chinese Ministry of Commerce, Microsoft will continue to make available non-exclusive patent licenses under its existing patent licensing program for Android smartphones. According to Microsoft, Chinese regulators concluded after an investigation that Microsoft holds approximately 200 patent families that are necessary to build an Android smartphone. Microsoft currently collects royalty fees from around two-dozen device makers that use Google's (NASDAQ:GOOG) Android.

In March Bloomberg reported that Google and Samsung Electronics were prodding Chinese regulators to ensure that once the deal closes they would not be forced to pay higher patent-licensing fees. Chinese handset vendors Huawei and ZTE, which rely heavily on Google's Android platform for their smartphone sales, also asked for similar conditions, according to the report, which cited unnamed sources.

"There was an important principle with which MOFCOM (Chinese Ministry of Commerce) approached these discussions from the beginning: any commitments should be focused on how our future conduct might change after we own the Nokia Devices and Services business, and should not impact our licenses signed in the past or historical practices," David Howard, corporate vice president and Microsoft's deputy general counsel for litigation and antitrust, wrote in a company blog post. "It has never been our intent to change our practices after we acquire the Nokia business, so while we disagreed with the premise that our incentives might change in the future, we were happy to discuss commitments on this basis."

Nokia said there had been no request for it to change its patent practices. "The regulatory approval process has involved a thorough review of Nokia's patent licensing practices by several competition authorities around the world," Nokia said in a statement. "During that process, no authority has challenged Nokia's compliance with its FRAND undertakings related to standard-essential patents (licensing on fair, reasonable and non-discriminatory terms) or requested that Nokia make changes to its licensing program or royalty terms."

Despite getting regulatory approval from China, Nokia is still in a dispute with tax authorities in India. It's still not clear whether Nokia's massive 8,000-employee phone factory in India's Tamil Nadu state will be transferred to Microsoft because of the dispute, in which the tax authorities claim that Nokia has avoided paying taxes by wrongfully claiming an exemption on software exports. Nokia has repeatedly said that dispute won't affect the closing of the Microsoft deal.

Once the deal officially closes Microsoft will house a huge hardware business and gain around 33,000 new employees. To perhaps soften the blow to its other Windows Phone hardware partners that might be concerned by the deal, Microsoft said last week it will make Windows Phone, and Windows software for phones and tablets with screens of less than nine inches, free for handset makers to use in their devices. The move could help Microsoft expand its market share, especially in markets such as China and India.

For more:
- see this Nokia statement
- see this Microsoft blog post
- see this Reuters article
- see this WSJ article (sub. req.)

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